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Economic policy-making in a changing environment: the politics of success in Peru vis-à-vis China
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Economic policy-making in a changing environment: the politics of success in Peru vis-à-vis China
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Content
Economic P olicy-Making in a Changing En vironmen t:
The P olitics of Success in P eru vis-à-vis China
b y
Victoria Chonn Ching
A Dissertation Presen ted to the
F A CUL TY OF THE GRADUA TE SCHOOL
UNIVERSITY OF SOUTHERN CALIF ORNIA
In P artial F ulfillmen t of the
Requiremen ts for the Degree
DOCTOR OF PHILOSOPHY
(P olitical Science and In ternational Relations)
Ma y 2021
Cop yrigh t 2021 Victoria Chonn Ching
F or dad 邬金中 , who is not here an ymore;
F or mom 陈洁桃 , who is m y r o c k;
F or Violeta, Virginia, and F ernando, who are pillars of lo v e and strength.
ii
A c kno wledgmen ts
This dissertation w as a journey of self-disco v ery and lo v e. It is one that made me mo v e
around cities, coun tries, and con tinen ts. And without realizing it, it to ok me bac k to where
it all b egan: m y home coun try of P eru. The writing pro cess w as an effort to create bridges
and understand the t w o sides of me that, more often than not, w ere at o dds with eac h other:
the Chinese side and the P eruvian side. While there are still questions left to b e answ ered
in the future, what I ha v e found has giv en me a solid foundation to k eep on building.
And it tak es a whole team–a village–to build an ything. I w ould not b e here without
ev ery one who has b eliev ed in me and supp orted me o v er the y ears. Doing m y Ph.D. w as
getting to the big road. Finding that road to ok man y t wists and turns, and it w as m y family
who w as alw a ys there, ready to pic k me up and redirect me if needed b e. They alw a ys
understo o d: t he man y holida ys w aiting for me to finish a pap er or an assignmen t in the
hotel ro om, the ev en ts I missed b ecause I w as doing fieldw ork somewhere, the exp ensiv e
in ternational phone calls to just sa y hello... In more w a ys than I can coun t, they also
made their o wn sacrifices so I could pursue a future in academia. Their lo v e, patience, and
supp ort ha v e b een infinite, and I w ould ha v e not b een able to con tin ue forw ard without
them. Whatev er I do, wherev er I go, they are m y ro c k.
I met Carol Wise during a conference when I w as w orking in P eru. I recall b eing impressed
b y her abilit y to do an en tire presen tation in Spanish. All that money sp en t in translators
for the ev en t had b een for naugh t. Nev ertheless, I had told her I w as in terested in doing a
Ph.D. and it w as clear from that momen t that she w ould do ev erything she could to help
me ac hiev e this goal. Throughout all these y ears, she has b een a men tor and a friend; she
iii
has b een someone who has fough t for and with me. I am forev er grateful for that. Thank
y ou, Carol, for b eing so kind, supp ortiv e, and encouraging. Thank y ou for b elieving in me.
Gerry Munc k, Josh ua Aizenman, and Jeff Nugen t, thank y ou. F or y our advice, y our
feedbac k, y our patience; for con tin uing to push me b ecause y ou b eliev e I can giv e more. It
w as an honor and a pleasure to ha v e y ou as m y advisors.
My cohort has b een one of the most imp ortan t groups of p eople I ha v e at USC. W e ha v e
shared our struggles and our victories, and I am so incredibly luc ky that I w as able to start
m y journey as a sc holar with them. Jenn Roglà, y our wisdom, strength, and compassion
are just a few of the man y things I admire and lo v e ab out y ou. Y ou ha v e b een a sister, a
confidan te, a c heerleader, and–more often than I w ould lik e to admit–m y p ersonal reminder
of who I am and who I can b e. ‘A lot has happ ened,’ as w e w ould message eac h other
ev ery other da y , and w e made it. Thank y ou for sharing this journey , y our heart, and y our
mind with me. Stephanie Kang, m y K orean ‘little sister’, thank y ou for livi ng with me
during those first t w o y ears of our Ph.D. and for en tertaining those random breakfast and
dinner con v ersations. I kno w no w whom not to call when dealing with spiders, what to
do during a zom bie ap o calypse, and whom I can alw a ys trust and rely on no matter the
o ccasion. I cannot w ait un til w e can enjo y another sha v ed-ice, tea, or coffee together again
(and hop efully not get m y car to w ed or a parking tic k et).
Brian Knafou, I am still impressed b y y our explanation of what a taco is and is not
in Moro cco. That kno wledge aside, thank y ou for seeing what man y cannot and for b eing
suc h a supp ortiv e and caring friend, despite the o ccasional butting of heads due to culinary
disagreemen ts. Y ou are more than just a ‘median v oter’ (I had to k eep the tradition going).
Y o u are also the b est w ork out-buddy one could ask for. Shiming Y ang, sometimes I w onder
ho w m uc h bubble tea a h uman b eing can consume, but our trips on the road (and in other
coun tries) w ould not b e the same without y ou lo oking for a b oba shop. Y our realness w as
in timidating at times, y et I am gra teful for y our kindness and honest y–esp ecially when it
comes to figuring out a pap er’s main question.
iv
Y u-Ting (Alex) Lin, nob o dy will mak e an academic jok e lik e y ou do. I still recall T A-ing
for the first time with y ou and the da ys w e sp en t at the ca v e w e had for an office trying to
rationalize life. Thank y ou for y our insigh tful commen ts as w e sat together in class and the
unin tended h umor y ou brough t while facing aggressiv e monk eys. Y es, those t w o sen tences
do not go together but y ou will understand. I hop e. Y ue (A da) Lin, y ou are suc h a strong
and generous w oman, and I am proud to call y ou m y friend. I am grateful for y our empath y
and wisdom. I am also grateful for Whitney Hua and Suzie Mulesky . Whitney , y our h umor
and wit cannot b e matc hed. Y ou are strong and vulnerable, empathetic and fair. Thank
y ou for the doses of realit y when ev erything seemed bleak. Suzie, y our in telligence and
abilit y to dissect ev ery single argumen t can b e in timidating at times. And while those are
c haracteristics one w ould w an t in a friend, I v alue y our h umilit y , kindness, and op enness as
w ell.
I am also grateful for all m y colleagues at POIR. Therese Anders, y ou will alw a ys b e m y
‘co ding queen and hero. ’ But most imp ortan tly , y ou are the friend I w ould trust and w an t
to b e with if I w ere to b e stranded on a deserted island with no one else in sigh t. Nola
Ha ynes, y our grit and resilience are t w o things I will alw a ys admire ab out y ou. Y et there
is so m uc h more ab out y our b eautiful soul that mak es me so v ery grateful to call y ou m y
friend. Dat Nguy en, thank y ou for reminding me to lo v e m y Latin American side. Thank
y ou for letting me share m y stories, for listening, and for reviewing the bazillion v ersions of
that in tro duction c hapter I am sure y ou (and Brian) ha v e committed to memory b y no w. My
Latin American family at POIR: Nico Alb ertoni, Dani Maag, Mariana Rangel, and Sam uel
Bonilla, thank y ou for y our friendship, y our encouragemen t and supp ort; for all y our lo v e.
Gracias p or los consejos, las tardes de té y café, las (p o cas) no c hes de baile; p or los ánimos
en tregados, p or creer en que p o demos, p or ser unos mara villosos colegas y amigos. Los
quiero.
Anne v an Wijk, m y smart, empathetic, and fello w b eaut y junkie; Steffi Neumeier, the
queen of blun tness; Jo ey Saraceno, m y China-en th usiast turned data master–I see y ou as
v
the impro v ed, mo dern (academic) v ersion of the Three Musk eteers. My gratitude for y our
friendship and encouragemen t. T a ylor Dalton, Hai-V u Phan, Jih yun Shin, Jiun Bang, Sara
Sadh w ani, Jo ey Huddleston, María P érez, Mao Suzuki, Mingmin Y ang, P ongkw an Sa w asdi-
pakdi, Güez Salinas, Ronan F u, and ev ery one else at POIR I ma y ha v e forgotten b ecause
of p ost-dissertation brain, thank y ou for b eing the b est crazy , w eird, and y et w onderful
academic family one could ask for.
I could not con tin ue without thanking and men tioning the administrativ e staff at POIR.
V eridiana Cha v arin, y o u are the pillar and the glue that holds ev erything together in the
POIR program. I b eliev e I am not the only one who b eliev es that y ou mak e ev erything
p ossible. Thank y ou for all y our help and advice, and for also bringing h umanit y and
vulnerabilit y to the madness. My gratitude as w ell for Cath y Ballard, Andrea Leal, Karen
T ang, and Natalie Hart. Thank y ou for doing y our b est to help all studen ts.
I also w an t to thank ev ery one at the Cen ter for In ternational Studies (CIS), the East Asian
Studies Cen ter, and the K orean Studies Institute (KSI) at USC. Muc h of m y fieldw ork and
researc h w ould ha v e not b een p ossible without their financial supp ort.
The A erial House w as a place that allo w ed me to express m y creativit y outside of
academia. My group of ‘flip-flopp ers’ (credit go es to Kris for the term) b ecame the fam-
ily I nev er knew I needed. Anna Cicone, Nic k Zerman, Nicole Iger, Kris Kaiser, Sharon
W u , Deirdra Angelucci, Connie Chan, Cel Sibley , Sheri Ch u, P o o ja Kshirsagar, y ou are all
strong, b eautiful, and amazing p eople. Y ou help ed me realize ho w m uc h I can do while also
reminding me to b e kind to m yself and to listen to m y b o dy . Although some of those 9:00
a.m. Saturda ys w ere painful, it w as a small sacrifice w orth making. I am so grateful to ha v e
all of y ou as part of m y life.
T o Lauren Cok er, the OG aerialist–at least for me, y ou are. T o think that it only
to ok one class in Macro economics and another one in Econometrics for us to find refuge
dangling upside do wn i n the air. Or ma yb e it w as all those hours at the library trying to
find the Lagrangian equation for y et another problem set. T ruly , though, thank y ou. Y our
vi
compassion mo v ed me, and y our calming demeanor at ev en the most stressful times w as the
c hill-pill I needed to sta y grounded. Y ou are a generous, wise soul. Thank y ou for y our
friendship.
Elisa Lynn, I am so grateful for y our friendship and supp ort. Y our kindness and empath y
are some of the things I lo v e and admire ab out y ou. Thank y ou for who y ou are and for
what y ou do. It is h um bling to ha v e suc h a caring friend.
Mark (Y ashar), y ou came in to m y life during v ery c hallenging times. Y ou brough t lo v e
and let me redisco v er what it mean t to b e vulnerable. Thank y ou for bringing comfort and
rationalit y during man y c haotic momen ts. Most imp ortan tly , I am thankful for y our supp ort
when I doubted m yself and fel t lik e quitting. Y ou reminded me that, whatev er decision I
to ok, ev erything w ould still b e oka y .
I cannot forget m y Mic higan family . It has b een o v er a decade since I stepp ed in to a
classro om in Ann Arb or, but this is where I b egan to disco v er China. Before that, it w as part
of the past–m y family’s past–and it only to ok one class with Mary Gallagher to spark m y
in terest to learn more. I will alw a ys sa y that it is b ecause of Mary that I b egan to consider
a path in academia, or at least, in doing researc h on China and its global impact. Thank
y ou for y our advice all those y ears ago when I w as a college and Master’s studen t. I am also
grateful for James Lee, who is not at U of M an ymore, but who b eliev ed I could b ecome a
go o d China exp ert. Nico Ho wson, Christian deP ee, Sh uen-fu Lin, and Henry Kim, they all
con tributed to m y in tellectual gro wth and encouraged me to study a coun try with differen t
ey es.
T o the Johnson and Kleer families in Ann Arb or, I am grateful for all of y ou. Gilda,
Louis, Pho eb e, Jacob, Nak o, and Myriam, thank y ou for letting me b e a part of y our liv es
and for all y our supp ort through the y ears, despite the distance and the time differences.
Y o ur insurmoun table kindness is b oth h um bling and w orth of admiration. Thank y ou. F or
b eing who y ou are and for the lo v e y our freely giv e.
vii
T o the Johnson family in the Upp er P eninsula: I lo v e y ou. Judy , W a yne, Sarah, Katie,
and Anna (m y ‘Cw a w ence’), y our unconditional supp ort and lo v e o v erwhelm me in the b est
w a y p ossible. Thank y ou for op ening y our home, for w elcoming me with so m uc h en th usiasm
and care. F or educating others, for figh ting against discrimination and racism b ecause y ou
do not w an t to see others h urt me. And I guess I should also thank y ou for teac hing me to
ice-fish (at 5:00 a.m. in the middle of a blizzard), cross-coun try sno wb oard, and the man y
w a ys one can slide do wn a sno wy hill using a b o ogie b oard. I am thankful to ha v e y ou in
m y life.
T o T ess deLiefde and Kevin Zura w el, Mic helle Choi, Sara Allo y , Soum y a Rangara jan,
w e ha v e seen eac h other gro w and c hange o v er the y ears, but our friendship has con tin ued
regardless of wherev er w e are. I am fortunate to ha v e y ou as part of m y village.
My friends and colleagues in P eru ha v e also b een an essen tial part of this journey . Kath-
leen Gallagher, thank y ou for sho wing me what I can do. This en tire in tellectual v o y age
w ould ha v e not b een p ossible without y ou. Wherev er I go, I will alw a ys b e thankful for
ha ving y ou as part of m y life. Cyn thia San b orn, m y gratitude for allo wing me to w ork with
y ou, for helping me op en paths I did not kno w ab out. I am grateful for y our insigh t and
y our supp ort.
P atricia Castro Obando and Diana Pita Ro driguez are t w o k ey p eople in P eru-China
relations. Thank y ou for op ening the con v ersation ab out Chinese-P eruvians, for creating
c hannels of comm unication, and for inspiring man y to explore their connections with China.
Thank y ou, as w ell, for receiving me with so m uc h en th usiasm and supp ort whenev er I w as
in China (and P eru!).
I am also indebted to Kevin Gallagher, Bec ky Ra y , Shaun Breslin, June W ang, Bev erly
Lok e, Y unnan Chen, Monica DeHart, Kehan W ang, Juan Carlos Capuña y , José T am, Carlos
A quino, Jie Guo, Shoujun Cui, and ev ery one in the U.S., China, and P eru who shared their
kno wledge and for their thorough commen ts and feedbac k in differen t pro jects and at v arious
conferences.
viii
“Y ou can b e whatev er y ou w an t to b e,” m y father once told m y siblings and I, when
w e o v erheard someone tell him it w as not w orth it to in v est in his daughter’s education–a
farmer’s daugh ter. I w as the first p erson in the family to graduate from college, but cancer
to ok him mon ths b efore I receiv ed m y diploma. He nev er understo o d what I w as studying;
sometimes he w ould sa y he w as afraid that I w ould forget who I am. Earlier I wrote that this
w as also a journey of lo v e. And it has b een. W riting ab out P eru and China w as, in a w a y , a
reflection of m y paren ts’ journeys, their sacrifices, their hard-w on victories–what they built
as they mo v ed across the w orld. As I attain the title of Do ctor, I thank and honor them for
allo wing me to b e: a w oman of Hakka descen t who grew up in the P eruvian Amazon and
who no w has a Ph.D.
ix
T able of Con ten ts
Dedication ii
A c kno wledgmen ts iii
List Of T ables xii
List Of Figures xiv
Abstract xvi
Chapter 1: A Changing In ternational Economic System 1
1.1 Wh y Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 A Snapshot of China in Latin America in the 20th Cen tury . . . . . . . . . . 12
1.3 The “China Bo om” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.4 Determining Success in China-Latin America Ties . . . . . . . . . . . . . . . 19
1.5 P eru: An Example of the P olitics of Success . . . . . . . . . . . . . . . . . . 22
1.6 The P ath F orw ard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Chapter 2: The Dragon’s En try in to Latin America 34
2.1 Latin America as a P assiv e Agen t . . . . . . . . . . . . . . . . . . . . . . . . 35
2.2 Better Late than Nev er: Is Latin America Stepping Up? . . . . . . . . . . . 40
2.3 China’s En try in to Latin America . . . . . . . . . . . . . . . . . . . . . . . . 45
2.3.1 First Encoun ters and Meeting (T emp o rary) Allies . . . . . . . . . . . 52
2.4 Defining Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
2.4.1 Areas of Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Chapter 3: The P olitics of Success in Latin America 65
3.1 T rade Success with China . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
3.2 Success in In v estmen t with China . . . . . . . . . . . . . . . . . . . . . . . . 87
3.3 Lo oking for Success in Strategic P artnerships with China . . . . . . . . . . . 96
Chapter 4: P eru as a Success Story 101
4.1 F rom Sunk en Boat to Regional Economic Leader . . . . . . . . . . . . . . . 102
4.1.1 F ujimori: Scattered A uthoritarian Go v ernmen t and the Push for Lib-
eralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
x
4.2 New Cen tury , New Coun try . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Chapter 5: The Road to T rade Re-op ening 126
5.1 Old New comer: Renewing the Relationship with China . . . . . . . . . . . . 135
5.2 The FT A with China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Chapter 6: A New In v estor in T o wn
1
154
6.1 Chinese in v estmen ts in Latin America . . . . . . . . . . . . . . . . . . . . . 156
6.2 The Reop ening of P eru’s In v estmen t Sector . . . . . . . . . . . . . . . . . . 163
6.3 Chinese FDI: A Slo w-Simmering Gro wth . . . . . . . . . . . . . . . . . . . . 172
6.3.1 Reforming the Extractiv e Sector . . . . . . . . . . . . . . . . . . . . 179
6.3.2 V arying Learning Curv es . . . . . . . . . . . . . . . . . . . . . . . . . 183
Chapter 7: Building a Strategic P artnership with China 190
7.1 Upgrading Diplomatic P artnerships with China . . . . . . . . . . . . . . . . 195
7.2 Successful to What Exten t? . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
7.3 Existing Issues and F uture Researc h . . . . . . . . . . . . . . . . . . . . . . 204
Reference List 206
1
The title is inspired b y Gallagher et al. (2012), “The New Banks in T o wn: Chinese Finance in Latin
America. ”
xi
List Of T ables
1.1 GDP and GDP p er capita Ann ual P ercen tage Gro wth Rates for Selected Latin
American and Caribb ean Coun tries (%), 1 990-2018 . . . . . . . . . . . . . . 5
1.2 Date of Establishmen t of Diplomatic Relations b et w een Selected Latin Amer-
ican Coun tries and China . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.3 Areas of Success in Latin America vis-à-vis China . . . . . . . . . . . . . . . 22
2.1 Latin America’s Economic T ra jectory , 1910-2000 . . . . . . . . . . . . . . . . 39
2.2 China’s T op 5 Latin American Imp ort P artners, 1992-2018 . . . . . . . . . . 47
2.3 China’s T op 5 Latin American Exp ort P artners, 1992-2018 . . . . . . . . . . 48
2.4 China and the United States A v erage Shares (%) as Latin America’s Imp orts
and Exp orts P artners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2.5 First Official Exc hanges b et w een Selected Coun tries in Latin America and
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2.6 Latin America’s Exp orts Pro duct Share (%), 1990-2015 . . . . . . . . . . . . 61
2.7 Latin America’s Exp orts Pro duct Share to China (%), 1990-2015 . . . . . . 61
3.1 Measuring Success in Selected LA C Coun tries with China . . . . . . . . . . 68
3.2 T rade Balance b et w een Select Latin American Coun tries and China, 2000-2010 71
3.3 T rade Balance b et w een Select Latin American Coun tries and China, 2011-
2018 (con tin ued) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
3.4 Comparison of China FT A Dev elopmen t b et w een Chile, P eru, and Costa Rica 84
3.5 T ariff Elimination Sc hedule for Chinese Imp orts to Chile, P eru, and Costa
Rica (% of total Chinese imp orts) . . . . . . . . . . . . . . . . . . . . . . . . 86
3.6 T ariff Elimination Sc hedule for Exp orts from Chile, P eru, and Costa Rica to
China (% of total exp orts) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
3.7 Select LA C Coun tries with BRI MOUs with China . . . . . . . . . . . . . . 90
xii
3.8 Chinese In v estmen ts in Select Coun tries in LA C, 2000-2019 . . . . . . . . . . 93
3.9 China’s partnerships in Latin America . . . . . . . . . . . . . . . . . . . . . 98
4.1 Inflation (Consumer Prices) in Selected Coun tries in Latin America (ann ual
%), 1990-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
4.2 T ariff Rates in Selected Coun tries in Latin America (% all pro ducts), 1990-2018 112
4.3 New Ministries under F ujimori . . . . . . . . . . . . . . . . . . . . . . . . . . 115
4.4 New Agencies under F ujimori . . . . . . . . . . . . . . . . . . . . . . . . . . 116
4.5 New Agencies under F ujimori, part I I . . . . . . . . . . . . . . . . . . . . . . 117
4.6 Summary of P eru’s Economic Indicators . . . . . . . . . . . . . . . . . . . . 123
5.1 P eru’s T rade P erformance, 1995-2018 . . . . . . . . . . . . . . . . . . . . . . 130
5.2 P eru’s Economic Agreemen ts . . . . . . . . . . . . . . . . . . . . . . . . . . 132
5.3 China’s Exp orts to P eru (%), 1990-2018 . . . . . . . . . . . . . . . . . . . . 146
5.4 P eru’s Exp orts to China (%), 1990-2018 . . . . . . . . . . . . . . . . . . . . 148
5.5 P eru’s T op 5 Imp ort P artners in 2018 . . . . . . . . . . . . . . . . . . . . . . 151
5.6 P eru’s T op 5 Exp ort P artners in 2018 . . . . . . . . . . . . . . . . . . . . . . 152
6.1 Coun try Share of FDI Announcemen ts in Latin America b y Sector, 2005-2019 162
6.2 P eru’s Bilateral In v estmen t T reaties (BIT s) . . . . . . . . . . . . . . . . . . . 167
6.3 Selected Chinese In v estors in P eru . . . . . . . . . . . . . . . . . . . . . . . 174
6.4 Selected Chinese In v estors in P eru (con tin ued) . . . . . . . . . . . . . . . . . 175
7.1 Selected P artnerships with China in Latin America . . . . . . . . . . . . . . 193
7.2 Comparing the Degrees of Success of Selected LA C Coun tries with China . . 201
xiii
List Of Figures
1.1 Latin America’s Exp orts Share (%), 1990-2018 . . . . . . . . . . . . . . . . . 7
1.2 Latin America’s Imp orts Share (%), 1990-2018 . . . . . . . . . . . . . . . . . 8
1.3 Latin America’s Exp orts Share to China, 1990-2018 (% total share b y group) 17
2.1 Latin America’s GDP Gro wth Rate (%), 1980-2015 . . . . . . . . . . . . . . 44
2.2 China and the United States as Latin America’s Imp orts P artners (%), 1990-
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2.3 China and the United States as Latin America’s Exp orts P artners (%), 1990-
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.1 T rade Balance of Select Latin American Coun tries with China, 2000-2018
(US$ Thousand) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.2 T otal T rade as a P ercen tage of GDP , 2000-2017 . . . . . . . . . . . . . . . . 76
3.3 Costa Rica’s T rade Balance with China, 2000-2018 (US$ Thousand) . . . . . 81
3.4 Chile’s T rade Balance with China, 2000-2018 (US$ Thousand) . . . . . . . . 82
3.5 P eru’s T rade Balance with China, 2000-2018 (US$ Thousand) . . . . . . . . 83
4.1 P eru’s Public External Debt (% of GDP), 1985-2019 . . . . . . . . . . . . . 105
4.2 P eru’s Gro wth Rate (Ann ual %), 1985-2019 . . . . . . . . . . . . . . . . . . 106
4.3 P eru’s T otal Unemplo ymen t (% of T otal Lab or F orce), 1985-2019 . . . . . . 107
4.4 P eru’s T ariff Rates, 1993-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . 113
4.5 Structure of P eru’s Executiv e Branc h . . . . . . . . . . . . . . . . . . . . . . 121
4.6 P eru’s Economic T ransformation, 1985-2020 . . . . . . . . . . . . . . . . . . 124
5.1 P eru’s T rade-to-GDP Ratio, 1995-2019 . . . . . . . . . . . . . . . . . . . . . 129
5.2 Indices of Primary Commo dit y Prices . . . . . . . . . . . . . . . . . . . . . . 139
5.3 Indices of Non-F uel Primary Commo dit y Prices . . . . . . . . . . . . . . . . 139
xiv
5.4 P eru’s T op 5 Imp orts from China (%), 1990-2018 . . . . . . . . . . . . . . . 147
5.5 P eru’s T op 5 Exp orts to China (%), 1990-2018 . . . . . . . . . . . . . . . . . 149
5.6 P eru’s Imp ort P artners in 2018 (%) . . . . . . . . . . . . . . . . . . . . . . . 151
5.7 P eru’s Exp ort P artners in 2018 (%) . . . . . . . . . . . . . . . . . . . . . . . 153
6.1 New FDI Announcemen ts in Latin America b y Coun try of Origin, 2005-2019 158
6.2 New FDI Announcemen ts in Latin America b y Coun try of Origin b y P erio d,
2005-2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
6.3 New FDI Announcemen ts in Latin America b y Sectors, 2005-2019 . . . . . . 160
6.4 P eru’s FDI Inflo ws, 1995-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . 168
6.5 P eru’s T rade and FDI, 1995-2018 . . . . . . . . . . . . . . . . . . . . . . . . 169
6.6 Chinese Mining In v estmen ts in Latin America, 2000-2019 . . . . . . . . . . . 177
xv
Abstract
This dissertation fo cuses on China’s rapid eme rgence as a main economic pla y er in Latin
America in the 21st cen tury and ho w it has impacted smaller economies in the region. In
m y analysis, I sho w that, con trary to con v en tional narrativ es that c haracterize these smaller
coun tries as passiv e pla y ers when engaging in asymmetric exc hanges with an economic b ehe-
moth lik e China, they can actually succeed in establishing viable w orking relationships and
b eneficial deals with their more p o w erful coun terparts. Using a case study of t he P eru-China
relationship, I demonstrate that P eru has b een successful in o v ercoming its asymmetries with
China b y adhering to institutional norms that ha v e b een created to resp ond to global mar-
k ets. While P eru’s abundance of agricultural and mining resources has b een the basis for
its strong Sino-P eruvian economic relationship, P eru’s negotiation of a bilateral free trade
agreemen t with China and its higher lev els of Chinese foreign in v estmen t are indicativ e of the
coun try’s o wn exp erience in effectiv ely coping with ma jor in ternational economic c hanges in
the last t w o decades, whic h has demanded p olicy learning, flexibilit y , and adaptabilit y . In
other w ords, P eru’s abilit y to na vigate its exc hanges with China w as already supp orted b y
economic structures that w ere created for the coun try’s insertion in to in ternational mark ets.
xvi
Chapter 1
A Changing In ternational Economic System
The end of the 2000s mark ed a new era for man y Latin American and Caribb ean (LA C)
coun tries. Unlik e their more dev elop ed coun terparts, the effects of the 2008-09 global fi-
nancial crisis (GF C) on most of LA C only temp orarily disturb ed the gro wth that had b een
underw a y in the region since the early 2000s. Latin America seemed to finally b e on its
w a y to w ard sustained economic gro wth and p olitical stabilit y . Ho w ev er, during the 2000s,
the global econom y w as all the while exp eriencing its o wn transformation: the emergence of
China as a formidable economic pla y er.
With the establishmen t of the P eople’s Republic of China (PR C) in 1949, the Chinese
econom y w as closed to w orld mark ets and th us imm une to the p ost-W orld W ar I I lib er-
alization p olicies that a gro wing n um b er of W estern coun tries w ere em bracing under the
Bretton W o o ds system. Nev ertheless, the end of the 1970s brough t dramatic c hange for the
Chinese p olitical econom y . F aced with inflation and economic stagnation, China b egan a
reform pro cess in 1978 that w ould render it one of the w orld’s leading economies in less than
fort y y ears. As China b ecame a mem b er of the W orld T rade Organization (WTO) in 2001,
the coun try w as already transforming global t rade. F or some dev eloping coun tries, China
b ecame a source of c heap consumer go o ds as w ell as sizable inflo ws of in v estmen t. China also
b ecame an imp ortan t driv er for economic gro wth in less dev elop ed areas suc h as sub-Saharan
Africa. In fact, trade with China con tributed to most of this sub-region’s gro wth, esp ecially
during the economic do wn turn of 2008-09 ( Chen and Nord , 2017 ).
1
Giv en this scenario, sc holars b egan to more closely scrutinize China’s role in the global
econom y . F or b oth the dev elop ed and the dev eloping coun tries, China has transformed not
only trade but, more recen tly , in v estmen t and financial structures. A ccording to A utor et al.
( 2016 ), for example, when studying the economic impact of China, one of the k ey c hallenges
is to determine who are the winners, who are the losers, b y ho w m uc h, and under what
circumstances. In the dev eloping w orld, the reception to China’s increased presence since
the early 2000s has b een mixed. On the one hand, China has b een an economic con tributor
to man y coun tries in the region as a top exp ort destination and a more flexible source of
financing and lending. On the other hand, China is also view ed as a coun try with predatory
in terests as it lev erages its economic pro w ess to influence p olicy-making and push its p olitical
agenda on to other coun tries.
My dissertation fo cuses on this new dilemma augured b y the rise of China in the in ter-
national economic system and analyzes the c hallenges that dev eloping coun tries ha v e faced
in in teracting with China. A ccording to con v en tional wisdom, the differences b et w een an
economic b ehemoth suc h as China and those w eak er and smaller states with whic h it in ter-
acts constitutes an unequal relationship in whic h Chinese in terests dominate o v er those of its
coun terparts. In m y dissertation, I argue that this is not alw a ys the case, as some dev eloping
coun tries ha v e m et wit h succ ess i n deali ng with China. The core questions I ask are: What
constitutes success in these instances? What has determined the success of a giv en coun try
in dealing with China? Ho w can w e explain differences in coun tries’ resp onses in terms of
trade, mainly , but also in v estmen t deals in v olving China? More broadly sp eaking, what
factors ha v e made certain dev eloping economies more resilien t than others in adjusting to
this ma jor shift in the in ternational p olitical econom y?
T o answ er these questions, I fo cus on Latin America
1
as m y regional setting and P eru as
m y main case study . I c hose P eru b ecause of its uniformly fa v orable outcomes in dealing with
1
In this dissertation, I use “Latin America” and “Latin America and the Caribb ean” in terc hangeably to
refer to this region unless indicated otherwise. F or instance, when referring solely to the southern part of
the region, I use South America.
2
China across sectors, pro jects, and within sp ecific issues areas. P eru’s success on this fron t
is a reflection of the ma jor reforms the coun try has undertak en o v er the past three decades
despite p olitical instabilit y and uncertain t y during this same time p erio d. This means that
China is not necessarily going to mak e or break the coun try’s ac hiev emen ts. P eru’s abilit y
to na vigate its exc hanges with the Asian gian t w as already supp orted b y domestic structures
and institutions that had to adapt and resp ond to global mark ets.
The coun try’s lib eralization in the 1990s demanded the mo dernization of the state, whic h
had b een highly in terv en tionist and inefficien t in previous decades. By letting the mark et
lead, P eru b egan to eliminate trade barriers and e xpand its commercial partnerships re-
gionally and globally , making in ternational trade an imp ortan t comp onen t of the coun try’s
national dev elopmen t stra tegy ( Dancourt , 1999 ; Morris Guerinoni and Galarcep , 2014 ). This
pro cess in v olv ed the creation of more professional indep enden t en tities that could co op erate
with the priv ate sector, particularly in industries that w ere usually managed and protected
b y the state. P eru con tin ues to struggle with a w eak legal system and deficien t public services
that underline deep-ro oted so cio-economic inequalit y among the p opulation. But the strides
the coun try has made since the 1990s ha v e pro vided the conditions for P eru to consolidate
its status as a gro wing middle-income economic pla y er. The strengthening of ties with China
and the establishmen t of an FT A with this Asian coun try – P eru’s second most imp ortan t
one at the time – are milestones in P eru’s efforts to b ecome a main economic h ub for Asia in
South America ( Chan , 2019 ). In short, P eru’s resp onse to China’s global economic rise is a
reflection of its o wn dev elopmen t pro cess and ho w this Latin American coun try is na vigating
a c hanging global economic en vironmen t.
In this c hapter, I pro vide an o v erview of the China-Latin America relationship. This
includes section one, where I explain wh y Latin America is the regional bac kground of m y
researc h. Although Latin America has exp erienced differen t cycles of economic and debt
crises as w ell as p erio ds of military rule, the region main tained steady gro wth rates during the
first financial crisis of the t w en t y-first cen tury . With the economic rise of China and seemingly
3
w eak ening ties with the United States, Latin America offers a v ariet y of p olicy resp onses
in the curren t c hanging economic en vironmen t. Section t w o pro vides a short o v erview of
China’s rising presence in Latin America in the t w en tieth cen tury , and section three explains
the phenomenon of the “China b o om” in Latin America and its economic significance to
this region. Section four briefly delv es in to m y main argumen t in this dissertation: that
economically smaller coun tries can still obtain b enefits when in teracting with m uc h larger
economic pla y ers. P articularly with China, the success or failure of a smaller coun try lik e
P eru in its bilateral in teractions is not solely based on the actions of the Asian economic
gian t. In section four I elab orate on P eru as an example of the p olitics of success when
dealing with China.
1.1 Wh y Latin America
F o llo wing the debt crisis of the 1980s, Latin America b egan its gradual return to global
mark ets after three d ecades of in w ard-lo oking dev elopmen t. Most coun tries in the region
could no longer dela y in carrying out crucial macro-economic reforms. The complex c hallenge
w as to strengthen existing economic institutions, undertak e structural adjustmen ts, and
in tro duce p olicies that w ere more mark et-orien ted ( Bértola and Ocamp o , 2012 ; Bulmer-
Thomas , 2003 ; De Gregorio , 2013 ; Kline et al. , 2018 ). The results of these reforms w ould not
b e felt un til the 2000s, when coun tries in the region w ere able to ac hiev e lo w inflation, attain
steady economic gro wth, and increase trade and in v estmen t, all of whic h w as accompanied
b y a widespread transition to demo cratic rule. Latin America w as finally able to sho w case
robust economic p erformance with gradual increases in GDP and p er capita gro wth at the
regional lev el, as w ell as within individual coun tries. As observ ed in T able 1.1, the most
buo y an t regional ann ual gro wth rates o ccurred b et w een 2005 and 2010, when these surpassed
global lev els and LA C’s o wn historic record of gro wth. In co un tries lik e Argen tina, P eru,
and Urugua y , a v erage ann ual rates w ere ev en higher.
4
T able 1.1: GDP and GDP p er capita Ann ual P ercen tage Gro wth Rate s for Selected Latin American and Caribb ean Coun tries
(%), 1990-2018
GDP Ann ual % GDP p er capita Ann ual %
Coun try or Area 1990 1995 2000 2005 2010 2015 2018 1990 1995 2000 2005 2010 2015 2018
W orld 2.91 3.03 4.39 3.87 4.28 2.86 2.97 1.15 1.49 3.03 2.59 3.04 1.67 1.93
Latin America 0.35 1.52 3.79 4.25 5.84 -0.36 0.50 -1.49 -0.16 2.29 2.95 4.76 -0.94 0.63
Argen tina -2.47 -2.85 -0.79 8.85 10.12 2.73 -2.48 -3.87 -4.03 -1.87 7.73 9.30 1.63 -3.47
Bolivia 4.64 4.68 2.51 4.42 4.13 4.86 4.22 2.45 2.54 0.54 2.57 2.42 3.28 2.75
Brazil -3.10 4.42 4.39 3.20 7.53 -3.55 1.12 -4.84 2.75 2.91 2.03 6.52 -4.35 0.53
Chile 3.33 8.93 5.33 5.74 5.84 2.30 4.02 1.65 7.31 4.09 4.65 4.75 1.11 2.59
Colom bia 4.28 5.20 2.92 4.71 4.35 2.96 2.57 2.25 3.29 1.29 3.30 3.26 1.76 1.02
Costa Rica 3.55 4.12 3.83 3.87 4.95 3.63 2.63 0.88 1.58 1.82 2.41 3.65 2.51 1.62
Cuba -2.95 2.46 5.91 11.20 2.39 4.43 2.25 -3.80 1.99 5.52 11.09 2.39 4.27 2.26
Dominican Republic -5.45 5.69 4.66 9.43 8.34 6.93 6.98 -7.25 3.85 3.08 7.95 7.02 5.72 5.83
Ecuador 3.68 2.25 1.09 5.29 3.52 0.09 1.38 1.26 0.05 -0.81 3.54 1.89 -1.51 -0.39
El Salv ador 4.83 4.73 1.13 2.71 2.10 2.39 2.54 3.45 3.49 0.39 2.23 2.11 1.91 2.02
Guatemala 3.10 4.95 3.61 3.26 2.87 4.14 3.15 0.73 2.57 1.27 0.90 0.66 2.03 1.15
Haiti 1.04 9.89 0.87 1.81 -5.49 1.21 1.48 -0.97 7.88 -0.86 0.16 -4.60 -0.16 0.19
Honduras 2.79 6.19 7.29 6.05 3.73 3.84 3.75 -0.12 3.21 4.39 3.55 1.65 2.05 1.98
Jamaica 4.20 2.35 0.88 0.89 -1.46 0.92 1.94 3.49 1.35 0.04 0.34 -1.97 0.37 1.45
Mexico 5.18 -6.29 4.94 2.31 5.12 3.29 2.14 3.20 -7.83 3.44 0.87 3.62 2.01 0.99
Nicaragua -0.05 5.91 4.10 4.28 4.41 4.79 -3.82 -2.21 3.79 2.49 2.87 3.00 3.43 -5.15
P anama 8.09 1.75 2.71 7.19 5.83 5.73 3.68 5.85 -0.31 0.71 5.23 3.98 3.94 1.94
P aragua y 4.12 6.82 -2.31 2.13 11.14 3.08 3.68 1.39 4.34 -4.27 0.49 9.65 1.70 2.35
P eru -4.98 7.41 2.69 6.29 8.33 3.25 3.98 -6.95 5.43 1.21 5.36 7.46 1.96 2.21
T rinidad and T obago 1.51 3.81 6.90 6.21 3.32 1.82 -0.25 0.82 3.42 6.63 5.69 2.76 1.23 -0.66
Urugua y 0.29 -1.44 -1.93 7.46 7.80 0.37 1.62 -0.38 -2.15 -2.28 7.45 7.49 0.03 1.25
V enezuela 6.47 3.95 3.69 10.32 -1.49 -6.22 -19.62 3.94 1.79 1.74 8.49 -2.91 - -
Source: W orld Dev elopmen t Indicators (WDI).
5
Ho w ev er, Latin America remains dep enden t on some of the factors that stalled its
gro wth in the past, namely , the disprop ortionate exp ort of commo dities and primary ex-
p orts ( Bulmer-Thomas , 2003 ; Bárcena et al. , 2018 ). F or instance, recen t data from the
W orld In tegrated T rade Solution (WITS) indicates that 29 p ercen t of the region’s total
exp orts to the w orld in 2017 consisted of ra w materials, follo w ed b y capital go o ds, whic h
accoun ted for a total exp ort share of 26.4 p ercen t. The exp ort of in termediate go o ds–whic h
are pro ducts usually used to man ufacture final go o ds–sto o d at appro ximately 21 p ercen t,
and consumer go o ds at 22.7 p ercen t of total Latin American exp orts. This con trasts with the
region’s exp ort profile in 1990, when the exp ort of in termediate go o ds (33 p ercen t) and ra w
materials (32.5 p ercen t) w as nearly equal. This shift in the region’s exp ort profile b et w een
1990 and 2017 can b e at least partly explained b y China’s rapid industrialization and its
urgen t demand for natural resources to fuel this dev elopmen t mo del.
Figure 1.1 sho ws that ra w material exp orts started mo ving up w ard in appro ximately
2000, when commo dit y prices increased due to heigh tened Chinese demand. This is the
p erio d during whic h the gap b et w een ra w material exp orts and in termediate go o ds exp orts
b egan to increase, widening ev en more b y 2014. By 2015, the distance b et w een these t w o
categories of go o ds b egan to shrink as Chinese demand b ecame partially saturated. The
drop in regional exp ort v alues and sluggish trade rates o v erall mark ed the end of the decade-
long commo dit y b o om for Latin America. China’s p ost-b o om economic restructuring to w ard
services and high-tec h, and its slo wing gro wth rate, also affected regional and global mark ets.
F o r Latin America, this mean t an abrupt drop in economic gro wth, esp ecially for coun tries
lik e Argen tina and Brazil that had thriv ed on commo dit y exp orts to China. Ho w ev er, it is
w orth noticing that the trade of in termediate go o ds has remained constan t since 2000, with
total shares ranging b et w een 20 and 22 p ercen t. Similarly , the exp ort share of capital go o ds
from Latin America to the w orld pic k ed up in the w ak e of the 2008-09 global financial crisis
(GF C), equaling ra w material exp orts in 2016.
6
Figure 1.1: Latin America’s Exp orts Share (%), 1990-2018
Source: W orld In tegrated T rade Solutions (WITS)
7
In terms of imp orts, regional trends for capital go o ds, in termediate go o ds, and consumer
go o ds ha v e remained basically unc hanged (see Figure 1.2). Ov erall, these trends reflect
the region’s lac k of industrial and tec hnological dynamism. Latin America’s man y efforts
to dev elop a stronger man ufacturing and industrial base ha v e simply fallen short. While
the resilience of man y coun tries in the region during the GF C and its aftermath gener-
ated optimism ab out Latin America’s prosp ects as an emerging region, p olitical instabilit y
and uncertain t y ha v e reviv ed the same concerns ab out stagnan t gro wth and dev elopmen t
that ha v e haun ted the region throughout the past cen tury . China’s transformation in to an
economic p o w er con tin ues to b e a daun ting c hallenge.
Figure 1.2: Latin America’s Imp orts Share (%), 1990-2018
Source: W orld In tegrated T rade Solutions (WITS)
As previously men tioned, China’s large demand for primary pro ducts led to a greater
fo cus on the exp ort of natural resources for man y Latin American coun tries. During the
8
1990s and the first decade of the 2000s, exp orts from the region’s largest econom y , Brazil,
w ere dominated b y in termediate go o ds, with shares close to 40 p ercen t. By the mid-2000s,
the exp ort share of in termediate go o ds w as less than 30 p ercen t, and b y 2015, ra w mate-
rials dominated Brazil’s exp orts to the w orld. F or a n um b er of sc holars and p olicymak ers,
this c hange in Brazil’s exp ort profile w as represen tativ e of some of the risks of closer trade
in tegration with China. In addition, the rise of primary exp orts against a flo o d of Chinese
man ufactured imp orts has in v ok ed protectionist p olicy resp onses to w ard China, with Ar-
gen tina, Brazil, and Mexico filing n umerous an ti-dumping complain ts against China at the
W orld T rade Organization (WTO).
Ironically , it w as the exp ort of primary resources that partially help ed the region w eather
the effects of the GF C. F a v orable external conditions, whic h included high commo dit y prices
driv en b y Chinese demand, enabled all but Costa Rica and Mexico to enjo y trade surpluses
b efore the GF C hit ( De Gregorio , 2013 ; Wise , 2020 ). Other factors, suc h as b etter in tra-
regional mark et access as w ell as impro v ed financial and monetary structures, also pla y ed
a role ( De Gregorio , 2013 ). Y et ev en as coun tries in the region made efforts to dev elop
and strengthen their man ufacturing and industrial sectors, commo dit y exp orts remained
an engine of gro wth. As suc h, the exp ort profile of eac h coun try has b een defined b y its
natural resource endo wmen ts ( Bulmer-Thomas , 2003 ) and b y globa l demand ( Riedel , 1984 ).
While some sc holars ha v e cast Latin America’s economic reliance on natural resources as a
form of dep endency , this is part of the region’s comparativ e adv an tage. Of course, this do es
not excuse the lac k of sustainable p olicies and strategies to impro v e pro ductivit y , dev elop
tec hnology , and pro duce go o ds with higher v alue added–something with whic h the region
has constan tly struggled.
Nev ertheless, the region’s w ealth in natural resources has also b een one k ey factor in the
establishmen t of trade ties with nonregional actors. Suc h is the case in China-Latin American
relations. As bilateral exc hanges across the P acific increased exp onen tially , trade b ecame
the foundation of the China-Latin America relationship in the past t w o decades. Moreo v er,
9
a series of diplomatic agreemen ts in the form of “strategic partnerships” emerged with the
exp ectation that they w ould help deep en these expanding bilateral ties; ho w ev er, these ha v e
not alw a ys led to a pattern of more div ersified or b eneficial exc hange with China. That
said, in m y dissertation I argue that when accompanied b y adequate p olicies and reforms,
w ealth in natural resources can create incen tiv es to expand, mo dernize, and div ersify the
bask et of pro ducts that could b e exp orted to differen t trade partners. F or Latin America,
the c hallenge has not b een whether the region should or should not sell primary pro ducts
to other larger partners. Rather, the constan t task has b een to add v alue to the kinds of
primary pro ducts that are b eing traded. When trading with China, only a select n um b er
of coun tries has managed to gradually expand the range of pro ducts they can offer, hence
adding more flexibilit y and negotiation space in their trade relations. This is b orne out b y
the v ariation in ties that Latin American coun tries ha v e built with this new economic p o w er.
V ariet y in the relationships b et w een Latin America and the Caribb ean (LA C) coun tries
and China is also reflected in the w a y in whic h these coun tries ha v e resp onded to China’s
en try in to the region. In 2015, the Comm unit y of Latin American and the Caribb ean States
(CELA C) issued collectiv e statemen ts w elcoming Chinese in v estmen ts and an expansion of
cross-P acific trade, y et for man y states, relations with other large coun tries also shap ed these
resp onses. One salien t fact in this case is the region’s longstanding b ond with the United
States. But despite LA C’s geographic lo cation within the U.S. sphere of influence, China’s
gro wing presence has increasingly rendered it an economic alternativ e to Latin America’s
northern neigh b or. Moreo v er, aside from trade, China has b ecome a new additional source
of capital and financing, lending billions of dollars to some Latin American coun tries through
its t w o big p olicy banks–the China Dev elopmen t Bank (CDB) and the China Exp ort-Imp ort
Bank.
In 2010 China had already len t more to the region than three of the ma jor W estern
financial institutions together–W orld Bank, the In ter-American Dev elopmen t Bank, and the
United States Exp ort-Imp ort Bank ( Gallagher et al. , 2012 ). It is estimated that since 2005,
10
these Chinese p olicy banks ha v e len t o v er US$ 140 billion to select Latin American coun tries.
But not ev ery one sees this as a p ositiv e trend, as China has also b een accused of b ecoming a
new kind of colonizer in the region (see Larmer , 2017 ). One w orry has b een China’s seeming
pressure on coun tries to recognize some of its foreign p olicies in exc hange f or b etter economic
and financial deals. Y et, these arrangemen ts are not necessarily zero sum and, particularly
for Latin America, what is k ey are the strategies some LA C coun tries ha v e form ulated to
in teract with more p o w erful economic pla y ers.
In an article I wrote with Carol Wise on the p olitical econom y of China’s presence
in Latin America since 2000, w e classify the cross-P acific relationship in to three clusters:
coun tries that negotiated bilateral free trade agreemen ts (FT As) with China (Chile, Costa
Rica, and P eru), coun tries with complemen tary comparativ e adv an tage with China but w eak
institutions to guide the relationships (Argen tina and Brazil), and a coun try lik e Mexico with
strong exp ort similarities with China and th us increased tensions in bilateral ties ( Wise and
Chonn Ching , 2018 ). This means that some ties ha v e b een more constructiv e than others,
th us highligh ting the abilit y of some coun tries to balance their national economic goals
and in terests with their foreign economic p olicy . In his pioneering w ork, Baldwin terms
this as e c onomic state cr aft , or more sp ecifically , the strength of a giv en coun try’s economic
institutions
2
( Baldwin , 1985 ), broadly sp eaking.
T ak e the examples of Chile and P eru. Within the region, the former w as the first to sign a
bilateral FT A with China, and the latter w as the first to sign a comprehensiv e bilateral FT A
with China in 2005. Con v ersely , Brazil–the largest econom y in the region–has not b een able
to resolv e man y of its trade conflicts with China due in part to its mem b ership in the Southern
Cone Common Mark et (MER COSUR), whic h requires the consensus and participation of all
four mem b er-states (Argen tina, Brazil, P aragua y , and Urugua y).
3
Brazil’s relationship with
China differs from its regional coun terparts in that it is the recipien t of the highest amoun t of
2
F urther details are pro vided in section 4.
3
V enezuela w as admitted to the blo c in 2012; ho w ev er, it w as later susp ended from MER COSUR in 2017
when the coun try succum b ed to authoritarian rule.
11
Chinese in v estmen t, but bilateral ties b et w een the t w o nations con tin ue to fluctuate b et w een
friendly and tense. In short, when examining the dynamics b et w een less adv anced economies
and a new economic p o w er lik e China, Latin America pro vides comp elling insigh ts on ho w
coun tries can ac hiev e some gains when facing this East Asian b ehemoth.
1.2 A Snapshot of China in Latin America in the 20th
Cen tury
In the previous section I suggested that a n um b er of Latin American coun tries w ere able
to establish b eneficial economic arrangemen ts and in teractions with China during the first
decade of the 21st ce n tury .
4
Most analyses of this relationship ha v e in fact fo cused on this
p erio d giv en the seemingly sudden and rapid en try of China in the region. Ho w ev er, it is
w orth considering earlier in teractions with the P eople’s Republic of China (PR C) to elucidate
ho w curren t ties ha v e ev olv ed for some coun tries and deteriorated for others. On the latter
scenario, Mexico is an in teresting case in p oin t. A longer-term analysis sho w cases the abilit y
of dev eloping coun tries to adjust and adapt to c hanges in the in ternational economic system
and the phenomenon of China’s rapid ascendance.
Exc hanges b et w een Latin America and China w ere sparse un til the establishmen t of the
PR C under the leadership of the Chinese Comm unist P art y (CCP) in 1949. After y ears
of civil w ar and breaking a w a y from imp erial rule, the CCP sa w the coun try as ha ving
more in common with dev eloping nations in Africa, Asia, and Latin America. Y et China
remained diplomatically isolated from the rest of the w orld and the CCP fo cused mainly on
forging p eople-to-p eople relations with those in friendly dev eloping coun tries. These ties w ere
p olitical, cultural, and commercial, suc h as the willingness of wheat pro ducers in Argen tina
and Mexico to sell grains to the PR C as a result of the dire grain shortages inflicted b y Mao
Zedong’s Great Leap F orw ard in the early 1960s.
4
This section dra ws on Wise and Chonn Ching , 2018 , pp. 555-556.
12
By the mid- to late 1970s, diplomatic relations b et w een some LA C coun tries and China
b ecame normalized as the coun try w as officially recognized b y the United Nations in 1971
and gran ted a p ermanen t seat on the United Nations Securit y Council. Cuba w as the
first LA C coun try to formally recognize China in 1960. A decade later, Chile officially
announced its diplomatic recognition of China, follo w ed b y Argen tina, Brazil, Mexico, and
P eru. In terestingly , m ost of Cen tral America and the Caribb ean did not establish official
diplomatic ties with the PR C un til recen t y ears, starting with Costa Rica in 2007, follo w ed
b y P anama in 2017 and El Salv ador and the Dominican Republic in 2018 (see T able 1.2).
As of 2019, 5 LA C coun tries (of 15 w orldwide) con tin ue to recognize T aiw an.
T able 1.2: Date of Establishmen t of Diplomatic Relations b et w een Selected Latin American
Coun tries and China
Coun try Date
Cuba 28 Septem b er 1960
Chile 15 Decem b er 1970
P eru 2 No v em b er 1971
Mexico 14 F ebruary 1972
Argen tina 19 F ebruary 1972
Guy ana 27 June 1972
Jamaica 21 No v em b er 1972
T rinidad and T obago 20 June 1974
V enezuela 28 June 1974
Brazil 15 A ugust 1974
Ecuador 2 Jan uary 1980
Colom bia 7 F ebruary 1980
Bolivia 9 July 1985
Urugua y 3 F ebruary 1988
Bahamas 22 Ma y 1997
Costa Rica 1 June 2007
P anama 13 June 2017
El Salv ador 21 A ugust 2018
Dominican Republic 2 No v em b er 2018
Source: A uthor’s elab oration. Data from
Ministry of F oreign Affairs of the P eople’s Re-
public of China , and Wise , 2020 , p. 64.
13
The normalization of diplomatic ties brough t with it renew ed commercial exc hanges.
Brazil b egan to trade iron ore for Chinese oil, and China b ecame the third-largest buy er
of Chilean copp er. A t the same time, Chile w as imp orting bac k ligh t industrial go o ds,
c hemical pro ducts, to ols, and mac hinery . F or Mexico, lo cal pro ducers met with their Chinese
coun terparts and b egan to sell v alue-added man ufactured go o ds to their Chinese coun terparts
with relativ e success. With the op ening of China to the w orld under the leadership of Deng
Xiaoping in the late 1970s, the Chinese leadership c hose to follo w a more exp ort-orien ted
mo del, emphasizing incoming foreign in v estmen t in designated sp ecial economic zones, as
w ell as co op eration in science and tec hnology . These exc hanges with Latin America b ecame
more pragmatic and non-ideological. While Latin American delegations at executiv e lev els
tra v eled to China as a w a y to reinforce their commitmen t to high-lev el co op eration, China’s
priorities rested on its gradual mark et op ening and industrialization. During this p erio d,
Latin America’s output w as sev en times that of China. Y et China’s aggregate GDP gro wth
and p er capita income quic kly surpassed that of Latin America.
Nev ertheless, China’s economic success pro vided a b o ost to trade exc hange with Latin
America. By 1990, total trade b et w een China and Argen tina, Brazil, Chile, Mexico, and
P eru had reac hed ab out US$ 1.3 billion. By 2000, this cross-P acific trade had jump ed to
around US$ 7 billion. Ho w ev er, the same pro ducts (iron ore, copp er, and so yb eans) that
ha v e dominated the bask et of exp orts to China, as w ell as their resp ectiv e coun tries of origin
(Argen tina, Brazil, Chile, and P eru), ha v e remained unc hanged ( Ra y et al. , 2015 , 2017 ; Ra y ,
2018 ; Ra y and W ang , 2019 ). F urthermore, although Mexico registered the highest total trade
with China in 2000, this w as concen trated on the imp ort side. A ccording to data collected
b y Wise ( 2020 ), in the past decade Mexico has consisten tly traded at a deficit with China.
Unlik e its South American coun terparts, the PR C is not ric h in natural resources and gro wth
has b een led b y the sale of in termediate go o ds to Latin America and the rest of the w orld.
As China’s man ufactured exp orts con tin ued to rise across the glob e, so did tensions b et w een
China and its trade partners. In Mexico, for example, domestic industries w ere threatened
14
b y Chinese exp orts of comparativ ely more sophisticated and c heap er go o ds. The souring of
this relationship sho ws the lac k of a uniform tra jectory in regard to China’s relationship with
individual Latin American coun tries. In some instances, lik e Argen tina and Brazil, linkages
b et w een China and these coun tries are quite similar. A t the same time, Argen tina, Brazil,
and Mexico ha v e raised trade barriers against the so-called “factory of the w orld. ” Despite
the need for a regional strategy to w ard China, Latin American coun tries ha v e acted not in
unison, but rather according to their individual endo wmen t factors and dev elopmen t goals.
1.3 The “China Bo om”
In The China T riangle ( 2016 ), Kevin Gallagher lab eled the p erio d from 2003 to appro xi-
mately 2013 as the “China b o om” in Latin America. This is b ecause during the last t w en t y
y ears, LA C coun tries ha v e b een able to gain greater access to the w orld’s fastest-gro wing
middle-income mark et and more flexible financial opp ortunities via the increase of trade
exc hanges and in v estmen t deals. Ho w ev er, as men tioned in the previous section, the lac k
of div ersification in the bask et of pro ducts that ha v e b een traded b et w een the region and
China has remained constan t, signaling a high p oten tial for unequal exc hange ( San tiso and
A v endaño , 2011 ; Wise and Chonn Ching , 2018 ; Wise , 2020 ). It is true that man y of the
in teractions b et w een China and coun tries in the region ha v e b een concen trated on those
with an abundance of commo dities. It is no surprise, then, that China has forged the closest
ties with Argen tina, Brazil, Chile, P eru, Mexico, and V enezuela ( Ra y et al. , 2017 ). T ogether,
these coun tries exp orted select pro ducts to China lik e so yb eans, fish-meal, oil, copp er, and
other m inerals. Figure 1.3 sho ws that the sale of ra w materials has led Latin America’s trade
with China comparison with other pro duct categories since the early 2000s. This trend has
15
raised legitimate concerns ab out the premature deindustrialization
5
( Gua jardo , 2016 ; Jenk-
ins and de F reitas Barb osa , 2012 ; Jenkins , 2012 , 2015 ) of coun tries lik e Brazil and Argen tina
and heigh tened commo dit y dep endence o v erall.
A t the b eginning of this c hapter I p oin ted out that China has b ecome sub-Saharan
Africa’s largest exp ort destination. During the last decade more than 40 p ercen t of this
sub-region’s exp orts to the w orld consisted of ra w materials, and its exp orts to China w ere
no differen t. Y et China also b ecame a source of c heap er consumer go o ds as w ell as capital
in the form of loans and in v estmen t ( Chen and Nord , 2017 ). More sp ecifically , it b ecame
a pro vider of go o ds that w ere out of reac h to lo w-income households across sub-Saharan
Africa, th us con tributing to this sub-region’s dev elopmen t and gro wth esp ecially during the
GF C (ibid.). But for Latin America, a more dev elop ed middle-income region, the exten t to
whic h China can b ecome a sustainable source of gro wth remains debatable. As m y analysis
of the P eruvian case will sho w, it requires agency and tenacit y on the part of p olitical leaders
and p olicymak ers.
China’s curren t phase of economic restructuring, whic h b egan in 2012, has shifted a w a y
from an in v estmen t-led mo del of gro wth to w ard a more consumption-orien ted one based on
services and high tec h. This has mean t slo w er rates of aggregate gro wth and less demand for
the traditional pro ducts that China had b een imp orting from Latin America. The shift has
called for adaptation on the part of China’s trading partners: companies in the region are
no w encouraged to trade consumption-based pro ducts that could b e attractiv e to Chinese
consumers, generating greater incen tiv es for LA C coun tries that are already commercially
link ed with China to further div ersify their exp orts to the Asian coun try . Chile and P eru,
for example, ha v e successfully promoted the sale of agricultural pro ducts with added-v alue
5
This pro cess refers to the loss of participation of the industrial sector in a giv en coun try’s econom y due
to, in this case, the commo dit y b o om and China’s demand for natural resources, and Chinese comp etition in
domestic mark ets. A uthors lik e Jenkins ( 2015 ), who studied the Brazilian case and China’s role in its dein-
dustrialization, ha v e also referred to this phenomenon as the “primarization” of Brazilian exp orts. Ho w ev er,
as indicated b y Jenkins, although China has con tributed to Brazil’s deindustrialization, the claims are rather
exaggerated ( Jenkins and de F reitas Barb osa , 2012 ). Lac k of industrial inno v ation, p o or skills training, and
w eak pro duction capacit y ha v e also hindered the comp etitiv eness of man y regional man ufacturers.
16
Figure 1.3: Latin America’s Exp orts Share to China, 1990-2018 (% total share b y group)
Source: W orld In tegrated T rade Solutions (WITS)
17
to Chinese consumers (author’s in terviews, China, June-July 2016), and in recen t y ears
b oth coun tries ha v e initiated the promotion of luxury go o ds via their commercial offices in
differen t Chinese cities. But as discussed, not all coun tries are naturally endo w ed. These
economic c hanges ha v e created more c hallenges for coun tries that are less abundan t in natural
resources, making their ties ev en more constrained than those of their resource-ric h regional
coun terparts.
A ccording to traditional trade theory , coun tries with insufficien t pro duct div ersification
and rising imp ort p enetration are lik ely to resort to higher lev els of protectionism ( Milner ,
1999 ). This means that at least some LA C coun tries w ould b e exp ected to sho w case more
protectionism to w ard China, particularly during the “China b o om” p erio d. But this has
not necessarily b een the case. Bolivia, Chile, Ecuador, and P eru ha v e main tained an op en-
trade regime to w ard China . The coun try that adopted the most protectionist measures
to w ard China is Mexico due to the comp etition of Chinese go o ds with lo cal man ufacturers.
Argen tina and Brazil, while w elcoming Chinese capital and further commercial co op eration,
ha v e b eha v ed more cautiously , mo ving b et w een co op eration and conflict. Ho w ev er, all three
of these coun tries ha v e filed an ti-dumping complain ts against China at the WTO.
In Jan uary 2015, the first forum b et w een China and the Comm unit y of Latin American
and Caribb ean States (CELA C) to ok place in Beijing (see Beijing Declaration ). During this
forum, Chinese Presiden t Xi Jinping reiterated the LA C region’s imp ortance for China and
recognized CELA C as a comprehensiv e strategic partner
6
and highligh ted the China-Latin
American and Caribb ean Coun tries Co op eration Plan ( 2015-2020 ). During the same y ear,
the Chinese go v ernmen t also presen ted the 1+3+6 co op eration framew ork for China-Latin
America ties, whic h sough t to impro v e bilateral exc hanges. This framew ork aimed to shap e
the relationship suc h that trade, in v estmen t, and financial co op eration w ork ed as the main
three driving forces and six sectors w ere prioritized: energy and resources, infrastructure,
6
The meaning of this lab el can v ary b y coun try and sub-region, but do es signal some strategic significance
for China (Strüv er , 2017 ; F eng and Huang , 2014a ).
18
agriculture, man ufacturing, scien tific and tec hnological inno v ation, and information tec hnol-
ogy . This prop osed framew ork w as complemen ted b y the “3x3 mo del” suggested b y Chinese
Premier Li Keqiang during his visit to Brazil in 2015, whic h sough t to increase China-
Latin America co op eration in pro duction capacit y b y building and strengthening three k ey
c hannels: logistics, electricit y , and information tec hnology (IT). This prop osal also called for
greater participation and collab oration b et w een the business sector, so ciet y , and go v ernmen t
in China and in LA C coun tries.
Y et four y ears after the announcemen t of the co op eration plan, China has still b een un-
able to further its trade agreemen ts and negotiations with the top economies in the region.
Chinese in v estmen ts also faced n umerous difficulties, and the div ersification of Latin Amer-
ican exp orts o v erall has remained w eak in comparison to the previous decade. Recen t data
b y Ra y and W ang ( 2019 ) sho ws that in 2017, o v er 25 p ercen t of LA C exp orts to China
w ere from the extractiv e sector. F oreign direct in v estmen t from China fell in 2018 (US$ 7.6
billion) from a record high in 2017 (US$ 17.5 billion), and loans to t he region had lev eled
off. F rom a general p ersp ectiv e, China’s economic presence seemed to b e w aning, but at
an individual lev el, the acceleration or deceleration of ties with China has dep ended on the
receptiv eness of strategic actors in giv en Latin American coun tries.
1.4 Determining Success in China-Latin America Ties
Con trary to to con v en tional wisdom, some coun tries in the Latin American region ha v e b een
relativ ely successful in dealing with China. T o start, one imp ortan t factor, although not a
requiremen t for go o d relations, has b een a giv en coun try’s resources. In the previous sections
I explained that Latin America’s natural endo wmen ts ha v e historically pla y ed a role as one of
the region’s engines of gro wth in spite of dep endency concerns. With China, an abundance
of natural resources definitely pa v ed the w a y for some initial cross-regional in teractions.
Y et to main tain the constancy of these ties, other institutional and p olicy-making strengths
19
also help ed in the construction of cohesiv e external ties–namely , a coun try’s giv en abilit y to
exercise sound economic statecraft to w ard China.
China’s approac h to w ard the region for the last thirt y y ears has b een one in whic h
economics and not p olitics has dominated. This means that bilateral in teraction has mainly
b een guided b y commercial and financial v ariables on b oth sides. Th us, in this dissertation
I define success using economic parameters, suc h that I emplo y three broad issue-areas to
determine what success ma y lo ok lik e as a whole. These categories are trade, in v estmen ts,
and partnerships (see T able 1.3). T o date, economic relations b et w een Latin America and
China ha v e b een founded largely on trade and secondarily on Chinese in v estmen t, so I
iden tify as successful those coun tries in Latin America that, one, ha v e tak en a step forw ard
in their trade exc hanges with China and ha v e not only main tained trade surpluses during the
b o om (2003-2013) and p ost-b o om p erio d, but whic h ha v e also managed to institutionalize
these trade ties. While I will expand on m y definition of success in the next c hapter, in these
sp ecific cases the n egotiation of a fre e trade agreemen t with China is a commercial milestone.
Y et while the forging of an FT A matters, ho w the agreemen t is implemen ted and up dated
o v er time is crucial. Only three Latin American coun tries ha v e signed an FT A with China
(Chile, P eru, and Costa Rica), but the con ten t and stipulations of eac h of these agreemen ts
pro vide insigh t in to eac h coun try’s foreign trade and economic strategy .
On the area of in v estmen t, these deals can also b e an indicator of economic success. Most
of China’s in v estmen ts in the region ha v e b een in extractiv e sectors suc h as mining and oil.
Ho w ev er, in recen t y ears, China has expanded its FDI in to other sectors lik e infrastructure
and telecomm unications. Man y of these in v estmen ts ha v e supp orted the commercial base
that China had already established, hence supplemen ting existing deals. Y et c hanges in the
host coun try’s econom y and its global strategy ha v e influenced China’s decision to in v est
in other areas, through mergers and acquisitions (M&As), join t v en tures, and greenfield
(new) in v estmen ts. Hence, I consider as successful LA C coun tries those that ha v e obtained
a comparativ ely high amoun t of Chinese in v estmen t and that ha v e also managed to demand
20
accoun tabilit y and transparency from ma jor Chinese firms. As I will discuss in subsequen t
c hapters, only a few coun tries has b een the main recipien ts of Chinese in v estmen t in the
region–a scenario that is similar to China’s trade relations in Latin America. Ho w ev er, the
main tenance and actual implemen tation of these deals is k ey , whic h is not alw a ys the case
for man y LA C economies.
Although some argue that the differen t t yp es of “strategic partnerships” that China has
established with o v er ten Latin American coun tries are sym b olic lab els that do not carry
m uc h w eigh t ( F eng and Huang , 2014b ; Strüv er , 2017 ), they rev eal ho w imp ortan t a coun try
can b e to China as a p oten tial ally at the diplomatic lev el ( F eng and Huang , 2014a ; Strüv er,
2017 ). The lab els of these partnerships range from “strategic” to “comprehensiv e strategic,”
and while it is not clear ho w they are assigned or ev en tually upgraded, these can shed ligh t
on the nature of China’s bilateral ties with some LA C coun tries. This means that a coun try’s
attainmen t of one of the highest lev els or t yp es of partnership–in this case, a strategic com-
prehensiv e partnership
7
–could con tribute to forming or main taining a p oten tially successful
relationship with China. Then again, although China and Mexico ha v e forged a partnership
at this highest lev el, in practice this has b ore little fruit. Because of Mexico’s large trade
deficit with China and its resort to protectionism, b oth sides remain em bittered. Strategic
partnerships, in other w ords, are not an automatic guaran tee of success. Rather, the cir-
cumstances in whic h they tak e place, ho w they progress, and the exten t to whic h they can
b o ost bilateral in teractions serv e as a mark er of ho w a giv en bilateral relationship is faring.
Again, the foundation of China’s ties with Latin American coun tries has primarily b een
on the trade side, so the nature of that relationship is imp ortan t. Coun tries that ha v e done
b est with China ha v e cultiv ated indep enden t and stable economic institutions to facilitate
negotiation and co ordination. In the main ca se study of this dissertation, P eru, this has cer-
tainly b een the case. Here, I examine those commercial and financial institutions that pa v ed
7
China has established dozens of partnerships globally . Ho w ev er, the three most common that ha v e b een
established are strategic partnership, comprehensiv e partnership, and comprehensiv e strategic partnership.
Brazil, Chile, and P eru ha v e established “deep comprehensiv e strategic partnerships” with China. This is a
new lab el that has recen tly emerged and these coun tries are the only ones in LA C with suc h status.
21
T able 1.3: Areas of Success in Latin America vis-à-vis China
Issue-area Measuremen ts of success
T rade
F ree trade agreemen t/Upholding of trade norms
T rade surplus
T rade div ersification
In v estmen t
Increased/high in v estmen t
In v estmen t div ersification
A ccoun tabilit y & T ransparency
P artnership
Strategic partnership
Comprehensiv e partnership
Strategic comprehensiv e partnership
Source: A uthor’s elab orati on.
the w a y for sustained gro wth. Ev en though the coun try has undergone a series of p olitical
crises and scandals, economic structures ha v e remained comparativ ely stable, allo wing P eru
to expand its business deals and planned pro jects with external actors. This means cohe-
siv e economic p olicy-making, whic h translates in to sa vvy leadership and managemen t, and
enhanced go v ernmen t co ordination and strong institutional in tegrit y . P eru is an example of
ho w an emerging econom y can na vigate the shifting in ternational en vironmen t and create
the space for a p olitics of e c onomic suc c ess . I am not implying that the P eruvian case is a
p oster c hild on ho w to successfully in teract with larger actors. Rather, I underscore some
of the conditions and mec hanisms that led a dev eloping coun try lik e P eru to displa y greater
agency under highly asymmetric conditions.
1.5 P eru: An Example of the P olitics of Success
Compared to most of its regional coun terparts, P eru’s history with China extends across
generations. The earliest Chinese immigran ts, or “co olies,” arriv ed in P eru in the mid-
nineteen th cen tury to w ork on plan tations and the construction of the P eruvian railw a y
( Lausen t-Herrera , 2010 ). Larger w a v es of Chinese immigration follo w ed throughout the
t w en tieth and t w en t y-first cen turies, along with a flux of Chinese pro ducts and companies,
22
particularly during the “China b o om” from 2003 to 2013. By then P eru w as already b enefit-
ing from the economic reform s it had implemen ted through the 1990s. One could then argue
that P eru’s impro v ed economic situation help ed the coun try in attracting further Chinese
business and in v estmen t.
The p olicy reforms of the mid-1990s pro vided the foundation for sustained gro wth in
the coun try in the follo wing t w o decades ( Rossini and San tos , 2015 ). After a p erio d of
stagnation and failed state in terv en tion, P eru’s leadership opted for a more mark et-orien ted
approac h–one that w as in tune with the suggested guidelines of the W ashington Consensus.
The adoption of a more neolib eral mo del b egan to limit the areas in whic h the P eruvian
state could in terv ene. This also led p olicymak ers to restructure some of the ministries and
economic institutions that m anaged the econom y ( Rossini and San tos , 2015 ; Wise , 2003 ).
One of the ma jor o v erhauls o ccurred at the Ministry of Econom y and Finance (MEF), where
ma jor functions w ere reorien ted to increase pro ductivit y , efficiency , and supp ort sectoral
comp etitiv eness. The Cen tral Reserv e Bank of P eru w as also giv en more autonom y , foster-
ing increased fiscal resp onsibi lit y while reducing p olitical in terv en tion in monetary p olicy
execution.
The creation of the Ministry of F oreign T rade and T ourism (MINCETUR) in 2002 mark ed
a new b eginning for P eru’s foreign economic p olicy . MINCETUR w as designed to direct,
co ordinate, and sup ervise the promotion of P eruvian exp orts as w ell as to create incen tiv es
to increase tourism, all of whic h w as co ordinated with the MEF. F ollo wing MINCETUR’s
establishmen t, the coun try b egan to sign preferen tial trade agreemen ts (PT As), first at the
regional lev el and then with larger pla y ers. As men tioned earlier, in 2006, P eru signed its
first free trade agreemen t with a large partner: the United States. The long negotiation
pro cess, whic h b egan in the early 1990s as P eru lib eralized, pro vided p olicymak ers with the
to ols and exp erience to later negotiate a comprehensiv e FT A with China.
The FT A with China w as a significan t milestone for P eru-China relations. It b o osted
bilateral commerce suc h that b y 2011 China had replaced the United States as P eru’s main
23
trading partner. A ccording to MINCETUR, since 201 0, the a v erage ann ual gro wth rate of
P eru-China bilteral trade has b een 9 p ercen t ( El P eruano , 2019 ). Aside from trade and
commerce, P eru also to ok a step forw ard in its diplomatic ties with China b y b ecoming
its “comprehensiv e strategic partner” in 2013. This w as follo w ed b y the signing of elev en
bilateral Sino-P eruvian accords aimed at strengthening co op eration in agriculture, infras-
tructure, mining, and so cial dev elopmen t. In No v em b er of the same y ear, a Chinese bank,
Industrial and Commercial Bank of China (ICBC), w as for the first time authorized to op-
erate in P eru and additional in v estmen ts w ere announced. F or instance, the China Fishery
Group purc hased shares in a ma jor P eruvian fishing firm, coun ting for a quarter of P eru’s
commercial fishing quota and turning it in to the w orld’s largest pro ducer of fishmeal; China
National P etroleum Corp oration (CNPC) announced its purc hase of the P eruvian holdings
of P etrobras, the Brazilian oil gian t, whic h ga v e Chinese firms con trol of around 40 p ercen t of
P eru´s h ydro carb on pro duction. Similarly , the Alumin um Corp oration of China (Chinalco)
inaugurated its T oromo c ho copp er pro ject, b ecoming the largest in v estmen t in the P eruvian
mining sector at the time.
Ov erall, the outcomes of P eru’s relationship with China ha v e generally b een p ositiv e.
Go o d external conditions did pla y a role, but so did P eru’s economic leadership, as p olicy-
mak ers rarely deviated from the reformed institutions and structures that w ere designed to
supp ort the coun try’s insertion in to the global econom y . In other w ords, P eru is an example
of ho w a less dev elop ed econom y can na vigate the shifting in ternational en vironmen t and
create the space to explore the p olitics of economic success with China, whic h I analyze using
three categories: trade, in v estmen t, and diplomatic partnerships.
In terms of trade, P eru’s reform pro cess at the outset of the 1990s fo cused mainly on
financial and monetary stabilization. Y et these c hanges pro vided the conditions that w ould
help to attain fa v orable terms of trade. The o v erhauling of state en tities led to the re-
branding and restructuring of institutions lik e MINCETUR, whic h w ere instrumen tal in
leading the coun try to w ard a more mark et-orien ted econom y . In addition to c hanges to the
24
tax system and the exc hange rate regime, the first set of reforms included the elimination
of imp ort tariffs and restrictions to facilitate the en try of pro ducts that w ere less costly and
k ey for building up the coun try’s man ufacturing and pro ductiv e sectors. This mean t that
P eru also needed to div ersify its trading partners b ey ond the Americas and Europ e. P eru
curren tly has 22 free trade agreemen ts with differen t coun tries and regions, and fiv e of them
are with coun tries in Asia and South Asia, including Singap ore, China, Japan, South K orea,
and Thailand.
The pro cess of negotiating an FT A with China in v olv ed a series of steps and gestures that
b egan in 2004, when then-P eruvian presiden t Alejandro T oledo recognized China as a mark et
econom y (MES)–a status that w ould help lo w er an ti-dumping complain ts against China.
This w as a k ey pre-condition for the start of negotiations of an FT A with China ( Chan ,
2019 ; T orres , 2010 ). Ho w ev er, official discussions did not o ccur un til T oledo’s successor,
Alan García, b ecame presiden t. Under the leadership of the new MEF Minister, Mercedes
Aráoz, negotiations for an FT A with China concluded in No v em b er 2008. In April 2009, the
agreemen t w as signed and w as ratified b y P eru in Decem b er of the same y ear. In comparison
with the trade agreemen t that China had signed with Chile in 2005–the first LA C coun try
to sign an FT A with China–P eru w as able to negotiate an FT A that included pro visions in
the services sector as w ell as the protection of a greater p ercen tage of pro ducts that w ere
vulnerable to stiff Chinese comp etition ( T orres , 2010 , p. 108). This reduced the concerns
of lo cal pro ducers and en trepreneurs who initially opp osed the FT A with China since they
though t it w ould destro y sensitiv e domestic industries (i.e., textiles) giv en China’s greater
comparativ e adv an tage in them.
In the ten y ears since the signing of the P eru-China FT A, the trade balance in P eru has
remained p ositiv e with the exception of the p erio d b et w een 2013 and 2015. Chile has run
a p ositiv e trade balance with China as w ell, but Costa Rica has con tin uously exp erienced
a trade deficit. In early 2019, represen tativ es from b oth P eru and China announced that
negotiations for the optimization of the FT A w ould b egin later that y ear. By Octob er 2019,
25
four rounds of talks had already tak en place with the goal of further deep ening the agreemen t
to co v er supp ort for small- and medium-size businesses, attract more Chinese in v estmen t in to
P eruvian infrastructure, enhance transp ortation linkages, and expand opp ortunities for trade
in services ( El Comercio 2019 , Memorándum , MINCETUR 2019 ). T o reiterate, all of these
bilateral upgrades with China o ccurred in parallel with P eru’s status as a stable coun try with
pragmatic, professional, and less p oliticized macro economic managemen t. In the second part
of m y dissertation, I will further discuss ho w in comparison with the exp erience of some of
its regional coun terparts, P eru w as able to mo v e forw ard with the negotiation of its FT A
with China in spite of the initial opp osition b y a select n um b er of doubters. Since the outset
of the FT A, P eruvian p olicymak ers ha v e sough t to co ordinate and co op erate with k ey actors
that could p oten tially b e adv ersely affected b y the trade agreemen t and, hence, influence
the discussions ( Chan , 2019 ). Although P eruvian p olicymak ers did mak e concessions to
finalize the agreemen t and the bask et of pro ducts exp orted to China is highly concen trated
in primary resources, o v er the y ears P eru’s FT A with China has offered opp ortunities that
con tin ue to motiv ate and c hallenge P eruvian leaders.
The in v estmen t sector is another category in whic h P eru has also made strides with
China. Arguably , Chinese in v estmen t in the region could b e divided in to t w o phases: a first
phase that b egan in the early 1990s and stagnated throughout that decade, and a second one,
whic h pic k ed up in the 2000s with the China b o om in the region and con tin ues to expand
and div ersify . P eru b ecame the recipien t of Chinese in v estmen t during the first phase, with
the en try of Shougang in 1992 to in v est in Marcona’s iron mine, making it China’s first large
in v estmen t in South America. Although the compan y has faced con tro v ersy o v er the y ears,
due mostly to constan t tensions b et w een the firm and lo cal lab or ( Gonzalez-Vicen te , 2012 ;
San b orn and Chonn Ching , 2017 ), it op ened up the path for future Chinese in v estmen ts and
pro vided a basic blueprin t for subsequen t in v estmen t transactions. T o date, in spite of b eing
a m uc h smaller econom y compared to some of its regional coun terparts, P eru is the second-
highest recipien t of Chinese direct in v estmen t in Latin America, after Brazil ( Dussel P eters,
26
2020b ). Although the ma jorit y of China’s in v estmen ts con tin ue to b e in the extractiv e and
minerals sector and are dominated b y Chinese state-o wned en terprises (SOEs), some of these
in v estmen ts still pla y a complemen tary role in the exp ort of k ey resources to China. They also
pro vide op erations and transp ortation infrastructure, th us supp orting China’s commercial
ob jectiv es in the region.
P eru has also witnessed a gradual div ersification of Chinese in v estmen ts. Since the estab-
lishmen t of the Belt and Road Initiativ e (BRI) in 2013,
8
there has b een greater emphasis on
infrastructure and other pro jects that can enhance connectivit y (i.e. telecomm unications).
While there are no sp ecific deals under this lab el on the ground in P eru or most of Latin
America, exp ectations are high in regards to the kind of opp ortunities and returns the ini-
tiativ e will bring to a coun try that con tin ues to struggle with large infrastructure gaps. The
main tenance of p olitical stabilit y and fa v orable macro economic conditions ha v e pla y ed an
imp ortan t role in fostering a dynamic P eruvian in v estmen t sector, one that is attractiv e not
only to China but to other in ternational in v estors a s w ell. Indeed, the structural reforms of
the 1990s, the impro v ed p olitical conditions of the coun try , and the tax reforms that w ere
established to b o ost priv ate and foreign in v estmen t made P eru a coun try with a fa v orable
in v estmen t en vironmen t ( San tos and W erner , 2015 ). The coun try had mo v ed w ell b ey ond
the y ears of forced nationalizations and ballo oning state companies. Th us, the com bination
of these c haracteristics and go o d in ternational conditions con tributed to the large inflo w of
capital to P eru.
Ho w ev er, as Latin America has b egun to exp erience a series of p olitical rev ersals–more
sp ecifically , a turn to the extremes on b oth sides of the p olitical sp ectrum–and con tin ues
to face rampan t corruption c harges related to the fall of the region’s largest infrastruc-
ture conglomerate–Oderbretc h–one of the main c hallenges for LA C and for P eru will b e
curtailing p olitical and economic uncertain t y , and the protection of lo cal comm unities, the
en vironmen t, and bio div ersit y in the areas where large infrastructure pro jec ts are lo cated.
8
When Chinese Presiden t Xi Jinping first announced BRI to increase and impro v e global connectivit y ,
the main regional fo ci w ere Asia, Africa, and Cen tral Europ e.
27
As a coun try where in v estmen ts can presen t greater en vironmen tal risks and require prior
consultation with lo cal comm unities, the lik eliho o d of pro ject or negotiation paralysis is un-
deniably high. In particular, Chinese in v estmen ts ha v e usually b een criticized for w eak lab or
and en vironmen tal protections. Nev ertheless, it is notable that compared to their regional
neigh b ors, P eruvian p olicymak ers ha v e successfully secured large-scale Chinese in v estmen ts
while trying to reduce so cial and en vironmen tal costs.
P eru’s historical ties with China ha v e to a certain degree pla y ed an in tegral role in sup-
p orting the renew al and expansion of bilateral exc hanges since the outset of this cen tury .
Some cultural exp erts ha v e link ed the p ositiv e outcomes with the establishmen t of a m ulti-
generational Chinese comm unit y in P eru ( Lo c k Reyna , 2006 ) and unofficial diplomatic en-
gagemen ts that are o v er a cen tury old. After all, P eru w as among the first LA C coun tries to
sign a F riendship, Commerce, and Na vigation T reat y with China in mid-1860s ( Conelly and
Cornejo Bustaman te , 1992 ). China’s announcemen t of a strategic partnership with Brazil at
the outset of the 1990s app eared to b e a renew al in the dev elopmen t of diplomatic ties with
LA C. Although some critics w ould p oin t to these partnerships as to o general or to o v ague,
their p erio dic upgrading has b een significan t for some LA C coun tries ( Jiang , 2016 ; Strüv er,
2017 ).
Ob jectiv ely , the announcemen t and the language of these partnerships are sym b olic, as
they reiterate the need for m utual co op eration and collab oration in div erse areas, including
economics, education, and health. There are no tangible outcomes in ho w they strengthen
or expand bilateral ties. Ho w ev er, b y pa ying closer atten tion to ho w they are timed and the
immediate agreemen ts–if applicable–that follo w after the announcemen ts of these partner-
ships, w e can see that they can b o ost bilateral ties with China. F rom the Chinese side, these
partnerships can b e represen tativ e of 1) the curren t tra jectory of the bilateral relationship
with China, or 2) the exp ected direction Chinese p olicymak ers w ould lik e them to tak e with
a giv en coun try . This means that the action or inaction of eac h LA C coun try with regards
to its p olicies to w ard China will determine the w eigh t of these sym b olic gestures.
28
P eru’s strategic partnership with China w as announced in 2008 as FT A negotiations w ere
getting underw a y . The upgrade to a comprehensiv e strategic partnership o ccurred in 2013,
a lab el that w as also extended to the CELA C blo c and other LA C coun tries at an individual
lev el. During this p erio d, the commo dit y b o om of the previous decade w as coming to an
end, and the effects of China’s economic slo wdo wn b egan to b e felt in LA C coun tries as the
v olume of trade and in v estmen t decreased. Y et, as the upgrade with P eru w as announced,
it w as accompanied b y a series of complemen tary agreemen ts concerni ng existing deals with
China. This means that the strategic partnership reiterated the strength of the bilateral
relationship and sho w cased further opp ortunities in bilateral exc hanges.
1.6 The P ath F orw ard
There is no one single Latin American strategy or resp onse to w ard China. Coun tries that
ha v e b een strategically successful when dealing with the Asian coun try are those that ha v e
made a concerted effort to reconcile Chinese in terests with domestic exp ectations. This
required the existence of cohesiv e economic and p olitical institutions, some of whic h w ere
established at the end of the last cen tury as part of eac h coun try’s economic reform and
dev elopmen t pro cess. Although not p erfect and, to an exten t, incomplete (see Wise , 2003 ),
these transformations ha v e pro vided stable conditions to b etter na vigate in teractions with
a rising China. Similarly , China has also adjusted its approac h to w ard Latin America.
Compared to its economics-based strategy of the early 2000s, Chinese collab oration no w
includes other areas of exc hange suc h as education and health pro jects. Ho w ev er, China’s
strength in Latin America con tin ues to b e strongly grounded in commercial and in v estmen t
ties.
P eru has emerged as a regional example of successful engagemen t with China. In addi-
tion to fa v orable external factors, at least during the first decade of the 2000s, the coun try’s
29
mark et-based reforms and structural adjustmen t made for an attractiv e trade and in v est-
men t milieu, whic h emp o w ered P eruvian p olicymak ers to negotiate effectiv ely with their
Chinese coun terparts. The establishmen t of an FT A with China and the expansion and
div ersification of Sino-P eruvian trade is one measuremen t of ho w P eru has flourished in this
bilateral relationship. Although P eru has also exp erienced tense momen ts with China in
the last thirt y y ears, economic and diplomatic activit y b et w een the t w o sides has remained
p ositiv e on balance. In other w ords, bilateral ties b et w een P eru and China are not solely
dep enden t on Chinese initiativ e. Rather, P eruvian officials ha v e also exercised considerable
agency with regard to China.
My dissertation is organized as follo ws: Chapter 2 examines the main literature that
studies Latin America’s gro wth and dev elopmen t, whic h has usually fo cused on the region’s
underdev elopmen t and failures (i.e., core-p eriphery argumen ts and dep endency theory). I
explain that the comparativ e adv an tage of man y coun tries in the region lies in their w ealth
in natural resources, so reliance on these resources is not necessarily negativ e. Instead,
with the appropriate p olicies and institutions, coun tries can mo dernize, div ersify , and add
v alue to the pro ducts they are exp orting to their partners, thereb y generating capital and
economic opp ortunities that supp ort their gro wth. In this sense, m y analysis fo cuses on Latin
America’s successes and not just their failures. I find that, when trading with China, only a
select n um b er of coun tries has managed to expand the pro ducts they can offer, hence adding
more negotiation space in their trade relations. This pattern is also seen in the in v estmen t
sector. With the exception of Brazil, larger coun tries in the region ha v e not b een able to
main tain a steady flo w inflo w of Chinese in v estmen t. Instead, smaller economies ha v e fared
b etter. In terms of partnerships, although mostly referred to as sym b olic gestures, I argue
that they can b e effectiv e to the exten t that they can supp ort the reinforcemen t of existing
or new collab oration b et w een a Latin American coun try and China. In this con text, success
in dealing with China requires leaders and p olicymak ers who can carry out a w ell-defined
30
strategy that co ordinates domestic capacit y with external exp ectations. In Latin America,
P eru has emerged as an example.
In c hapter 3, I apply m y measuremen ts of success to select coun tries in Latin America,
demonstrating ho w the region’s div erse resp onses ha v e b een a c hallenge for China. First, I
highligh t trade b ecause it remains the foundational link in the China-Latin America rela-
tionship. As a commo dities-ric h region, more than 75 p ercen t of Latin America’s go o ds to
China are ra w materials. Ho w ev er, I explain that an abundance of natural resources do es not
necessarily determine failure. In fact, trade connections with China has sho wn the abilit y of
a giv en coun try to create sound trade p olicies that can generate relativ e trade wins. Second,
Chinese in v estmen ts in Latin America are usually complemen tary to China’s existing trade
partnerships. Europ ean coun tries con tin ue to b e the largest in v estors in the region, but the
gradual increase of Chinese in v estmen ts in these areas is a sign of div ersification and ex-
pansion efforts. While the amoun t of Chinese in v estmen t is relev an t when determining the
winners, so to o is the n um b er of pro jects and their p oten tial to increase pro ductivit y . P ar-
ticularly for the latter case, this progression is represen tativ e of the host coun try’s capacit y
to enforce p olicies that hold firms accoun table. Third, the forging of strategic partnerships
b et w een China and a n um b er of LA C coun tries has b een a sym b olic feature of China-LA C
relations. Although these partnerships can b e more significan t in theory than in practice,
these partnerships can signal p oten tial for further co op eration and the expansion of existing
agreemen ts with China. This means that their imp ortance dep ends on the activ e partici-
pation of eac h part y . The circumstances in whic h they tak e place, ho w they progress, and
the exten t to whic h they can b o ost bilateral in teractions serv e as a mark er of ho w a giv en
bilateral relationship is faring.
Chapter 4 explores P eru’s economic tra jectory , from its debt-ridden p erio d in the 1980s
un til the curren t p erio d, and ho w dealing effectiv ely with a rising China has fit in to P eru’s
gro wth path. The reform and rebuilding pro cess of P eru’s econom y b et w een 1990 and 2000
made P eru an example of stabilization and structural reform. By the first half of 2010s,
31
P eru had b ecome a leading emerging mark et and more tigh tly in tegrated in to in ternational
mark ets. One k ey factor in P eru’s success in carrying out these structural and mark et
reforms w as the institutiona l restructuring and o v erhaul P eru also underw en t during this
p erio d. While Alb erto F ujimori’s administration w as widely criticized for w eak ening demo c-
racy and for undermining the rule of la w, one of the main concerns of his administration
w as to con tin ue with the stabilization- and gro wth-orien ted p olicies. It is during P eru’s p e-
rio d of stabilization, reform, and gro wth that P eru and China rein vigorated their bilateral
relationship.
Chapter 5 pro vides an in-depth analysis of P eru’s trading structures and the exten t to
whic h the FT A with China has complemen ted rather than supplemen ted P eruvian trade
relationships with other partners. The most imp ortan t factor in P eru’s economic expansion
and commitmen t to in ternational trade w as the institutional c hanges that explicitly targeted
the coun try’s global in tegration and the promotion of P eruvian pro ducts abroad. In fact,
it is under the guidance of the Ministry of F oreign T rade and T ourism (MINCETUR) that
P eru b egan its first commercial deals. In 2005, P eru completed a landmark FT A with the
United States, whic h w as an economic milestone that reinforced P eru’s p osition as an op en
econom y . This agreemen t b ecame a blueprin t for other trade agreemen ts, and when it came
to negotiations with China in 2008, P eru’s exp erience with U.S. negotiators help ed P eruvian
officials to realize the elemen ts they w an ted to see in a bilateral trade agreemen t with China.
Chapter 6 examines Chinese in v estmen t in P eru and ho w P eruvian p olicymak ers ha v e
resp onded to the increased inflo w of Chinese FDI. P eru’s natural endo wmen ts in copp er, iron,
and oil ga v e the coun try an adv an tage in attracting Chinese in v estors and from elsewhere.
The coun try’s strategic geographical lo cation in the P acific Rim also ga v e it an edge v ersus
some of its coun terparts without o cean access. As it stands, P eru ranks as the second-
largest destination for Chinese in v estmen ts. Ov er the y ears, China has pla y ed a k ey role as
an in v estor in P eru’s mining industry , starting with the 1992 purc hase of one of P eru’s most
iconic and the largest iron-ore op eration in the coun try to date. Since then and un til 2010,
32
the most notorious Chinese in v estmen ts ha v e remained in the mining and/or oil sectors,
fueling criticisms regarding China’s increasing dominance in the coun try and its influence
on Latin America’s high dep endence on natural resources and commo dities. Nev ertheless,
P eru’s efforts in reforming its in v estmen t sector and the demand for greater accoun tabilit y
and transparency ha v e help ed the coun try in b ettering the managemen t of con tro v ersial
in v estmen t pro jects, including cases lik e Chinalco.
Finally , c hapter 7 examines the differen t partnerships China has established with a n um-
b er of Latin American coun tries and pro vides a comparativ e picture of P eru v ersus its re-
gional neigh b ors. In general, China has tried to main tain stable relationships with a selected
group of Latin American coun tries, although ob jectiv ely sp eaking, China’s main relationship
in the region is the one it has with Brazil. So P eru’s emergence as a steady partner o v er
the last thirt y y ears is one to notice. P eru’s FT A with China and its p osition as a main
destination of Chinese FDI are represen tativ e of not only China’s in terest, but P eru’s abilit y
to attract and pro vide the economic and institutional structures for the main tenance of this
bilateral relationship. Moreo v er, the furthering of its comprehensiv e strategic partnership (a
status announced to other t w o coun tries in LA C: Brazil and Chile) reiterates P eru’s signif-
icance in China’s foreign p olicy in the region, and the lessons learned b y P eruvian leaders
and p olicymak ers in “sho wing recipro cit y” when in teracting with Chinese p olicymak ers. In
other w ords, P eru has demonstrated that in order to main tain ties with China, it is not
just ab out what China do es, but ho w P eru resp onds according to the coun try’s economic
in terests.
33
Chapter 2
The Dragon’s En try in to Latin America
Since gaining indep endence from Spanish and P ortuguese rule in the early nineteen th cen-
tury , Latin America has exp erienced cycles of p olitical turmoil and economic stagnation
in tersp ersed with p erio ds of progress and prosp erit y . In the t w en t y-first cen tury , go v ern-
men t turno v er and corruption scandals co existed with high gro wth up through the end of
the China b o om in 2014. Subsequen tly , the region’s deep recession has called up p olitical
econom y analyses that fo cus on the traditional c hallenges that Latin America still faces,
suc h as w eak fiscal and monetary p olicies and no cohesiv e pro-gro wth dev elopmen t strategy
( Bulmer-Thomas , 2003 ; Cardoso and Helw ege , 1995 ; Ocamp o , 2017 ; San tiso and Da yton-
Johnson , 2012 ; Thorp , 1998 ). P eru has b een an exception to this bleak economic scenario,
although its p olitical troubles ha v e detracted from the coun try’s otherwise sound economic
record. As I men tioned in the previous c hapter, with the economic rise of China, one domi-
nan t view is that coun tries in Latin America will b ecome b eholden to the Asian b ehemoth
giv en its large purc hase of primary pro ducts from the region as w ell as its flexible loans and
financing. Ho w ev er, con trary to this p ersp ectiv e, some coun tries ha v e managed to establish
fa v orable in teractions and deals with China, sho wing that comparativ ely smaller dev eloping
coun tries are not alw a ys passiv e agen ts when dealing with a m uc h more p o w erful actor lik e
China.
T o demonstrate this, m y analysis defines successful in teractions in economic terms. This
is b ecause the nature of the relationship b et w een China and Latin America has b een based
34
on trade, loans, and, since 2010, increasing lev els of foreign direct in v estmen t inflo ws from
China. This c hapter la ys out m y theoretical framew ork and ho w I measure the p olitics of
economic success in select Latin American coun tries. T o start, I highligh t some of the main
theories that ha v e shap ed the study of the p olitical econom y of Latin America, and whic h
ha v e in v ariably view ed coun tries in the region as w eak in the face of more p o w erful economic
actors. This is follo w ed b y a historical o v erview of China-Latin America relations and ho w
bilateral ties among select coun tries ev olv ed un til the t w en tieth and t w en t y-first cen tury .
Finally , I pro vide a section that explains ho w I define success as coun tries b egan to in teract
with China since the early 2000s. This sub ject will b e further elab orated on in c hapter 3,
where I emplo y a deductiv e approac h in iden tifying LA C coun tries that qualify as successful
cases.
2.1 Latin America as a P assiv e Agen t
Giv en Latin America’s colonial history , the p olitical econom y of the region has b een exam-
ined through the lens of underdev elopmen t. This said, Latin America’s ac hiev emen ts ha v e
mainly b een measured in relation to the dev elop ed coun tries (see Coatsw orth and T a ylor ,
1998 ), including the economic p olicies that w ere adopted p ost-indep endence. Most of these
came from the outside, with little adaptation to a giv en coun try’s economic con text or bac k-
ground. As p oin ted out b y Bulmer-Thomas, the region forgot ab out “the imp ortance of an
indep enden t Latin America sc ho ol of economic thinking” ( 2003 , p. xvii).
Structuralism is the most predominan t theoretical approac h that has b een used to explain
Latin America’s underdev elopmen t. It w as in tro duced in the early 1950s b y Latin American
economist and presiden t of the United Nations Commission for Latin America (whic h later
b ecame the Economic Commission for Latin America and the Caribb ean, ECLA C), Raúl
Prebisc h, as a w a y to understand those factors and conditions that limited the region’s
gro wth. A ccording to Prebisc h, the p eripheral p osition of the dev eloping coun tries w as
35
p erp etuated b y increased con tact with the global econom y ( Prebisc h , 1962 ). Influenced b y
Keynesian economics ( Keynes , 1936 ) and pro jecting a cen ter-p eriphery view of the w orld,
Prebisc h argued that there w as an unequal exc hange b et w een dev elop ed and dev eloping
coun tries. The p eripheral coun tries had c heap lab or and ra w materials that w ere exploited
b y the industrial cen ter. P eripheral economies exp erienced declining terms of trade in whic h
the v alue of their agricultural exp orts w ould fluctuate while prices on man ufactured go o ds
they imp orted from industrialized nations main tained a steady up w ard trend ( Lo v e, 1980 ;
Prebisc h , 1962 ; Sprout , 1992 ).
This mean t that economic gro wth and dev elopmen t in the dev eloping w orld via trade de-
p ended on the more p o w erful cen ter, th us heigh tening and p erp etuating asymmetrical in ter-
actions. Prebisc h’s prop osed solution w as to literally restructure Latin American economies
through greater in terv en tion of the state and the promotion of domestic industrialization.
The establishmen t of a man ufacturing base w ould enable Latin America to “catc h up. ” This
led to the implemen tation of imp ort-substitution industrialization (ISI) strategies through-
out the 1950s and 1960s in man y coun tries of the region ( Bak er , 2003 ; Bulmer-Thomas , 2003 ;
Cardoso and Helw ege , 1995 ; Coatsw orth and T a ylor , 1998 ). Although coun tries lik e Brazil
and Mexico sa w an increase in man ufactured exp orts b y the 1970s, industrialization o ccurred
at the exp ense of agriculture ( Cardoso and Helw ege , 1995 )–whic h constituted the region’s
main comparativ e adv an tage and the bulk of its trade rev en ues. Moreo v er, exp ort p essimism
shado w ed the commitmen t of man ufacturers to truly comp ete in w orld mark ets. High lev-
els of protectionism cut off crucial in termediate imp orts necessary to launc h an exp ort-led
industrial mo del and led to hea vy b orro wing to finance domestic industrialization. By the
start of the 1980s, ma jor Latin American economies w ere exp eriencing large go v ernmen t
deficits and excess external debt. Th us b egan Latin America’s “lost decade” as the region
underw en t a profound debt crisis that explo ded in 1982.
Although Prebisc h’s theory pro vided useful insigh ts on ho w global economic structures
could influence a coun try’s dev elopmen t path, this initial structural approac h did not fully
36
accoun t for the autonomous domestic factors that hamp ered dev eloping coun tries’ inabilit y to
industrialize and dev elop. A new group of Latin American in tellectuals em braced dep endency
theory to fill in these explanatory gaps. Dep endency theory sough t to dra w causal linkages
b et w een the impact that external influences–b e these p olitical, economic, or cultural–had
on domestic structures and p olicies. A t its core, dep endency theory fo cused on the unequal
p o w er distribution among the states and on capitalism as the main cause for dep endency
( Cohn , 2016 ). The core-p eriphery distinction w as translated in to North-South differences,
suc h that the former w as the main b eneficiary of the capitalist system whereas the South
remained undev elop ed b ecause of the exploitativ e nature of its exc hanges with the North. In
other w ords, dep ende ncy theory underlined the hierarc hical relationships b et w een coun tries
that could explain underdev elopmen t. Ho w ev er, b y mainly fo cusing on unequal relationships,
dep endency theory ignored the autonom y of the undev elop ed economies and the p olicy
decisions a v ailable within t hese coun tries ( Ev ans , 1979 ). Ev en though Cardoso and F aletto
( 1979 ) did highligh t the p ossibilit y of ac hieving a “dep enden t dev elopmen t”–the idea that
the p eriphery can still industrialize alb eit assisted b y foreign resources–external influences
con tin ue to b e the main protagonist ( Cohn , 2016 ; Herath , 2008 ).
F urthermore, in his critique of dep e ndency theory , The L o gic of Dep endency The ory R e-
visite d ( 1981 ), T on y Smith disput es the notion that Latin America’s underdev elopmen t w as
solely ro oted in W estern economic imp erialism ( Smith , 1981 , pp. 758-759). He particularly
to ok issue with the depiction of the p eriphery as a “passiv e victim” of W estern economic
hegemon y . Although dep endency theory shifted the lev el of analysis from extern al structures
to domestic conditions and v ariables, Smith con tests the deterministic thrust of this theory .
Indeed, the region’s w ealth in natural resources has historically pro vided a comparativ e ad-
v an tage to the region, but LA C’s economic dep endence on these pro ducts and these Northern
imp orters need not b e the only outcome ( Lin , 2012 ; Lozada , 2003 ). The abundance of natu-
ral resources also creates incen tiv es for exp ort expansion and the establishmen t of extensiv e
trade net w orks for Latin America ( Bak er , 2003 ). Moreo v er, the relev an t p oin t is not what
37
coun tries are able to pro duce but rather ho w they do it. Ho w ev er, as carefully do cumen ted
b y Bulmer-Thomas in The Ec onomic History of L atin A meric a sinc e Indep endenc e ( 2003 ),
the region’s p olitical and economic elites w ere not alw a ys willing or able to exert agency in
the design of a more sustainable or equitable dev elopmen t mo del.
F rom the p ersp ectiv e of an economic historian, Bulmer-Thomas examines ho w some coun-
tries in Latin America seized opp ortunities to pursue an exp ort-orien ted mo del and those
instances in whic h coun tries failed. With his analysis of total factor pro ductivit y and the
mak eup of the exp ort bask et, Bulmer-Thomas finds that Latin American economies under-
p erformed on b oth coun ts, ev en during the golden p erio ds of exp ort-led gro wth.
1
Moreo v er,
the disconnect b et w een national economic strategies and highly comp etitiv e external con-
ditions constrained the exten t to whic h coun tries could create and na vigate trade in ISI
man ufactured go o ds. W eak macro economic structures and inconsisten t p olicies further ex-
acerbated this scenario, ev en tually leading to the debt crisis and lost decade of the 1980s.
As the 1990s rolled in, the p ossibilities for debt-led dev elopmen t had completely collapsed.
Pressure moun ted from W estern institutions suc h as the In ternational Monetary F und (IMF)
to adopt greater mark et-orien ted p olicies in Latin America, th us rev ersing a dev elopmen t
tra jectory that had dominated for almost three decades. New prescriptions emerged in the
form of the W ashington Consensus ( Williamson , 1990 , 1993 )–structural reforms based on
priv atization, lib eralization, and deregulation. Mark et in terv en tions w ould no w sup ersede
the state. In con trast with the debt crisis that follo w ed after the mark et crash of 1929,
when the activ e participation of go v ernmen ts to negotiate plausible solutions w as necessary ,
during the 1980s and 1990s the in ternational financial institutions pla y ed a k ey role in terms
of pa ymen t resc heduling and debt restructuring ( Coatsw orth and T a ylor , 1998 ). Y et the
conditions imp osed b y these m ultilateral institutions w ere difficult for some coun tries, leading
1
A ccording to Bulmer-Thomas, the first t w o decades of the 1900s pro vided propitious opp ortunities
for exp orting coun tries lik e Argen tina, Brazil, Chile, Costa Rica, Urugua y , and V enezuela. Ho w ev er, as
W orld W ar I and the Great Depression sev erely compressed global trade, primary exp ort strategies and
limited man ufacturing capacit y rendered most of LA C inadequate to face demand shortage and a c hanging
in t ernational economic system (see Bulmer-Thomas , 2003 ).
38
T able 2.1: Latin America’s Economic T ra jectory , 1910-2000
P erio d Economic strategies/p olicies Description
Exp ort-orien ted
Exp orts of natural resources; select
mining pro ducts.
1910s
1920s
Limited exp ort-orien ted
Exp orts of natural resources; select
mining pro ducts. Crisis b egins late
1920s (The Great Depression in 1929).
1930s
Imp ort-Substitution Industrialization
(ISI)
Dev elopmen t of domestic industries.
Success in select coun tries.
1940s
1950s
ISI, Dev elopmen tal state
Economic nationalism. State-o wned
companies. Success in Argen tina,
Brazil, and Mexico, y et deficits. Shifts
to military rule in the 1970s.
1960s
1970s
“Lost Decade”; limited exp orts in mid-
1980s
Hetero do x p olicies in coun tries lik e Ar-
gen tina, Brazil, and P eru. Inflation and
defaults.
1980s
W ashington Consensus
Neolib eral p olicies, structural reforms.
Priv atization, lib eralization, and dereg-
ulation.
1990s
Hetero do xy
Main tenance of macro-pruden tial p oli-
cies and increased efforts at p o v ert y re-
duction and “new dev elopmen talism”
in Argen tina and Brazil. Stabilit y
starting mid-2000s. Some trade protec-
tionism remains in coun tries lik e Brazil.
2000s
Sources: A uthor’s elab oration. Information gathered from The Ec onomic History of L atin
A meric a sinc e Indep endenc e b y Victor Bulmer-Thomas, “Latin America’s Econom y: Div ersit y ,
T rends, and Conflicts,” edited b y Eliana Cardoso and Ann Helw ege, and “Latin America and the
W orld Econom y Since 1800,” edited b y John H. Coatsw orth and Alan M. T a ylor.
39
to con tin uous defaults and the ev en tual rejection and reform ulation of the v ery p olicies that
w ere supp osed to aid the economic reco v ery of the affected coun tries.
Ev en though some Latin American economies w ere lib eralizing and op ening up to global
mark ets, they con tin ued to struggle with tigh ter fiscal and monetary p olicy . Most imp or-
tan tly , the lac k of con tin uit y in the economic reforms of man y coun tries undermined their
progress. The o v erall gro wth p erformance during this time w as underwhelming, ev en though
exp ectations w ere high during the first half of the 1990s ( Edw ards , 2007 ). Again, this raised
the question of ho w Latin America could ac hiev e sustained gro wth and whic h approac h
could b etter rev erse the region’s economic under-p erformance. As observ ed in T able 2.1,
throughout the t w en tieth cen tury , coun tries in Latin America had already deplo y ed exp ort-
led and imp ort-orien ted strategies with limited and short-liv ed success. While sc holars suc h
as Bulmer-Thomas suggested the need for b etter economic structures and domestic p olicy
managemen t to seize opp ortunities pro vided b y b eneficial external conditions, the path for-
w ard w as still unclear. What w ould it tak e for Latin America to finally “catc h up,” to deep en
industrialization and encourage tec hnological inno v ation?
2.2 Better Late than Nev er: Is Latin America Stepping
Up?
As suggested b y V adell ( 2019 ), giv en the transformativ e c hanges in the in ternational system
during the t w en tieth cen tury and first t w o decades of the t w en t y-first cen tury , w e need a
framew ork that facilitates a b etter understanding of the p ossibilities for small and medium-
sized states. The prescriptions of the W ashington Consensus of the 1990s ec ho ed the cen ter-
p eriphery conception of the w orld as in tro duced b y Prebisc h in the form of a north-south
division where the economic reco v ery and dev elopmen t of a non-industrialized or underde-
v elop ed South w as still mediated b y economic lib erals from the dev elop ed North. In this
sense, less industrialized coun tries w ere told to lo ok out w ards to prev en t in ternal stagnation.
40
Namely , coun tries in Latin America needed to adjust to an in ternational system that fa-
v ored free-mark et p olicies in order to transform their domestic settings while sim ultaneously
accommo dating global demands.
This domestic transformation required at minim um stable go v ernmen ts, sound institu-
tions, and p olicy con tin uit y–something with whic h most coun tries in the region ha v e con tin-
ually struggled. As discussions emerged regarding the need for stronger and more effectiv e
go v ernmen ts to lead economic reforms, a concern w as the degree of state in terv en tion that
w ould b e needed esp ecially giv en the shortcomings man y coun tries had already exp erienced
in the 1950s and 1960s in pursuing ISI strategies. Unlik e the success exp erienced b y the
Asian tigers (Japan, South K orea, and T aiw an) in the 1970s ( Amsden , 2001 ; Di Maio , 2009 ;
Ev ans , 1989 ; Haggard , 1990 ; Ro drik , 2008 ; W ade , 1992 ; W o o-Cumings , 2019 ), Latin Amer-
ica’s v ersion of the “dev elopmen tal state” w as comparativ ely w eak and lac k ed the vision to
gradually op en up to global mark ets ( Bresser-P ereira , 2007 ).
F or example, in his analysis of the dev elopmen tal state in Asia and Latin America, A tul
K ohli ( 2004 ) suggests that fragmen tation and factionalism b et w een the Brazilian state and
the coun try’s elite detracted from a coheren t dev elopmen t and industrialization strategy .
South K orea’s quest for industrialization w as a top-do wn pro cess that relied on industrial
p olicies and c hanges that allo w ed for gradual mark et op ening, pro ductivit y , and the effi-
cien t allo cation of resources. The state pro vided the capital and w ork ed with priv ate elites
to establish the necessary conditions to industrialize and strengthen large-scale domestic
en terprises ( chaeb ols ). The state apparatus b eha v ed corp orately , enabling it to in teract
and co op erate with differen t mark et forces and pla y ers, and successfully promote industrial
transformation. In Brazil, dep endence on foreign in v estors remained strong, and the lac k
of domestic comp etition hindered the gradual transition from in w ard-orien ted to exp ort-led
gro wth. The Brazilian state w as unable to attract domestic in v estors and mobilize bureau-
crats and other p o w erful domestic groups to use resources efficien tly , promote long-term
41
in v estmen t, and generate economies of scale that are k ey for sp ecialization and pro ductiv e
gro wth (see also Di Maio , 2009 ).
P erhaps more imp ortan tly , man y coun tries in Latin America lac k ed long-term strate-
gies that w ere supp orted b y coheren t administrativ e structures. Moreo v er, the absence of
p olicy adaptation and flexibilit y con tributed to the implemen tation of economic plans that
did not alw a ys matc h lo cal conditions and capacities. Gersc henkron’s ( 1962 ) insistence on
understanding and o v ercoming a coun try’s historic “economic bac kw ardness” as a necessary
condition for industrialization and inno v ation w as lost on the Latin American region un til
the crisis-ridden 1980s, when ISI b ecame obsolete.
In an econometric analysis of the relationship b et w een gro wth and crises in Latin America,
Edw ards ( 2007 , p. 42-43) sho ws that macro economic stabilization, greater op enness, and
p olitical demo cratization are three elemen ts that con tribute to long-term gro wth. Ho w ev er,
the author notes that other factors, suc h as rates of in v estmen t, h uman capital accum ulation,
and institutional qualit y are also imp ortan t and they con tin ue to b e remarkably lo w in Latin
America. In v estmen t in infrastructure, whic h can increase pro ductivit y , sorely lags in the
region ( F a y and Morrison , 2006 ; Serebrisky et al. , 2015 ). Regional a v erage gro wth during
the first decade of this cen tury has b een less than 3 p ercen t–b elo w the 6-8 p ercen t needed to
con v erge with the adv anced economies ( Lardé , 2016 ). Similarly , education qualit y has b een
ab ysmal. The highest-ranking coun tries in education in the region (Chile, Urugua y) ha v e
placed lo w the OECD’s Programme for In ternational Studen t Assessmen t ( PISA ) ( Edw ards ,
2007 ; Sc hleic her , 2019 ).
In their seminal w ork, Why Nations F ail , A cemoglu and Robinson ( 2012 ) argue that
stagnan t gro wth in a region lik e Latin America is due to the presence of extractiv e institu-
tions. They credit this to the colonial legacy of LA C and the reliance on the exploitation
of natural resources to this da y . Extractiv e institutions are exclusiv e, ren t-seeking, and
grabb er-friendly . They concen trate p o w er among the elite and there are few c hec ks and bal-
ances or rule of la w. In fact, they are designed suc h that elites extract resources and w ealth
42
for their p ersonal in terests and b enefits, and prop ert y righ ts are not guaran teed. While
gro wth is p ossible, it is not sustainable in the long run (pp. 76, 79-81).
In con trast and as explained in Why L atin A meric an Nations F ail ( 2017 ) b y P érez and
V ernengo, coun tries with inclusiv e institutions ha v e successfully exp erienced gro wth and
redistributed w ealth among their p opulations. Ho w ev er, the assumption that the British
empire’s legacy to its former colonies w as inclusiv e institutions whereas Spain left its LA C
colonies with extractiv e institutions is incomplete. Both empires w ere inclusiv e and extrac-
tiv e in giv en time p erio ds. Moreo v er, the economic success of South K orea in the 1970s, for
example, w as attributed to a com bination of restrictiv e and lib eral initiativ es, th us sho w-
casing that one set of institutions ma y not solely b e resp onsible for sustained gro wth (pp.
3–5). In addition, P érez and V ernengo p oin t out that institutional analyses ha v e fo cused on
the supply side–for instance, c hanging incen tiv es–and not necessarily on the demand side in
explaining economic success (pp. 6-11); that is, institutions that facilitate the protection
of prop ert y righ ts are as imp ortan t as those that encourage the dev elopmen t of pro ductiv e
sectors and promote researc h and inno v ation p olicies.
The lib eralization strategies em braced in Latin America in the 1990s, while not v ery
flexible at first, did help some coun tries kic kstart economic reforms and gradually impro v e
GDP gro wth rates (see Figure 2.1). Y et these prescriptions did not necessarily matc h regional
realities, th us leading to their ev en tual rejection in coun tries suc h as Ecuador, Bolivia, and
V enezuela ( Edw ards , 2007 ). This c hange w as also tied to the rise of more p opulist and leftist
go v ernmen ts as a result of reform fatigue and the elusiv eness of gro wth. Nonetheless, b y the
start of the 2000s, most of Latin America had ac hiev ed macro economic stabilization. In fact,
the m uc h faster reco v ery of the region from the global financial crisis of 2008-09 seemed to
indicate that this w as a new era for Latin America–an era that also included the rapid rise
of China in the W estern Hemisphere.
43
Figure 2.1: Latin America’s GDP Gro wth Rate (%), 1980-2015
Source: W orld Bank Indicators
44
2.3 China’s En try in to Latin America
“The dev elopmen t of China cannot b e p ossible without the dev elopmen t of other dev eloping
coun tries, including coun tries in Latin America and the Caribb ean. ” This quote comes from
the preface in China’s second white pap er on Latin America and the Caribb ean, published
in No v em b er 2016 ( FMPR C , 2016a ). This up dated v ersion of the first published v ersion
in 2008
2
highligh ted the historical friendship b et w een Latin America and China, as w ell
as common dev elopmen t aspirations that could b e ac hiev ed through m utual understanding,
co op eration, and collab oration. Y et while t he publication of China’s first p olicy pap er in
2008 brough t en th usiasm and hop e for more bilateral opp ortunities b et w een China and Latin
America and the Caribb ean, China’s ties with the region con tin ued to fo cus on a sp ecific
group of coun tries that w ere the main suppliers of those resources and pro ducts that China
needed at the time ( Ra y et al. , 2015 ). Th us, in comparison with the previous decade, China’s
top Latin American partners (Argen tina, Brazil, Chile, Mexico, and P eru) remained almost
unc hanged. That is, these ha v e b een the top fiv e Latin American trade partners for China
since the early 1990s, with Mexico increasing its share of Chinese imp orts disprop ortionately
in the 2000s. F or V enezuela, oil exp orts comprised the foundation of that coun try’s bilateral
ties with China. Similarly , man y of these coun tries ha v e also b een top exp ort partners for
China in the last thirt y y ears, esp ecially Argen tina, Brazil, Chile, and Mexico (T able 2.3).
Although China and other coun tries in Latin America ha v e con tin ued to increase their
bilateral in teractions, it app ears that there is a set of conditions and factors that has made
some LA C coun tries more desirable than others as p oten tial partners to China. This can
b e sho wn b y the limited v ariet y of coun tries China in teracted with b efore the 2000s and the
resp ectiv e ev olution of eac h of these relationships. The exten t to whic h some of these Latin
American partners w ere able to main tain a relativ ely p ositiv e and sustained relationship
with China has to do with comparativ e adv an tage and trade complemen tarit y . Ob jectiv ely
2
China published its first-ev er p olicy pap er on Latin America and the Caribb ean in 2008 and published
an up dated second v ersion in 2016. In this c hapter and throughout this dissertation, the first pap er will b e
referred to as the first p olicy pap er.
45
sp eaking, the rapid expansion of China-Latin America ties to ok place at the start of the
t w en t y-first cen tury , with the explosion of trade, in v estmen t, and financial flo ws. These cross-
P acific economic ties had not gained suc h momen tum in previous decades or the previous
cen tury . Ev en no w, the o v erall economic share that eac h side comprises via-à-vis the other
remains relativ ely small when compared with other larger economic actors suc h as the United
States.
In more detail, while it is certain that China has transformed the global econom y , the
a v erage p ercen tage share of China as an exp ort partner for the Latin American region from
1990 to 2018 has b een less than 5 p ercen t (4.22 p ercen t). The a v erage share from 2000 to
2018 has b een close to 6 p ercen t (5.97 p ercen t). This mak es China the second-largest exp ort
partner for Latin America after the United States o v er the last three decades. Ho w ev er,
China’s a v erage share of exp orts still do es not come close to exp orts share from the United
States (46 p ercen t) to LA C. In terms of imp orts, the picture is similar: during the 1990s,
as an imp ort partner for Latin America, China had an a v erage p ercen tage share of 1.13
p ercen t, b elo w the shares held b y Japan, South K orea, F rance, and German y . F rom 2000
to 2018, its a v erage share increased to appro ximately 11.58 p ercen t, b ecoming the region’s
second-biggest imp ort partner, after the United States, whic h had an a v erage share that
surpassed 35 p ercen t (T able 2.4).
Nev ertheless, China’s fast p ositioning as one of Latin America’s most imp ortan t trading
partners is reflected in the data. It is remarkable that in ab out thirt y y ears, China’s share
as an exp orts partner steadily increased around righ t times, and o v er eigh teen times as an
imp orts partner. Suc h a trend has not b een observ ed with other economic partners that
ha v e also main tained stable economic ties with Latin America. In the case of the United
States, its share as an imp ort partner for Latin America has exp erienced a do wn w ard trend
during the last fifteen y ears or so. As an exp ort partner, the U.S. share has sta y ed in the
30-40 p ercen tage ranges (Figures 2.2 and 2.3). In this sense, this analysis of ho w coun tries in
Latin America and the Caribb ean ha v e faced and resp onded to China’s increasing economic
46
T able 2.2: China’s T op 5 Latin American Imp ort P artners, 1992-2018
1992 1993 1994 1995 1996 1997 1998 1999 2000
Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil
Chile Chile P eru P eru P eru Argen tina Argen tina Chile Chile
P eru P eru Argen tina Argen tina Argen tina P eru Chile Argen tina Argen tina
Argen tina Argen tina Chile Chile Chile Chile P eru P eru P eru
Cuba Mexico Cuba Cuba Mexico Mexico Mexico Mexico Mexico
2001 2002 2003 2004 2005 2006 2007 2008 2009
Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil
Chile Chile Argen tina Chile Chile Chile Chile Chile Chile
Argen tina Argen tina Chile Argen tina Argen tina Argen tina Argen tina Argen tina V enezuela
Mexico Mexico Mexico Mexico P eru P eru P eru V enezuela P eru
P eru P eru P eru P eru Mexico V enezuela Mexico P eru Argen tina
2010 2011 2012 2013 2014 2015 2016 2017 2018
Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil
Chile Chile Chile Chile Chile Chile Chile Chile Chile
Mexico V enezuela V enezuela V enezuela V enezuela Mexico Mexico P eru P eru
Argen tina Mexico Mexico Mexico Mexico P eru P eru Mexico Mexico
V enezuela P eru P eru P eru P eru V enezuela V enezuela V enezuela V enezuela
Source: A uthor’s elab oration. Data from W orld In tegrated T rade Solution (WITS).
Note: Multilateral organizations do not ha v e exp orts and imp orts data rep orted from China b efore 1992.
47
T able 2.3: China’s T op 5 Latin American Exp ort P artners, 1992-2018
1992 1993 1994 1995 1996 1997 1998 1999 2000
Cuba P anama P anama Brazil Brazil Brazil Brazil P anama Mexico
Mexico Argen tina Brazil P anama P anama P anama P anama Brazil P anama
P anama Chile Argen tina Chile Chile Chile Mexico Mexico Brazil
Chile Brazil Chile Argen tina Argen tina Argen tina Chile Chile Chile
Argen tina Cuba Mexico Mexico Mexico Mexico Argen tina Argen tina Argen tina
2001 2002 2003 2004 2005 2006 2007 2008 2009
Mexico Mexico Mexico Mexico Mexico Mexico Mexico Brazil Brazil
Brazil Brazil Brazil Brazil Brazil Brazil Brazil Mexico Mexico
P anama P anama P anama P anama P anama P anama P anama P anama P anama
Chile Chile Chile Chile Chile Chile Chile Chile Chile
Argen tina V enezuela Argen tina Argen tina Argen tina Argen tina Argen tina Argen tina Argen tina
2010 2011 2012 2013 2014 2015 2016 2017 2018
Brazil Brazil Brazil Brazil Brazil Mexico Mexico Mexico Mexico
Mexico Mexico Mexico Mexico Mexico Brazil Brazil Brazil Brazil
P anama P anama P anama Chile Chile Chile Chile Chile Chile
Chile Chile Chile P anama P anama Argen tina Argen tina Argen tina Colom bia
Argen tina Argen tina V enezuela Argen tina Colom bia P anama Colom bia Colom bia Argen tina
Source: A uthor’s elab oration. Data from W orld In tegrated T rade Solution (WITS).
Note: Multilateral organizations do not ha v e exp orts and imp orts data rep orted from China b efore 1992.
48
T able 2.4: China and the United States A v erage Shares (%) as Latin America’s Imp orts and
Exp orts P artners
P artner Indicator (%) 1990-1999 2000-2018 1990-2018
China Imp orts partner share 1.13 11.58 7.97
United States Imp orts partner share 46.16 35.38 39.10
China Exp orts partner share 0.92 5.97 4.23
United States Exp orts partner share 47.24 45.44 46.06
Source: W orld In tegrated T rade Solution (WITS).
presence helps us assess ho w a group of small- and medium-sized economic pla y ers can
manage their in teractions, as w ell as the exten t to whic h they can protect their in terests, in
the face of a new fast-emerging economic p o w er.
Figure 2.2: China and the United States as Latin America’s Imp orts P artners (%),
1990-2015
Source: W orld In tegrated T rade Solutions (WITS)
49
Figure 2.3: China and the United States as Latin America’s Exp orts P artners (%),
1990-2015
Source: W orld In tegrated T rade Solutions (WITS)
50
T o reiterate, China’s noticeable expansion in the region o ccurred in the early 2000s as
b oth sides mostly pursued commercial, in v estmen t, and financial in terests. In the 1990s, as
will b e explained in later sections, these cross-P acific ties w ere already gathering steam, but
commercial and in v estmen t lev els remained relativ ely small. Since the 2000s, an increasing
n um b e r of Chinese state-led pro jects and initiativ es mean t the en try of medium- and large
in v estmen ts, and business deals in Latin America. Th us, the strengthening of bilateral ties
has b een essen tial to sustaining these economic opp ortunities with China. Y et the task has
b een easier for some coun tries than others.
In c hapter 1, I indicated that the nature of the ties a coun try in Latin America has
initially established with China sets the tone for future dynamics. In this section, I pro vide
a historical review of China-Latin America e ncoun ters. This is b ecause man y of China’s
strongest in teractions with Latin America in v olv e coun tries with whic h it already had some
kind of relationship prior to the China b o om that to ok off in 2003. Argen tina, Brazil,
and P eru are some clear examples. These historical connections alone, ho w ev er, ha v e not
b een enough to main tain b eneficial bilateral ties in to the p resen t. This is clear from the
deterioration in the China-Mexico relationship. The success of a coun try when in teracting
with China has also b een dep enden t on its economic statecraft o v er time, whic h at the
same time has b een influenced b y its endo wmen t factors, institutions, and the agency of
p oliticians and p olicymak ers. An understanding of historical ties in the China-Latin America
relationship is imp ortan t b ecause it mak es p ossible the iden tification o f those coun tries in
Latin America that ha v e had long-term exc hanges with China and the circumstances under
whic h these ties strengthened, stagnated, or stum bled.
T o this end, I iden tify three kinds of earlier Latin American engagemen t with China.
First, there are coun tries that receiv ed w a v es of Chinese immigran ts in to the region in the
1800s. Second, some coun tries ric h in natural resources increased in teractions with China in
the 1990s and b eginning of the 2000s. Finally , there w ere some coun tries that China engaged
with mostly for p olitical strategic purp oses as it sough t supp ort after the establishmen t of
51
the P eople’s Republic of China (PR C) in 1949 and its en try in to the United Nations in
1971. These groups are not exhaustiv e or exclusiv e from eac h other. My assumption is that
early ties pro vided accessibilit y and crucial c hannels for comm unication wit hin the Cold W ar
con text. But a past history with China do es not guaran tee or fully reflect the curren t state
of the bilateral relationship. As a second la y er of analysis, I explore v arieties of success in the
China-LA C relationship in three categories: trade, in v estmen t, and diplomatic partnerships.
The coun tries that ha v e b een successful in their in teractions with China are the ones that
ac hiev ed the b est p ossible outcome in at least t w o of these categories.
This c hapter pro ceeds as follo ws: in the next section I review Latin America’s first official
encoun ters with China and the state of selected relationships un til the PR C’s rappro c hemen t
with the W est in 1971. This is follo w ed b y an analysis of ho w these relationships transitioned
from friend-to-friend and p eople-to-p eople ties, to go v ernmen t-to-go v ernmen t and economic
partners. Here, I emphasize that only a select n um b er of coun tries in Latin America exp e-
rienced the so-called China b o om of the 2000s. F rom this detailed analysis of the coun tries
in Latin America that ha v e b een more successful when in teracting with China, I justify the
c hoice of P eru as m y main case study .
2.3.1 First Encoun ters and Meeting (T emp orary) Allies
The first t yp e of con tact b et w een China and Latin America w as through migratory mo v e-
men ts that b egan in the nineteen th cen tury . Although it is arguable that the first Asian con-
tacts happ ened in 1525 through the trade of spices and artifacts from Asia to Mexico, whic h
included the presence of Chinese, Filipino, and Mala y p eople ( Conelly and Cornejo Busta-
man te , 1992 ; Lausen t-Herrera , 2010 ), I determine that the in teractions of the 1800s w ere the
first p oin ts of con tact and these prompted the establishmen t of official bilateral ties.
A ccording to Connelly and Cornejo Bustaman te ( 1992 ), the first Chinese migratory w a v e
to Latin America w as to replace w ork ers that had b een brough t in b y the British, F renc h,
P ortuguese, and Spanish as African sla v ery w as ab olished. While T rinidad w as one of the
52
first destinations where groups of Chinese arriv ed, in 1806, the official coun t of Chinese
w ork ers to the region b egan in the 1840s. This trade of “co olies,” as these Chinese w ork ers
w ere kno wn, w as led b y British companies at first and then follo w ed b y American firms,
making Brazil and P eru the t w o main Latin American destinations for Chinese migran ts.
This explains the app earance of Chinese comm unities in these coun tries, whic h w ould pla y
an imp ortan t role in the future facilitation of commercial ties during the follo wing cen tury .
In Cen tral America and the Caribb ean, Cuba w as another destination for a relativ ely large
n um b e r of Chinese w ork ers, mainly led b y F renc h companies. In P anama, Chinese w ork ers
b egan to arriv e in appro ximately the 1850s to w ork on the canal. Mexico, unlik e man y of
its regional coun terparts, w as not a destination for Chinese w ork ers. Instead, the Chinese
arriv ed there via the United States. The first direct Chinese migration to Mexico did not
o ccur un til 1891.
As exp ected, the w orking conditions for the Chinese w ere p o or and, in spite of the ongoing
influx of Chinese w ork ers at the time, there w ere no migration treaties b et w een China, the
trading coun tries, and the resp ectiv e coun tries that w ere emplo ying the Chinese w orkforce.
This led to the official establishmen t of diplomatic relations b et w een China and some Latin
American coun tries b y the end of the 1800s. The purp ose w as to ha v e more con trol o v er
Chinese emigration b y Chinese authorities, on the one hand, and to ensure the fair treatmen t
of Chinese nationals, on the other hand. F or instance, Connelly and Cornejo Bustamen te
( 1992 ) indicate that, Chinese citizens could not migrate to P eru unless they had at least
500 sterling p ounds in cash up on en try . In Cuba, in addition to a letter of supp ort from a
Chinese en trepreneur in Ha v ana, Chinese p eople who desired to migrate to the island had
to pa y a tax of US$ 500.
As the last Chinese dynast y (Qing or Ch’ing if using the W ales-Giles romanization)
collapsed in 1911 ( F airbank , 1978 ; F airbank and Goldman , 2006 ; Sp ence , 1990 ), Chinese
immigration to Latin America w as more closely monitored b y the host coun tries as tensions
53
b et w een the lo cal p opulation and the Chinese b egan to rise ( Conelly and Cornejo Busta-
man te , 1992 ). In some coun tries, businesses had to set a cap on the n um b er of Chines e
w ork ers they brough t in, and most mandated that at least 80 p ercen t of a compan y’s w ork-
force w as lo cal. When W orld W ar I (WWI) brok e out, man y Latin American coun tries faced
shortages of w ork ers, and p olicies t hat had b een enacted to limit Chinese immigration w ere
relaxed b y some coun tries in the region. Suc h w as the case with Cuba in 1917 ( Conelly and
Cornejo Bustaman te , 1992 ); ho w ev er, other Latin American go v ernmen ts main tained their
restrictions to w ard Chinese migran ts, mostly due to lab or conflicts and business comp etition
at home. This indicates that throughout the late nineteen th cen tury and early t w en tieth
cen tury , bilateral exc hanges with China w ere inconsisten t and fluctuated dep ending on the
in ternal conditions of individual host coun tries.
It is w orth men tioning that m uc h of the bilateral in teraction b et w een China–and the
Qing emp eror in particular–and coun tries in Latin America w as conducted via in termediaries.
That is, usually , there w as no direct early comm unication b et w een represen tativ es from Latin
America and Chinese dignitaries. Instead, Chinese diplomats w ould in teract with British,
F r enc h, or American companies who had businesses in LA C. In the early 1900s, Chinese
and LA C officials w ould comm unicate with eac h other via their resp ectiv e represen tativ es in
the United States–there w ere no LA C offices in China or Chinese diplomatic offices in LA C.
P eru, Brazil, P anama, and Mexico are coun tries that ev en tually established direct official
exc hanges with Chinese represen tativ es (T able 2.5). El Salv ador and Nicaragua b egan direct
con tact with China after the fall of the Qing, th us establishing diplomatic exc hanges with
the Guomindang (or Kuomin tang) go v ernmen t, whic h w ould later b e exiled to T aiw an and
replaced b y the go v ernmen t of the Chinese Comm unist P art y (CCP) in 1949. Earlier, P eru,
Brazil, and Mexico had eac h signed a T reat y of F riendship, Commerce, and Na vigation with
China in 1874, 1881, and 1899, resp ectiv ely .
As the P eople’s Republic of China (PR C) w as established and the U.S. cut ties with
China, leaders of the Chinese Comm unist P art y (CCP) tried to main tain the coun try’s
54
T able 2.5: First Official Exc hanges b et w een Selected Coun tries in Latin America and China
Coun try Start
Y ear
Description
Brazil 1880 Official bilateral exc hange requested b y the
Brazilian go v ernmen t.
Cuba 1873 Bilateral exc hanges conducted through
Spain.
El Salv ador 1930 First direct exc hange with the Guomindang.
Guy ana 1851 Con tact with China via Great Britain.
Jamaica 1924 Chinese consul on the island from 1924-1950.
Mexico 1875-76 Informal bilateral exc hanges; formal bilateral
exc hanges starting in 1891.
Nicaragua 1930 First direct exc hange with the Guomindang.
P anama 1910 First Chinese consulate.
Sources: A uthor’s elab oration, using China-A méric a L atina: Génesis y desar-
r ol lo de sus r elaciones b y Marisela Connelly and Romer Cornejo Bustaman te
(1992), “The P eople’s Republic of China and Latin America: F rom Indifference
to Engagemen t,” b y F rank O. Mora in A sian Affairs: A n A meric an R eview
(1997).
relationship with its Asian and African coun terparts. In Latin America, although China’s
foreign p olicy to w ard the region con tin ued to b e somewhat activ e, Latin American coun tries
w ere not necessarily of strategic in terest for the PR C ( Conelly and Cornejo Bustaman te ,
1992 , p. 58). This is ec ho ed b y Mora ( 1997 ), who indicates that during the second half
of the t w en tieth cen tury , Latin America-China relations could b e divided in t w o phases: a
p erio d of indifference but also of ideological pursuits (1949-19 69), and a p erio d in whic h
diplomatic and economic exc hanges b egan to pic k up pace (1970-1997).
This indifference phase is in part explained b y China’s o wn isolation, as Mao Zedong tried
to solidify his leadership in China and detac h from the influence of the United States–whic h
had tak en a strong Cold W ar stance against China. Y et as rev olutionary mo v emen ts in Latin
America b egan to emerge with staunc h an ti-U.S. sen timen ts, China supp orted some of these
national lib eration mo v emen ts. This w as esp ecially so during the mid-1950s and the 1960s as
55
China c hampioned solidarit y b et w een “Third W orld” coun tries ( Conelly and Cornejo Bus-
taman te , 1992 ; Lozo y a , 1983 ; Mora , 1997 ). Y et influen tial Latin American economies main-
tained a certain distance to w ard China, as the latter exp erienced failed attempts in con-
necting diplomatically with Brazil and Mexico, for example, as b oth coun tries w ere ruled
b y pro-U.S. authoritarian regimes ( Conelly and Cornejo Bustaman te , 1992 ). Argen tina’s
military go v ernmen t supp orted the United States o v er China ( Conelly and Cornejo Bus-
taman te , 1992 ), although the PR C con tin ued to imp ort Argen tine wheat, Mexican cotton,
Brazil’s iron ore, and Chilean copp er to a lesser exten t ( Mora , 1997 ).
The cold shoulder did not dissuade the Chinese from seeking out supp orters and allies
in the dev eloping w orld. These efforts b ecame more noticeable in the 1970s, as China
emphasized the need for south-south co op eration giv en the asymmetries inheren t in north-
south exc hanges ( Mora , 1997 ). During this same p erio d, China b egan to shift its foreign
p olicy and adopted a more pragmatic approac h. Th us b egan phase I I in terms of China-Latin
America relations. With a fo cus on economics, Chinese leaders sough t to expand diplomatic
ties with Latin America while also building stronger economic relations with the region
( Mora , 1997 ). This mean t gaining access to foreign mark ets and ra w materials that w ere
not a v ailable in China. In 1970, Cuba and Chile w ere the first coun tries in Latin America
to supp ort China’s recognition at the United Nations. In 1971, China gained a p ermanen t
seat on the UN Securit y Council and official diplomatic ties w ere promptly established with
Ecuador, Guy ana, Mexico, and P eru.
In the 1980s, China’s c hanging foreign p olicy to w ard Latin America highligh ted trade as
the most imp ortan t elemen t ( Mora , 1997 ), while also reiterating the PR C’s Fiv e Principles
of P eaceful Co existence . These principles w ere first men tioned in the 1950s, and promoted
bilateral relations along lines of “equalit y , m utual b enefit and m utual resp ect for territorial
in tegrit y and so v ereign t y” (Ministry of F oreign Affairs of the PR C). During this decade,
China had re-established and formalized relations with the main economies of Latin America
with the exception of P anama ( Lozo y a , 1983 ); ho w ev er, the Tiananmen Square massacre of
56
1989 brough t disruptions to China’s relationship with the W est. But Latin America w as
more forgiving. Just a y ear after Tiananmen, China’s presiden t at the time, Shangkun
Y a ng, accepted the in vitation to visit fiv e Latin American coun tries: Argen tina, Brazil,
Chile, Mexico, and Urugua y ( Mora , 1997 ). In 1993, Brazil w as the first dev eloping coun try
with whic h China established a “strategic partnership. ” In a later c hapter, I discuss the
significance of China’s strategic partnerships with select Latin American coun tries.
2.4 Defining Success
When China b egan to deep en and expand its economic and financial ties in Latin Amer-
ica and the Caribb ean in the early 2000s, a n um b er of analyses fo cused on the impact
and implications of this phenomenon ( DeHart , 2012 ; Dollar , 2017 ; Ellis , 2011 ; Gallagher
and P orzecanski , 2010 ; Gallagher and Irwin , 2015 ; Gallagher , 2016 ; Gonzalez-Vicen te , 2012 ;
Dussel P eters , 2019b ; San b orn and T orres , 2009 ; My ers and Wise , 2017 ; V adell , 2019 ; Wise
and Chonn Ching , 2018 ). China’s impact on LA C has generally b een in tro duced as either an
opp ortunit y or a c hallenge for the region. Rep orts from ECLA C during the first half of this
decade, for example, highligh ted the greater dynamism in LA C’s trade and in v estmen t flo ws
due to increased economic exc hanges with China. A t the same time, ECLA C also raised con-
cerns regarding the p oten tial deindustrialization of some of the largest LA C economies as a
result of soaring commo dities exp orts to China ( Bárcena , 2015 ; CEP AL , 2011 ; Ku w a y ama
and Rosales , 2012 ; Pérez Ludeña , 2017 ; P errotti , 2015 ).
In these instances, most analyses ha v e cen tered on China’s p olicies and strategies to w ard
Latin America. Less atten tion has b een placed on ho w and under whic h circumstances
coun tries in the region ha v e resp onded to these Chinese economic o v ertures. Some exceptions
include industry-sp ecific w ork b y Gonzalez-Vicen te ( 2012 ) and San b orn and Chonn Ching
( 2017 ), whic h examine the role that P eruvian institutions and structures in the extractiv e
industries pla y ed in enforcing regulations and managing Chinese in v estmen t. F or example,
57
San b orn and Chonn Ching ( 2017 ) conclude that the record of Chinese mining companies
on lab or and en vironmen tal p erformance in P eru is, on a v erage, not w orse than some of
their U.S. or Europ ean coun terparts. The host coun try’s enforcemen t capacit y is k ey when
holding Chinese firms accoun table.
Carol Wise’s ( 2020 ) Dr agonomics offers a comprehensiv e analysis of Latin America’s
resp onses to w ard China and ho w p olitical and economic in teractions ha v e unfolded during
the first t w o decades of this cen tury . First in tro duced in a co-authored article (see Wise
and Chonn Ching , 2018 ) and explained more in depth in her man uscript, Wise examines
three p olitical econom y scenarios that sho w case differen t degrees of success when engaging
with China. Preliminary results indicate that p erhaps the most successful coun tries are
the smaller economies of Chile, Costa Rica, and P eru, all of whic h ha v e signed separate
bilateral FT As with China, th us institutionalizing their economic ties with the PR C. While
Argen tina and Brazil are t w o economies that b enefited from the rise in commo dit y prices and
high gro wth during the China b o om, b oth coun tries exp erienced what Wise describ es as an
institutional resource curse. Despite the massiv e Chinese capital inflo ws that Argen tina and
Brazil receiv ed, the institutional reforms that b egan in b oth coun tries in the 1990s stalled.
This led to the mismanagemen t of resources; a w eak ening of monetary , financial, and p olitical
structures; and an increase in corruption. The third p olitical scenario mainly corresp onds
to Mexico. Although the coun try main tained go o d economic ties with China un til the mid-
1990s, tensions b egan to app ear and ha v e remained un til to da y as Mexican go o ds faced
fierce comp etition from China in Latin America and the United States. As ties b ecame
more strained b et w een Mexico and China, the former prioritized its ties with the United
States and Canada via NAFT A, hence creating less space to maneuv er an y opp ortunities
with China.
Based on this b o dy of researc h, I expand the analysis of Latin American resp onses to w ard
the rise of China as a historical juncture. In this section, I explain what success means as
coun tries in Latin America in teract with China. I mo v e a w a y from the view that these
58
dev eloping economies are unable to assert their role in the in ternational economic system–a
view that, in part, has b een dominan t giv en the region’s economic and dev elopmen t failures
from the past. As men tioned in c hapter 1, I fo cus mainly on economic success based on the
premise that, throughout most of the t w en t y-first cen tury , the nature of bilateral ties b et w een
China and coun tries in Latin America cen tered on trade, with the gradual progression to
greater in v estmen ts and loans. I define as successful those LA C coun tries that to ok adv an tage
of the p ositiv e external conditions during the early 2000s and w ere able to main tain go o d
ties with China despite c hallenges they faced giv en the unequal trade exc hange regarding the
exp ort of primary pro ducts and the imp ort of man ufactured go o ds. Ev en in the aftermath
of the commo dities b o om, these coun tries con tin ued to expand their economic agreemen ts
with China and adjust to the difficult shifts in the in ternational economic en vironmen t.
The b ottom line is that success in dealing with China requires leaders and p olicymak ers
who can carry out a w ell-defined strategy that co ordinates domestic capacit y with external
exp ectations. In this case, coun tries in Latin America are view ed as activ e economic actors in
the in ternational economic system. Again, I fo cus on three related issue-areas to sho w what
success vis-à-vis China can lo ok lik e in Latin America. More sp ecifically , I a nalyze trade
and in v estmen t on the economic side, and the role of strategic partnerships as an elemen t
in foreign p olicy that can p oten tially reinforce existing ties. The next c hapter will sho w in
more detail ho w this definition applies to select coun tries in the region, th us demonstrating
v aried lev els of success in some areas and failures in others.
2.4.1 Areas of Success
First, I highligh t trade b ecause it remains the foundational link in the China-Latin Amer-
ica relationship. As a commo dities-ric h region, more than 75 p ercen t of Latin America’s
go o ds to China are ra w materials (see T able 2.7). In ligh t of accoun ts that attribute Latin
America’s industrialization failures to the lac k of tec hnological dynamism and the hea vy
reliance on primary exp orts ( Bak er , 2003 ; Coatsw orth and T a ylor , 1998 ; Prebisc h , 1962 ),
59
the concern that greater trade with China without pro duct div ersification could lead Latin
America to a new form of dep endency is v alid ( Gallagher , 2010 ; Gallagher and P orzecan-
ski , 2010 ; Gallagher , 2016 ; San b orn and T orres , 2009 ; Wise , 2020 ). Y et an abundance of
natural resources do es not necessarily determine failure. In the first place, primary pro d-
ucts represen t the comparativ e adv an tage of LA C and their sale to global mark ets prompted
Latin America’s in tegration in to the w orld econom y ( Bulmer-Thomas , 2003 ; Pérez Calden tey
and V ernengo , 2017 ). Moreo v er, the dep endency theory (as review ed earlier in this c hap-
ter) can b e applied to some LA C coun tries with regard to their in teractions with China.
W eak institutions, lo w pro duction capacit y , and incomp eten t leadership underpin a nega-
tiv e patt ern o f path-dep e ndency fo r coun tries suc h as Ecuador and V enezuela. The b enefits
from commo dit y-driv en gro wth that man y Latin American coun tries exp erienced in the first
decade of 2000s w ere not fully captured ( Gallagher , 2016 ; San tiso and A v endaño , 2011 ; Wise ,
2020 ).
In this sense, trade connections with China sho w case the abilit y of a giv en coun try to
create sound trade p olicies that can generate relativ e trade wins. It is not just ab out a
giv en coun try’s endo wmen t factors, but also ho w these are managed. As a result, I assume
that w ell-established trade ties with China will create spillo v ers that include the expansion
of trade to other non-traditional sectors, in services, and greater in v estmen t opp ortunities
that complemen t the commercial relationship. Commercial exc hange with China, in other
w ords, b ecomes a go o d starting p oin t to examine the success of bilateral ties b et w een a
giv en coun try and China. Therefore, within this category , the signing of an FT A and its
optimization and upgrade o v er time can translate in to a successful story . Ho w ev er, as will
b e further expanded in c hapter 3, asymmetrical information and w eak economic structures
can th w art suc h a pro ject. F or example, although Chile, P eru, and Costa Rica ha v e ac hiev ed
the commercial milestone of signing an FT A with China, Costa Rica has not b een able to
realize the same b enefits as its regional coun terparts.
60
T able 2.6: Latin America’s Exp orts Pro duct Share (%), 1990-2015
Y ear T op exp orts Share (%)
1990
In termediate go o ds 32.98
Ra w materials 32.46
Consumer go o ds 20.64
1995
Ra w materials 27.36
In termediate go o ds 27.27
Consumer go o ds 25.91
2000
Consumer go o ds 28.82
Capital go o ds 25
Ra w materials 24.24
2005
Ra w materials 28.92
Consumer go o ds 25.9
Capital go o ds 21.42
2010
Ra w materials 33.63
In termediate go o ds 22.37
Consumer go o ds 21.95
2015
Ra w materials 27.4
Capital go o ds 26.6
Consumer go o ds 21.6
Sources: W orld Bank, W orld In tegrated Solutions (WITS).
T able 2.7: Latin America’s Exp orts Pro duct Share to China (%), 1990-2015
Y ear T op exp orts Share (%)
1990
In termediate go o ds 79.02
Ra w materials 17.25
1995
In termediate go o ds 67.92
Ra w materials 23.39
2000
Ra w materials 47.23
In termediate go o ds 42.61
2005
Ra w materials 55.89
In termediate go o ds 36.99
2010
Ra w materials 66.41
In termediate go o ds 29.3
2015
Ra w materials 68.21
In termediate go o ds 25.18
Sources: W orld Bank, W orld In tegrated Solutions (WITS).
61
Second, Chinese in v estmen ts in Latin America are usually complemen tary to China’s
existing trade partnerships. The construction of roads, bridges, or p orts facilitate the mo v e-
men t of pro ducts to China. As China-LA C ties deep ened and China’s economic priorities
shifted around the mid-2010s, Chinese in v estmen ts b egan to c hange as w ell. T o date, Spain,
German y , and the United States ha v e b een the largest in v estors in infrastructure and service
sector pro jects in Latin America, including the areas of telecomm unications, transp ortation,
electricit y , and airp ort construction ( Lardé , 2016 ). Ho w ev er, b et w een 2014 and 2018, roughly
half of Chinese mergers and acquisitions in Latin America w ere in infrastructure pro jects
( Ra y and W ang , 2019 ). While Europ ean coun tries con tin ue to b e the largest in v estors in
man y of these sectors in the region, the gradual increase of Chinese in v estmen ts in these
areas is a sign of div ersification and expansion efforts.
Data from China’s Ministry of Commerce (MOF COM) indicate that Chinese foreign
in v estmen t outflo ws to Latin America increased from US$ 1.76 billion in 2004 to nearly US$
10.5 billion in 2010. The y ear 2013 sa w Chinese in v estmen t reac h one its highest p eaks, with
an a v erage 35.7 p ercen t gro wth since 2007 — an amoun t that w as higher than China’s global
a v erage of 30.4 p ercen t in FDI outflo ws. In 2017, a record high of US$ 17.5 billion Chinese
in v estmen t in mergers and acquisitions w as recorded, follo w ed b y a dramatic drop to US$ 7.6
billion in 2018 ( Ra y and W ang , 2019 ). Similar to trade, only a select group of LA C coun tries
has b enefited from Chinese in v estmen t, including Argen tina, Brazil, Ecuador, P anama, P eru,
and V enezuela. The decision of where to in v est has b een dep enden t on whether China can
find new opp ortunities and whic h sectors ha v e more p oten tial and high returns. In the
second half of the 2010s and with the in vitation to coun tries in Latin America to participate
in Xi Jinping’s Belt and Road Initiativ e (BRI), it app ears that China is adjusting ho w it
will in v est in the region.
Ob jectiv ely , Chinese in v estmen ts can b e elusiv e to trac k, y et larger pro jects help us to
b etter understand some of the main factors b ehind eac h in v estmen t. That said, it is puzzling
that some larger LA C economies ha v e not b een able to main tain a steady inflo w of Chinese
62
in v estmen t, while smaller economies ha v e done b etter attracting Chinese in v estmen t ( In ter-
American Dialogue, 2018 ). Giv en this scenario, while the amoun t of Chinese in v estmen t is
relev an t when determining the winners, so to o is the n um b er of pro jects and their p oten tial
to increase pro ductivit y . P articularly for the latter case, this progression is not only repre-
sen tativ e of a Chinese firm’s abilit y to na vigate lo cal pro cedures and regulations, but also
the host coun try’s capacit y to enforce these and hold firms accoun table.
Third, in addition to an increase in bilateral trade and Chinese in v estmen t, the forging of
strategic partnerships b et w een China and a n um b er of LA C coun tries has b een a sym b olic
feature of China-LA C relations, esp ecially in the 2010s. Although these partnerships can b e
more significan t in theory than in practice ( Strüv er , 2017 ; F eng and Huang , 2014a ), the es-
tablishmen t of a strategic partnership with China has b een view ed as a milestone in bilateral
ties. F rom the Latin American p ersp ectiv e, these partnerships pro vide reassurance for fur-
ther co op eration and the p oten tial expansion of existing agreemen ts with China (in terviews
China and P eru, Ma y-June 2017, Jan uary 2019). Ho w ev er, their imp ortance is dep enden t
on the activ e participation of eac h part y .
As of to da y , there is not an official list of categories for strategic partnerships, but the
most recurren t t yp es are strategic partnerships ( 战 略 伙 伴 关 系 , zhànlüè huǒb àn guānxì ),
comprehensiv e partnerships ( 全面合作伙伴关系, quánmiàn hézuò huǒb àn guānxì ), and com-
prehensiv e strategic partnerships ( 全 面 战 略 伙 伴 关 系 , quánmiàn zhànlüè huǒb àn guānxì ).
Brazil w as the first coun try China established a strategic partnership with, in 1993 ( FM-
PR C ), whic h w as then upgraded to a comprehensiv e strategic partnership in 2012. Although
eac h announcemen t serv ed to affirm greater collab oration and co op eration, the status of a
strategic partnership do es not alw a ys guaran tee success. The Brazil-China strategic part-
nership has b een con tradictory at times, as lucrativ e trade exc hanges ha v e b een offset b y
protectionist p olicies enacted on the Brazilian side ( Wise , 2020 ; Xu , 2016 ). In the P eruvian
case, follo wing the announcemen t of its comprehensiv e strategic partnership with China, the
South American coun try signed an additional elev en accords that expanded its co op eration
63
with China in div erse sectors, including the extension of ph ytosanitary licenses as w ell as
additional trade-study exc hanges. As suc h, I argue that a strategic partnership can b e ef-
fectiv e to the exten t that it supp orts the expansion or the reinforcemen t of existing or new
co op eration agreemen ts.
2.5 Conclusion
The transformation of China in to a global economic b ehemoth has raised questions regarding
its new role in the in ternational economic system, th us tapping in to analyses that fo cus
mostly on p o w er transition ( Organski , 1958 ), balance of p o w er ( Mearsheimer and Alterman ,
2001 ; Morgen thau , 1948 ), or hegemonic stabilit y ( Gilpin , 1981 ). Rather than an in depth-
examination of these theories, I pa y atten tion to the resp onses of the recipien ts of China’s
economic p o w er in the dev eloping w orld, namely in Latin America. I argue that coun tries
in the dev eloping w orld can ha v e lev erage and b e successful in determining their o wn paths
as they in teract with a more economically p o w erful actor suc h as China. Earlier theories
of dep endency ha v e highligh ted the region’s failures in ac hieving dev elopmen t goals and
the risks of engaging with China giv en Latin America’s p osition as an imp ortan t source
of commo dities and primary resources. Y et the conditions for man y LA C coun tries ha v e
c hanged in the last three decades, follo wing y ears of reforms and structural adjustmen t.
F o r coun tries lik e Chile and P eru there is path dep endency in their commercial ties ( Wise
and Chonn Ching , 2018 ; Wise , 2020 ), y et the b enefits b oth coun tries ha v e b een able to
ac hiev e with China demonstrate that these bilateral ties are not necessarily a zero-sum
game. Differen t lev els of success can b e p ossible and this can b e observ ed via three areas
of analysis: trade, in v estmen t, and partnerships. The follo wing c h apter will expand on this
theme.
64
Chapter 3
The P olitics of Success in Latin America
Latin America’s “China b o om” (2003-2013) w as limited to a select n um b er of coun tries in the
region. While general trade and in v estmen t inflo ws from China increased during this p erio d,
these w ere concen trated on a sp ecific group of coun tries (i.e., Argen tina, Brazil, Chile, and
P eru) with a timid expansion to other LA C economies during the p ost-b o om p erio d.
1
The
purp ose of this expansion w as to further consolidate China’s p osition in Latin America–one
that had b een built on t w o main pillars: economic and trade co op eration ( Liang , 2019 ; Wise
and Chonn Ching , 2018 ; Xu , 2016 ).
The end of the commo dit y b o om coincided with China’s c hange in leadership in 2012 and
the structural readjustmen t of the economic mo del Chinese leaders had follo w ed since China’s
op ening to the w orld in the 1980s. With y early gro wth rates that a v eraged 9.5 p ercen t in
the span of three decades, the Chinese economic mo del during the 1980s and 1990s fo cused
on China’s massiv e man ufacturing exp orts and domestic in v estmen ts to generate gro wth.
One cost of this gro wth strategy is that it also generated im balances and an o v erheated
econom y . The release of the 12th Fiv e-Y ear Plan (2011-2015) in 2011 w as a sign that
1
The Global Dev elopmen t P olicy Cen ter (GDPC) at Boston Univ ersit y and the China Finance Database
from the In ter-American Dialogue pro vide the latest data ab out Chinese trade, in v estmen t, and financing
in Latin America. As indicated in the GDPC’s m ulti-y ear bulletins, Argen tina, Brazil, Chile, Mexico, and
P eru ha v e b een among China’s top trade partners in the region as w ell as in v estmen t destinations, with the
exception of Mexico. Whereas Bolivia, Ecuador, and V enezuela ha v e b een among the main recipien ts of
financing from China’s p olicy banks (see Gallagher and My ers , 2014 ; My ers and Gallagher , 2020 ; Ra y et al. ,
2015 , 2017 ; Ra y , 2018 ; Ra y and W ang , 2019 ; Ra y and Batista Barb osa , 2020 ). Another source of information
on Chinese finance and aid is William & Mary’s AidData database.
65
China’s miraculous gro wth w as reac hing its limits and p olicy mak ers needed to tac kle some
of the existing econom ic and financial distort ions (i.e., main taining lo w in terest rates, high
sa vings, and an underv alued currency , to name a few). As suc h, exp ectations b egan to
shift: greater atten tion w ould b e placed on steady and sustainable dev elopmen t, with lo w er
gro wth rates and efforts to increase consumption as a share of GDP ( The State Council of
the PR C , 2015a ; Casey and K oleski , 2011 ; P ettis , 2013 ; Sc hott et al. , 2015 ). F or China’s
economic partners, this shift could represen t a c hange in the demand for commo dit y exp orts,
a decrease in foreign exc hange earnings, and the o v erall slo wdo wn of bilateral commercial
transactions; y et it also signified Beijing’s promotion of o v erseas in v estmen ts, particularly in
infrastructure, as part of the coun try’s plan for outsourcing its o v er-supply of construction
and engineering services ( Casey and K oleski , 2011 ).
F or Latin America in general, while commo dit y prices declined after 2014, China’s do-
mestic restructuring did not app ear to largely affect existing commercial relationships–at
least in terms of v olume. With the exception of iron ore, from 2014 to 2018, three of the
four main groups of LA C commo dities exp orted to China (so yb eans, p etroleum oil, and
copp er and concen trates) increased in v olume b y at least 70 p ercen t (78.1%, 284.3%, and
126.5%, resp ectiv ely) ( Ra y and W ang , 2019 , p. 3). A t the same time, China’s shift to a
more consumption-based econom y offered an opp ortunit y for Latin America to div ersify its
exp orts, in particular traditional and non-traditional agricultural pro ducts. This option had
not b een fully explored b y man y coun tries in the region. While not all economies ha v e a
resource comparativ e adv an tage, those that did test this alternativ e s ough t to create the
space for the promotion of pro ducts that could app eal to the Chinese mark et.
In man y w a ys, China’s rapid and increased presence in man y LA C coun tries has high-
ligh ted the strength and the shortcomings of their resp ectiv e economies and the region at
large. Ho w ev er, to sa y that China has b een the sole cause of a giv en coun try’s gro wth or
its industrial rev ersal w ould b e to dra w an incomplete picture. During China’s economic re-
structuring p ost-2013, Chile and P eru expanded their exp orts to China via their resp ectiv e
66
commercial agencies and b egan the activ e promotion of non-traditional pro ducts to Chinese
consumers (in terviews, China, June-July 2016). By 2019, Chile b ecame the main source
of wine for China, surpassing F rance ( Vinetur , 2019 ), while P eru had already op ened its
first m ulti-brand store in Beijing since the previous y ear to promote the sale of P eruvian
sup er-fo o ds (i.e., maca), alpaca clothing, and jew elry ( PromP erú , 2018 ). As of to da y , Chile
has four ProChile offices–the agency that promotes Chilean businesses abroad–in Beijing,
Guangzhou, Hong K ong, and Shanghai, whereas P eru has three offices in Beijing, Hong
K ong, and Shanghai via PromP erú.
In terms of Chinese in v estmen ts in Latin America, this surged in 2013, driv en mainly b y
the announcemen t of China’s financing
2
in the Nicaraguan Canal–a US$ 50 billion pro ject
that has remained in lim b o since 2015
3
( Ra y et al. , 2015 ; Muller , 2019 ). In v estmen ts in the
extractiv e and energy sectors dominated throughout the b o om p erio d, but infrastructure
pro jects b ecame more prominen t in the last fiv e y ears. Argen tina, Brazil, Chile, and P eru
ha v e main tained their statuses as the top recipien ts of Chinese foreign direct in v estmen t
inflo ws (FDI) ( Ra y et al. , 2015 , 2016 ; Ra y , 2018 ; Ra y and W ang , 2019 ; Ra y and Batista Bar-
b osa , 2020 ) and it app ears that this pattern will hold steady . In terestingly , Chinese in v estors
ha v e b egun to expand to other sectors and sub-regions, including Cen tral America and the
Caribb ean. F urthermore, in 2015, Chinese loans to the region exp erienced a dramatic in-
crease as these w ere more than what the W orld Bank, the In ter-American Dev elopmen t
Bank, and the Latin American Dev elopmen t Bank pro vided all together ( Ra y et al. , 2016 ).
In sum, the commercial and economic exc hange patterns b et w een China and its main
LA C partners do not seem to ha v e drastically c hanged in the p ost-b o om p erio d. Rather,
2
In this dissertation I follo w the practice of considering in v estmen ts from Hong K ong and Macau as
Chinese, as it is exercised b y div erse databases.
3
The con tract for this pro ject w as giv en to HK Nicaragua Canal Dev elopmen t In v estmen t Co.–a priv ate
infrastructure firm from Hong K ong, o wned b y W ang Jing. The pro ject w as considered con tro v ersial from
the b eginning due to its en vironmen tal and so cial impact on the neigh b oring comm unities, as it w ould require
their relo cation. In addition, it w as also rep orted that W ang Jing w as not able to obtain the financial bac king
to dev elop the canal. As of 2019, Ortega’s go v ernmen t remained unclear ab out the canal’s status.
67
LA C mineral and agricultural exp orts to China con tin ue to increase. Ho w ev er, the victories
and failures of LA C coun tries in dealing with China has v aried considerably .
T able 3.1: Measuring Success in Selected LA C Coun tries with China
Areas of Success
Coun try T rade In v estmen t P artnership
Argen tina
China as top exp ort
and imp ort partner.
In v estmen ts in the en-
ergy and oil sector.
Strategic partnership
in 2004.
Brazil
China as top exp ort
and imp ort partner.
Multi-sector in v est-
men ts.
Strategic partnership
in 1993.
Chile FT A in 2005.
Multi-sector in v est-
men ts, mainly in the
extractiv e industries.
Strategic partnership
in 2012.
Costa Rica FT A in 2010. Limited in v estmen ts.
Strategic partnership
in 2015.
Ecuador
China as top exp ort
and imp ort partner.
In v estmen ts mainly in
energy .
Strategic partnership
in 2015.
Mexico
China as top exp ort
and imp ort partner.
Limited in v estmen ts.
Strategic partnership
in 2003.
P eru FT A in 2009.
Multi-sector in v est-
men ts, mainly in the
extractiv e and energy
sectors.
Strategic partnership
in 2003.
Urugua y
China as top exp ort
and imp ort partner.
Limited in v estmen ts.
Strategic partnership
in 2016.
V enezuela
China as top exp ort
and imp ort partner.
Main in v estmen ts in
the construction sec-
tor.
Strategic partnership
in 2001.
Sources: A uthor’s elab oration using data from WITS (2000-2018), Red ALC-China,
Dussel ( 2020b ), Strüv er ( 2017 ), Xu ( 2016 ), Y u ( 2015 ), Y ue ( 2018 ), Zhongping and Jing
( 2014a ).
Note: Exp ort and imp ort data for V enezuela a v ailable un til 2013.
As men tioned in c hapter 2, I use three criteria to iden tify the exten t to whic h select
LA C coun tries ha v e b een successful in their in teractions with China: trade, in v estmen t, and
strategic partnerships (T able 3.1). T o reiterate, these categories are not m utually exclusiv e.
The b est Latin American p erformers vis-à-vis China are those that w ere able to ac hiev e
fa v orable outcomes in eac h of the three groups o v erall. More sp ecifically , first, China has
b ecome a top imp ort and exp ort partner for most coun tries in the region. Ho w ev er, only
68
Brazil, Chile, and P eru ha v e main tained a generally p ositiv e trade balance with China during
the first t w o decades of this cen tury (Figure 3.1 and T ables 3.2 and 3.3). Within this group,
Chile and P eru ha v e officially institutionalized their commercial ties with China via an FT A.
Although P eru exp erienced deficits in 2008, and from 2013 to 2015, it w as able to reco v er
and return to a commercial surplus with China. Bolivia, Colom bia, Ecuador, and Mexico
ha v e faced constan t trade deficits with China, and ev en Costa Rica, the other LA C econom y
that has signed an FT A with China, has not managed to main tain a trade surplus, except for
the y ears 2006, 2007, and 2009. What explains these differences, esp ecially for an econom y
lik e Costa Rica, whic h has institutionalized its bilateral commercial ties with China and y et
con tin ues to exp erience a trade deficit and stagnation in its relationship with China? In
the next section, I examine more closely the three coun tries that ha v e signed an FT A with
China, as these bilateral agreemen ts ha v e pro vided eac h with privileged access t o one of the
largest and fastest-gro wing mark ets in the w orld.
Second, success in attracting in v estmen t with China can b e elusiv e at b est. As demon-
strated in the data collected b y Dussel P eters ( 2020b ), a high n um b er of in v estmen t pro jects
do es not necessarily indicate higher transaction v alues. F or example, he estimates that from
2000 to 2019, Mexico had a total of 90 in v estmen t transactions with China whereas P eru
had 39 transactions. Ho w ev er, China’s FDI in P eru during this p erio d w as three times the
v alue of total Chinese in v estmen t in Mexico ( Dussel P eters , 2020b , p. 7). F rom a cum ulativ e
p ersp ectiv e, since 2000, Argen tina and Brazil represen t more than 50 p ercen t of Chinese FDI
inflo ws to Latin America. Chile, P eru and, most recen tly , Mexico are the coun tries that ha v e
exp erienced greater activit y and expansion, particularly since 2017 ( Dussel P eters , 2020b ).
Similar to trade, only a select group of LA C economies ha v e b een the main destinations for
Chinese capital. This includes Argen tina, Brazil, Chile, and P eru.
A dmittedly , the natural endo wmen ts of eac h of these coun tries has pla y ed a ma jor role
in determining the exten t of China’s in terest in them v ersus their regional coun terparts.
69
Figure 3.1: T rade Balance of Select Latin American Coun tries with China, 2000-2018 (US$
Thousand)
Source: W orld In tegrated T rade Solutions (WITS)
70
T able 3.2: T rade Balance b et w een Select Latin Ame rican Coun tries and China,
2000-2010
T rade Balance, Surplus (+) and Deficit (-)
Coun try 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Argen tina - + + + + + + + + - -
Bolivia - - - - - - - - - - -
Brazil - + + + + + + - - + +
Chile - + + + + + + + + + +
Colom bia - - - - - - - - - - -
Costa Rica - - - - - - + + - + -
Ecuador - - - - - - - - - - -
Mexico - - - - - - - - - - -
P eru + + + + + + + + - + +
V enezuela - - - - - - - N/A - - -
Source: A uthor’s elab oration. Data from W orld T rade Statistics (WITS).
71
T able 3.3: T rade Balance b et w een Select Latin Ame rican Coun tries and China,
2011-2018 (con tin ued)
T rade Balance, Surplus (+) and Deficit (-)
Coun try 2011 2012 2013 2014 2015 2016 2017 2018
Argen tina - - - - - - - -
Bolivia - - - - - N/A - -
Brazil + + + + + + + +
Chile + + + + + + + +
Colom bia - - - - - - - -
Costa Rica - - - - - - - -
Dominican Republic - - - - - - - N/A
Ecuador - - - - - - - -
Mexico - - - - - - - -
P anama - - - - - - N/A N/A
P eru + + - - - + + +
Urugua y - - - - - - - -
V enezuela - - - - N/A N/A N/A N/A
Source: A uthor’s elab oration. Data from W orld T rade Statistics (WITS).
72
Despite China’s shift to w ard more infrastructure and services in v estmen t pro jects since ap-
pro ximately 2015, the scop e of coun tries b enefiting from Chinese in v estmen ts inflo ws in
the region as a whole remains narro w ( Dussel P eters , 2020b ; Ra y and W ang , 2019 ; Ra y and
Batista Barb osa , 2020 ; Xu , 2016 ). F urthermore, ev en though Chinese in v estors–and lenders–
ha v e a greater tolerance for risk than do their W estern coun terparts ( Gallagher et al. , 2012 ;
Gallagher and Irwin , 2015 ), domestic p olitical and economic conditions in LA C b ecome
relev an t factors in whether China will in v est.
Third, there is no clarit y on ho w Chinese strategic partnerships (SPs) with coun tries
in Latin America ha v e made a significan t difference in their resp ectiv e bilateral ties, hence
making it more c hallenging to assess what success ma y lo ok lik e for those coun tries that ha v e
ac hiev ed this status. In the previous c hapter I prop osed that, although these partnerships
tend to b e more of a sym b olic gesture, they can help to b o ost existing bilateral exc hanges.
Based on the researc h on strategic partnerships b y Y anran Xu ( 2016 ), Zhongping F eng
and Jing Huang ( 2014b ), and Georg Strüv er ( 2017 ), China’s strategic partnerships in Latin
America serv e as to ols to secure, first and foremost, economic co op eration and for China’s
access to natural resources and, secondarily , to facilitate p olitical dialogue. A ccording to Xu
( 2016 ), in con trast with W estern views that assign a more securit y- and military-orien ted
meaning to strategic partnerships, China’s SPs fo cus on long-term commitmen t and co op-
eration ( Xu , 2016 , pp. 3-4). This t yp e of discourse helps China affirm its ties with man y
of its main economic partners, and to reiterate its partnership, esp ecially in momen ts of
tension. This ec ho es the researc h b y F eng and Huang ( 2014b ), who consider China’s SPs as
instrumen ts to highligh t the imp ortance of a coun try as a partner and ally in b oth p olitical
and economic terms.
T en strategic partnerships ha v e b een designated b y the PR C in Latin America and the
Caribb ean o v er the last thirt y y ears, most of these o ccurring in the 2000s. In most cases, the
status of a partnership has b een highligh ted during diplomatic meetings, with an emphasis
on the imp ortance of 1) China as a global economic partner for LA C ( F eng and Huang ,
73
2014b ; Xu , 2016 ), and 2) the kinds of strategies that are needed b y a giv en coun try to
b enefit from and deep en its ties with China (in terviews, P eru, April 2019). But aside from
the publicit y created during these announcemen ts, only a few coun tries ha v e b een able to
generate a plan of action or to activ ely seek further economic opp ortunities with China.
F r om a trade p ersp ectiv e, the ac hiev emen t of an FT A with China w ould b e represen tativ e
of suc h efforts, y et Chile’s, P eru’s, and Costa Rica’s SPs w ere announced at differen t stages
in their bilateral relationship with China. A more careful examination indicates that P eru
announced its SP with China a y ear b efore unofficial discussions regarding the p ossibilit y of
negotiating a bilateral FT A with China arose ( Chan , 2019 ). Again, while m y in ten tion is
not to attac h a greater role to SPs than what they actually are, their announcemen t b efore
or after significan t ev en ts app ear to indicate that–while mostly for sho w–SPs can serv e as a
restatemen t or reminder of the exp ected collab oration or co op eration b et w een China and a
giv en coun try .
In the follo wing sections, I further elab orate on what success ma y lo ok lik e in the ab o v e
men tioned categories. T o reiterate, I fo cus on the China b o om and p ost-b o om p erio d (2000-
2018), including 2019 when information is a v ailable. My examination do es not include the
effects and the c hanges the w orld is exp eriencing as the result of the ongoing CO VID-19
pandemic.
3.1 T rade Success with China
A trend to w ard trade lib eralization in Latin America b egan in the mid-1980s, as the dev el-
oping w orld w as encouraged to op en mark ets in pursuit of gro wth and dev elopmen t. The
expansion of these trade p olicies w as accompanied b y additional structural adjustmen t and
deregulation p olicies in the 1990s, as LA C coun tries b egan their reco v ery from the debt
crisis of the previous decade ( Coatsw orth and T a ylor , 1998 ; Coatsw orth , 2005 ; Dijkstra ,
2000 ; Hic ks et al. , 2014 ; Milner , 1999 ; Riedel , 1984 ; Sanguinetti et al. , 2006 ). The LA C
74
economies w ere encouraged to lo w er their tariffs and seek new trade partners regionally and
globally , although the w orry ab out insufficien t pro duct div ersification, predominan t lo w-skill
and lab or-in tensiv e industries, and rising imp ort p enetration led to the adoption and main-
tenance of protectionist p olicies b y some of the main economies in the region–mainly , Brazil
and Argen tina ( Bértola and Ocamp o , 2012 ; Sanguinetti et al. , 2006 ).
Nev ertheless, the push for the creation of sub-regional and regional economic arrange-
men ts to facilitate in tra- and in ter-regional trade con tin ued throughout the region. In par-
ticular, Brazil, Chile, Colom bia, Mexico, and P eru ha v e successfully en tered in ternational
mark ets of go o ds and services via their connections with the United States, the Europ ean
Union, and Asia ( Correa Lóp ez and González García , 2006 ). Mexico is among the LA C
coun tries that first established a cross-regional trade agreemen ts in the w ak e of its 1987
trade lib eralization, including the North American F ree T rade Agreemen t (NAFT A) with
the United States and Canada that launc hed in 1994. Chile has also b een a leader in LA C in
div ersifying its commercial ties across the P acific and the A tlan tic.
4
A ccording to the 2018
Index of Economic F reedom published b y The Heritage F oundation ( 2017 ), Chile receiv ed
the highest score (88.7/100) in T rade F reedom
5
among coun tries in Latin America and the
Caribb ean, whereas the region’s largest econom y–Brazil–trailed significan tly b ehind with a
score of 68.5. After Chile, Mexico and P eru w ere the other top LA C p erformers with trade
op enness scores of 88 and 87.1, resp ectiv ely . The global a v erage w as 75.9.
Chile’s ac hiev emen ts with trade lib eralization and op enness do not come as a surprise.
The coun try w as one of the first in the LA C region to op en up its mark ets and create the
necessary legislativ e structures to supp ort its insertion in to the global econom y . Chile is also
the first coun try in South America to b ecome a mem b er of the Organization for Economic
Co op eration and Dev elopmen t (OECD) in 2010 and to op en up to Asian mark ets, suc h that
it w as one of the original mem b ers of the (no w-defunct) T rans-P acific P artnership (TPP)
4
Chile has FT As with sev eral Asian and South Asian coun tries, including South K orea, Japan, China,
Vietnam, Mala ysia, among others (see SICE ).
5
The calculations are based on a coun try’s tariff and non-tariff trade barriers.
75
Figure 3.2: T otal T rade as a P ercen tage of GDP , 2000-2017
Source: W orld In tegrated T rade Solutions (WITS)
76
in 2005. Unlik e Brazil, for example, Chile made economic lib eralization part of its foreign
p olicy goals and o v erall dev elopmen t strategy . In South America, P eru is the other econom y
that b egan to expand its economic and commercial reac h to Asia in the 1990s ( Bouët et al. ,
2012 ). Under the go v ernmen t of Alb erto F ujimori, P eru b ecame a mem b er of the P acific
Economic Co op eration Council (PECC) and the P acific Basin Economic Council (PEBC)
in 1991, and op ened em bassies in Mala ysia, Indonesia, Singap ore, and Thailand ( Berríos ,
2010 ).
A ccording to Berríos ( 2010 ), the F ujimori go v ernmen t had recognized China as an im-
p ortan t p oten tial economic partner and view ed it as the gatew a y to the v ast Asian mark et.
In 1991, F ujimori b ecame the first P eruvian presiden t to visit China since official diplomatic
ties w ere established in 1971. P eru’s renew ed in terest coincided with that of the Chinese
leadership, as the latter b egan to searc h for foreign mineral resources. Shougang’s acquisition
of Marcona’s iron mine in 1992 w as China’s first ma jor in v estmen t abroad. Although the
purc hase caused con tro v ersy among the P eruvian leadership and b ecame a cautionary tale
for future Chinese in v estmen ts in the region, it op ened up the do or to other large Chinese
in v estors in P eru.
6
In 1994, b oth go v ernmen ts signed an agreemen t of m utual protection in
in v estmen ts ( Berríos , 2010 , p. 138). By 2000, although Chinese in v estmen t inflo ws remained
lo w, China had already b ecome one of P eru’s top fiv e exp ort partners.
China’s decision to negotiate a bilateral FT A with Chile, P eru, and Costa Rica can b e
view ed from a pragmatic p ersp ectiv e. F or China, the expansion of trade ties partially re-
flected the coun try’s searc h for natural resources that could satisfy domestic demand. The
desire to gain access to foreign tec hnology , capital go o ds, and other inputs that had pre-
viously b een banned b ecame imp ortan t driv ers of the renew ed “going out” p olicy ( 走 去 处 ,
6
When Shougang b ough t the Marcona mine for an estimated US$ 120 million–an amoun t that w as higher
than the pro ject’s v alue at the time–the compan y w as exp ecting to transform the pro ject in to one of China’s
main steel pro ducers abroad. Ho w ev er, the purc hase w as in v estigated b y an ti-corruption officials in b oth P eru
and China in 1995, and b y P eru’s Congress in 2001. F urthermore, as the mine’s o wnership w as transferred
to Shougang, m uc h of the w orkforce w as fired, leading to protests that con tin ue to happ en to da y on almost
an ann ual basis. Criticisms regarding Shougang’s noncompliance with some en vironmen tal regulations and
tense relations with the surrounding comm unit y made Marcona an example of when Chinese in v estmen ts
abroad can go wrong. F or more details see Gonzalez-Vicen te ( 2012 ) and San b orn and Chonn Ching ( 2017 ).
77
zǒuqūchū ) of the 2000s. Although the main goal w as to seek partnerships or join t v en tures
with foreign firms, mergers and acquisitions, and increase China’s greenfield in v estmen ts, it
w as understo o d that China w ould also need to increase trade exc hanges with those economies
that could fill the gap in China’s resource scarcit y . After all, China’s success in building
its man ufacturing sector and industrialization w as tied to the mark et demand and natural
resources a v ailable from its trading partners. This highligh ts the analysis b y Bouët et al.
( 2012 ), who test the complemen tary relationship b et w een FDI and the establishmen ts of
FT A s, e sp ecially b et w een Asia and Latin America. A ccording to the authors, trade lib eral-
ization can stim ulate gro wth through foreign direct in v estmen t, so the increase in FDI can
serv e as motiv ation for dev eloping coun tries to en ter in to FT As, whic h w ould usually include
pro visions for national treatmen t of incoming FDI ( Bouët et al. , 2012 , p. 195).
China’s request to en ter in to an FT A with Chile in 2004 reflects the coun try’s “go out”
mandate and the need to secure access to resource-ric h foreign mark ets. A t the time, China’s
exp erience with this kind of commercial proto col had b een limited to its negotiation of an
FT A with the Asso ciation of Southeast Asian Nations (ASEAN) in 2004. While some exp erts
w ould argue that the FT A with Chile w as used b y China to test the w aters and sharp en
its FT A negotiating skills (in terviews, China, 2016, 2017), this do es not tak e a w a y from the
success of this FT A. Within the next fiv e y ears, FT A negotiations follo w ed with P eru and
then Costa Rica. This p ositiv e reception in parts of the LA C region led China consolidate
the coun try’s commercial ties with other coun terparts in the dev eloping w orld and, most
imp ortan tly , gain supp orters in its pursuit to b e recognized as a mark et econom y . Precisely ,
one of the main demands from China to en ter in to an FT A with P eru w as the official
recognition of this mark et status b y P eruvian leaders ( Chan , 2019 ).
Do es the establishmen t of a separate bilateral FT A with China render Chile, Costa Rica,
and P eru the most successful coun tries? Not really , as there is v ariation among this group.
As men tioned b y Bouet et al. ( 2012 ), the desire to establish FT As b et w een coun tries in
Asia and Latin America w as in part driv en b y efforts to deep en FDI deals. Y et this has
78
not completely b een the case for Chile or Costa Rica. As argued b y Wise ( 2020 ), treating
these trade agreemen ts as explanatory v ariables rather than outcomes can shed more ligh t
on the role that FT As are pla ying for China. More sp ecifically , rather than assuming that
these economic accords solely represen t asymmetric exc hanges where one coun try primarily
exp orts natural resources and the other man ufactured go o ds, the bilateral FT As b et w een
Chile, Costa Rica, and P eru and China, resp ectiv ely , are to ols that ha v e b olstered trade and
ha v e pushed for the upgrade of institutions and mec hanisms that target trade lib eralization.
Comparativ ely sp eaking, Costa Rica has sho wn the p o orest p erformance in terms of
trading with China. As seen in Figure 3.3, there is iron y in the fact that Costa Rica’s trade
balance with China w orsened after the establishmen t of their bilateral FT A in 2011. While
imp orts from China ha v e increased in the Cen tral American coun try , Costa Rican exp orts
fell significan tly , hence pro viding supp ort to critics who complained that the further op ening
up of trade with China w ould just decimate domestic industries and mark ets. Ho w ev er, it is
w orth clarifying that, unlik e China’s economic in terests in signing bilateral FT As with Chile
and P eru, China’s priorities in Costa Rica w ere not purely economic. Cen tral America and
the Caribb ean con tain the largest n um b er of coun tries that con tin ue to recognize T aiw an
diplomatically . The announcemen t of Costa Rica’s official diplomatic switc h to China in
2007, and the p ossibilit y of negotiating an FT A so on after, w as unexp ected and it highligh ted
China’s efforts in gaining more supp orters of its “One China P olicy” in the sub-region. This
pro vides more n uance to discussions ab out the ev olution of China’s presence in Latin America
and the Caribb ean and the set of new state actors it has b egun to approac h.
F urthermore, although Costa Rica’s deficit with China app ears bleak on the surface, one
difference b et w een this small coun try and the economies of Chile and P eru is the mak eup
of its industries and its pro duction capacit y . First, Costa Rica has limited pro duction to
fully satisfy the Chinese mark et. Although Costa Rican authorities ha v e renew ed efforts to
exp ort traditional agricultural pro ducts suc h as pine apples, the c oun try is also an imp ortan t
distributor within the Latin American mark et, including the rest of the Caribb ean and the
79
United States (in terviews SP3 and SP4, Costa Rica, 2018). Second, as also p osited b y Wise
( 2020 ), the resp onse of Costa Rican authorities to China’s initial approac h w as mainly driv en
b y the prosp ect of attractiv e in v estmen t and financing deals–whic h included, though not in
their totalit y , the construction of a so ccer stadium in San Jose, an IT industrial park, and
later on, the expansion of a high w a y (R uta 32) from the F rio riv er (Río F río) and the cit y of
Limon ( Herrera , 2013 ; DeHart , 2012 ; Wise , 2020 ).
7
In addition, after the rapp ort established
b y then-Costa Rican Presiden t Oscar Arias (2006-2010) with China, whic h culminated with
the bilateral FT A, more recen t leaders prioritized ties with Caribb ean partners and the
United States (in terview SP3, Costa Rica, July 2018). Finally , in con trast with all but
Mexico in the LA C region, the ma jorit y of Costa Rica’s exp orts to China are comp osed of
pro ducts with higher v alue-added, lik e computer parts, pro cessors, and electric mac hinery
and comp onen ts (COMEX Costa Rica, Wise 2020 ).
In this sense, in spite of the establishmen t of the bilateral FT A b et w een China and Costa
Rica, their relationship w as and has remained luk ew arm in the last decade. Nev ertheless, a
relationship with China presen ted itself as an opp ortunit y that Costa Rican leaders could
not pass up. But aside from establishing the commitmen t to m utual co op eration and col-
lab oration, this is a relationship that has y et to blo om.
Chile and P eru are the only South American coun tries that ha v e signed bilateral FT As
with China. Both coun tries are imp ortan t global mineral pro ducers and their resp ectiv e
bask ets of agricultural pro ducts to China are quite div erse. Moreo v er, b oth coun tries ha v e
b een activ e participan ts in the promotion of their resp ectiv e economies as attractiv e business
and in v estmen t destinations via commercial offices in economic and financial cen ters in China.
As stated earlier, in addition to Brazil, Chile and P eru are the only LA C coun tries that ha v e
generally main tained a surplus in their trade balance with China (T ables 3.2, 3.3 and Figures
3.4 and 3.5), a trend that is mainly attributable to high commo dit y prices. In their approac h
to China, b oth coun tries ha v e b een pragmatic, th us mirroring China’s o wn practical economic
7
The high w a y expansion pro ject w as negotiated under the go v ernmen t of Laura Chinc hilla, who w as one
of Oscar Arias vice presiden ts, and b ecame Costa Rica’s presiden t from 2010 to 2014.
80
Figure 3.3: Costa Rica’s T rade Balance with China, 2000-2018 (US$ Thousand)
Source: W orld In tegrated T rade Solutions (WITS)
81
Figure 3.4: Chile’s T rade Balance with China, 2000-2018 (US$ Thousand)
Source: W orld In tegrated T rade Solutions (WITS)
82
Figure 3.5: P eru’s T rade Balance with China, 2000-2018 (US$ Thousand)
Source: W orld In tegrated T rade Solutions (WITS)
83
strategy . Where the t w o coun tries deviate is in P eru’s greater attractiv eness to China for
in v estmen t, for example, and in Chile’s o v erall leadership in institutional strength, as w ell
as stabilit y and con tin uit y in its macro-p erformance since the 1990s. The ac hiev emen ts of
b oth Chile and P eru with the Asian b ehemoth are w orth highligh ting.
T o reiterate, Chile b ecame China’s first bilateral free trade agreemen t outside of the only
other economic arrangemen t it had with ASEAN. A t the time, China w as eager to spread its
economic reac h to other regions, so the trade agreemen t with Chile serv ed as an exp erimen t
for Chinese p olicy mak ers. Chile, on the other hand, had already signed FT As with large
economies, including the United States, the Europ ean Union, Mexico, and other coun tries
in the region–42 differ en t regional, bila teral, and prefe ren tial trade agreemen ts at the time
of its negotiation with China. In this sense, Chile en tered the negotiations with China with
an adv an tage ( Rey es Matta , 2015 ; Wise , 2014 , 2020 ). Ha ving recen tly finalized the trade
agreemen t with the United States, Chilean authorities used that agreemen t as a mo del to
draft its demands with China. After fiv e rounds of negotiations, Chile and China signed the
bilateral FT A in 2005.
T able 3.4: Comparison of China FT A Dev elopmen t b et w een Chile, P eru, and Costa Rica
Chile P eru Costa Rica
F easibilit y study April 2004 A ugust 2007 No v em b er 2008
Negotiation p erio d Jan-Oct 2005 Jan-Oct 2008 Jan 2009-F eb 2010
Negotiation rounds 5 6 6
FT A signed 2005 2009 2010
En try in to force 2006 2010 2011
Sources: A uthor’s elab oration using data from China FT A Net w ork, SICE, Ministerio
de Relaciones Exteriores de Chile, Ministerio de Comercio Exterior y T urismo del P erú,
Ministerio de Comercio Exterior de Costa Rica.
A ccording to the agreemen t, Chilean negotiators obtained immediate dut y-free en try of
92.01% of Chile’s exp orts to China, whereas 49.57% of Chinese imp orts w ould en ter Chile
under the same mo dalit y ( Heine , 2006 ; T orres , 2010 ). The rest of Chilean exp orts w ould
ha v e a timeline of ten y ears to en ter the Chinese mark et dut y free, with 0.73% of exp orts
excluded. F or China, 2.97% of Chinese exp orts to Chile w ould fall in to that category . In
84
comparison, P eru obtained immediate en try of 83.52% of its exp orts to China dut y-free,
with the exclusion of 1.02% of its go o ds–an amoun t that is sligh tly higher than what Chile
w as able to negotiate. Moreo v er, P eru’s negotiated timeline to access the Chinese mark et
w as sev en teen y ears v ersus the ten y ears negotiated b y Chile (T able 3.6)–whic h is a similar
pro vision Chilean authorities negotiated in the coun try’s resp ectiv e FT As with A ustralia and
the United States ( Rey es Matta , 2015 ).
This timeline of Chilean exp orts to China underlines Chile’s b etter dut y-free sc hedule
vis-à-vis P eruvian exp orts; ho w ev er, P eru w as able to protect a greater n um b er of go o ds
that w ere sensitiv e to Chinese comp etition (T able 3.5). An estimated 592 Chinese pro ducts
w ere excluded in the agreemen t, comprising 10% of Chinese imp orts, whereas Chile only
excluded 2.97% of its imp orts from China. During the negotiation pro cess, this had b een an
area of concern among P eruvian p olicymak ers and industry leaders as sensitiv e sectors suc h
as textiles and sho es w ould ha v e b een exp osed to fierce Chinese comp etition. Y et P eruvian
negotiators main tained constan t dialogue with industry represen tativ es and organizations,
th us prompting the smo other appro v al of the FT A among the P eruvian p opulation.
Nev ertheless, P eru’s biggest ac hiev emen t in comparison with Chile w as its abilit y to
include pro visions that protected the services and the in v estmen t sectors. This made the
China-P eru FT A the most comprehensiv e trade agreemen t China had signed at the time. In
those pro visions, only selected services b y b oth parties w ould b e lib eralized, while k eeping the
rest protected. As for in v estmen ts, b oth coun tries agreed on pro visions that mainly mitigated
an y p oten tial risks of expropriation and pro vided protections against nationalization. These
pro visions also highligh ted the most-fa v ored-nation (MFN) treatmen t for in v estmen ts and
pro vided c hannels to resolv e an y con tro v ersies that w ould arise at the state-to-state lev el and
in v estor-to-state lev el. Chile, on the other hand, negotiated the addition of supplemen tary
pro visions in services in 2008. Discussion for the upgrade and de ep ening of the China-Chile
FT A b egan in 2015 and w as appro v ed in 2018 (Direcon Chile). P eru’s o wn FT A optimization
pro cess b egan in 2019 (MINCETUR).
85
T able 3.5: T ariff Elimination Sc hedule for Chinese Imp orts to Chile, P eru, and Costa Rica
(% of total Chinese imp orts)
Coun tries
Chile P eru Costa Rica
Categories P erio d % % %
A Immediate 49.57 61.82 56.6
B 5 y ears 20.55 13.38 4.0
C 10 y ears 26.91 10.92 25.1
D Excluded 2.97 10.00 9.9
E 16 y ears – 3.89 –
G* 12 y ears – 0.00 –
H* 15 y ears – 0.00 2.8**
J1–J2–
J3***
17+ y ears – 0.00 –
Sources: T able from T orres (p. 109 2010 ) and adapted using information from
Chan ( 2019 ), Direcon Chile, MINCETUR P eru, and COMEX Costa Rica. The
estimates are based on imp orts from 2004 in the case of Chile, and imp orts
from 2007 in the case of P eru.
*G and H refer to agricultural pro ducts. F or the H category , it includes pro d-
ucts with a grace p erio d of 4, 8, and 10 y ears in whic h there is no tariff reduction.
**F or Costa Rica, the p erio d of tariff elimination corresp onds to category D.
***J1 refers to the p erio d 17+4 y ears, J2 corresp onds to 17+8 y ears, and J3
to 17+10 y ears.
T able 3.6: T ariff Elimination Sc hedule for Exp orts from Chile, P eru, and Costa Rica to
China (% of total exp orts)
Coun tries
Chile P eru Costa Rica
Categories P erio d % % %
A
Immediate 92.01 83.52 99.64
1 y ear 0.02 – –
B 5 y ears 0.35 0.37 0.10
C 10 y ears 6.89 1.34 0.19
D Excluded 0.73 1.02 0.01
E – L* 17 y ears – 13.75 0.05**
Sources: T able from T orres (p. 109 2010 ) and adapted using information from
Chan ( 2019 ), Direcon Chile, MINCETUR P eru, and COMEX Costa Rica. The
estimates are based on exp orts from 2004 in the case of Chile, and imp orts
from 2007 in the case of P eru.
*12.86% of the P eruvian exp orts corresp ond to fish meal, for whic h the tariff
reduction p erio d w as estimated to end on 01/01/2015.
** F or Costa Rica, the p erio d of tariff elimination for 0.05% of its exp orts is
15 y ears.
86
Ob jectiv ely sp eaking, these three FT As with China w ere negotiated from a p osition of
adv an tage for Chile, Costa Rica, and P eru ( Wise , 2020 ). In all instances, China w as eager to
finalize these accords and secure legally binding do cumen ts that w ould signal its recognition
as a mark et econom y . Ho w ev er, just signing the accords w as not a sufficien t factor to
strengthen commercial and economic b onds with China. Costa Rica’s w eak er outcomes are
testimon y to this. Both Chile and P eru ha v e activ ely participated in the upgrade of their
resp ectiv e agreemen ts and ha v e con tin ued to in tro duce new pro ducts in to the Chinese mark et
(in terviews, China, 2016, 201 7). Chile learned to generate its o wn comparativ e adv an tage
with China, as it lac ks P eru’s resource div ersit y (in terview with former diplomat, P eru,
2019), and P eru has gradually expanded the reac h of non-traditional pro ducts in the Chinese
mark et. Ho w ev er, the P eruvian case is unique in that, in spite of ha ving less exp erience with
the trade negotiating pro cess and less buo y an t economic institutions, P eru accepted China’s
FT A i n vitation to test its industries and institutional capacities.
More than ten y ears since the agreemen t, most of P eru’s trade with China con tin ues to
consist of natural resources exp orts. Y et signs of gradual div ersification and the increasing
presence of economic transactions in other sectors sho w that it is p ossible to establish a
b eneficial and pro ductiv e relationship with China.
3.2 Success in In v estmen t with China
In spite of b ecoming the third-largest source of foreign direct in v estmen t in the w orld in
2015, righ t b ehind the United States and Japan, China is not the main source of foreign
in v estmen t in the LA C region ( Liang , 2019 ; Pérez Ludeña , 2017 ). This is due to China’s
initial efforts in promoting trade v ersus foreign direct in v estmen t, at least during the first
decade of its renew ed relationship with coun tries in Latin America. Moreo v er, China is still
an emerging econom y; as suc h, it did not b egin to massiv ely exp ort capital un til the 2000s.
Although most emerging economies struggle with capital scarcit y , China is the first G-20
87
dev eloping coun try to break out of this mold. During this p erio d (2000-2010 appro ximately),
most of China’s in v estmen ts w ere destined to the coun tries that pro duced and exp orted
minerals and h ydro carb ons to China, and in a sligh tly lesser exten t, agricultural pro ducts
(Argen tina, Brazil, Chile, Ecuador, P eru, and V enezuela) ( Berríos , 2010 ; Pérez Ludeña ,
2017 ). In man y instances these w ere the same coun tries with whic h China has had stronger
trade exc hanges (see T ables 2.2 and 2.3), making Chinese in v estmen t in trinsically connected
with its commercial ties during the b o om p erio d, and th us pro viding further supp ort for
wh y China signed FT As with Chile and P eru–t w o imp ortan t sources of minerals in LA C as
explained in the previous section.
China’s in terest in the extractiv e industries and the agricultural sector con tin ued in the
p ost-b o om p erio d, but with a noti ceable slo wdo wn from 2014 to 2017 ( Pérez Ludeña , 2017 ).
Starting in 2017, China’s in v estmen ts in Latin America pic k ed up and, most imp ortan tly ,
sho w ed greater div ersification, alb eit at a gradual pace. Analyses b y Dussel ( 2019b ; 2020b )
and Can uto ( 2019 ) suggest that Chinese in v estors are b ecoming more div erse, not only
within existing infrastructure pro jects, but there is also gro wing in terest in sectors that target
services, banking, tec hnology , and infrastructure. A rep ort b y The A tlan tic Council estimates
that from 2012 through 2016, in v estmen ts in Latin America’s service sectors nearly doubled
( A v endaño et al. , 2017 ). The authors explain that this expansion is in part driv en b y recen t
Chinese in v estmen t, whic h is no w flo wing in to information tec hnology (IT), green tec hnology ,
comm unications, and finance, th us follo wing the ev olution of China’s o wn econom y in the
last decade and its emphasis on service tec hnology and increasing domestic consumption
( A v endaño et al. , 2017 ; Can uto , 2019 ; Casey and K oleski , 2011 ).
During the first CELA C-China F orum in Beijing in 2015, China reiterated its commit-
men t to collab orate with the region in m utual dev elopmen t endea v ors and pledged to increase
in v estmen t b y an estimated US$ 250 billion o v er the next ten y ears. Three y ears later, China
extended the in vitation to Latin America to participate in its Belt and Road Initiativ e (BRI),
whic h op ens up opp ortunities for the region to fill its large infrastructure gap ( Dussel P eters ,
88
2019b , 2020a ; F a y and Morrison , 2006 ; Lardé , 2016 ). Ho w ev er, since that announcemen t,
critics ha v e questioned the p oten tial impact, or lac k thereof, of BRI on the LA C region.
F or one, the attac hmen t of BRI lab els to infrastructure pro jects that w ere already in exis-
tence b egs the question of whether signing on to BRI w ould mak e a significan t difference, es-
p ecially in coun tries where China has already b een in v esting since the 2000s ( Serrano Moreno
et al. , 2020 ). Second, giv en China’s tendency to tak e on pro jects that are riskier, or that
raise en vironmen tal and so cial concerns, civil so ciet y organizations ha v e also questioned the
attractiv eness of greater Chinese capital and its p ossible detraction from upholding high
en vironmen tal and lab or standards on these pro jects. Third, m uc h of Chinese infrastructure
in v estmen t has b een supp orted b y Chinese financial institutions, whic h in the early 2000s
w ould arguably pro vide credit with b elo w-mark et rates or loans that w ere commo dit y-bac k ed
as collateral ( Gallagher et al. , 2012 ; Gallagher and Irwin , 2015 ). Since 2008, Chinese financ-
ing in to Latin America b egan to slo w do wn and it has remained concen trated on a few LA C
coun tries.
8
Some of these coun tries ha v e higher debt burdens and repa ymen t difficulties, so
while China has b een willing to lend to them, it has not necessarily b een the main cause
of these coun tries’ lac k of debt sustainabilit y ( Gallagher and My ers , 2020 ; Ra y and W ang ,
2019 ).
In sum, the BRI’s p ossible impact on LA C’s infrastructure in v estmen t is an op en question.
While recen t studies calculate the p oten tial cost-reduction of this initiativ e in trade and
transp ortation ( Chen and Lin , 2020 ; R uta et al. , 2018 ), in Latin America the assessmen t
of BRI’s p ossible impact is more complex. F rom a pragmatic p ersp ectiv e, it is a financing
opp ortunit y that needs to b e examined with caution as it in v olv es v arious m ulti-lev el priv ate
and public actors. F rom a foreign p olicy p ersp ectiv e, the BRI can b e view ed as China’s effort
to create a new dev elopmen t narrativ e in whic h it tak es the lead vis-à-vis the United States
8
Argen tina, Brazil, Ecuador, and V enezuela are the coun tries that ha v e cum ulativ ely b orro w ed the most
from China since 2005. Coun tries with m uc h smaller loans (US$ 3 billion and less) are mostly in Cen tral
America and the Caribb ean. F or more details see the In ter-American Dialogue and Boston Univ ersit y’s
China finance database ( 2020 ).
89
or other W estern p o w ers ( Serrano Moreno et al. , 2020 ; Shen and Chan , 2018 ; P ep e , 2019 ).
9
As of the end of 2019, 19 coun tries ha v e signed a Memorandum of Understanding (MOU)
with China to join BRI, including imp ortan t LA C economies suc h as Chile, Colom bia, Costa
Rica, Ecuador, P anama, P eru, and Urugua y (T able 3.7). Y et the resistance of Argen tina,
Brazil, and Mexico to signing on underlines the concerns and con tro v ersies surrounding this
initiativ e. P art of this is due to the concern from the p olicy mak ers in these coun tries o v er
the v ague terms of reference within the LA C MOUs signed th us far.
T able 3.7: Select LA C Coun tries with BRI MOUs with China
Coun try Date of MOU
Chile No v em b er 6, 2018
Costa Rica Septem b er 3, 2018
Ecuador Decem b er 12, 2018
Dominican Republic No v em b er 2, 2018
P anama No v em b er 17, 2017
P eru April 28, 2019
Urugua y A ugust 20, 2018
V enezuela Septem b er 14, 2018
Sources: A uthor’s elab oration using information
from Serrano et al. ( 2020 ) and Zhang ( 2019 ).
Giv en all these conditions, ho w or to what exten t ha v e LA C coun tries b enefited from
Chinese in v estmen ts in the region? T o start, as men tioned, the b enefits of Chinese in v estmen t
in Latin America ha v e b een concen trated in just a n um b er of coun tries–more sp ecifically ,
those that pro vide China with minerals and oils exp orts. As a result, it is not surprising
that b et w een 2000 and 2014 an estimated 90% of Chinese FDI w as directed to the extractiv e
industries ( Chen and Pérez Ludeña , 2014 ; Pérez Ludeña , 2017 ).
10
This means that the bulk
of Chinese capital outflo ws ha v e gone to Argen tina, Brazil, Chile, and P eru, and in a more
mo derate degree, to Ecuador, Mexico, and V enezuela (T able 3.8). Again, although Chinese
9
BRI is also part of Xi Jingping’s “China Dream,” whic h seeks to restore China’s place at the cen ter of
the w orld b y 2050.
10
Data gathered b y the Global Dev elopmen t P olicy Cen ter at Boston Univ ersit y (see Ra y et al. , 2015 , 2016 ,
2017 ; Ra y , 2018 ; Ra y and W ang , 2019 ; Ra y and Batista Barb osa , 2020 ) and Red-ALC China ( Dussel P eters ,
2020b ) ec ho es this existing trend in Chinese in v estmen ts in LA C.
90
FDI has b egun to sho w some div ersification in recen t y ears, the extractiv e industry con tin ues
to dominate in infrastructure, agriculture, fisheries, and other services ( Dussel P eters , 2020b ;
Pérez Ludeña , 2017 ).
Both in terms of transactions that ha v e b een carried out and amoun ts in v ested, Brazil
has receiv ed the highest amoun t of Chinese FDI inflo ws in LA C o v erall, with an estimated
129 transactions from 2000 to 2019 and a total v alue of appro ximately US$ 48.7 billion,
according to the Red-ALC China database of Chinese FDI in LA C.
11
Although the range
of Chinese in v estmen t in Brazil is div erse, including transactions in the automotiv e sector,
soft w are, and IT services, the largest pro jects are concen trated in the energy , minerals, and
h ydro carb ons sectors. This is not un usual, giv en Brazil’s p osition as a top pro ducer of oil and
minerals, including iron ore, gold, and copp er, and the state supp ort these receiv e through
the Brazilian Dev elopmen t Bank (BNDES), particularly in the oil industry ( K orinek and
Ramdo o , 2017 ; Wise , 2020 ).
Aside from the large amoun ts of capital inflo ws as w ell as the recen t industrial and
man ufacturing spillo v ers via gro wing in terest in Brazil’s automotiv e sector,
12
Chinese FDI
in the coun try has also b ecome a source of emplo ymen t ( Dussel P eters , 2020b ). F rom a
regional p ersp ectiv e, from 2000 to 2017, Chinese FDI con tributed to 15% of the estimated 2
million net jobs China generated in the region ( Dussel P eters , 2020b )–a so cio-economic trend
that has b een less analyzed and that suggests, despite the discourse of p oten tial predatory
practices among Chinese in v estors, they do pro vide some so cio-economic b enefits in the
host coun tries. These results also coincide with general studies on the exten t to whic h
FDI can con tribute to a giv en dev eloping coun try’s gro wth and dev elopmen t via tec hnology
11
Data a v ailable at Red-ALC . Last accessed July 2020.
12
In c hapter 5 of Dr agonomics ( 2020 ), Wise elab orates on the o v erall impact of China in Brazil and
Argen tina. In the Brazilian case, Wise highligh ts the economic cushion Brazil w as able to secure from mega
Chinese in v estmen t in k ey pro jects in pre-salt oil fields (managed b y Brazilian SOE P etrobras) and h ydro-
energy (Belo Horizon te). Ho w ev er, the coun try did not escap e the deterioration of its economic and p olitical
institutions as p olicy mak ers struggled to balance Brazil’s pursuit of its “new dev elopmen tal” mo del with
economic lib eralization to in teract fa v orably with foreign mark ets.
91
transfer and spillo v ers, impro v ed access to capital a nd financing, and increased emplo ymen t
opp ortunities ( Bárcena et al. , 2018 ; Loungani and Razin , 2001 ).
If analyzing the n um b er of Chinese in v estmen t transactions, other b eneficiaries include
Argen tina, Chile, and Mexico, with 31, 129, and 90 transactions, resp ectiv ely , since 2000.
Ho w ev er, as observ ed in T able 3.8, a high n um b er of pro jects do es not necessarily equate
with higher inflo ws of capital. In fact, while the Brazilian case is relev an t in terms of v alue
and v olume giv en its economic size in the LA C region, P eru is the second-largest destination
for Chinese FDI in Latin America, with 39 transactions w orth an estimated total of US$
24.6 billion. Just in 2019, t w o op erations w ere w orth almost US$ 4.9 billion whereas Chile
receiv ed an estimated US$ 3.2 billion for three transactions. What explains P eru’s b etter
p erformance in attracting Chinese FDI inflo ws?
In the previous section, I men tioned that in terms of trade in teractions with China, P eru
is an example of ho w a smaller econom y can exert lev erage and pursue its o wn in terests while
it deep ens its in tegration with a m uc h larger econom y . This is not to sa y that Sino-P eruvian
exc hange is en tirely p ositiv e-sum. Rather, m y in ten tion is to assess the exten t to whic h
the gains out w eigh the losses, and the conditions that fostered suc h outcomes. P art of this
answ er lies in the establishmen t of a relativ ely stable in v estmen t en vironmen t in P eru, as
p olicy mak ers set up institutions and agencies that managed and ensured the enforcemen t of
financial, en vironmen tal, and lab or standards. This pro cess of institution-building b egan in
the early 2000s, as the P eruvian go v ernmen t finally stabilized the econom y and ac hiev ed sta-
ble gro wth ( San b orn and T orres , 2009 ; San b orn and Chonn Ching , 2017 ; San tos and W erner ,
2015 ; Wise , 2003 ). Proin v ersión, founded in 1992, is the main state agency resp onsible for
the promotion of priv ate in v estmen t in P eru. In spite of its fo cus on the priv ate sector, the
agency seeks to b olster public-priv ate partnerships (PPP) and has a div erse p ortfolio in k ey
sectors suc h as infrastructure, transp ortation, energy , and health, among others. In parallel,
InP erú w as created in 2012 b y a group of priv ate en trepreneurs and go v ernmen t officials to
promote P eru as an attractiv e in v estmen t destination. The imp ortance of this organization
92
T able 3.8: Chinese In v estmen ts in Selec t Coun tries in LA C, 2000-2019
2000-2009 2010-2019 2000-2019
Argen tina
T ransactions 1 30 31
Amoun t (US$ mil) 4 12,880 12,884
Bolivia
T ransactions 2 10 12
Amoun t (US$ mil) 22 2,959 2,981
Brazil
T ransactions 15 114 129
Amoun t (US$ mil) 4,232 44,469 48,701
Chile
T ransactions 4 27 31
Amoun t (US$ mil) 2,489 12,411 14,900
Colom bia
T ransactions 6 15 21
Amoun t (US$ mil) 2,614 1,495 4,109
Ecuador
T ransactions 7 6 13
Amoun t (US$ mil) 2,377 676 3,053
Mexico
T ransactions 14 76 90
Amoun t (US$ mil) 1,088 6,836 7,924
P eru
T ransactions 12 27 39
Amoun t (US$ mil) 4,639 20,019 24,658
V enezuela
T ransactions 5 12 17
Amoun t (US$ mil) 395 2,824 3,219
Sources: Data adapted from the A cademic Net w ork for Latin
America and the Caribb ean on China (Red ALC-China), 2020,
and Dussel P eters ( 2020b ).
Note: These in v estmen ts corresp ond with transactions that
w ere actually carried out.
93
is its inclusion of imp ortan t priv ate asso ciations suc h as P eru’s National Confederation of
Priv ate Businesses (CONFIEP), the P eruvian Asso ciation of Finances (APEF), the P eru-
vian Asso ciation of Insurance Firms (APESEG), the Asso ciation of Agen ts in P eru’s Sto c k
Exc hange (ASAB P erú), the Asso ciation of Banks (ASBANC), Lima’s Sto c k Exc hange, and
other en tities from div erse business sectors.
In addition, giv en its status as an extractiv e econom y , the restructuring of ministries
suc h as the Ministry of Energy and Mines (MINEM) and the creation of the Ministry of
the En vironmen t in 2008 signaled P eru’s commitmen t in follo wing in ternational standards
to reduce so cial and en vironmen tal risks in differen t business and in v estmen t transactions,
particularly in sectors with high impact. P eru’s participation in the Extractiv e Industries
T ransparency Initiativ e (EITI) in 2007
13
–the only LA C coun try to do so at the time–and
the passage of its Prior Consultation La w (Consulta Previa)
14
in 2011 ( San b orn et al. ,
2016 ; San b orn and Chonn Ching , 2017 ) reinforced t he coun try’s efforts to institute domestic
protections while also app ealing to in ternational mark ets. Although the implemen tation of
these protections could arguably b e view ed as a deterren t to foreign in v estors, they ha v e
facilitated the co ordination and collab oration b et w een priv ate, public, and so cial actors,
ensuring the reduction of p oten tial risks or losses. F or Chinese in v estors, while this has
en tailed a more stringen t learning curv e, it has also increased certain t y for some of their
in v estmen ts.
As I men tioned earlier, China’s first in v estmen t in South America w as in the iron mine
o wned b y what w as then called Hierro P eru in Marcona, a mining to wn south of Lima, in
1992. The con tro v ersial purc hase b y Shougang Corp oration w as the first ma jor transaction
for the coun try after the P eruvian go v ernmen t em bark ed on a priv atization program. A t the
time, P eru w as still reco v ering from the 1980s debt crisis and, b esides the purc hase of t w o
13
As of to da y , Argen tina and Colom bia are the other t w o main LA C coun tries to join the EITI. Mexico
joined in 2017 but it w as susp ended in 2020 due to its failure to adhere to rep orting deadlines. See EITI
Mexico .
14
This refers to the righ t that indigenous p eople ha v e to b e consulted ab out an y extractiv e pro jects (i.e.,
mining, logging, oil) that ma y affect them and their territories. A pro ject m ust pass this stage in order to
obtain final appro v al.
94
oil lots in northern P eru b y the China National P etroleum Corp oration in 1996, no other
ma jor Chinese in v estmen t to ok place for another decade ( San b orn and Chonn Ching , 2017 ).
It w as not un til 2010 that China, as an emerging econom y , w as in a p osition to initiate
significan t out w ard FDI. F or Beijing, the c hallenge has b een to balance the coun try’s dire
need for resources with the lac k of stabilit y in most coun tries in the LA C region. China’s
limited exp erience in LA C also pla y ed a role in dela ying deep er ties in in v estmen t.
P eru’s geographical and natural adv an tage has pla y ed a k ey role in attracting Chinese
businesses–something P eruvian p olicymak ers are a w are of and ha v e sough t t o use to their
adv an tage (in terviews, China, 2017 and P eru, 2019). This adv an tage has b een complemen ted
b y the existence of state agencies that ha v e the goal of b o osting bilateral and m ultilateral
economic deals, as w ell as an activ e priv ate sector. This is a significan t c hange for a coun try
where, just three decades ago, in v estors feared the expropriation of their assets. By 2009,
the in v estmen t pro visions included in the P eru-China FT A pro vided additional assurances
regarding protection for Chinese in v estors. These pro visions highligh ted the complemen tary
relationship of trade and in v estmen t in the P eru-China relationship, as some pro jects w ere
destined for infrastructure to facilitate and increase the pro duction and transp ortation of
P eruvian natural resource exp orts to China.
While it could b e said that the lib eralization reforms and institutional restructuring P eru
underw en t are not necessarily unique to the region, P eru’s greater attractiv eness for Chinese
in v estors vis-à-vis larger regional coun terparts has not solely b een driv en b y its w ealth in k ey
resources. P eru’s strategic lo cation on the P acific Rim, its sp ecific programs and structures
created to facilitate in v estmen t, the activ e co op eration b et w een public and priv ate actors,
and the institutionalized supp ort in trinsic to the bilateral FT A b et w een P eru and China
ha v e all w ork ed synergistically to render Sino-P eruvian relations a success.
95
3.3 Lo oking for Success in Strategic P artnerships with
China
China’s first strategic partnershi p w as announced in No v em b er 1993 when then-Chinese
Presiden t Jiang Zemin visited Brazil and b oth coun tries agreed on enhancing long-term ties
and co op eration (FMPR C; F eng and Jing, 2014b ; Strüv er, 2017 ; Xu, 2016 ; Y ue, 2018 ). Since
then, Chinese p olicymak ers ha v e established o v er 100 partnerships with coun tries from b oth
the dev elop ed and the dev eloping w orld, as w ell as regional groups and sub-groups. As Chi-
nese influence con tin ued to gro w, so did the in terest in examining these partnerships and
ho w they ma y con tribute to China’s diplomacy and/or “soft p o w er” pursuits. Ob jectiv ely ,
ho w these partnerships are defined and categorized is still unclear; y et there is agreemen t
that they are generally used to build China’s net w ork in the in ternational comm unit y ( F eng
and Huang , 2014b ; Xu , 2016 ; Y u , 2015 ; Y ue , 2018 ). F urthermore, as flexible and non-binding
arrangemen ts, these partnerships can pro vide assurance of assistance and collab oration with-
out ha ving to commit to or fulfill demands required in more stringen t economic or p olitical
agreemen ts ( Y ue , 2018 ).
In their analysis of China’s partnerships in the w orld, Chinese sc holars F eng and Huang
( 2014b ) and Y ue ( 2018 ) analyze China’s o wn adjustmen t of its foreign p olicy since the 1990s
and explain that man y partnerships ha v e b een established dep ending on the con text of
a giv en relationship, the foreign coun try or coun tries that are participating, and China’s
particular in terests in that sp ecific relationship. As a result, there is a list of o v er 20 t yp es
of partnerships officially announced b y Chinese authorities that, while similar in language,
do not offer m uc h in regard to the rules or conditions that explain whic h category a coun try
should start with, when an upgrade w ould tak e place, or what that upgrade w ould en tail ( Li
and Y e , 2019 ; Y ue , 2018 ). T ak e for example the case of Brazil; it w as China’s first strategic
partner and it to ok almost 20 y ears for the coun try’s partnership to b e upgraded. Chile and
96
P eru had shorter timelines for their resp ectiv e upgrades from a strategic partnership to a
comprehensiv e strategic one. Y et ev en this latter term is v ague.
Other sc holars ha v e examined the relationship b et w een China’s economic, ideological,
and p olitical in terests in undertaking these pa rtnerships ( Strüv er, 2017 ; Xu , 2016 ). It is
clear that in m uc h of the dev eloping w orld, this diplomatic strategy is a reflection of China’s
efforts to in tensify economic co op eration with target coun tries ( Xu , 2016 ). Ho w ev er, the
evidence of China using strategic partnerships for ideological and p olitical influence o v er
other dev eloping coun tries has b een inconclusiv e. During the end of the t w en tieth cen tury ,
China’s view of the dev eloping w orld w as one of equal fo oting, solidarit y , and co op eration.
As argued b y Qu and Zhong ( 2018 ) in their w ork on Chinese con temp orary diplomacy ,
dev eloping coun tries w ere economic and p olitical actors China collab orated with to pursue
shared dev elopmen t in terests. This w as further highligh ted in the early 2000s as Chinese
leaders adopted the discourse of m utual b enefits and win-win co op eration. The diplomatic
shifts from T aiw an to China for coun tries lik e Costa Rica, P anama, and the Dominican
Republic suggest that China is no w using its painstakingly dev elop ed economic statecraft
for p olitical purp oses. Nev ertheless, although China ma y b e using its strategic partnerships
to gain global influence and other b enefits, t he lac k of systematization and standardization
of these partnerships mak e this goal an ideal rather than a tangible realit y ( Y ue , 2018 ).
As stated, it can b e difficult to pin do wn the whole univ erse of partnerships China has
established globally , but according to Y ue ( 2018 ) it is p ossible to iden tify three broad cat-
egories: strategic partnerships, partnerships, and p oten tial partnerships. P er this author’s
calculations, there are appro ximately 80 differen t strategic partnerships in the w orld–ranging
from just strategic to comprehensiv e strategic partnership of co ordination.
15
These strategic
partners are exp ected to share some core necessities and in terests with China, and are out-
sp ok en ab out their collab oration and supp ort of the Asian coun try ( Y ue , 2018 ). This adds
to Y anran Xu’s argumen t that China’s partnerships can b e view ed as medium- or long-term
15
Only R ussia’s strategic partnership fits in to this category .
97
commitmen ts of bilateral co op eration suc h that, if tensions w ere to arise, these could th w art
existing collab orativ e engagemen ts b et w een b oth sides ( Xu , 2016 ). Indeed, Xu states that
China’s partnerships are not necessarily mean t to b e p ermanen t. But in her analysis of
China’s strategic partnering with k ey oil-pro ducing states in Latin America, she explains
that while a giv en partnership ma y not eliminate conflict, it can underline that collab orativ e
dialogue is still p ossible ( Xu , 2016 , p. 121).
T able 3.9: China’s partnerships in Latin America
Coun try Establishmen t Date of
Strategic P artnership
Upgrade
An tigua and Barbuda 2013 (co op erativ e/friendly
partnership)
Argen tina* 2004 2014 (comprehensiv e strate-
gic partnership)
Bolivia 2018
Brazil 1993 2012 (comprehensiv e strate-
gic partnership)
Chile* 2012 2016 (comprehensiv e strate-
gic partnership)
Costa Rica 2015
Ecuador 2016
Jamaica* 2005 (co op erativ e/friendly
partnership)
Mexico* 2003 2013 (comprehensiv e strate-
gic partnership)
P eru* 2008 2013 (comprehensiv e strate-
gic partnership)
T rinidad and T obago 2013 (co op erativ e/friendly
partnership)
Urugua y 2016
V enezuela 2001 2014 (comprehensiv e strate-
gic partnership)
Comm unit y of Latin
America and the
Caribb ean
2013 (comprehensiv e strate-
gic partnership)
Sources: A uthor’s elab oration. Data from the Ministry of F oreign Affairs of the PR C
(FMPR C), F eng and Jing ( 2014b ), Stüv er ( 2017 ), Xu ( 2016 ), Y ue ( 2018 ).
*These coun tries had attained co op erativ e friendly partnerships of differen t lev els
b efore establishing a strategic partnership with China.
98
In Latin America and the Caribb ean, China has ab out 13 bilateral partnerships, of whic h
10 are strategic and one is regional with the Comm unit y of Latin America and Caribb ean
States (CELA C). Once Brazil b ecame China’s strategic partner in 1993, there w ere no part-
nerships established in the region un til the 2000s (T able 3.9). This trend follo ws China’s
establishmen t of partnerships in the rest of the w orld, where the n um b er partnerships in-
creased b et w een 2003 and 2006 (33), and 2013 and 2018 (46) ( Y ue , 2018 ). Among the LA C
partnerships with China, ab out half of these w ere upgraded and corresp onded with coun-
tries where China has imp ortan t economic in terests: Argen tina, Brazil, Chile, Mexico, P eru,
and V enezuela. When China’s econom y b egan to slo w do wn, this affected its once-buo y an t
economic exc hange with some o f these LA C coun tries. Th us, these reinforce the sym b olism
these partnerships carry . Rather than to ols to generate a sp ecific outcome, strategic part-
nerships with China in Latin America app ear to ha v e also reiterated the strength of eac h
bilateral relationship, and the b enefits that con tin uing economic and other exc hanges w ould
bring.
T ak e the example of Argen tina and Brazil. F ollo wing the argumen ts of the previously
men tioned sc holars ( Strüv er , 2017 ; Xu , 2016 ; Y ue , 2018 ), the announcemen t of an upgrade to
their resp ectiv e strategic partnership with China came at a time when tensions w ere high as
the discourse to w ard China in these t w o LA C coun tries had b ecome highly protectionist. T o
an exten t, the upgrades b ecame a reminder of the need for further co op eration and greater
expansion in commercial and in v estmen t ties. Similarly , giv en the comp etitiv e relationship
b et w een Mexico and China, their strategic and later comprehensiv e strategic partnerships
w ere used to reiterate co op erativ e dialogue in spite of economic clashes b et w een b oth sides.
P erhaps the most “un usual” upgrade w as that of P eru, in that the announcemen t coincided
with the statemen ts of additional co op eration agreemen ts in a v ariet y of areas–most of whic h
related to the expansion of existing economic pro visions.
In this sense, the v alue of these partnerships can b ecome a mo ving target. But it is w orth
noticing whic h coun tries ha v e attained suc h status, whic h ha v e exp erienced upgrades and
99
when. The strategic partnerships ma y v ary , but China’s k ey partners in Latin America ha v e
remained unc hanged. Again, the natural endo wmen ts of eac h of these coun tries has pla y ed
an essen tial role in attracting China’s in terests, and y et only some of them managed to
expand and deep en their existing ties with China. F rom a commercial standp oin t, Chile and
P eru ha v e gained man y b enefits b y institutionalizing their trade ties with China and activ ely
expanding their bask et of pro ducts exp orted to the Chinese mark et. F rom an in v estmen t
p ersp ectiv e, Brazil and P eru ha v e attracted the largest amoun t of Chinese FDI outflo ws to
the region. This means that only P eru has emerged as a top p erformer in b oth trade and
in v estmen t with China.
In spite of exp eriencing one of the highest h yp erinflation crises in the region in the early
1990s and undergoing go v ernmen t shifts and instabilit y , P eru’s economic path has rarely
b een altered since the stabilization and adjustmen t reforms P eruvian p olicymak ers originally
implemen ted to ac hiev e stabilization and gro wth. China has b een a large con tributor to
P eru’s success. Ho w ev er, this story is not just ab out what China brough t to the table, but
ho w P eru seized this opp ortunit y to adv ance its dev elopmen t pro cess. This is wh y I c hose
P eru as m y main case study to illustrate the p olitical econom y of success in in tegrating more
closely with China. The follo wing c hapters will expand on the P eruvian case.
100
Chapter 4
P e ru a s a Success Story
A t the start of the new millennium, P eru b ecame one of the fastest-gro wing and most stable
economies in Latin America, with an a v erage GDP gro wth rate of ab o v e 6 p ercen t. P o v ert y
rates fell in the coun try , from appro ximately 50 p ercen t in the mid-2000s to ab out 26 p er-
cen t in 2013, and income and emplo ymen t grew significan tly in the last t w o decades (W orld
Bank). This w as a significan t i mpro v emen t from the late 1980s, when P eru’s p opulist mis-
managemen t triggered h yp erinflation rates that ranged b et w een 1,000 and 2,000 p ercen t (and
exceeded 7,000 p ercen t b y 1990) ( Murillo , 1988 ; Riding , 1988 ; San tos and W erner , 2015 ).
Guerrilla groups had tak en de facto con trol o v er some of the most imp o v erished areas of the
coun try . Despite the p olitical crisis that b egan to unfold in 2018, when then-Presiden t P edro
P ablo Kuczynsky (p opularly kno wn as PPK) resigned after facing imp eac hmen t pro cedures,
P eru’s econom y has main tained its economic course ( Barria , 2018 ).
1
This w as a w elcome
con trast from the past.
F rom 1990 to 2000, P eru rebuilt its econom y to b ecome “one of the b est examples in
Latin America of ho w a stabilization program and structural reform agenda should b e im-
plemen ted” ( Rossini and San tos , 2015 , p. 9). By the first half of the 2010s, P eru had b ecome
a leading emerging mark et and more tigh tly in tegrated in to in ternational mark ets. This
greater exp osure to the global econom y also mean t increased vulnerabilit y to w ard external
1
A ccording to El Peruano , the official newspap er from the P eruvian go v ernmen t, ev en though P eru has
b e en one of the most affected coun tries b y CO VID-19, its econom y is exp ected to con tin ue gro wing and
reco v er b y 2021 ( El P eruano , 2020 ).
101
conditions, including price c hanges and economic crises. It is during this p erio d of stabiliza-
tion, reform, and gro wth that P eru and China rein vigorated a relationship underw a y since
P eru diplomatically recognized China in 1971. What has this t w en t y-first cen tury renew al
of Sino-P eruvian ties mean t for P eru?
This c hapter starts the second part of this dissertation, whic h fo cuses on the case study of
P eru as one example of economic success in in teracting and engaging with China. This do es
not mean, ho w ev er, that P eru has solv ed longstanding c hallenges, including so cial inequalit y ,
erratic go v ernance, and w eak p olitical institutions. By concen trating mainly on the coun try’s
economic transformation and on what has gone right , I dra w atten tion to the institutional
and p olicy making framew ork that has rendered P eru’s transformation p ossible despite its
man y crises o v er the last three decades.
4.1 F rom Sunk en Boat to Regional Economic Leader
The p erio d from 1985 to 1990, whic h corresp onds with the first administration of Alan
García, represen ted one of the most disastrous p erio ds of P eruvian m o dern history . Although
the 1980s w as a decade of losses for most of Latin America, P eru w as esp ecially hit, as its
leaders struggled to main tain stabilit y on all fron ts: p olitical, economic, and so cial. While
it is true that the coun try hit b ottom during García’s leadership, man y of the economic and
so cial issues had already b een brewing since the 1970s, during the 12-y ear p erio d when a
military regime go v erned P eru.
During a first phase of military rule under Juan V elasco Alv arado (1968-1975), p olicy
mak ers deep ened an agrarian reform program that had b een taking place since the 1950s.
The goal w as to restructure agricultural o wnership in the coun try , th us ending a system
that had exp erienced only minor c hanges since colonial times. As suc h, and with the goal
of dev eloping the agricultural sector, pro duction co op erativ es and agricultural so cieties w ere
created to manage the farm lands that had b een expropriated from large priv ate land o wners.
102
A w a v e of land redistribution sw ept through the P eruvian coastal and Andean regions–areas
with the largest rural p opulation–y et the reforms failed and the coun try’s economic deficit
deep ened. Moreo v er, so cial resen tmen t in rural areas increased, leading to the emergence of
the Shining P ath (Sendero Luminoso)–a terrorist mo v emen t influenced b y Maoist ideology–in
the 1980s.
A ccording to Eguren ( 2006 ), the failure of V elasco’s reforms w as due in part to land
mismanagemen t and the lac k of cohesiv eness in the p olicies. On the one hand, the redistri-
bution of land to the agricultural co op erativ es and so cieties w as supp osed to impro v e and
increase agricultural pro duction. But this redistribution also led to the loss of the kno w ho w
that had accum ulated in the larger priv ate estates. The lac k of agricultural infrastructure
dev elopmen t w as also a big dra wbac k. The urban and industrial sector expanded quic kly ,
whic h at this p oin t w as hea vily con trolled and managed b y the state. As imp ort-substitution
p olicies in tensified, subsidies for domestic pro ducts con tin ued to increase, k eeping prices lo w
but noncomp etitiv e. Large en terprises w ere also nationalized and protectionism grew, th us
creating pro duct shortages and causing a gradual dev aluation of the currency ( COMEX ,
2017 ). By 1975, V elasco’s administration had not obtained the results it had hop ed for and,
instead, so cial discon ten t and economic stagnation led to a military coup that w ould put in
p o w er General F rancisco Morales-Berm údez Cerruti.
During this second phase of military rule, P eru tried to pursue monetary stabilization, as
inflation w as soaring. Exp ort prices rose temp orarily and the disco v ery of new oil pro vided
some economic relief ( Arce , 2010 ). But b y the end of the 1970s, P eru’s inflation had reac hed
75 p ercen t ( COMEX , 2017 ) with no signs of abating. In 1980, F ernando Belaúnde b egan
his second presidency ,
2
marking the return of demo cracy to P eru. While he reinstated some
of the demo cratic structures (i.e. free press) that had disapp eared during the military era,
P eru’s econom y con tin ued in a do wn w ard spiral. When Alan García assumed the presidency
in 1985, P eru’s foreign debt w as already close to 70 p ercen t of its GDP (Figure 4.1).
2
His first go v ernmen t w as from 1963 to 1968. He w as remo v ed from office after a military coup led b y
Juan V elasco Alv arado.
103
The economic mismanagemen t of previous decades w orsened as García tried a series of
in terv en tionist and expansionary p olicies that fueled ongoing inflation and con tin ued to add
to P eru’s public external debt. In addition to distancing the coun try from in ternational
mark ets, García tried to b o ost domestic demand via domestic credit expansion, tax cuts,
and w age hik es. The go v ernmen t also placed tigh t con trol on prices and in terest rates, and
limited the en try o f imp orts as w ell as the pa ymen t of foreign debt to 10 p ercen t of exp ort
earnings ( Riding , 1988 ; Rossini and San tos , 2015 ). While this led to a v ery short p erio d
of gro wth for P eru, with ann ual p ercen tage rates that increased from 2.06 p ercen t in 1985
to 9.72 p ercen t in 1987 (Figure 4.2), the follo wing y ear sa w the economic implosion of the
coun try , with public external debt reac hing o v er 95 p ercen t of the coun try’s GDP (Figure
4.1). In 1988, the Ministry of the Econom y released a pac kage of economic measures that
attempted to con trol gas and fo o d prices, whic h w ere gro wing exp onen tially (300 p ercen t
and 150 p ercen t, resp ectiv ely) ( The W orld Bank Group , 2017 ). A t this p oin t, the P eruvian
go v ernmen t had little c hoice but to adopt strict austerit y measures and dev alue its currency
( Smith , 1988 ).
These measures, ho w ev er, had little to no effect. García’s economic team negotiated
the pa ymen t of o v er US$ 100 million in debts altogether to Chase Manhattan (U.S.) and
Cesk oslo v enska Ob c ho dni Banka (Czec hoslo v akia) using national exp ort pro ducts ( Murillo ,
1988 ). A similar arrangemen t had b een set up the previous y ear with the British bank
Midland Bank of London, in whic h the P eruvian go v ernmen t offered to pa y debt service
using a range of 30 exp ort pro ducts that included natural resources and non-traditional
pro ducts. A t the end of 1990, P eru’s inflation w as running at ab out 7,600 p ercen t a y ear;
in the fiv e y ears that García had b een presiden t, P eru’s inflation w as, cum ulativ ely , o v er 2
million p ercen t and foreign reserv es had hit a negativ e balance of US$ 150 million ( COMEX ,
2017 ; Dancourt and Y ong , 1989 ).
104
Barely a decade since P eru’s demo cratic transition, domestic conflict had in tensified,
particularly in the Andean pro vinces of A y acuc ho, Huanca v elica, Junin, Huan uco, Apuri-
mac, and Cusco ( COMEX , 2017 ), and extreme p o v ert y w as explo ding. When elections to ok
place in April 1990, the victory of Alb erto F ujimori–a dark horse outsider–sho w ed the lac k
of confidence P eruvians had in p olitical elites and their abilit y to solv e the coun try’s eco-
nomic and so cial crisis. F rom 1965 to 1990, P eru had exp erienced limited economic gro wth,
macro economic disequilibrium, and a dearth of successful structural reforms ( Arce , 2010 ;
Wise , 2003 ).
Figure 4.1: P eru’s Public External Debt (% of GDP), 1985-2019
Sources: A uthor’s elab oration. Data from 1985-1999 corresp onds to the sp ecial rep ort on
debt b y P eru’s Ministry of the Econom y and Finance ( MEF , nd , p. 81). Data from
2000-2019 corresp onds to the Cen tral Reserv e Bank of P eru (BCRP).
105
Figure 4.2: P eru’s Gro wth Rate (Ann ual %), 1985-2019
Source: W orld Dev elopmen t Indicators
106
Figure 4.3: P eru’s T otal Unemplo ymen t (% of T otal Lab or F orce), 1985-2019
Source: W orld Dev elopmen t Indicators
Notes: Missing v alues are sho wn as breaks in the figure. P ercen tages are national estimates.
107
4.1.1 F ujimori: Scattered A uthoritarian Go v ernmen t and the Push
for Lib eralization
Man y sc holars ha v e written ab out Presiden t Alb erto F ujimori and the reforms enacted during
his presidency . After all, his administration set off a series of transformations that c hallenged
P eru’s demo cratic institutions and c hanged the coun try’s economic tra jectory ( Arce , 2010 ;
Crabtree and Thomas , 1998 ; Morris Guerinoni and Galarcep , 2014 ; San tos and W erner , 2015 ;
Wise , 2003 ). This section dra ws mainly on w orks b y Crabtree and Thomas ( 1998 ), San tos
and W erner ( 2015 ), and Wise ( 2003 ), and fo cuses primarily on the economic and financial
reforms implemen ted from appro ximately 1990 to 2000.
As a dark-horse winner in a second-round v ote, F ujimori w on the P eruvian presidency
without significan t supp ort from the elite and had y et to articulate a concrete p olicy plan
( Iguíñiz , 1998 ). His election signaled the collapse of P eru’s traditional p olitical parties.
F u jimori’s first term (1990-1995) w as c haracterized b y pragmatism and the willingness to
o v erhaul P eru’s economic institutions and p olitical structures. In terestingly , he not only
follo w ed the measures that had b een required b y the m ultilateral institutions (i.e., IMF the
In ter-American Dev elopmen t Bank (IDB)) to guaran tee the loans the coun try so urgen tly
needed, but F ujimori adopted an ev en more rigorous p osition in implemen ting some of the
neolib eral p olicies that Mario V argas Llosa–his con tender for the presidency–had included
as part of his campaign platform and that cost him the election. Nev ertheless, the F ujisho ck
left the p opulation reeling from the immediate so cial costs (i.e., sudden increase of prices
as con trols w ere lifted and exc hange and in terest rates w ere freed) ( Abugattas , 1998 ; Kisic ,
1998 ; Robinson , 1990 ), but these adjustmen ts led to the rebuilding of economic and financial
institutions that w ould pa v e the w a y for p ositiv e outcomes in the 2000s ( Arce , 2010 ).
A priorit y for F ujimori’s administration w as to restore macro economic balance, whic h
left these in tense structural adjustmen ts as the only c hoice ( Kisic , 1998 ). These reforms
deviated from previous administrations b y rejecting the strategy of imp ort-substitution in-
dustrialization. Although the state did pla y a role in redirecting the econom y , it w as less
108
in terv en tionist. Nev ertheless, p o w er so on resided in t he office of the executiv e, whic h o v er-
sa w the implemen tation of measures with an iron hand. The auto golp e or palace coup that
F u jimori orc hestrated in 1992 disman tled P eru’s Congress and drew up a new constitution
in 1993 that guaran teed his p olitical and economic con trol o v er the coun try .
This is not to sa y that P eru’s retrenc hmen t in to authoritarianism w as immediate. A c-
cording to Crabtree and Thomas ( 1998 ), when F ujimori came in to p o w er in 1990, his go v-
ernmen t w as c haracterized b y a com bination of authoritarian and demo cratic features. His
p opularit y among the p opulation w as temp ered b y his “p ersonalistic” go v erning st yle, whic h
concen trated p o w er and diminished opp osition and/or the distribution of authorit y to other
relev an t groups, th us sidestepping the need for legitimization b y existing demo cratic insti-
tutions. While it is arguable that F ujimori sough t complete con trol to implemen t his p olicy
agenda without opp osition ( Crabtree and Thomas , 1998 ; San tos and W erner , 2015 ; Wise ,
2003 ), the macro economic-stabilization measures enacted during his first go v ernmen t lo w-
ered inflation and kic k-started economic gro wth. The c hanges that w ere adopted at the time,
although painful, pa v ed the w a y for a new mark et mo del that subsequen t administrations
adhered to regardless of their p olitical leaning ( Jaquette and Lo w en thal , 2017 ).
During the first phase of mark et reform (1990-1993), F ujimori follo w ed the W ashington
Consensus recommendations that targeted high inflation, mark et deregulation, trade op en-
ness, priv atization, and lib eralization. In early 1991, he enacted sixt y-one presiden tial de-
crees that reduced tariffs and non-tariff barriers, eliminated public monop olies, and initiated
the priv atization of state firms. The exp ectation w as that their immediate implemen tation
w ould restore macro economic stabilit y and gain trust from foreign creditors and financial
institutions ( Abugattas , 1998 ; Arce , 2010 ; Kisic , 1998 ; Rossini and San tos , 2015 ; San tos and
W erner , 2015 ; Wise , 2003 ). A second set of decrees w as announced to w ard the end of 1991,
whic h ga v e the go v ernmen t the p o w er to legislate p olicies that promoted in v estmen t and
emplo ymen t ( Arce , 2010 ). In 1992, and coinciding with the auto golp e , an additional 745
109
decrees w ere announced–some of whic h pro vided constitutional guaran tees to commercial,
public, pro ductiv e, and so cial sectors ( Arce , 2010 , p. 38-39).
The rapid c hanges b egan to tak e effect as inflation rates dropp ed from o v er 7,000 p ercen t
at the end of 1990 to ab out 410 p ercen t the follo wing y ear, and b elo w 12 p ercen t b y the
end of F ujimori’s first administration in 1995. During this p erio d, P eru’s inflation w as b elo w
that of Mexico (34.99 p ercen t) and Brazil (66 p ercen t) (T able 4.1). Gro wth and emplo ymen t
rates w ere also gradually pic king up (Figures 4.2 and 4.3). Ho w ev er, it is w orth men tioning
that the first set of adjustmen t p olicies instan tly affected relativ e prices and the purc hasing
p o w er of the p opulation. The increase in prices of essen tial pro ducts (i.e., fo o d, gas, etc.)
and the further decline in the p opulation’s consumption capacit y caused so cial uphea v al and
forced the go v ernmen t to declare a state of emergency in parts of the coun try ( El Tiemp o ,
1990 ; Robinson , 1990 ). Nev ertheless, as P eru b egan to reco v er, F ujimori con tin ued with his
reform agenda and with the consolidation of his p o w er, whic h w as cemen ted with the coup
of 1992. After the dissolution of Congress and the announcemen t of a new constitution in
1993, the initial lib eralization and priv atization measures deep ened and w ere accompanied
with the greater promotion of foreign in v estmen t and the o v erhaul of state agencies and
institutions. Th us b egan the second phase of P eru’s economic reco v ery and reform.
T able 4.1: Inflation (Consumer Prices) in Selected Coun tries in Latin America (ann ual %),
1990-2018
Coun try 1985 1990 1995 2000 2005 2010 2015 2019
Argen tina – – – – – – – 53.55
Brazil 225.99 2947.73 66.01 7.04 6.87 5.04 9.03 3.73
Chile 30.70 26.04 8.23 3.84 3.05 1.41 4.35 2.56
Colom bia 23.97 29.14 20.90 9.22 5.05 2.27 4.99 3.53
Costa Rica 15.06 19.05 23.19 10.96 13.80 5.66 0.80 2.10
Mexico 57.75 26.65 35.00 9.49 3.99 4.16 2.72 3.64
P eru 163.40 7481.66 11.13 3.76 1.62 1.53 3.55 2.14
Source: A uthor’s elab oration. Data from W orld Dev elopmen t Indicators
(WDI).
110
After F ujimori made sure that the p o w er of the presidency could not b e c hallenged,
he opted to adopt a more pragmatic approac h and deep en ongoing free mark et p olicies.
Although COPRI–the new Commission for the Promotion of Priv ate In v estmen t–w as created
in 1991, it w as not un til after 1993 that in v estmen t restrictions w ere further eased and a
greater n um b er of mergers and acquisitions b egan to tak e place. Dancourt ( 1999 ) notes that
b et w een 1991 and 1993, P eru w as not able to gain m uc h rev en ue from the sale of public
companies. It w as not un til 1994 that priv atization rev en ues increased. F or instance, 29
companies w ere sold at a v alue that corresp onded to 35 p ercen t of the go v ernmen t’s ann ual
tax rev en ues. In 1996, the sale of 28 firms pro vided earnings equiv alen t to 25 p ercen t of tax
rev en ues in that y ear ( Dancourt , 1999 , pp. 52-53, fo otnote 13). F rom 1990 to 1997, ab out
100 firms w ere priv atized ( Abugattas , 1998 ; Arce , 2010 ; Dancourt , 1999 ; Kisic , 1998 ).
3
In
addition to w elcoming the en try of foreign capital, the inclusion of priv ate in v estors in the
coun try’s plans to impro v e pro ductivit y and increase output w as k ey .
The main g oal of F ujimori’s industrial p olicy w as to mo v e a w a y from the ISI strategies
that had dominated since the 1950s ( Abugattas , 1998 ; Dancourt , 1999 ). Instead of adopting
radical plans lik e those in the first set of trade and monetary p olicies, P eruvian p olicy mak ers
fo cused on the dev elopmen t of select sectors, mainly agriculture, fishing, mining, and tourism
( Abugattas , 1998 ). This mean t that the go v ernmen t prioritized primary exp orts, whic h has
b een a common trend in P eru’s economic history ( Bulmer-Thomas , 2003 ; Dancourt , 1999 ).
As suc h, the go v ernmen t protected some agricultural go o ds, eliminated price con trols on
fo o dstuffs, and offered preferen tial in terest rates for farmers ( Hopkins , 1998 , p. 91). One main
concern w as to mak e the sector more attractiv e to in v estors and to impro v e its managemen t
and organization.
In terms of trade p olicies, tariffs w ere reduced in three phases. Data gathered b y Kisic
( 1998 ) sho w tariff cuts according to three categories: in 1990, lo cally pro duced inputs (15
p ercen t), capital go o ds and fo o d (25 p ercen t), and luxury items (50 p ercen t). In 1992, the
3
Arce ( 2010 ) indicates that b y 1996, more than 130 companies in P eru had b een priv atized. Dancourt
( 1999 ), on the other hand, writes that b et w een 1993 and 1997 close to 100 mergers to ok place.
111
regime w as simplified to t w o categories, lo cally-pro duced inputs (15 p ercen t) and capital
go o ds (25 p ercen t). By 1997, more c hanges to ok place, suc h that tariffs on inputs w ere
reduced from 15 to 12 p ercen t, and from 25 to 20 p ercen t for capital go o ds ( Kisic , 1998 ,
p. 46). T able 4.2 and Figure 4.4 sho w the progression of P eru’s a v erage tariff rates. F rom a
comparativ e p ersp ectiv e, the coun try is no w one of the most op en in Latin America, more
so than Argen tina, Brazil, and Mexico, for instance.
T able 4.2: T ariff Rates in Selected Coun tries in Latin America (% all pro ducts), 1990-2018
Coun try 1990 1995 2000 2005 2010 2015 2016 2017 2018
Argen tina – 8.34 10.5 5.22 5.99 7.35 7.53 7.93 7.42
Brazil 19 11 12.7 7.17 7.76 8.27 8.01 8.59 7.95
Chile – 10.6 9 3.99 2.08 0.64 5.89 0.49 0.49
Colom bia – 11.9 11 9.62 9.02 6.54 6.98 4.4 3.28
Costa Rica – 8.56 3.7 4.14 2.07 – 1.78 – 1.8
Mexico – 7.25 15.2 3 5.37 4.45 4.35 1.24 1.21
P eru – 15.3 12.8 8.33 2.52 1.8 – 0.8 0.71
Source: A uthor’s elab oration. Data from W orld Dev elopmen t Indicators (WDI).
Notes: These are w eigh ted mean applied tariffs: it is the a v erage of effectiv ely
applied rates w eigh ted b y the pro duct imp ort shares corresp onding to eac h partner
coun try . P er the W orld Bank’s calculations, when the effectiv ely applied rate w as
una v ailable, the most fa v ored nation rate w as used instead.
One k ey factor in P eru’s success in carrying out these structural and mark et reforms w as
the institutional restructuring and o v erhaul P eru also underw en t during this p erio d. While
F u jimori’s administration w as widely criticized–particularly during his second term (1995-
2000)–for w eak ening demo cratic and judicial structures and undermining the rule of la w, on
the economic fron t, the main concern w as to con tin ue with the stabilization- and gro wth-
orien ted p olicies that b egan to b ear fruit. Th us, there w as a degree of public acceptance
that in order to con tin ue with cohesiv e economic p olicy planning, it w as necessary to sta y
the course with p olicies of lib eralization and economic adjustmen t ( Arce , 2010 ; Durand and
Thorp , 1998 ; Wise , 2003 ).
On the one hand, this w as not the in terv en tionist state from the ISI y ears. This one
em braced the neolib eral p olicies suggested in the W ashington Consensus and fo cused on
112
Figure 4.4: P eru’s T ariff Rates, 1993-2020
Source: Figure from Macrotrends
( h ttps://www.macrotrends.net/coun tries/PER/p eru/tariff-rates ). Retriev ed Octob er 2020.
113
creating a mark et econom y . Y et the authoritarian turn that the P eruvian go v ernmen t to ok
also pa v ed the w a y to the emergence of a state with predatory tendencies and that has,
th us far, extended reforms at high so cial costs.
4
Nev ertheless, whether F ujimori w eak ened
or impro v ed certain institutions and state agencies remains up for debate. What is w orth
men tioning is the establishmen t and the restructuring of k ey ministries and agencies that
ha v e con tin ued to op erate and regulate the coun try’s economic agenda.
In terms of trade, one of the early c hanges included the establishmen t of the Ministry
of Industry , T ourism, In tegration and Negotiation of In ternational Commercial Agreemen ts
in 1992. In 2002, it b ecame the Ministry of F oreign T rade and T ourism (MINCETUR).
Although P eru did not b egin to establish an y trade agreemen ts un til the early 2000s, the
late 1990s w as a p erio d of reinsertion in to the global econom y . As suc h, P eru b ecame a
mem b er of regional and sub-regional economic blo cs, particularly in Asia-P acific. In addition
to the organizations already men tioned in c hapter 3 (i.e., PECC and PEBC), p erhaps one
imp ortan t milestone w as P eru’s en try in to the Asia-P acific Economic Co op eration (APEC)
in 1998 and the subsequen t hosting of the APEC summits in 2008 and 2016 ( COMEX ,
2017 ). Under the um brella of MINCETUR, PromP erú w as created in 1993 with the goal
of promoting P eruvian pro ducts in foreign mark ets. In 2002, similar to Chil e’s p olicy , b oth
MINCETUR and PromP erú announced the creation of the initiativ e Marca P erú (P eru
Brand), whic h w ould con tin ue the promotion of go o ds pro duced b y P eruvian startups abroad.
Using branding strategies, the initiativ e also sough t to b o ost tourism and attract in v estmen t
to the domestic mark et.
The creation of the Commission to Promote Priv ate In v estmen t (COPRI) in 1991 w as one
of the first steps F ujimori’s administration to ok to reinsert the priv ate sector in to the national
4
Despite reducing extreme p o v ert y b y half, so cio-economic inequalit y has con tin ued to deep en in P eru.
W eak so cial securit y programs, inefficien t so cial sp ending, and ineffectiv e economic redistribution are some of
the factors that led to the increase in p opularit y of left-leaning leaders, for example. The election of Ollan ta
Humala in 2011 signaled p opular discon ten t to w ard existing so cial services structures and the accessibilit y
to economic opp ortunities among the p opulation in the lo w er economic ec helon. F or more details on the
p o litical and so cial impact of F ujimori’s regime, see Crabtree and Thomas ( 1998 ; 2010 ; 2015 ; 2003 ). The
edited v olume b y San tos and W erner ( 2015 ) offers st ylized data on these effects.
114
T able 4.3: New Ministries under F ujimori
Institution Y ear Cre-
ated
New Ministry Y ear
Changed
Description
Ministry of Industry ,
T ourism, In tegration and
Negotiation of In ternational
Commercial Agreemen ts
1992 Ministry of F oreign T rade
and T ourism (MINCETUR)
2002 T rade, in v estmen t, and tourism
promotion
Ministry of T ransp ortation,
Comm unications, Housing,
and Construction
1992 Ministry of T ransp ortation
and Comm unications; and
the Ministry of Housing,
Construction, and Sanita-
tion
2002 In 1992, t w o ministries w ere com-
bined i n to one. In 2002, they w ere
split to their resp ectiv e sectors.
Source: A uthor’s elab oration. Not all institutions are listed. I ha v e selected the ones that are relev an t to the economic
reforms.
115
T able 4.4: New Agencies under F ujimori
Institution Y ear Cre-
ated
New Agency Y ear
Changed
Description
Commission to Promote
Priv ate In v estmen t (CO-
PRI)
1991 ProIn v ersión 2004 Promotion of priv ate in v est-
men t. Under the um brella of the
Ministry of F oreign T rade and
T ourism.
Sup ervisory Agency for Pri-
v ate In v estmen t in T elecom-
m unications (OSIPTEL)
1991 – – Sup ervision and regulation of in-
v estmen ts in telecomm unications.
National Institute for the
Defense of F ree Comp eti-
tion and the Protection of
In tellectual Prop ert y (Inde-
copi)
1992 – 2010 Regulatory agency resp onsible for
the enforcemen t of comp etition
la w and in tellectual prop ert y .
Since 2010, Indecopi has also
b een resp onsible for protecting
the consumer in P eru’s econom y .
PromP erú
1993 – – Agency resp onsible for the pro-
motion of P eru and P eruvian
pro ducts in in ternational mar-
k ets. In 2002, Marca P erú (P eru
brand) w as created to enhance
the exp ort of P eruvian pro ducts,
attract in v estmen ts, and b o ost
tourism abroad.
Source: A uthor’s elab oration. Multiple sources. During the 1990s, four of the agencies had regulatory resp onsibilities:
OSIPTEL, Osinergmin, OSITRAN, and SUNASS (National Sup erin tendence of Sanitation Services). This latter is not
included on this list. F or more information, see ( OECD , 2019 , pp. 45-60, Chapter 1: Regulatory and Sector Con text).
116
T able 4.5: New Agencies under F ujimori, part I I
Institution Y ear Cre-
ated
New Agency Y ear
Changed
Description
Sup ervisory Agency for In-
v estmen t in Energy (Osin-
erg)
1996 Sup ervisory Agency for In-
v estmen t in Energy and
Mining (Osinergmin)
2007 Sup ervision and regulation of
firms in the m ining, h ydro car-
b on, and energy sectors, and their
compliance with legal norms. In
2007, the regulatory resp onsibili-
ties w ere extended to the mining
sector.
Sup ervisory Agency for In-
v estmen t in Public T rans-
p ort Infrastructure (OSI-
TRAN)
1998 – – Sup ervision and regulation of in-
v estmen ts in public transp ort in-
frastructure.
Source: A uthor’s elab oration. Multiple sources. During the 1990s, four of the agencies had regulatory resp onsibilities:
OSIPTEL, Osinergmin, OSITRAN, and SUNASS (National Sup erin tendence of Sanitation Services). This latter is not
included on this list. F or more information, see ( OECD , 2019 , pp. 45-60, Chapter 1: Regulatory and Sector Con text).
117
econom y . With the resp onsibilit y of promoting priv ate in v estmen t, COPRI and agencies
suc h as the Sup ervisory Agency for Priv ate In v estmen t in T elecomm unications (OSIPTEL)–
created this same y ear–b egan to prepare a n um b er of state en terprises for sale. It w as
essen tial to regain in v estors’ confidence and to impro v e the managemen t of k ey industrial
firms, as these had b een inefficien tly run in previous decades ( Arce , 2010 ; Kisic , 1998 ).
COPRI w ould later b ecome ProIn v ersión in 2004. In 2012, InP erú w ould b e created as a
m uc h larger en tit y that w ould com bine b oth public and priv ate firms and organizations to
b o ost foreign in v estmen t in the coun try .
Equally imp ortan t w as the restructuring of the Ministry of Econom y and Finance (MEF)
in to a “sup er ministry ,” the Cen tral Reserv e Bank of P eru (BCRP), and the increased in-
dep endence of the National Sup erin tendency of T ax A dministration (SUNA T). During the
initial stabilization p erio d from 1990 to 1992, MEF’s main priorit y w as to implemen t the
IMF’s measures, reduce inflation, and attract external capital. As one of the regulatory
sup er-ministries, MEF managed the national budget and tax collection in the coun try . Al-
though SUNA T had b een created in 1988 under García’s leadership as an indep enden t agency
to replace MEF’s General Direction of T ax Collection (Dirección General de Con tribuciones),
its role w as not consolidated un til the 1991-1994 p erio d ( Wise , 2003 ). In collab oration with
tec hno crats and business elites, F ujimori put together a p olicy team that w ould recruit and
train highly qualified p ersonnel; impro v e tax collection, pro cessing, and auditing pro cesses;
and generate ann ual plans that w ould allo w for more efficien t services and facilitate com-
pliance ( Durand and Thorp , 1998 ; Wise , 2003 ). With this separation of resp onsibilities and
the greater autonom y of SUNA T, it w as set to op erate more efficien tly . Ho w ev er, with the
w eak ening of F ujimori’s con trol starting in 1997, whic h w as reflected, for example, in the
consecutiv e replacemen t of MEF ministers ( Arce , 2010 ), SUNA T w ould undergo another
o v erhaul in the early 2000s ( SUNA T , 2002 ).
W eak ened b y the p olicies of previous administrations, the BCRP regained its autonom y
and its authorit y in o v erseeing monetary p olicies. Under the Constitution of 1993, the BR CP
118
had t w o mandates: main tain monetary stabilit y and retain its status as an autonomous
institution. As a result, its presiden t w ould serv e a fiv e-y ear term and could not b e remo v ed
at the whim of p olitics. While one of its main goals w as to set inflation targets, this did
not o ccur un til the 2000s. In the late 1990s, BCRP’s priorities fo cused mainly on price
stabilit y and exc hange rates. Nonetheless, with more indep enden t p o w er, the BCRP b ecame
more flexible and adapted its p olicies according to macro economic b enc hmarks and external
conditions.
5
Ov erall, F ujimori’s goal of purging inflation, co ordinating macro economic v ariables and
restoring trust from the in ternational financial system w ere ac hiev ed. By 2007, ev en the goal
of attaining a v erage gro wth rates of 5 p ercen t and ab o v e w as realized. In the span of sev en
y ears, his administration managed to restructure P eru’s foreign debt and gain mem b ership
in to groups suc h as APEC (1998). Ho w ev er, although F ujimori’s first go v ernmen t w as able
to enact p olicies that fostered P eru’s return to the global econom y , his second administration
faced disarra y . By 1997, the new mark et mo del w as consolidated ( Wise , 2003 ) and it pro v ed
to b e sustainable as subsequen t administrations con tin ued on the sam e economic path. Y et
economic gro wth had b een generated at the exp ense of serious so cial reform. The deterio-
ration of p olitical and demo cratic institutions in the 1990s rev ersed somewhat in the early
2000s; but cycles of p olitical turmoil and crises ha v e con tin ued. Despite all this, it w as not
un til 2019 that P eru sa w a steep decline in commerce and in v estmen t for the first time since
the reforms of the 1990s. This recen t rev ersal can b e largely attributed to the unforeseen
external sho c k of the global pandemic. This should not tak e a w a y from the resilience of the
economic framew ork that w as launc hed in the early 1990s.
5
Both Dancourt ( 1999 ) and Jimenez ( 2010 ) highligh t the role that external conditions–more sp ecifically ,
external sho c ks–ha v e pla y ed in ho w differen t P eruvian go v ernmen ts ha v e resp onded via the form ulation of
macro economic and mark et p olicies in the last cen tury . Although c hanges ha v e b een implemen ted to ac hiev e
stabilit y , in the view of Dancourt esp ecially , the coun try con tin ues to lac k basic monetary instrumen ts to
face external crises or limit exp osure.
119
4.2 New Cen tury , New Coun try
P eru’s restoration to demo cracy coincided with the turn of the new cen tury . After the
ousting of F ujimori in 2000, P eru b egan a “re-demo cratization” pro cess under the leadership
of Alejandro T oledo (2001-2006). No w that the P eruvian econom y w as finally stabilizing,
the new priorit y w as to set inflation rate targets, whic h in the y ear 2000 w ere set to 3.5-4.0
p ercen t. The coun try met this target with an inflation rate of 3.7 p ercen t and has con tin ued
to do so (BCRP , 2000 ). Although the gro wth target w as not met at the time (7 p ercen t
gro wth v ersus the 9 p ercen t target, P eru’s o v erall macro economic p erformance from 2000 to
2010 w as its strongest in more than half a cen tury (T able 4.6). A t a glance, P eru’s GDP
gro wth w as up w ard un til the mid-2010s; b et w een 2004 and 2014, the a v erage p er capita GDP
gro wth w as 5 p ercen t p er y ear, the second highest in Latin America ( OECD , 2016 , p. 39).
A v erage inflation rates w ere 2.6 p ercen t p er y ear ( OECD , 2016 , p. 39), and unemplo ymen t
fell from 8.6 p ercen t in 1990 to less than 3 p ercen t b y 2015 (W orld Dev elopmen t Indicators).
Despite the large gap in inequalit y , p o v ert y fell from more than 50 p ercen t in 2004 to less
than 24 p ercen t in 2013 ( OECD , 2016 , p. 39).
The go v ernmen t of Alejandro T oledo and subsequen t administrations con tin ued with the
neolib eral mo del that b egan in the 1990s ( Jaquette and Lo w en thal , 2017 ). The go v ernmen t
further implemen ted the p olicies and institutional reforms that c hanged P eru’s econom y .
Whereas stabilit y and reco v ery w ere the main goals in the previous decade, in this new
cen tury , a main ob jectiv e w as to b o ost P eru’s participation in the in ternational economic
comm unit y . As suc h, the rev amping of economic en tities and agencies k ept mo ving forw ard,
particularly in k ey sectors of the P eruvian econom y . The role and functions of the state also
shifted, from b eing the only economic pla y er that exercised hea vy con trols, to one that had
assumed a more sup ervisory p osition ( OECD , 2016 ; Wise , 2003 ).
As noted in the OECD rep ort on P eru’s regulatory b o dies ( 2016 ), the coun try has a
cen tralized go v ernmen t system that is divided in to the executiv e, legislativ e, and judicial
branc hes. A t the cen ter, the Presidency of the Council of Ministers (PCM) encompasses a
120
group of regulatory and autonomous agencies that o v ersee so cial and economic issues. The
en tities with greater p o w er are those that regulate and monitor economic matters, suc h as
INDECOPI and OSINER GMIN (see T ables 4.4 and 4.5 for descriptions of these agencies).
In addition to these agencies, the o v erarc hing Ministry of the Econom y and Finance (MEF)
arguably holds the most p o w er ( Wise , 2003 ). Other k ey ministr ies suc h as the Ministry of
Energy and Mines (MINEM) and the Ministry of F oreign T rade and T ourism (MINCETUR)
also directly shap e P eru’s domestic and in ternational economic p olicy (Figure 4.5).
Figure 4.5: Structure of P eru’s Executiv e Branc h
Source: Regulatory P olicy in P eru: Assem bling the F ramew ork of Regulatory Qualit y
( OECD , 2016 , p. 58).
Ho w ev er, despite the increased indep endence of these go v ernmen t b o dies, the regulatory
en tities still dep end on and mainly resp ond to the PCM. F or instance, while they are held
accoun table b y the MEF in budgetary matters, their p erformance is o v erseen b y the PCM. In
this sense, the failure to include other relev an t stak eholders, including Congress, ma y affect
the scop e of their sup ervisory capacit y ( OECD , 2016 ). OSINER GMIN is one example. As
the agency resp onsible fo r promoting and o v erseeing in v estmen ts and the implemen tation
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of pro jects in the extractiv e industries, OSINER GMIN w as also in c hange of monitoring
firms’ en vironmen tal compliance. This generates conflicting roles for the organization as
it serv es as b oth judge and facilitator ( San b orn and Chonn Ching , 2017 ). As a result, in
2008, the Ministry of the En vironmen t (MINAM) w as created and with it, the Agency for
En vironmen tal Assessmen t and Enforcemen t (OEF A).
P eru’s impro v emen t of its regulatory framew ork has b een driv en b y domestic and in ter-
national demand. Although some efforts ha v e tried to impro v e implemen tation and enforce-
men t pro cesses, strengthen accoun tabilit y and transparency , and adhere to in ternational
standards, P eru still suffers from to o m uc h cen tralization and bureaucratic red tap e, as w ell
as a high degree of informalit y .
P eru’s successful return to global mark ets has ignited the gro wth of the coun try’s com-
mo dit y exp orts sector, led b y minerals , metals, a nd agriculture. As indicated in the previous
section, these are the sectors on whic h the P eruvian econom y has historically and tradition-
ally dep ended. The lo w div ersification of sectors and anemic pro ductivit y are c hallenges
the coun try has con tin uously faced, mostly due to w eak in v estmen t and public sp ending
on so cial programs that emphasize education, tec hnology , inno v ation, and industrial mo d-
ernization. In terestingly , P eru’s success in mark ets outside the r egion, particularly in Asia
since the mid-1990s, has pushed p olicymak ers and lo cal pro ducers to expand and div ersify
within select industries. F or example, the div ersification of traditional and non-traditional
agriculture pro ducts, and the promotion of luxury clothing and fabrics suc h as those made
of alpaca, ha v e enabled P eru to create new mark et nic hes with partners suc h as China.
But due to the slo wdo wn of the global econom y since the mid-2010s and ongoing trans-
formation in the in ternational system, P eru is no w facing the c hallenge of deciding ho w far
coun try’s lib eralization could con tin ue on without implemen ting so cial measures that are
urgen tly needed. The economic framew orks and struct ures set up at the turn of the last
cen tury op ened man y do ors for P eru in foreign mark ets. The success (or failure) of the
coun try’s economic p erformance with differen t in ternational partners is a reflection of ho w
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T able 4.6: Summary of P eru’s Economic Indicators
Indicator 1990 1995 2000 2005 2010 2015 2018
Real GDP gro wth -5.10 7.40 2.70 6.30 8.50 3.30 4.00
GDP gro wth -4.98 7.41 2.69 6.29 8.33 3.25 3.98
GDP/capita gro wth -6.95 5.43 1.21 5.36 7.46 1.96 2.21
GDP/ capita (a) 2,650.21 3,107.11 3,242.58 3,796.20 5,082.35 6,114.23 6,453.56
P o v ert y gap (%) (b) – – 6.00 5.40 1.50 1.00 0.70
Unemplo ymen t (c) 8.60 – 7.80 4.86 3.30 2.91 3.11
Public debt (d) 70.40 47.70 38.55 31.24 13.13 11.15 8.85
Gross sa vings (d) 13.05 16.39 17.32 19.74 22.45 20.05 19.83
Inflation rate (e) 7,481.66 11.13 3.76 1.62 1.53 3.55 1.32
T ax rev en ue (d) 10.72 13.68 12.61 14.10 15.47 14.92 14.32
Exp orts (f ) – 5,439,694.34 6,322,421.10 17,114,288.77 35,807,438.49 33,667,006.87 47,894,102.58
Imp orts (f ) – 7,584,036.86 7,414,903.06 12,501,829.90 29,965,750.20 38,026,358.90 43,123,394.70
T rade balance (f ) – -2,144,342.52 -1,092,481.96 4,612,458.87 5,841,688.29 -4,359,352.03 4,770,707.88
Sources: A uthor’s elab oration. Data from W orld Dev elopmen t Indicators (WDI), W orld In tegrated T rade Solutions (WITS),
In ternational Monetary F und (IMF), United Nations Conference on T rade and Dev elopmen t (UNCT AD), Cen tral Reserv e Bank
of P eru (BCRP).
(a) Constan t 2010 US$.
(b) A t US$ 1.90 a da y (2011 PPP).
(c) P ercen tage of total lab or force.
(d) P ercen tage of GDP .
(e) Measured at consumer prices.
(f ) T rade v alues retriev ed from WITS. V alues start since y ear 1992. Measured in US$ Thousand.
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Figure 4.6: P eru’s Economic T ransformation, 1985-2020
Source: A dapted from “P eru’s Recen t Economic History” b y Rossi and San tos ( 2015 ), p. 12.
Notes: RAP refers to the IMF’s Righ ts A ccum ulation Program, whic h supp orted P eru’s
structural reforms and macro economic adjustmen ts. This program ran from 1991 to 1993, and it
met the ob jectiv es of reducing inflation, creating conditions to sustain gro wth, and reestablishing
relations with foreign creditors. The EFE refers to the Extended F unded F acilities, whic h
supp orted P eru’s stabilization efforts (1993-2001). SBA is the Stand-By Arrangemen ts
(2001-2009) that fo cused on inflation-targeting p olicies, while main taining economic stabilization
and con tin uous structural reforms. F or more details see Rossini and San tos ( 2015 ), p. 13.
*F ujimori w as ousted b y Congress in No v em b er 2000. P aniagua–who w as vice-presiden t at the
time–w as app oin ted as in terim presiden t for eigh t mon ths.
**Martin Vizcarra w as app oin ted as the in terim presiden t after P edro P ablo Kuczinsky resigned
in 2018. New presiden tial elections will tak e place in 2021.
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w ell P eru has learned its lessons and what else remains to b e done. In the follo wing c hapters,
I will examine P eru’s trade and in v estmen t ties with China to sho w P eru’s adaptabilit y and
resp onse to one of the most imp ortan t c hanges in the in ternational econom y in the last three
decades.
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Chapter 5
The Road to T rade Re-op ening
In Chapter 1, I iden tified some of the measures that indicate success in trading with China:
a free trade agreemen t, a sustained trade surplus, and trade div ersification. P eru has made
adv ances in all three areas with China, although less so with trade div ersification. Ho w ev er,
P eruvian pro ducts ha v e fo cused on in tra-sectoral div ersification b y seeking out nic he mark ets
for P eru’s agricultural pro ducts in China and elsewhere ( W ong , 2015 ). In other w ords, some
of the c hanges P eru exp erienced ha v e not solely b een driv en b y China; rather, they indicate
the coun try’s initiativ e and transformation o v er time.
In this section, I scrutinize some st ylized facts regarding the dev elopmen t of P eru’s trade
structure from 1995 to 2018 and ho w this facilitated its successful commercial in teractions
with China. I b egin with 1995 b ecause this is when the coun try’s first set of trade reforms
w ere fully implemen ted. The previous c hapter in tro duced P eru’s structural and stabiliza-
tion c hanges, and emphasized p olicymak ers’ efforts to establish mark et-orien ted p olicies to
rein tegrate the coun try with the global econom y . Beginning in 1974, Chile w as the fron t-
runner in the implemen tation of mark et-orien ted structural reforms in Latin America and
the Caribb ean. P eru started nearly t w en t y y ears later but quic kly caugh t up. F or example,
Ross and P esc hiera ( 2015 ) note that, b y appro ximately 2013, P eru had surpassed Brazil, Ar-
gen tina, Colom bia, and Mexico in the Structural Reform Index (SRI) constructed b y Lora
126
(2012),
1
whic h quan tifies a coun try’s structural impro v emen ts with regard to trade, finan-
cial, tax, priv atization, and emplo ymen t p olicies. Lora used an index range from 0-1, with
1 as the highest score for p olicy impro v emen ts attained. While in 1985 P eru had a score of
0.28, the score increased to 0.69 in 2009, cutting its distance from Chile in half ( Ross and
P esc hiera , 2015 , p. 40).
While this turnaround w as hea vily supp orted b y the structural and stabilization reforms
P eru adopted, it w as also supp orted b y the rapid pace of implemen tation as w ell as p olicy
consistency–at least related to inflation con trol, a k ey first step P eru needed in the early
1990s. In Gr owth, Employment, and Equity: The Imp act of the Ec onomic R eforms in
L atin A meric a and the Caribb e an b y Stallings and P eres ( 2010 ), the authors also extend
and use Lora’s SRI index to analyze LA C coun tries’ p erformance in their implemen tation of
structural reforms from 1970 to the 1990s. They find that outcomes v aried as some coun-
tries implemen ted c hanges aggressiv ely and others applied them cautiously and gradually .
F u rthermore, the t yp es of p olicies with whic h they w ere implemen ted, as w ell as external
conditions, also mattered. P eru, in particular, adopted structural reforms aggressiv ely and
quic kly as the coun try faced w orsening macro economic conditions throughout the 1980s. The
initial p olicies that targeted inflation help ed to stabilize P eru’s econom y , and the subsequen t
in v estmen t, in terest rates, banking, and tax reforms through the mid-1990s complemen ted
the ongoing c hanges. Ho w ev er, Stallings and P eres ( 2010 ) do highligh t the deficiencies and
c hallenges faced b y some coun tries, including P eru: so cial sp ending con tin ued to b e lo w suc h
that there w as a need to catc h up.
Nev ertheless, b y 1995, P eru had an inflation rate of 11.13 p ercen t–a significan t drop from
o v er 7,000 p ercen t in 1990–and public debt had b een reduced to less than 50 p ercen t of GDP
(T able 4.6). Measures to gradually reduce trade tariffs w ere lo w ered o v er 10 y ears and w ere
0.71 p ercen t b y 2018 (Figure 4.2). These p olicy c hanges w ere supp orted b y the creation
1
Ross and P esc hiera refer to Eduardo Lora’s up dated w orking pap er, “Structural Reform in Latin America:
What Has Been Reform and Ho w Can It Be Quan tified,” published b y the In ter-American Dev elopmen t Bank
(IDB) in 2012. In their w ork, Ross and P esc hiera ( 2015 ) extend Lora’s index forw ard up to 2013 ( Ross and
P esc hiera , 2015 , p. 40-41).
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of institutions and agencies that promoted P eru’s global economic in tegration. T able 4.4 in
c hapter 4 sho ws that INDECOPI w as one of the first regulatory agencies created in 1992, with
the goal of pro viding a framew ork that w ould facilitate domestic mark et comp etition, the
protection of in tellectual prop ert y , and consumers righ ts ( Finger et al. , 2013 ; Wise , 2003 ). Y et
it w as not un til the early 2000s that P eru b egan to activ ely pursue its reinsertion in to global
mark ets via in ternational trade. Baracat et al. ( 2013 ) argue con vincingly that in comparison
to regional coun terparts suc h as Argen tina, P eru’s trade reform s w ere successful due to the
efforts of p ol icymak ers to i nform t he public ab out the b enefits of an op en trade p olicy . The
go v ernmen t also sough t the inclusion of div erse groups and sectors in the negotiation of
differen t commercial and economic agreemen ts. Whereas previous P eruvian administrations
had emphasized protectionism un til 1991, b y the start of the new cen tury , P eruvian leaders
w ere finally committed to the coun try’s in ternational participation as the surest route to
P eru’s gro wth and dev elopmen t. Ev en after the ab dication of Alb erto F ujimori as P eru’s
presiden t in 2000, the op ening pro cess that his administration launc hed w as sustained b y
subsequen t leaders ( Baracat et al. , 2013 ; San tos and W erner , 2015 ).
Figure 5.1 and T able 5.1 pro vide an o v erview of the ev olution of P eru’s in ternational
trade indicators since 1995. In 2011, P eru’s trade-to-GDP ratio w as ab o v e 55 p ercen t,
ranking it just b ehind Chile and Mexico as one of the more op en economies in the region
(Figure 5.1). With the end of the commo dit y b o om in 2013, P eru main tained an op en
p osition to w ard trade, ev en as its trade-to-GDP ratio fluctuated in the m id- to high-40s
range (T able 5.1). F urthermore, exp orts con tin ued to gro w b oth b y v olume and v ariet y . In
particular, agricultural pro ducts held steady , as small- and medium-sized pro ducers b ecame
more engaged in in ternational mark ets. Whereas in 2010, only 10 companies had sales of o v er
US$ 20 million, as of 2018, that n um b er more than tripled to 33 businesses, making P eru an
imp ortan t global pro ducer of asparagus, grap es, a v o cados, and quinoa ( Red Agricola , 2019 ).
A ccording to P eru’s So ciet y of F oreign T rade (COMEX), agricultural pro ducts ha v e b ecome
the coun try’s second most exp orted pro ducts after those from the mining sector ( COMEX ,
128
2019 ). As mining and gas exp orts ha v e exp erienced lo w er demand since 2017, non-traditional
agricultural exp orts ha v e main tained their gro wth, th us making them the curren t engine of
P eru’s gro wth ( Andina , 2020 ).
Figure 5.1: P eru’s T rade-to-GDP Ratio, 1995-2019
Source: W orld Dev elopmen t Indicators
The promotion of small- and medium-size firms (PYMES in Spanish) has largely con-
tributed to this agricultural b o om. The go v ernmen t’s efforts in further formalizing small
pro ducers as w ell as co ordination among domestic agencies, business asso ciations, and rele-
v an t ministries has help ed to prioritize and dev elop the industries and sectors for whic h the
coun try holds a comparativ e adv an tage. These efforts w ere reiterated through the enactmen t
of supp orting regulations, suc h as La w No. 27360 in 2000, whic h declared the dev elopmen t
of and in v estmen t in the agricultural sector a priorit y and pro vided guidance regarding the
resp onsibilities and b enefits for en trepreneurs in this sector. During the next t w o decades,
129
these en trepreneurs w ould b e encouraged to go out and find mark ets for their pro ducts. Af-
ter signing the P eru-China FT A in 2009, China b ecame one of the most promising mark ets
despite the geographical distance and language barriers. Imp ortan tly , China w as view ed as
an additional partner rather than a replacemen t of other traditional destinations for P eru-
vian exp orts, including the United States and coun tries in Europ e (in terview SP1, Lima,
2019).
T able 5.1: P eru’s T rade P erformance, 1995-2018
Indicator 1995 2000 2005 2010 2015 2018 2019*
T rade-to-GDP ratio 30.93 35.54 47.36 51.67 45.16 48.91 47.12
T erms of trade index 123.36 100.00 131.86 188.40 163.57 174.73 171.65
HH Mark et concen tration index 0.08 0.11 0.13 0.09 0.09 0.12 –
Num b er of exp ort partners 138 143 170 171 177 174 –
Num b er of pro ducts exp orted 2188 2720 3269 3274 3262 3331 –
Num b er of imp ort partners 130 156 177 188 195 204 –
Num b er of pro ducts imp orted 4384 4378 4318 4169 4139 4130 –
Index of exp ort mark et p enetration 3.01 3.45 4.25 4.89 5.02 4.97 –
T ariff rate (w eigh ted) 15.3 12.8 8.33 2.52 1.08 0.71 –
Sources: A uthor’s elab oration. Data from The W orld Bank, United Nations Conference on T rade
and Dev elopmen t (UNCT AD), W orld T rade Solutions (WITS).
*Sho wn for a v ailable data.
T rade-to-GDP ratio: Sum of exp orts and imp orts of go o ds and services measured as a share of GDP .
T erms of trade index (TOT): Measures the ratio of a coun try’s exp ort and imp ort prices. When the
coun try exp orts more than it imp orts, the TOT is greater than 100 p ercen t. When more money is
lea ving than en tering the coun try , the TOT is less than 100 p ercen t. In this instance, the TOT’s
base y ear is 2010.
HH Mark et concen tration index: The Hirsc hman Herfindahl index, whic h measures a coun try’s mar-
k et comp etitiv eness. A coun try with trade concen trated in few mark ets will ha v e an index close to
1, whereas a coun try with div ersified trade score close to zero.
Index of exp ort mark et p enetration: Measures the exten t to whic h a coun try’s exp orts reac h already
pro v en mark ets. As indicated b y UNCT AD, a lo w exp ort p enetration ma y signal the presence of
barriers to trade that are prev en ting firms from expanding the n um b er of mark ets to whic h they
exp ort.
T ariff rate: W eigh ted mean applied tariffs–that is, the a v erage of effectiv ely applied rates w eigh ted b y
the pro duct imp ort shares corresp onding to eac h partner coun try . P er the W orld Bank’s calculations,
when the effectiv ely applied rate w as una v ailable, the most fa v ored nation rate w as used instead.
Nev ertheless, the most imp ortan t factors in P eru’s economic expansion and commitmen t
to in ternational trade w ere the institutional c hanges that explicitly targeted the coun try’s
130
global in tegration and the promotion of P eruvian pro ducts abroad. More sp ecifically , once
p olicymak ers had stabilized P eru’s econom y , the next step w as to create an en tit y that w ould
fo cus on the managemen t and promotion of trade, as w ell as the application of WTO princi-
ples that P eru had signed on to in 1995 ( Baracat et al. , 2013 ; Finger et al. , 2013 ). Since 1992,
the Ministry of Industry , T ourism, In tegration and Negotiation of Commercial Agreemen ts
(MITINCI) had b een resp onsible for creating, sup ervising, and ev aluating p olicies concern-
ing the industrial sector, tourism, and the negotiation of commercial deals (La w Decrees No.
25761 and No. 25831). Although MITINCI underw en t reorganization in 1998 (La w Decree
No. 26961), it w as not un til the creation of the Ministry of F oreign T rade and T ourism
(MINCETUR) in 2002 (La w Decree No. 27779) that P eru had a go v ernmen t b o dy mainly
fo cused on the promotion of imp orts and exp orts and the negotiation of in ternational trade
agreemen ts (La w Decree No. 27790). These resp onsibilities w ould b e organized in co ordina-
tion with the Ministry of the Econom y and Finance (MEF) and other relev an t go v ernmen t
agencies, including PromP erú
2
and most recen tly Marca P erú.
3
Under MINCETUR’s guidance, P eru b egan to negotiate its first commercial deals. P eru
b ecame a mem b er of the Asia-P acific Economic Co op eration (APEC) group in 1998, whic h
facilitated P eru’s increased exp osure to Asia. In 2005, P eru completed a landmark FT A with
the United States, at whic h p oin t P eruvian p olicymak ers in tensified their searc h for more
economic partners. F ollo wing the FT A with the United States, P eru finalized negotiating
bilateral free trade agreemen ts with Chile and Singap ore. An FT A with Canada follo w ed
in 2008 (T able 5.2), and in 2009, P eru negotiated its most comprehensiv e FT A ev er with
China.
The FT A with the United States w as a long pro cess that b egan in the early 1990s as
the U.S. Congress authorized increased mark et access for a n um b er of Andean coun tries
2
This is the agency resp onsible for the promotion of P eruvian pro ducts in in ternational mark ets and the
coun try as an attractiv e business and in v estmen t destination. See more in c hapter 4.
3
Announced in 2002 b y MINCETUR and PromP erú, this branding initiativ e w as created to enhance the
global promotion of P eruvian go o ds pro duced b y lo cal startups. It also sough t to b o ost tourism and attract
in v estmen t. See more in c hapter 4.
131
T able 5.2: P eru’s Economic Agreemen ts
P artner Signed En try in to
F orce
Mem b ership in Customs Unions and other economic forums
The Andean Comm unit y* Ma y 1969 –
Asia-P acific Economic Co op eration No v em b er 1998 –
FT A in force
Cuba (A CE 50)** Octob er 2000 Marc h 2001
Thailand*** 2004-2010 Decem b er 2011
MER COSUR No v em b er 2005 Decem b er 2005
United States April 2006 F ebruary 2009
Chile A ugust 2006 Marc h 2009
Singap ore Ma y 2008 A ugust 2009
Canada Ma y 2008 A ugust 2009
China April 2009 Marc h 2010
Europ ean F ree T rade Asso ciation (EFT A) July 2010 July 2011
South K orea No v em b er 2010 A ugust 2011
Mexico (A CE 8) April 2011 F ebruary 2012
P anama Ma y 2011 Ma y 2012
Costa Rica Ma y 2011 June 2013
Japan Ma y 2011 Marc h 2012
V enezuela**** Jan uary 2012 A ugust 2013
Europ ean Union June 2012 Marc h 2013
P acific Alliance F ebruary 2014 Ma y 2016
Honduras Ma y 2015 Jan uary 2017
A ustralia F ebruary 2018 F ebruary 2020
FT A signed but not in force
Guatemala Decem b er 2011
Brazil April 2016
Comprehensiv e and Progressiv e Agreemen t for
T ranspacific P artnership (CPTPP)
Marc h 2018
United Kingdom Ma y 2019
Source: A uthor’s elab oration. Data from the Ministerio de Comercio Exterior y T urismo
del P erú (MINCETUR), Sistema de Información Sobre Comercio Exterior (SICEX).
*The Andean Comm unit y is a customs union formed b y Bolivia, Colom bia, Ecuador, P eru,
and V enezuela, whic h b ecame part of the union in 1973. Chile w as one of the original
signatories but withdrew its participation in 1976.
**This is a partial preferen tial trade agreemen t under the denomination of A CE 50 (in
Spanish) or Complemen tary Economic Agreemen t 50.
***This is a series of commercial proto cols P eru and Thailand negotiated b et w een 2004 and
2010 and en tered in to force in 2011. These proto cols include access to mark ets, facilitation
of ph ytosanitary and sanitary licenses, and tariff reductions.
****This refers to a partial commercial agreemen t with V enezuela, mainly fo cusing on
preferen tial tariffs.
132
(Bolivia, Colom bia, Ecuador, and P eru) in exc hange for supp ort in the com bat of drug
traffic king ( Baracat et al. , 2013 ). Under the Andean T rade Preference A ct (A TP A), P eruvian
firms gained the opp ortunit y to increase exp orts to the United States. In 2002, during the
administration of George W. Bush, the A TP A w as replaced b y the A TPDEA, or the Andean
T rade Promotion and Drug Eradication A ct, due to the A TP A’s expiration the previous y ear.
Y et access to the US mark et w as tigh tened and P eru’s exp orts did not gro w as an ticipated.
P eruvian exp orters demanded greater mark et access ( Baracat et al. , 2013 ; Durán Lima , 2007 ;
Finger et al. , 2013 ). This led to the pursuit of a bilateral trade agreemen t with the United
States in 2004. Once negotiations concluded in 2005, b oth coun tries signed the FT A one
y ear later. But P eru w as made to w ait four y ears for that agreemen t to en ter in to force.
Wh y?
F or one, on the U.S. side, the FT A required appro v al from the U.S. Congress. F aced with
p oten tial opp osition, the FT A w as presen ted as a means to help the United States strengthen
its ties with a region where China w as increasingly gaining influence. It w as also cast as
a strategy for the U.S. to con tain left-leaning go v ernmen ts suc h as V enezuela, then led b y
so cialist firebrand Hugo Cha v ez ( Eiras and Johnson , 2006 ). W ashington, in other w ords,
sa w the U.S.-P eru FT A as more of a strategic mo v e. On the P eruvian side, the negotiations
required P eruvian p olicymak ers to further deep en commitmen ts made to the WTO. This
included the lib eralization of the coun try’s service and in v estmen t sectors, the pro vision of
transparen t and predictable in v estmen t framew orks for U.S. firms, and greater protection of
in tellectual prop ert y righ ts (IPR) ( Jorge , 2010 ; Villarreal , 2006 ). As stated b y Baracat et al.
( 2013 ), the U.S.-P eru FT A motiv ated P eruvian reformers to carry out “second-generation
reforms,” meaning the deep ening of W ashington Consensus p olicies implemen ted through
the 1990s ( Baracat et al. , 2013 , p. 9).
In addition to publishing a set of guidelines for the further reduction of trade tariffs,
the P eruvian leadership also organized a series of ev en ts that collected information and
pro vided up dates to business organizations, c ham b ers of commerce, civil so ciet y , and other
133
groups regarding eac h stage of the FT A negotiation ( Baracat et al. , 2013 ). This pla y ed an
imp ortan t role in p ositioning the FT A as a deal that w as of national in terest and one from
whic h the en tire p opulation w ould b enefit. My fieldw ork in terviews in P eru confirmed that
these ev en ts w ere piv otal in casting the FT A with the U.S. in a more p ositiv e ligh t. This is a
strategy that p olicymak ers also used during the negotiations of the FT A with China, to gain
appro v al from the p opulation as w ell as to obtain feedbac k from industry leaders (in terviews
Lima, 2019).
Th us, for P eruvian p olicymak ers and the business comm unit y , the FT A with the U.S. w as
an economic milestone that reinforced P eru’s p osition as an op en econom y , a coun try that
has put b ehind its protectionist history . It also underlined the great capacit y of P eruvian
leaders and p olicymak ers as participan ts and “shap ers” of the coun try’s economic deals.
In comparison with negotiations at m ultilateral organization, suc h as the WTO, the FT A
ga v e P eruvian p olicymak ers more con trol o v er the domestic implemen tation and pace of new
trade p olicies. Moreo v er, P eru’s leaders seized the opp ortunit y to adjust new institutional
norms to the coun try’s con text ( Baracat et al. , 2013 ; Finger et al. , 2013 ; P az-Soldan and del
Carmen Riv era , 1999 ).
In consequence, the FT A with the U.S. b ecame a blueprin t for other trade agreemen ts
P eru subsequen tly signed with larger economic partners (in terview SP 1, P eru, 2019). When
it came to negotiations with China, the p olicymak ers w ere prepared. As China w as also
b eginning to expand its commercial influence abroad, b oth coun tries completed what could
b e considered a WTO-plus agreemen t–one with pro visions that surpassed what WTO agree-
men ts usually offer–as also highligh ted b y Wise ( 2016 ). So ho w did the Sino-P eruvian FT A
come ab out?
134
5.1 Old New comer: Renewing the Relationship with
China
China’s greater engagemen t with P eru b egan in the early 2000s, as w as also the case for
the rest of South America. But in comparison with most coun tries in the Latin American
region, P eru has a long historical relationship with the P eople’s Republic of China (PR C).
P eru officially receiv ed the first Chinese immigran ts in the 1850s, under the go v ernmen t
of Ramón Castilla (1845-1851). A ccording to historical accoun ts gathered b y Ro dríguez
P astor ( 2012 ), the La w of General Immigration and Sp ecially for China
4
–also referred to as
the “China La w” since it officially allo w ed the arriv al of Chinese inmigran ts in to P eru–w as
appro v ed b y Congress in No v em b er 1849, and announced the need for foreign lab or in the
agricultural sector, th us allo wing the en try of more than 50 “settlers” (colonos extranjeros)
of an y sex, b et w een the ages of 10 and 40 y ears old. The settlers arriv ed through t w o coastal
departmen ts, Lima and La Lib ertad, and w ere exempted from pa ying taxes for a p erio d of ten
y ears. Moreo v er, according to this la w, P eruvian authorities w ere resp onsible for ensuring
the con tractual compliance of settlers and their resp ectiv e patrons ( Ro dríguez P astor , 2012 ,
pp. 66-7).
Although this la w remained in force un til 1853 ( Ro dríguez P astor , 2012 , p. 67), Chinese
immigration in to the coun try con tin ued throughout the rest of the nineteen th cen tury in
spite of regulations and proto cols that prohibited the en try of Chinese “co olies” in to P eru.
5
A t the b eginning of the t w en tieth cen tury , and ev en thereafter, the P eruvian go v ernmen t
set limitations to Chinese immigration, suc h as the 1909 decree that prohibited the en try
4
The official name in Spanish is Ley de inmigración general y esp ecial de la China.
5
Giv en the detrimen tal lab or conditions of the “co olies” in P eru and the subsequen t complain ts that
reac hed China, in 1869, Chinese officials emphasized that it w as illegal to recruit Chinese lab or, particularly
if it had b een forced or en ticed through deceptiv e w a ys. In 1873, a P eruvian mission arriv ed in China with
the purp ose of remedying the situation suc h that in 1874, b oth parties signed the T reat y of F riendship,
Commerce and Na vigation, as w ell as the Con v en tion on Immigration. Through these agreemen ts, an y
illegal traffic king of “co olies” w ould b e sev erely punished. Moreo v er, the P eruvian authorities compromised
to pro vide language supp ort to Chinese residen ts in P eru ( Conelly and Cornejo Bustaman te , 1992 , pp. 35-36).
135
of Chinese p eople who o wned less than 500 Sterling P ounds ( Conelly and Cornejo Busta-
man te , 1992 , p. 37), or the “Eigh t y P ercen t La w” (Ley del Oc hen ta P or Cien to) of 1931,
whic h required that P eruvian companies ha v e a lab or force comprising least 80 p ercen t P e-
ruvians. This la w applied to Chinese and migran ts from other coun tries alik e ( Conelly and
Cornejo Bustaman te , 1992 , p. 38). As China w as denied mem b ership in the United Nations
un til 1970, and reduced its in teractions with the w orld un til 1978, its exc hanges with P eru
b ecame limited.
With China’s split from the So viet Union in the mid-1960s, it b egan to lo ok for al-
lies w orldwide, including the newly indep enden t coun tries of Asia and Africa. Its p olicies
to w ard Latin American coun tries also b ecame more activ e. Although most of the region
did not officially recognize China un til the 1970s, some Latin American coun tries con tin-
ued p eople-to-p eople commercial exc hanges based on trade of minerals and grains ( Conelly
and Cornejo Bustaman te , 1992 ; Wise , 2016 ). The emergence of rev olutionary mo v emen ts
in the region in the 1960s and 1970s, and increasing discon ten t to w ard the United States,
prompted the Chinese Comm unist P art y (CCP) to build closer ties with Latin America
based on the principles of “national lib eration. ” Ultimately , the CCP’s vision of a united
fron t of newly lib erated coun tries to face the United States nev er came together ( Conelly
and Cornejo Bustaman te , 1992 , p. 59).
Although Comm unist groups app eared in Ecuador (1963), Chile (1964), P eru (1964),
Bolivia (1965), and Colom bia (1965), they w ere not attracted to Maoism and instead lo ok ed
to the So viets. Conelly and Cornejo Bustaman te ( 1992 ) ha v e traced China’s most notable
historic and diplomatic exc hanges in Latin America and the Caribb ean, and argue that
Latin American leaders of the differen t Comm unist mo v emen ts lac k ed cohesion and a deep
understanding of Mao’s w ork. Nonetheless, this did not discourage the closer ties that
formed b et w een China and some Latin American and Caribb ean coun tries, Cuba b eing the
most notable. This means that during this de cade, China’s ties with select Latin American
coun tries w ere more i deologically driv en. F or P eru, sp ecifically , China’s influence remained
136
limited despite the presence of a long-established p opulation of Chinese origins ( Conelly and
Cornejo Bustaman te , 1992 ; Ch uc h ue et al. , 2012 ; Lausen t-Herrera , 2010 , 2015 ). Ho w ev er,
this same Chinese-P eruvian comm unit y w ould help in the promotion of strengthening ties
with China decades later.
As I p oin ted out in c hapter 1, the 1970s mark ed a new p erio d for China as it w as formally
recognized in ternationally . In the LA C region, this recognition led to the establishmen t of
official diplomatic relations b et w een China and 12 LA C coun tries b y the end of that decade,
6
with P eru among the first coun tries in the region to tak e that step (T able 1.2). Y et aside
from this official recognition, the leaders on either side of the P acific w ere more fo cused on
their o wn in ternal affairs. On the Chinese side, Mao’s death in 1976 led to a resh uffling in
China’s p o w er structure and the reinstatemen t of leaders who held more mo derate views,
including Deng Xiaoping. In the follo wing decades, Deng pushed for China’s in ternational
op ening and w elcomed a more–though not completely–mark et-orien ted econom y ( F airbank ,
1978 ; F airbank and Goldman , 2006 ; Shirk , 2007 ; Sp ence , 1990 ). In Latin America, some
coun tries in the region w ere still under military rule, exp eriencing cycles of rev olution and
insurrection, or b oth. It w ould not b e un til the 1990s when timid steps to w ard a resumption
of bilateral ties with China w ere tak en through a series of leadership visits to and b y a select
group of Latin American coun tries: Argen tina, Brazil, Chile, Cuba, Mexic o, and P eru and
to a lesser exten t, Colom bia, Ecuador, Urugua y , and V enezuela. The visits of China’s then-
presiden t, Y ang Shangkun, to Argen tina, Brazil, Chile, Mexico, and Urugua y in 1990 w ould
mark the first time a Chinese leader toured the region since the establishmen t of the PR C.
Compared to its regional coun terparts, P eru did not host a Chinese presiden t un til 2008,
when Hu Jin tao made visits to Costa Rica, Cuba, and P eru. Instead, Alb erto F ujimori b e-
came the first P eruvian presiden t to visit China in 1991 ( China T o da y , 2009 ; T eran Samana-
m ud , 2014 ), follo w ed b y t w o more visits in 1994. As I noted in c hapters 3 and 4, these visits
signaled P eru’s efforts at extending and expanding its economic ties with Asia, as w ell as in
6
T able 1.2 from Chapter 1 lists selected coun tries. Not included are Suriname and Barbados.
137
building the coun try’s image in the global econom y . It is in 1992, one y ear after F ujimori’s
visits, that the Chinese SOE Shougang Corp oration w ould mak e its first in v estmen t in Latin
America, in the P eruvian iron mine of Marcona.
7
The 1992 pro ject w as con tro v ersial and came to represen t b oth an economic and lab or
trial for P eru and China, as represen tativ es and w ork ers from b oth sides struggled to meet
ey e-to-ey e when dealing with so cio-economic and en vironmen tal issues ( Gallagher and Ir-
win , 2015 ; Gonzalez-Vicen te , 2012 ; San b orn and Chonn Ching , 2017 ). The tensions with
Shougang o v ershado w ed other in v estmen t deals that also to ok place in this p erio d, namely
the acquisition of blo c ks VI and VI I in T alara’s oilfields (northern P eru) b y the China Na-
tional P etroleum Corp oration (CNPC) in 1993 ( CNPC P eru ), making these t w o transactions
the most significan t deals P eru had with China at the time. In terms of trade, bilateral ex-
c hanges w ere comparativ ely lo w, reac hing a mere US$ 231 million in 1993. F rom 1993 to
1999, bilateral trade increased 91 p ercen t ( T orres , 2010 ), although this gro wth did not com-
pare with the one exp erienced p ost-2000. Recall that b efore the start of the 21st cen tury ,
P eru w as still undergoing macro economic reco v ery and rebalancing. F urthermore, at the
time, despite the desire to further explore economic ties with Asia in general, China w as not
P eru’s main target. Rather, the A TP A men tioned in the previous section and negotiations
for a F ree T rade Agreemen t of the Americas (FT AA) w ere more notew orth y economic goals
for P eru.
China’s 2001 en try in to the WTO did encourage further commercial exc hange b et w een
P eru and China. High commo dit y prices, starting in 2003 (Figures 5.2 and 5.3), also strength-
ened P eru’s commercial relations with China, as the latter’s consumption of P eruvian metals
and minerals exp erienced an expansion and con tin uous increase. A ccording to P eru’s Sys-
tem of In tegrated Information on F oreign T rade (SI ICEX),
8
while in 1990 P eru mainly
exp orted copp er and its concen trates to China, b y 2004, the bask et of metals and minerals
7
Some details ab out this transaction w ere men tioned in c hapter 3, fo otnote 6. More information is
pro v ided in c hapter 6, whic h fo cuses on the dev elopmen t of Chinese in v estmen ts in P eru.
8
Sistema In tegrado de Información de Comercio Exterior.
138
Figure 5.2: Indices of Primary Commo dit y Prices
Figure source: In ternational Monetary F und (IMF). Retriev ed from
https://data.imf.org/?sk=471DDDF8- D8A7- 499A- 81BA- 5B332C01F8B9 , Jan uary 2021.
Figure 5.3: Indices of Non-F uel Primary Commo dit y Prices
Figure source: In ternational Monetary F und (IMF). Retriev ed from
https://data.imf.org/?sk=471DDDF8- D8A7- 499A- 81BA- 5B332C01F8B9 , Jan uary 2021.
139
had expanded to include iron, zinc, and other related concen trates. It w as during this y ear
that Alejandro T oledo, who b ecame P eru’s presiden t in 2001, indicated to Hu Jin tao, then
China’s presiden t, his recognition of China as a mark et econom y during APEC’s Ann ual
Economic Leaders Meeting. This mo v e, as indicated b y Julio Chan in his accoun t
9
of the
ev en ts that con tributed to and led to the establishmen t of the P eru-China FT A, w ere view ed
as premature among MINETUR officials, as the only other WTO mem b er that had made a
similar announcemen t w as Chile ( 2019 , pp. 90-91). Ho w ev er, it w ould b e P eru’s recognition
of China as a mark et econom y at the WTO that help ed to mo v e forw ard the negotiations
for a bilateral FT A with China in 2008 ( T orres , 2010 ).
5.2 The FT A with China
The notion of establishing a bilateral free trade agreemen t with China b egan in No v em b er
2006, when the Minister of F oreign T rade and T ourism of P eru, Mercedes Aráoz, met with
her Chinese coun terpart, Bo Xilai, in Vietnam during an APEC leaders meetings ( COMEX ,
2017 ; T orres , 2010 ; MINCETUR , nd ). In F ebruary 2007, the ministries of b oth coun tries
agreed to conduct a join t feasibilit y study to assess the b enefits and disadv an tages of a free
trade agreemen t. In A ugust 2007, the study w as completed. Official negotiations for the
FT A to ok place from Jan uary to Octob er 2008 (T able 3.4 in c hapter 3) after b oth coun tries
signed a Memorandum of Understanding to strengthen economic and commercial ties. By
No v em b er 2008, when Hu Jin tao w as in P eru for the 2008 APEC Ann ual Meeting negotiations
w ere finalized, th us leading to the signing of the P eru-China FT A in April 2009 in Beijing
and its corresp onding ratification b y P eru’s Congress in Decem b er of that same y ear ( Chan ,
2019 ; COMEX , 2017 ; T orres , 2010 ; MINCETUR , nd ).
9
Chan has serv ed as a represen tativ e of MINCETUR in differen t p ositions, including that of Co ordinator
of APEC at the aforemen tioned ministry . In his article “Los n uev e años del TLC P erú-China,” he writes
his accoun ts of the negotiation pro cess and completion of the accord. In this c hapter, this information is
complemen ted b y information written b y other exp erts familiar with the pro cess, including Victor T orres,
as w ell as fieldw ork in terviews in China and P eru.
140
T o note, Aráoz had led the team that had also negotiated and finalized the P eru-U.S.
FT A in 2007. This means that the same P eruvian negotiators w ere in v olv ed in b oth trade
deals–a p osition that at the time w as considered b eneficial particularly on the P eruvian side.
P er m y in terviews in Beijing and Lima o v er m ultiple y ears,
10
resp onden ts indicated that it
w as precisely their exp erience with U.S. negotiators that made P eruvian officials realize the
elemen ts they w an ted to see in a bilateral trade agreemen t with China. In addition, another
elemen t to P eru’s adv an tage w as that this FT A w as China’s second commercial deal in the
region, after the China-Chile FT A, whic h had b een signed in 2005. The P eruvian negotiating
team had already con tended with a p o w erful pla y er lik e the United States–something their
Chinese coun terparts lac k ed. But p erhaps ev en more imp ortan t, as indicated in the previous
section, w as China’s eagerness to b e recognized as a mark et econom y ( Chan , 2019 ; T orres ,
2010 ). Despite its accession to the WTO in 2001, China w as still lab eled a dev eloping
coun try and th us susceptible to an ti-dumping complain ts from other WTO mem b ers. Suc h
complain ts w ould carry less w eigh t and credibilit y if China w ere to gain mark et econom y
status at the WTO.
With China ha ving obtained P eru’s recognition of its mark et econom y status in 2004,
further discussions for the FT A mo v ed forw ard in 2007. Other imp ortan t requests b y the
Chinese negotiators included P eru’s renouncemen t of pro visions 15 and 16, whic h had b een
placed in the WTO’s Proto col of A ccession ( T orres , 2010 ). These pro visions referred to
the determination of subsidies and dumping for pro ducts that w ere imp orted from China
(Pro vision 15) and safeguard mec hanisms for an y disruption in domestic mark ets caused b y
the en try of Chinese pro ducts (Pro vision 16) ( WTO ). F or P eru, giving up on these pro visions
mean t that an y dumping accusations against China w ould require P eruvian pro ducers to
pro vide concrete evidence of an ti-mark et b eha vior, on the one hand, and to only use the
WTO general safeguard mec hanism to protect lo cal pro ducts against unfair comp etition from
Chinese go o ds, on the other hand ( T orres , 2010 , p. 106-107). Another sp ecific requiremen t
10
Beijing: 2016 and 2017; P eru: 2019.
141
w as to forego the application of imp ort quotas to Chinese textile and garmen t go o ds ( T orres ,
2010 ; WTO ).
Ev en though P eru did agree to these requests, P eruvian negotiators also pressed for
k ey demands, including greater mark et accessibilit y for P eruvian go o ds, esp ecially from the
agriculture sector, the inclusion of an in v estmen t c hapter, and the lib eralization of some
services. T orres ( 2010 ) p oin ts out that mark et access w as in fact the most difficult part of
the negotiations. China requested that not more than 10 p ercen t of Chinese imp orts to P eru
should b e excluded from the agreemen t, including some pro ducts in the textile and garmen ts
categories–b oth “sensitiv e” industries in P eru as they could face fierce Chinese comp etition
giv en China’s m uc h lo w er prices.
P eru accepted some of these requests. Instead of excluding 13.89 p ercen t of Chinese
imp ort pro ducts from receiving lo w er or zero tariffs, only 10 p ercen t of go o ds w ould b e
excluded as agreed in the sixth and final round of negotiations ( MINCETUR , nd ; T orres ,
2010 ). Y et this w as not necessarily a complete loss for the P eruvian team. Negotiators w ere
still able to exclude more than 500 Chinese imp orts from the FT A, most of whic h w ould
b e in categories that P eru protected. This w as significan t, since Chile had b een able to
negotiate the exclusion of only 2.97 p ercen t of Chinese imp orts to Chile. Similarly , ab out
61.82 p ercen t of Chinese imp orts w ould qualify for immediate tariff elimination, a p ercen tage
that is m uc h higher than what Chile receiv ed (49.57 p ercen t), and Costa Rica (56.6 p ercen t)
(China’s FT A with Costa Rica w as signed in 2010). With resp ect to the access of P eruvian
go o ds, more than 80 p ercen t of P eruvian exp orts to China w ould immediately receiv e zero
tariffs, a p ercen tage that w as sligh tly lo w er than Chile (92.01 p ercen t) and Costa Rica (99.64
p ercen t) (T ables 3.5 and 3.6 in c hapter 3).
The negotiation to gain access for P eruvian agricultural pro ducts w as more c hallenging.
A t a domestic lev el, part of the a pp eal of the bilateral FT A with China w as the opp ortunit y
to extend the reac h of P eru’s traditional and non-traditional agricultural pro ducts, suc h as
fishmeal, fruits, grains, and so on. Then-Vice-Minister of MINCETUR, Carlos P osada, for
142
example, and Minister Aráoz had presen ted the FT A as an imp ortan t c hance for P eruvian
agricultural pro ducers to bring their pro ducts to a large mark et lik e China ( P osada , 2010 ).
Y et China did not accept immediate tariff elimination for k ey agricultural pro ducts that
P eru exp orted to China. Instead, fruits suc h as grap es, for instance, w ould en ter the Chinese
mark et with a 7.8 p ercen t tariff, whic h w ould gradually b e reduced completely in the span
of fiv e y ears ( T orres , 2010 ). Moreo v er, eac h “new” pro duct on the list of P eru’s agricultural
pro ducts required a separate proto col or license for en try , whic h is a long bureaucratic pro cess
in Beijing. While not a dominan t category on the list of P eruvian pro ducts that are exp orted
to China (when compared with minerals and metals), it is w orth noting that since the en try
in to force of the bilateral FT A, P eruvian fruit exp orts to China ha v e increased their share,
from 0.18 p ercen t of the total in the 2005-2009 p erio d, to 0.76 p ercen t in the 2015-2018 p erio d
(T able 5.4). This increase has also b een attributed to the activ e promotion of P eruvian fo o d
pro ducts b y P eruvian Commercial Offices in China and the swifter appro v al of ph ytosanitary
licenses for a v ariet y of fruits and v egetables in recen t y ears (in terviews, China, 2016, 2017).
With resp ect to the FT A c hapter on services, b ot h parties agreed to the inclusion of
services that eac h side w an ted to promote. The only sector that b oth coun tries agreed
on excluding w as that of so cial services and health. In terms of lab or restrictions, the
P eruvian side requested the application of p olicies that had b een created for foreign w ork ers
in the 1990s, during F ujimori’s administration. On the Chinese side, negotiators did not
sp ecify the regulations under whic h P eruvian nationals could w ork in China ( T orres , 2010 ).
The inclusion of an in v estmen t c hapter w as considered to b e one of the most imp ortan t
accomplishmen ts from the standp oin t of the P eruvian team (in terview SP1, P eru, 2019).
With initial opp osition from China, P eru’s negotiators insisted on including suc h a c hapter,
a request that w as finally accepted during the fifth round of negotiations ( T orres , 2010 ,
pp. 12-13).
T o find a compromise, P eru agreed on a c hapter that w as applicable to all in v estmen ts
(v ersus differen tiating them b et w een service and non-service) and to Chinese in v estors in
143
general. This mean t that it made no differen tiation b et w een Chinese in v estors whose funds
came directly from their headquarters in China v ersus those with funds from the so-called
tax hea v ens. Another issue that P eruvian negotiators compromised on w as to limit the use of
in ternational en tities to resolv e con tro v ersies b y Chinese in v estors. This same treatmen t w as
not applied to P eruvian in v estors, something that T orres ( 2010 ) considers as a non-recipro cal
treatmen t. The follo wing c hapter will delv e in to Chinese in v estmen ts in P eru, but in terms
of trade, it is fair to sa y that that the FT A did bring b enefits to P eru. The coun try has
encouragingly increased its exp ortation of pro ducts with v alue-added to China o v er the last
decade–in most cases, in reference to in tra-industry pro ducts ( Chan , 2019 ; Wise , 2020 ).
In what w a ys has the bilateral FT A c hanged trade exc hanges b et w een b oth coun tries?
During the last t w en t y y ears, P eru has mostly imp orted differen t mac hinery and transp ort
equipmen t from China, listing these t w o categories as the top t w o Chinese imp orts to P eru
on a cum ulativ e basis. As sho wn in T able 5.3 and Figure 5.4, these categories represen t
b et w een 20 and 30 p ercen t of total Chinese imp orts to P eru when examined using fiv e-y ear
p erio ds since 1990–with the exception of the last p erio d, whic h is from 2015-2018. T ogether,
these comprise o v er 45 p ercen t of all Chinese imp orts. During the last p erio d (2015-2018) the
“not classified” category sa w a significan t share increase, from less than 4 p ercen t of the total
during the previous p erio d (2010-2014) to ab out 18.55 p ercen t from 2015 to 2018. A more
detailed analysis indicates that this is due to P eru’s purc hase of non-classified commo dities–in
this case, refined and crude p etroleum–from China in b oth 2017 and 2018. Ho w ev er, o v erall,
the purc hase of differen t Chinese electrical equipmen t and miscellaneous mac hinery parts
has consisten tly dominated P eru’s imp orts from China. F urthermore, from this data, it is
p ossible to see that some Chinese imp orts that p oten tially comp ete with P eruvian pro ducts,
lik e those in the garmen ts, textiles, and fabric categories, ha v e not exp erienced dramatic
c hanges in these t w o decades. In some cases, the p ercen tage share ev en decreased after the
2000-2004 p erio d.
144
One of the concerns of the FT A with China w as the p oten tial flo o ding of Chinese go o ds
in to P eruvian mark ets, esp ecially among pro ducers in the P eruvian textile and garmen ts sec-
tors. In comparison with other industries, these w ere the most outsp ok en groups in opp osing
the trade deal (in terviews, P eru, April 2019) and organized protests against the FT A. This
con tingen t insisted that, once the agreemen t w as in place, it w ould lead to dumping and
the do wnfall of lo cal en trepreneurs not able to comp ete against lo w Chinese costs ( COMEX ;
IPE ). These protests con tin ued ev en after the finalization of the agreemen t. Y et represen-
tativ es from differen t business and economic asso ciations, including the So ciet y of F oreign
T rade (COMEX), insisted that there w ere p olicies that had b een negotiated and implemen ted
in preparation for the FT A to protect domestic industries sensitiv e to Chinese comp etition
( Gestion , 2013b ; La Mula , 2013 ). Go v ernmen t en tities ha v e con tin uously reiterated and up-
held p olicies b y P eru’s customs offices and INDECOPI to protect P eruvian industries, not
only from China but also from foreign pro ducers and unfair practices in general.
Nev ertheless, while there is not a symmetric trade exc hange b et w een P eru and China,
in that P eru exp orts mostly ra w materials and primary pro ducts (T able 5.4) and China’s
exp orts to P eru are dominated b y industrial and man ufactured pro ducts (T able 5.3), most of
these Chinese imp orts are in fact mac hinery and equipmen t that supp ort pro duction in P eru’s
industrial and agricultural sectors ( Chan , 2019 , p. 109). Although the reprimarization of the
P eruvian econom y is a v alid concern–one shared b y its regional coun terparts–it is imp ortan t
to ac kno wledge that the structure of P eru’s foreign trade with China has b een fundamen tally
based on mining and fishing ( T orres , 2010 ), ev en b efore the FT A. The most sig nifican t c hange
has b een the switc h b et w een fishing and mineral exp orts since the mid-2000s (T able 5.4), but
o v erall, exp orts of the same dominan t categories ha v e remained unc hanged. This reiterates
what I stated in earlier c hapters concerning P eru and Latin America’s reliance on natural
resources: it is not necessarily ho w m uc h coun tries are trading, but ho w they are doing so. In
other w ords, ho w are they maximizing on their endo wmen t factors and inheren t comparativ e
adv an tage?
145
T able 5.3: China’s Exp orts to P eru (%), 1990-2018
Category 1990-
1994
1995-
1999
2000-
2004
2005-
2009
2010-
2014
2015-
2018
T otal T otal
Rank
Agro c hemicals 0.21 0.76 1.02 1.02 1.14 1.34 1.19 13
Aircraft 8.08 0.17 0.00 0.00 0.03 0.04 0.06 25
Animal fib ers 0.00 0.19 0.02 0.01 0.02 0.02 0.02 29
Beer, spirits & cigarettes 0.01 0.01 0.06 0.25 0.22 0.14 0.18 19
Boilers 0.98 3.09 4.17 3.26 3.69 2.87 3.28 10
Cereals & v egetable oils 2.21 0.01 0.02 0.02 0.01 0.01 0.02 28
Chemicals & health pro ducts 3.13 4.76 3.67 3.95 3.61 3.69 3.71 8
Coal 17.38 7.97 1.41 0.01 0.00 0.00 0.23 18
Construction materials & equip. 0.94 2.31 2.09 4.59 7.64 7.69 6.90 5
Cotton, rice, so y b eans & others 0.06 1.43 0.52 0.01 0.01 0.01 0.04 27
Electronics 14.88 29.33 36.46 33.77 22.08 19.44 23.36 1
Fish & Seafo o d 0.02 0.01 0.03 0.04 0.21 0.22 0.18 20
F o o d pro cessing 0.82 1.44 0.75 0.62 0.58 0.49 0.57 14
F ruit 0.00 0.00 0.00 0.00 0.00 0.00 0.00 35
Garmen ts 5.76 10.18 15.02 10.61 11.48 8.62 10.23 3
Home & office pro ducts 5.63 7.98 7.35 3.09 3.79 3.71 3.83 7
Inorganic salts & acids 0.08 0.70 2.38 2.02 1.35 1.48 1.53 12
Leather 0.01 0.01 0.01 0.00 0.01 0.01 0.01 31
Mac hinery 23.83 16.47 11.28 19.65 27.02 19.90 22.21 2
Meats & eggs 0.07 0.01 0.01 0.00 0.00 0.00 0.00 32
Metal pro ducts 0.18 0.19 0.49 4.55 4.32 3.91 3.98 6
Milk & c heese 0.01 0.01 0.04 0.13 0.16 0.16 0.15 23
Mining 0.11 0.23 0.30 0.29 0.30 0.21 0.26 17
Misc. agriculture 0.11 0.54 0.03 0.02 0.16 0.21 0.16 22
Not classified 1.66 3.04 3.34 4.96 3.68 18.55 10.06 4
Oil 0.00 0.00 0.00 0.00 0.00 0.00 0.00 34
Other c hemicals 7.39 4.15 3.90 3.25 3.56 3.73 3.62 9
P etro c hemicals 0.03 0.04 0.19 0.28 0.41 0.42 0.38 15
Precious stones 0.00 0.00 0.01 0.00 0.00 0.00 0.00 33
Pro cessed minerals 0.14 0.14 0.18 0.18 0.15 0.13 0.15 24
Pulp & pap er 0.18 0.02 0.05 0.17 0.19 0.18 0.17 21
Ships 2.33 0.63 0.04 0.02 0.51 0.14 0.27 16
T extile & fabrics 3.74 4.07 5.14 3.19 3.59 2.60 3.17 11
T obacco 0.00 0.06 0.01 0.03 0.06 0.07 0.06 26
T ropical tree-crops & flo w ers 0.00 0.06 0.02 0.04 0.02 0.01 0.02 30
Source: Data from The Observ atory of Economic Complexit y (OEC).
Notes: The main categori es follo w the SITC classification as collected and compiled b y the OEC.
The p ercen tages and rankings are the author’s elab oration.
146
Figure 5.4: P eru’s T op 5 Imp orts from China (%), 1990-2018
Source: Data from The Observ atory of Economic Complexit y (OEC).
Notes: The main categories follo w the SITC classification as collected and compiled b y the
OEC. The p ercen tages and rankings are the author’s elab oration.
147
T able 5.4: P eru’s Exp orts to China (%), 1990-2018
Category 1990-
1994
1995-
1999
2000-
2004
2005-
2009
2010-
2014
2015-
2018
T otal T otal
Rank
Agro c hemicals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 29
Animal fib ers 0.02 1.23 1.97 0.42 0.33 0.40 0.45 8
Beer, spirits & cigarettes 0.00 0.00 0.00 0.00 0.00 0.02 0.01 22
Boilers 0.00 0.00 0.04 0.00 0.00 0.00 0.00 26
Cereals & v egetable oils 0.02 0.03 0.01 0.01 0.01 0.01 0.01 20
Chemicals & health pro ducts 0.18 0.02 0.31 0.48 0.15 0.05 0.17 10
Coal 0.00 0.00 0.00 0.00 0.00 0.00 0.00 27
Construction materials & equip. 0.10 0.14 0.17 1.02 0.84 0.29 0.59 6
Cotton, rice, so y b eans & others 0.00 0.44 0.03 0.00 0.00 0.00 0.01 21
Electronics 0.01 0.00 0.00 0.00 0.00 0.00 0.00 25
Fish & Seafo o d 80.72 61.01 47.36 20.04 14.86 10.43 16.64 2
F o o d pro cessing 0.07 0.00 0.04 0.03 0.05 0.33 0.16 11
F ruit 0.00 0.00 0.00 0.18 0.56 0.70 0.52 7
Garmen ts 0.00 0.01 0.02 0.10 0.03 0.02 0.04 15
Home & office pro ducts 0.03 0.00 0.00 0.00 0.00 0.00 0.00 31
Inorganic salts & acids 0.17 0.02 0.05 0.12 0.11 0.09 0.10 12
Leather 0.00 0.00 0.06 0.05 0.07 0.11 0.08 13
Mac hinery 0.18 0.00 0.04 0.02 0.01 0.01 0.02 18
Meats & eggs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 28
Metal pro ducts 0.68 0.75 0.08 0.08 0.02 0.01 0.05 14
Milk & c heese 0.01 0.00 0.00 0.00 0.00 0.00 0.00 32
Mining 16.51 33.14 39.83 54.58 69.11 77.98 68.07 1
Misc. agriculture 0.63 0.06 0.03 0.23 0.49 0.21 0.31 9
Not classified 0.03 0.17 0.27 0.34 0.32 1.64 0.87 5
Oil 0.00 0.00 0.00 6.54 0.18 0.24 1.26 4
Other c hemicals 0.06 0.02 0.00 0.00 0.00 0.00 0.00 24
P etro c hemicals 0.00 0.00 0.05 0.05 0.00 0.00 0.01 19
Precious stones 0.00 0.00 0.00 0.00 0.00 0.00 0.00 30
Pro cessed minerals 0.21 1.60 9.38 15.61 12.82 7.45 10.58 3
Pulp & pap er 0.00 0.01 0.00 0.00 0.00 0.00 0.00 33
Ships 0.09 0.95 0.02 0.01 0.00 0.00 0.02 17
T extile & fabrics 0.27 0.36 0.21 0.06 0.01 0.00 0.03 16
T ropical tree-crops & flo w ers 0.00 0.00 0.00 0.02 0.01 0.00 0.01 23
Source: Data from The Observ atory of Economic Complexit y (OEC).
Notes: The main categori es follo w the SITC classification as collected and compiled b y the OEC.
The p ercen tages and rankings are the author’s elab oration.
148
Figure 5.5: P eru’s T op 5 Exp orts to China (%), 1990- 2018
Source: Data from The Observ atory of Economic Complexit y (OEC).
Notes: The main categories follo w the SITC classification as collected and compiled b y the
OEC. The p ercen tages and rankings are the author’s elab oration.
149
The gro wth in the trade in some agricultural pro ducts to China, alb eit small, is still
significan t, esp ecially for domestic medium-sized agricultural pro ducers. My in terviews with
resp onden ts familiar with or directly in v olv ed i n this sector indica te that there are logistics
c hallenges to en tering the Chinese mark et (i.e., the supply of enough pro ducts to satisfy
the demand of Chinese clien ts, language barriers, and transp ortation b ottlenec ks); ho w ev er,
P eru is encouraging the dev elopmen t of pro ducts that target nic he mark ets, suc h as pac k-
aged sup erfo o ds (i.e., quinoa) or gourmet pro ducts. T o reiterate, the launc h of an online
platform (Tienda Casa P erú or P eru’s Home Store) in 2018 that offers a v ariet y of P e-
ruvian pro ducts to nic he Chinese mark ets is one example of the co ordinated efforts made
b y MINCETUR, PromP erú, COMEX, and related institutions in promoting P eru’s partic-
ipation in the in ternational econom y–efforts that ha v e b een main tained despite c hanges in
go v ernmen t administration and/or ministry resh uffles as of 2019.
F rom 2000 to 2 008, bilateral trade with China increased o v er 960 p ercen t in comparison
with bilateral commercial exc hange in 1993 ( T orres , 2010 ). F rom 2008 to 2018, Chinese
exp orts to P eru grew 129 p ercen t while P eruvian exp orts to China increased 252 p ercen t,
surpassing other traditional partners suc h as the United States and Mexico, for example. By
2016, China had b ecome the main trade partner for Brazil, Chile, and P eru, and second for
Mexico, Argen tina, and V enezuela ( Gonzáles , 2016 ). Ha ving secured an FT A with the United
States, the FT A with China signaled a strategic mo v e b y P eruvian leaders to accomplish a
similar feat with t he largest econom y in Asia. After all, with its long P acific coast, P eru
has a strategic ge ographic p ositioning, one that its l eadership hop es will b e nefit the coun try
b y making it a regional h ub not only for China but also other Asian economies (in terviews,
Lima, 2019).
Th us, while China’s dominance in Latin American economic mark ets has made it a
k ey imp orts and exp orts partner, seemingly displacing other traditional pla y ers (T ables 5.5
and 5.6; Figures 5.6 and 5.7), fieldw ork in terviews indicate a differen t p ersp ectiv e at lo cal
lev els. The “threat” of China is certainly presen t, esp ecially among domestic pro ducers;
150
T able 5.5: P eru’s T op 5 Imp ort P artners in 2018
Coun try T rade (US$ Mil) P artner share (%)
China 10,059.77 23.33
United States 9,174.42 21.27
Brazil 2,414.84 5.6
Mexico 1,924.30 4.46
Ecuador 1,923.24 4.46
Source: A uthor’s elab oration. Data from W orld In tegrated
T rade Solution (WITS).
Figure 5.6: P eru’s Imp ort P artners in 2018 (%)
Source: W orld In tegrated T rade Solution (WITS).
151
ho w ev er, China has also b ecome an additional partner that has emerged during the t w en t y-
first cen tury . The desire to en ter and ha v e more access to the coun try with the largest
p opulation in the w orld has definitely b een a k ey driv er to con tin ue cemen ting ties with
China, and so has b een China’s gro wing in terest in expanding its economic net w orks in the
region, particularly in in v estmen t and finance. The agreemen ts in these t w o sectors ha v e
certainly b een w eak or unclear, y et this has also serv ed as a c hallenge to domestic regulators
in pressing for greater transparency and accoun tabilit y–something P eru is already familiar
with as will b e indicated in the next c hapter.
T able 5.6: P eru’s T op 5 Exp ort P artners in 2018
Coun try T rade (US$ Mil) P artner share (%)
China 13,237.92 27.64
United States 8,002.19 16.71
India 2,481.16 5.18
South K orea 2,462.13 5.14
Japan 2,177.6 4.55
Source: A uthor’s elab oration. Data from W orld In tegrated
T rade Solution (WITS).
152
Figure 5.7: P eru’s Exp ort P artners in 2018 (%)
Source: W orld In tegrated T rade Solution (WITS).
153
Chapter 6
A New In v estor in T o wn
1
In part I of this dissertation, I argued that some Latin American coun tries w ere able to es-
tablish successful exc hanges with China. This referred to a coun try’s abilit y to reac h certain
b enc hmarks when in teracting with China in t w o main economic areas: trade and in v estmen t,
and ho w this p erformance w as complemen ted b y the dev elopmen t of its diplomatic partner-
ship with China (T able 3.1 in c hapter 3). Although the relations of Ecuador and V enezuela
with China are far from successful, the remaining coun tries in the region are basically with-
standing the China c hallenge. Only Chile, Costa Rica, and P eru ha v e managed to officially
cemen t their trade exc hanges with China through an FT A, alb eit with v aried results. As
sho wn in the previous c hapter, P eru en tered in to an FT A with China from a p osition of
exp erience and strength, ha ving negotiated an FT A with a p o w erful actor lik e the United
States one y ear prior. While P eru did compromise in reducing the original n um b er of Chi-
nese pro ducts that w ould not b enefit from tariff reduction due to their exp ected comp etition
with domestically pro duced P eruvian go o ds, P eru obtained the inclusion of a c hapter
2
on
in v estmen ts, whic h P eruvian negotiators considered a main accomplishmen t vis-à-vis their
Chinese coun terparts.
This c hapter cen ters on increased Chinese in v estmen ts in to P eru: Has P eru fared b etter
than other Latin American coun tries in attracting Chinese FDI? Without a doubt, P eru’s
1
The title is inspired b y Gallagher et al. ( 2012 ), “The New Banks in T o wn: Chinese Finance in Latin
America. ”
2
Chapter 10 in the FT A.
154
natural endo wmen ts in copp er, iron, and oil ga v e t he coun try an adv an tage when attracting
in v estors from China and elsewhere, and its strategic geographical lo cation in the P acific
Coast also ga v e it an edge v ersus coun terparts lik e Argen tina and Bolivia. Chile–the other
coun try that I categorize as a success in terms of trade when in teracting with China–has
more recen tly succeeded in attracting Chinese in v estors, b ecoming the third-largest recipien t
of confirmed Chinese in v estmen t in Latin America as of 2019 ( Dussel P eters , 2020b ).
3
Brazil
is the top recipien t of Chinese in v estmen t in the region. Ho w ev er, the lac k of an FT A with
China has highligh ted Brazil’s p olitical and institutional constrain ts in the furthering of
its economic lib eralization. Despite its p o sition as LA C’s largest econom y and the w orld’s
nin th largest econom y in 2019 b y GDP ( IG Group , 2019 ), Brazil’s only trade agreemen t is
with Argen tina, Urugua y , and P aragua y in the con text of the Southern Common Mark et, or
MER COSUR.
P eru ranks as the second-largest destination for Chinese in v estmen t in Latin America
from 2005 to 2019, a remarkable dev elopmen t giv en the coun try’s negativ e views to w ard
Chinese in v estmen t through the 1990s due mainly to the tensions b et w een the Marcona iron
mine, whic h w as purc hased in 1992 b y the Chinese conglomerate Shougang. A t the time, it
w as China’s first and most visible in v estmen t in the global econom y . It w as also one of the
first ma jor sales b y the F ujimori administration as P eru b egan to op en bac k up to foreign
and priv ate in v estmen t. Sc holars ha v e studied Shougang’s purc hase in P eru, as w ell as other
subsequen t Chinese in v estmen ts through the lens of the particularit y of Chinese in v estors in
P eru and the rest of Latin America. The o v erriding researc h question is whether Chinese
in v estors differ significan tly from others ( Gallagher et al. , 2012 ; Gonzalez-Vicen te , 2012 ;
San b orn and T orres , 2009 ; San b orn and Chonn Ching , 2017 ). In this analysis, I fo cus not on
3
This is based on the FDI database created b y Red A cadémica de América Latina y el Carib e sobre
China (Red ALC-China) from 2005 to 2019. Unlik e other databases (i.e., fDi In telligence and Dealogic)
whic h fo cus on announced transactions, th us usually leading to o v erestimation, Red ALC-China accoun ts
for confirmed transactions with China, including confirmed mergers and acquisitions. This c hapter th us relies
on the confirmed Chinese in v estmen ts recorded b y the Red ALC-China in Latin America and the Caribb ean.
Ho w ev er, information from P eru’s Cen tral Reserv e Bank, ProIn v ersión, fDi In telligence, and Dealogic will
b e analyzed. This is due to the lac k of accuracy in the rep orting and recording of FDI in general.
155
China’s particularit y but rather ho w P eru has na vigated these incoming Chinese in v estmen ts.
As a predominan tly mining econom y , and giv en China’s searc h for metals and minerals
w orldwide, it is not surprising that most of China’s FDI in P eru has b een concen trated
in the extractiv e industries. P eru’s reforms to address en vironmen tal and lab or conflicts
o ccurred at a time when Chinese FDI w as p ouring in. Although Sino-P eruvian in v estmen t
deals ha v e not all b een p ositiv e -sum, they do demonstrate a degree of institutional stabilit y
and predictabilit y on the P eruvian side, as w ell as accoun tabilit y on the part of b oth P eru
and China.
This c hapter is structured as follo ws: section 6.1 pro vides a comparativ e o v erview of
Chinese in v estmen t v ersus other in v estors in Latin America; section 6.2 in tro duces P eru’s
in v estmen t en vironmen t since the 1990s and some of its k ey features; and section 6.3 examines
the nature of Chinese FDI that has en tered P eru, ho w these in v estors ha v e adapted, and
what the path ahead could lo ok lik e giv en China’s inclusion of Latin America in its Belt and
Road Initiativ e (BRI)
4
in 2018.
6.1 Chinese in v estmen ts in Latin America
China is not the top in v estor in P eru or the rest of Latin America. During the 1990s, the
presence of Chinese firms in the region w as scarce. The one exception w as P eru where
t w o of China’s largest state-o wned en terprises (SOEs)–the mining conglomerate, Shougang
Group ( 首 都 钢 铁 公 司 shŏudū gāngtiĕ gōngsī ), and oil op erator, China National P etroleum
Corp oration (CNPC) ( 中 国 石 油 天 然 气 集 团 公 司 zhōnguó zhíyóu tiānr ánqì jít uán )–b ough t
concessions in the Marcona mine in Southern P eru and the T alara oil fields in Northern P eru,
resp ectiv ely . It w as not un til the mid-2000s that Chinese in v estmen ts b egan to expand in
Latin America, with a significan t surge starting in 2010 and a considerable slo wdo wn that
4
Originally announced in 2013 b y Xi Jinping as the “One Belt, One Road” (OBOR), it is China’s most
am bitious global dev elopmen t strategy . The main goal of this strategy w as to connect China with Africa,
Cen tral Asia, and Europ e via land and maritime net w orks. Inspired b y the historic Silk Road established
b y the Han Dynast y , BRI fo cuses on infrastructure connectivit y , trade expansion and co op eration, financial
in t egration, and p olicy co ordination ( The State Council of the PR C , 2015b , c ).
156
b egan in 2016 and 2017 ( Ra y , 2018 ). As a result, the ev olution of Chinese in v estmen ts in
the region has already exp erienced a series of increases and decreases.
It b ears men tioning that assessing FDI according the coun try of origin can b e difficult
and esp ecially so in the case of Chinese FDI. This is due to the inconsisten t recording
of the original source of an in v estmen t in man y Latin American coun tries, including P eru
( CEP AL , 2011 , 2018 ; Pérez Ludeña , 2017 ). Information ab out the source coun try is not
readily a v ailable when in v esting firms run funds through subsidiaries headquartered in third
coun tries. This is not only in the case of Chinese in v estmen ts, but also from other coun tries
lik e the Bahamas or the Ca yman Islands. Moreo v er, in the last 20 y ears, a large n um b er
of Chinese in v estmen ts in LA C ha v e tak en the form of mergers and acquisitions and join t
v en tures ( Chen and Pérez Ludeña , 2014 ; Ortiz V elásquez , 2017 ; Ra y and W ang , 2019 ),
th us making it c hallenging to iden tify and separate their direct effects (if an y) from those
of the previous o wners and/or join t v en ture partners. An ev en more c hallenging issue is
ho w to carefully trac k the dev elopmen t of these in v estmen ts p ost-announcemen t. Some of
these pro jects do not progress b ey ond their initial announcemen t, or they exp erience long
susp ensions or are simply canceled, sometimes man y y ears after the deal w as ostensibly
completed. Therefore, unlik e tra de, the alw a ys-c hanging nature of in v estmen t, including
o wnership, partnership, and ev en scop e of pro jects, forces coun tries to ha v e, at minim um,
clear regulations and p olicies regarding the resp onsibilities of the i n v esting part y in the
recipien t coun try .
China b ecame the third-largest source of foreign direct in v estmen t in the w orld in 2015,
righ t b ehind the United States and Japan. Chinese FDI in Latin America a v eraged US$ 10
billion p er y ear from 2010 to 2014 ( CEP AL , 2018 ); during the p erio d b et w een 2005 and 2019,
China w as the third main in v estor in Latin America’s mining sector, b ehind Canada and the
United Kingdom.
5
Ho w ev er, when accoun ting for all FDI transactions from China during
the same p erio d, China accoun ts for less than 6 p ercen t of new in v estmen ts in Latin America
5
A ccording to calculations based on data from fDi In telligence. This is an organization of the Financial
Times that collects new (or greenfield) FDI announcemen ts w orldwide.
157
(Figure 6.1). The United States and some Europ ean coun tries–more sp ecifically , Spain–ha v e
b een the leading sources of new FDI in the region, with shares that ha v e surpassed 20 p ercen t
and 10 p ercen t, resp ectiv ely (Figure 6.1).
Figure 6.1: New FDI Announcemen ts in Latin America b y Coun try of Origin, 2005-2019
Source: Data from fDi In telligence from The Financial Times.
Nev ertheless, an examination of these in v estmen ts o v er fiv e-y ear in terv als sho ws China’s
small and y et gradual in v estmen t gro wth in Latin America, and the existing dominance b y
a select group of pla y ers. As seen in Figure 6.2, close to half of new in v estmen t inflo ws
in the region originate from the United States, Spain, Canada, and in tra-regional inflo ws
from other Latin American coun tries, led b y Brazil and Mexico. In all fiv e-y ear p erio ds, the
United States has remained the top in v estor o v erall and in man y of the sectors that receiv e
the highest amoun ts of FDI in Latin America, including man ufacturing, comm unications,
alternativ e and renew able energy , and coal, oil, and gas (T able 6.1).
6
Ev en during the p erio d
b et w een 2015 and 2019, when the repatriation of some U.S. branc hes abroad w as announced
6
These sectors are designated b y fDi In telligence and do not follo w the North American Industry Clas-
sification System (NAICS). In this c hapter, due to some sligh t differences in the sector and sub-sector
categorization in eac h in v estmen t database, I will follo w their resp ectiv e classification accordingly .
158
as a result of fiscal c hanges in 2017 ( CEP AL , 2018 ), FDI inflo ws from the United States did
not c hange drastically and the coun try remained the leading in v estor.
Figure 6.2: New FDI Announcemen ts in Latin America b y Coun try of Origin b y P erio d,
2005-2019
Source: Data from fDi In telligence from The Financial Times.
Spain has b een a traditional economic partner for Latin America and it ranks second
as a source of greenfield FDI since 2005. With most of its share in the telecomm unications
sector, Spain has also led in alternativ e and renew able energy pro jects. As indicated in
ECLA C’s most recen t in v estmen t rep ort on the region, Europ ean coun tries ha v e led the w a y
in expanding in v estmen ts in green energy , whic h has doubled its p ercen tage share from an
a v erage of 6.6 p ercen t b et w een 2005 and 2009 to an a v erage of 16.6 p ercen t b et w een 2015 and
2019 (Figure 6.3). The automotiv e sector is another industry that has exp erienced expansion
since 2000 ( CEP AL , 2019 ). China has b egun exploring pro jects in the auto industry , with
Chery op ening man ufacturing facilities mainly in Brazil to sell to the lo cal mark et. Although
the brand had a pro duction site in Urugua y through its Argen tinian represen tativ e SOCMA,
159
it closed in 2015 . Nev ertheless, Chery has con tin ued to sell in Argen tina, P eru, Chile, and
since 2015, in Mexico. Ho w ev er, in the grand sc heme of things, Chery still do es not compare
to auto gian ts suc h as German y’s V olksw agen, whic h recen tly b egan an estimated US$ 540
million expansion pro ject in Brazil ( CEP AL , 2019 , p. 54).
Figure 6.3: New FDI Announcemen ts in Latin America b y Sectors, 2005-2019
Source: A uthor’s calculations based on data from fDi In telligence from The Financial
Times.
China’s mo derate div ersification in to other sectors in Latin America highligh ts its in-
creasing in terest and shifting views ab out the region: LA C is not merely a source of primary
160
pro ducts. Economies lik e Brazil, whic h ha v e higher industrial capacit y , are no w attract-
ing Chinese man ufacturing firms that are in v esting to cater to domestic mark ets. These
small and y et significan t c hanges are indicativ e of ho w b oth China and Latin American are
upgrading their economic exc hanges to accommo date their in terests and needs, while also
adapting to global trends. F or instance, the commo dit y b o om from 2003 to 2013 dro v e up
FDI flo ws in to the region, exemplified b y China’s purc hase of mega-mining and oil pro jects
in Brazil and P eru ( Pérez Ludeña , 2017 ; Ra y et al. , 2015 ). But as these pro jects matured
and the in terest to w ard decarb onization, sustainabilit y , and energy efficiency has con tin ued
to gro w, more Chinese firms are also turning their atten tion to w ard Latin America’s renew-
able energy industry . In comparison with Europ e and the United States, China’s share in
this sector is still small–accoun ting for less than 3 p ercen t of total FDI in Latin America.
Ho w ev er, according to recen t studies on China’s p o w er and energy expansion w orldwide b y
the Global Dev elopmen t P olicy Cen ter (GDPC) at Boston Univ ersit y , Latin America stands
out as China’s main destination for div erse forms of renew able energy , including solar and
wind p o w er ( Ma , 2020 ).
But the bigger picture on China’s in v estmen t in most of Latin America is that of pro jects
that complemen t ra w material imp orts from the region, including ma jor in v estmen ts in
transp ortation (p orts, high w a ys, and rails) and distribution of these imp orts ( Chen and
Pérez Ludeña , 2014 ; CEP AL , 2018 , 2019 ; Ellis , 2009 ; Gallagher and P orzecanski , 2010 ;
Pérez Ludeña , 2017 ; San b orn and T orres , 2009 ; Wise , 2020 ). Th us, ho w Chinese in v est-
men ts ev olv e in eac h LA C coun try is dep enden t on that coun try’s in terests and motiv ations
to w ork with Chinese firms. This means that, while there are rising exp ectations of what
increased Chinese in v estmen t could bring to Latin American states, the outcomes are not
just the result of the capital, tec hnology , or other resources from Chinese firms but also of
ho w these are w elcomed and managed b y the host coun tries.
As a region, Latin America has tried to attract a v ariet y of in v estmen t partners to fill
gaps that ha v e b een lagging since the 1980s, esp ecially in infrastructure ( F a y and Morrison ,
161
T able 6.1: Coun try Share of FDI Announcemen ts in Latin America b y Sector, 2 005-2019
United States Spain China T otal New In v estmen t
Sectors 2005-
2009
2010-
2014
2015-
2019
2005-
2009
2010-
2014
2015-
2019
2005-
2009
2010-
2014
2015-
2019
2005-
2009
2010-
2014
2015-
2019
T otal
Man ufacturing 25.1% 26.2% 23.1% 1.4% 3.3% 2.1% 3.8% 5.4% 8.3% 23.3% 25.1% 23.1% 24.0%
Comm. & IT 27.1% 29.4% 39.2% 8.8% 24.5% 20.9% 0.2% 4.3% 2.2% 8.9% 17.1% 12.8% 13.3%
Alt. Energy 12.5% 24.6% 7.1% 36.8% 27.1% 29.4% 0.0% 0.7% 5.2% 6.6% 10.5% 16.6% 11.1%
Coal, oil, gas 27.4% 4.9% 31.4% 11.4% 5.2% 12.8% 1.9% 5.4% 3.9% 15.8% 7.2% 6.5% 9.7%
Mining 3.8% 7.9% 3.4% 0.0% – – 10.4% 6.6% 5.7% 12.1% 9.1% 4.7% 8.8%
A uthor’s elab oration using data from fDi In telligence from The Financial Times.
Notes: The data is based on announced in v estmen ts. China’s in v estmen t in the Nicaragua Canal in 2014 w as tak en out from
the database giv en its status as a “zom bie” in v estmen t.
Although China is not a top in v estor in Latin America, this table sho ws the coun try of origin for eac h of the main sectors.
162
2006 ; Lardé , 2016 ; P arrado , 2019 ; Serebrisky et al. , 2015 ). On the one hand, the op enness
of economies lik e Chile and P eru has allo w ed for the increasing participation of differen t
in v estmen t partners–including China’s successful leadership in a series of large pro jects of
national in terest. Y et other highly regulated mark ets lik e those of Brazil–with high tariffs,
imp ort restrictions, and more stringen t con ten t rules–ha v e not deterred China’s en try in to
that mark et. Rather, it is arguably due to those restrictions that some foreign companies
ha v e sough t to build facilities within Brazil to b etter access lo cal mark ets ( Pérez Ludeña ,
2017 , pp. 15-16).
This reinforces m y argumen t that Latin American coun tries ha v e more agency than has
b een recognized in defining their terms of in teraction with differen t actors. Although this
ma y not hold true for solving tough problems lik e money laundering, corruption, and graft
in the concession of some in v estmen t pro jects,
7
there ha v e b een visible efforts in the region
to include more domestic stak eholders in to these in v estmen t exc hanges b y conforming with
in ternational standards and demanding compliance, for instance, with lab or and en viron-
men tal protection p olicies ( Dussel P eters et al. , 2018 ; Dussel P eters , 2019a ). Although the
distribution of these efforts has b een unev en across the region, recen t researc h suggests that
Chinese firms will do as m uc h or as little as demanded b y the host coun try and/or go v ern-
men t ( Dussel P eters et al. , 2018 ; Gallagher et al. , 2012 ; Gonzalez-Vicen te , 2012 ; Ra y et al. ,
2016 ). P eru is a case in p oin t. The follo wing sections examine ho w P eru has succeeded in
this realm of gro wing Chinese in v estmen t.
6.2 The Reop ening of P eru’s In v estmen t Sector
P eru’s financial and monetary stabilization included the reactiv ation of its in v estmen t sector
in the 1990s, whic h had b een plagued b y expropriation under previous military go v ernmen ts.
Legislativ e Decrees No. 662 and No. 757 and Supreme Decree No. 162 passed b y the
7
The most recen t scandal in v olving Brazil’s Odebrec h t is an example of the influence some regional
conglomerates ha v e o v er go v ernmen ts, en ticing p olitical leaders with brib es to b ypass regulations and p olicies
that w ere set to ensure go v ernance and accoun tabilit y .
163
F u jimori administration set the legal framew ork that w ould offer a stable en vironmen t for
foreign in v estmen t, w elcome priv ate in v estors, and giv e equal treatmen t to all in v estmen t,
domestic or foreign.
8
These decrees and their corresp onding la ws w ere solidified through the
writing of a new constitution i n 1993, whic h w as one of F ujimori’s first mo v es to consolidate
his p o w er after the auto-golp e or self-coup of 1992. Nev ertheless, since 1991–whic h is when
Decree No. 662 w as first announced – these norms remain the main foundations for P eru’s
in v estmen t en vironmen t. Unlik e previous decades, protections for in v estors w ere restored.
A ccording to these decrees, in addition to enjo ying non-discriminatory treatmen t, foreign
in v estors ha v e access to unrestricted in ternal credit, the most fa v orable exc hange rate in the
mark et for their transactions, as w ell as the p ossibilit y of establishing “judicial stabilit y
agreemen ts” with the P eruvian state to insure their in v estmen t in the ev en t of an expropri-
ation. The latter highligh ts the P eruvian go v ernmen t’s resp onsibilit y in pro viding a prop er
legal and judicial structure to all in v estors, whic h marks a drastic con trast from the pre-1990
p erio d when foreign in v estors had no guaran tees whatso ev er.
While this set of norms in tro duces the righ ts foreign in v estors ha v e in P eruvian territory ,
as w ell as the obligation of the P eruvian state to offer a stable in v estmen t en vironmen t, they
also sp elled out resp onsibilities and restrictions of foreign in v estors en tering P eru. In general,
in v estors ha v e op en access to participate in differen t in v estmen t mo dalities and to partic-
ipate in pro jects that con tribute to the coun try’s dev elopmen t ( CEP AL , 2010 , 2011 , 2018 ,
2019 ; Pérez Ludeña , 2017 ). Ov er the y ears, this is a k ey explanation that P eru and man y
other Latin American coun tries ha v e offered to encourage and promote greater foreign direct
in v estmen t–while sometimes underpla ying the so cial and en vironmen tal c hallenges that come
with some of these pro jects. This is explained b y Leonardo Stanley in his comparativ e w ork
on in v estmen t regulations in Latin America and parts of Asia: “Latin America in general
main tains a neutral p osition, asso ciated with a quan titativ e-orien ted vision: that greater
8
Decree No. 662 offers legal stabilit y to foreign in v estors, Decree No. 757 targets the increase of priv ate
in v estmen t, and Decree No. 162 offers guaran tees to priv ate in v estors. Subsequen t la ws and norms can also
b e accessed via ProIn v ersión.
164
in v estmen t in v ariably brings p ositiv e effects on lo cal pro duction and economic dev elopmen t.
Ho w ev er, in practice, m uc h of the incoming in v estmen t is accompanied b y so cial and en vi-
ronmen tal costs that are as y et unkno wn”
9
( Stanley , 2020 , p. 12). This is certainly the case
in one of P eru’s most imp ortan t economic sectors and largest FDI recipien t: mining. As w e
will see in the next section, for some of China’s most significan t in v estmen t pro jects in P eru,
concessions lik e that of Las Bam bas, whic h Glencore sold to China Minmen tals (MMG),
w ere appro v ed despite ongoing comm unit y opp osition to the pro ject.
In this con text, foreign in v estors in P eru are required to adhere to the restrictions placed
for FDI on air and maritime transp ortation, priv ate securit y and surv eillance services, pro-
tected natural areas, and the man ufacturing of w eap ons.
10
P erhaps more in teresting are
the regulations concerning the o wnership of prop ert y . While foreign in v estors are allo w ed to
o wn prop ert y on P eruvian soil, they cannot o wn land close to the coun try’s b orders, mines,
or sources of energy unless they are used as public go o ds (i.e., for public service) or are ap-
pro v ed b y the P eruvian go v ernmen t ( ProIn v ersión ). Nev ertheless, m y fieldw ork in terviews
(P eru, 2019) reinforce what Stanley ( 2020 ) found: since F ujimori’s administration, the gen-
eral attitude to w ard foreign in v estmen t among the leadership and economic p olicymak ers
has b een w elcoming and encouraging. This is esp ecially the case when p olicymak ers or do-
mestic priv ate actors are courting external in v estors to collab orate in the launc hing of larger
pro jects.
Nonetheless, b et w een 1991 and 1995, during the first phase of structural reforms and
economic reop ening as delineated in c hapter 4, the priv atization of state-o wned en terprises
generated US$ 4.6 billion and an estimated US$ 2.7 billion w as pro jected to b e added to
P eru’s in v estmen t p ortfolio for future pro jects ( PromP erú , 1996 ). The comm unications sector
9
The original Spanish v ersion is as follo w: “América Latina man tiene en general una p ostura acrítica,
fuertemen te aso ciada a la visión cuan titativ a: a ma y or in v ersión, ma y or el efecto (p ositiv o) sobre la pro duc-
ción lo cal y el desarrollo económico. Sin em bargo, en la práctica, la in v ersión que llega a men udo conllev a
costos so ciales y am bien tales que resultan descono cidos” in L a r e gulación de la inversión extr anjer a dir e cta:
los c asos de la A r gentina, Colombia, el Perú, la R epúblic a de Cor e a y T ailandia (CEP AL, 2020).
10
A ccording to ProIn v ersión, foreign in v estors can in v est in most economic activities, th us ensuring that
there are v ery few restricted areas that cannot receiv e FDI.
165
accoun ted for the ma jorit y of FDI inflo ws, with 37 p ercen t of the shares sold. Mining rank ed
second with a share of 17.9 p ercen t, energy with 15.7 p ercen t, and industry/man ufacturing
with 12.4 p ercen t. Spain w as the largest foreign in v estor at this time, accoun ting for 40.5
p ercen t of the FDI shares, follo w ed b y the United Kingdom (17.5 p ercen t) and the United
States (14.6 p ercen t).
T o con tin ue rebuilding its in ternational image, P eru also b egan to sign Bilateral In v est-
men t T reaties (BIT s) as early as 1991 to signal the coun try’s transformed attitudes to w ard
foreign in v estmen t, including a new disdain for expropriation. As relativ e economic stabilit y
w as ac hiev ed, P eruvian leaders pushed to attract as man y in v estors as p ossible, suc h that
b y 1995 P eru had signed a total of nine BIT s. But as seen in T able 6.2, since 2009 P eru
has not conducted a new BIT. The main explanation is the coun try’s newfound reliance on
FT A s (see T able 5.2 in c hapter 5) to co v er in v estmen t pro visions once addressed b y BIT s.
F o r example, P eru’s FT A with the United States includes an en tire c hapter dedicated to
in v estmen t p olicies and managemen t. In the last t w o decades, at least 14 of the bilateral
FT A s P eru has signed include a section on in v estmen t.
11
Ho w ev er, these reforms alone did automatically guaran tee consisten t gro wth in FDI in-
flo ws to P eru. Data collected b y P eru’s Cen tral Reserv e Bank (BCRP
12
) sho w that consid-
erable FDI inflo ws did not increase un til appro ximately 2005. Ev en then, foreign in v estmen t
has b een v olatile, with y early v ariation and ups and do wns. As can b e seen in Figure 6.4,
the 2009 financial crisis, the b o om and bust of commo dit y prices b et w een 2003 and 2013,
and the economic slo wdo wn in most of the Latin American region since 2016 and 2017 ha v e
all wreak ed ha v o c on FDI inflo ws to P eru ( CEP AL , 2018 , 2019 ; Pérez Ludeña , 2017 ; Ra y ,
2018 ; Ra y and W ang , 2019 ).
The y ear 2012 sho w ed an un usually high increase in FDI in P eru–more than 50 p ercen t
gro wth from the previous y ear–of whic h more than half of the flo ws came from additional
11
Selected FT As include Chile, Canada, the United States, China, Singap ore, South K orea, Costa Rica,
Mexico, and the Europ ean Union.
12
Spanish acron ym for Banco Cen tral de Reserv a del P erú.
166
T able 6.2: P eru’s Bilateral In v estmen t T reaties (BIT s)
P artner Date En-
tered in to
F orce
Status
Thailand 1991 In force
Switzerland 1993 In force
South K orea 1994 T erminated*
United Kingdom 1994 In force
Sw eden 1994 In force
P aragua y 1994 In force
Romania 1995 In force
China 1995 In force
Denmark 1995 In force
Czec h Republic 1995 In force
Bolivia 1995 In force
Norw a y 1995 In force
P ortugal 1995 In force
Italy 1995 In force
Mala ysia 1995 In force
The Netherlands 1996 In force
Spain 1996 In force
F rance 1996 In force
Finland 1996 In force
Argen tina 1996 In force
El Salv ador 1996 In force
A ustralia 1997 T erminated**
German y 1997 In force
V enezuela 1997 In force
Ecuador 1999 T erminated***
Chile 2001 T erminated (a)
Cuba 2001 In force
Colom bia 2004 T erminated (b)
Singap ore 2006 T erminated (c)
Canada 2007 In force
Belgium-Luxem b ourg Economic Union 2008 In force
Japan 2009 In force
Source: A uthor’s elab oration. Data from In v estmen t P olicy Hub, UNCT AD.
*T erminated in 2011 and replaced b y a new treat y .
**T erminated in 2020. Replaced b y a new treat y .
***T erminated in 2017 unilaterally .
(a)T erminated in 2009 and replaced b y a new treat y .
(b)T erminated in 2010 and replaced b y a new treat y . The BIT w as signed in 1994;
ho w ev er, it to ok 10 y ears b efore it en tered in to force.
(c)T erminated in 2009 and replaced b y a new treat y .
167
Figure 6.4: P eru’s FDI Inflo ws, 1995-2020
Source: In v estmen t estimates pro vided b y Proin v ersión using data from P eru’s Cen tral
Reserv e Bank (BCRP).
Notes: The amoun t of in v estmen t flo ws are calculated b y the BCRP , and include
rein v estmen ts and other capital resources from the main firm.
2020 estimates are based on BCRP’s inflation rep orts for Decem b er 2020.
168
in v estmen ts b y Chinalco, Xstrata, Y anaco c ha, and An tamina, all mining companies with
Chinese, Swiss, U.S., A ustralian, and Canadia n capital. High prices for k ey metals suc h as
copp er during that y ear pla y ed an imp ortan t role in the increased in terest b y these coun tries
that are themselv es mineral pro ducers, th us b enefiting P eru as w ell as its regional neigh b or,
Chile. Similar to P eru, Chile exp erienced a historic increase of appro ximately 32 p ercen t in
FDI inflo ws at this same time ( CEP AL , 2013 ). While this remarkable surge w as deemed to
reflect the high stable economic gro wth of b oth coun tries ( CEP AL , 2013 ), the drastic decline
in FDI inflo ws the follo wing y ear (Figure 6.4) underlined the p erils of o v erreliance on natural
resources, including constan t exp osure to price v olatilit y . Indeed, generally sp eaking, P eru’s
in v estmen t landscap e has b een more v olatile than its foreign trade (Figure 6.5).
Figure 6.5: P eru’s T rade and FDI, 1995-2018
Source: T rade flo ws adapted from W orld T rade In tegrated Solutions (WITS) and FDI flo ws
from ProIn v ersión.
Notes: T otal trade is calculated as the sum of total exp orts and total imp orts.
169
Despite this decline, P eru has remained as an attractiv e destination due to its more stable
en vironmen t for in v estors ( Bustaman te Romaní , 2016 ) and the p oten tial for in v esting in
other industries, including v alue-added agriculture and infrastructure. Fieldw ork in terviews
in China and P eru rev eal that, although the extractiv e sector remains a hea vy lifter in P eru’s
econom y , efforts to expand the latter t w o sectors, esp ecially with a pla y er lik e China, are
pa ying off. In this resp ect, some strategies in the agricultural sector, apart from the role
pla y ed b y large agricultural m ultinationals and conglomerates, ha v e b een the co ordinated
efforts b et w een business asso ciations and c ham b ers of commerce to promote small- and
medium-sized en terprises that pro duce for e xp ort abroad. In infrastructure, P eru announced
its participation in China’s Belt and Road Initiativ e (BRI) in 2019 through a Memorandum
of Understanding (MOU), making P eru the 19th coun try in LA C to join the initiativ e since
the region w as in vited to join the strategy in 2018 ( Belt & Road News , 2019 ; Cam b ero and
Sherw o o d , 2018 ).
13
This initiativ e offers P eru and Latin America an unpreceden ted opp ortunit y to further
access Chinese financing and enhance trade exc hanges, esp ecially for coun tries that ha v e more
limited access to the Chinese mark et. As p oin ted out earlier, BRI w as announced in 2013
b y Xi Jinping as China’s dev elopmen t strategy through infrastructure building. The goal
w as to increase land and maritime connectivit y across Asia, Europ e, the Middle East, and
Africa. Since then, the initiativ e has expanded globa lly , including in vitations to participate
to coun tries in Latin America and the Caribb ean in 2018, and more recen tly , ev en the Arctic
region ( My ers , 2018 ), th us making this strategy one with domestic, regional, and global goals
for China ( Dussel P eters et al. , 2018 ; Gonzalez Jauregui , 2020 ). F or Latin America, ho w ev er,
the lac k of participation of four of its main economies–Argen tina,
14
Brazil, Colom bia, and
Mexico–complicates the exten t to whic h the region could really b enefit from BRI.
13
The first coun try in Latin America and the Caribb ean to participate in the BRI w as P anama. Other
coun tries include T rinidad and T obago, Suriname, Urugua y , Ecuador, V enezuela, Chile, Bolivia, Costa Rica,
An t igua and Barbuda, Cuba, Guy ana, Dominica, Barbados, Grenada, the Dominican Republic, El Salv ador,
and Jamaica.
14
A ccording to declarations from Argen tina’s Am bassador to China, the coun try is exp ected to join the
initiativ e in up coming mon ths ( El Economista , 2020 ).
170
F or one, in comparison with the regions BRI initially targeted, the promotion of BRI in
LA C has b een less activ e. One argumen t is that–despite calls for deep er co op eration with
coun tries in LA C–participation in BRI ma y lead to confron tation with the United States,
an imp ortan t long-standing partner for Latin America ( Zhang , 2019 ). Another criticism is
the v agueness of the initiativ e. Aside from the announcemen t of a “participation” MOU,
it is unclear what a “BRI pro ject” ma y en tail. China’s in v olv emen t in a n um b er of infras-
tructure pro jects in Latin America y ears b efore the announcemen t of BRI underline the
sk epticism to w ard this initiativ e and ho w b eing part of it w ould c hange existing and/or p o-
ten tial infrastructure in v estmen ts. In addition, the lo w en vironmen tal p erformance of some
Chinese companies in these pre-BRI pro jects ha v e raised concerns regarding the p oten tial
w eak ening of en vironmen tal and lab or standards in coun tries in urgen t need of infrastructure
in v estmen ts ( Dussel P eters et al. , 2018 ; Dussel P eters , 2019a ; Zhang , 2019 ).
But BRI is as m uc h an opp ortunit y as it is a c hallenge for Latin America. The exten t to
whic h eac h participating LA C coun try b enefits also dep ends on its capacit y to plan, design,
and implemen t BRI infrastructure pro jects ( Dussel P eters et al. , 2018 ; Gonzalez Jauregui ,
2020 ; My ers , 2018 ; Zhang , 2019 ). As sho wn not only in P eru but in other Latin American
coun tries where China has significan t in v estmen ts, the dev elopmen t, dela y , or susp ension
of a pro ject is closely related to ho w it has b een implemen ted and managed, as w ell as
the stak eholders that are in v olv ed in the differen t pro cesses–from conducting due diligence,
feasibilit y studies, en vironmen tal assessmen ts and prior consultation when applicable, and
so forth ( Dussel P eters et al. , 2018 ; Erthal Ab den ur , 2017 ; Gonzalez-Vicen te , 2012 ; Irwin
and Gallagher , 2013 ; Ra y et al. , 2017 ; San b orn and Chonn Ching , 2017 ). In other w ords,
attracting China’s in terest to in v est in a coun try is only the first step; the managemen t
and sustainabilit y of a pro ject in the long term are also indicativ e of a coun try’s abilit y to
constructiv ely manage and deep en its in teractions with China.
In P eru, the ev olution of Chinese FDI has brough t a series of lessons to b oth China and
P eru. On the P eruvian side, although these in v estmen ts ha v e underlined existing w eaknesses,
171
suc h as the inconsistency to regulate some priv ate actors and con trol lo cal conflicts, they ha v e
also highligh ted some of the coun try’s efforts in con tin uing with its economic transforma-
tion and in strengthening state and lo cal institutions as they face new c hallenges ( Dargen t
et al. , 2017 ). On China’s side, the exp eriences of some Chinese firms in v esting in P eru
ha v e sho wn the abilit y of these firms to learn ho w to na vigate P eru’s economic en vironmen t
and ho w to in teract with m ulti-lev el actors, including lo cal go v ernmen ts, comm unities, and
civil so ciet y . Ho w ev er, p erceptions and concerns–and sometimes righ tfully so–ab out Chi-
nese non-compliance and lac k of transparency remain, sometimes due to in v estmen t failures
elsewhere.
15
In the next section, I analyze in more detail the nature of the Sino-P eruvian
in v estmen t relationship.
6.3 Chinese FDI: A Slo w-Simmering Gro wth
Despite China’s p osition as P eru’s top trade partner, in terms of in v estmen ts, Chinese firms
and/or China-led pro jects are b ehind other traditional P eruvian partners, including the
United States and Europ ean coun tries lik e Spain and the United Kingdom. Moreo v er, al-
though China holds imp ortan t assets in mining mega pro jects, since 2018 the United King-
dom has b ecome P eru’s main source of FDI in mining. Since 2009, China held the top
p osition in mining FDI in P eru due mostly to construction pro jects on the Las Bam bas
mine and the Marcona mine expansion. But onc e these t w o mining pro jects w ere completed,
they w ere not considered as part of the P eruvian in v estmen t p ortfolio an ymore ( Saldarriaga,
2019 ), th us reducing China’s in v estmen t share. This is b ecause once suc h in v estmen ts are
past the construction and preparation phase, it is more lik ely that firms fo cus on pro duction
and distribution than the infusion of further capital for a pro ject. This is an example of
what P erez Ludeña ( 2017 ) refers to as mature p ro jects in the Latin American region.
15
Zhang ( 2019 ) explains, for instance, that questionable op erations b y Chinese firms in parts of Asia
and Africa ha v e affected the reputation of w elcoming BRI pro jects in other regions. Although the Chinese
go v ernmen t has made efforts in addressing these concerns, resistance against Chinese infrastructure FDI ma y
con tin ue in the foreseeable future.
172
Wh y do es this matter? Ov er the y ears, China has pla y ed a k ey role as an in v estor in
P eru’s mining industry . A ccording to data from ProIn v ersión, Chine se FDI is distributed
among fiv e sectors: mining, finance, construction, oil and gas, and commerce; mining holds
a 59.4 p ercen t of the total share, follo w ed b y finance with a share of 37.6 p ercen t. The
remaining sectors hold less than 10 p ercen t eac h of the total share ( COMEX , 2020 ). T ables
6.3 and 6.4 list some of China’s main companies in P eru since 1992. The first decade of the
2000s sa w Chinese companies en tering the mining, h ydro carb ons, and commercial fishing
sectors. Starting in 2010, Chinese FDI flo w ed to other sectors, including financial services,
IT services, alternativ e and renew able energy , and the construction of p orts. This includes
the establishmen t of new pro jects and the use of mergers and acquisitions to allo w for smo oth
en try in to these new areas of the P eruvian mark et.
Some notable transactions of this past decade include the purc hase of P eruvian shares
from the Brazilian oil gian t P etrobras b y the China National P etroleum Corp oration (CNPC),
whic h had b een in P eru since 1993. This acquisition to ok place in 2013, after P etrobras w as
found to b e part of the Odebrec h t scandal in Brazil, whic h forced the Brazilian conglomerate
to quic kly sell its regional assets after it w as accused of money laundering and pa ying brib es
to Brazilian and other Latin American p olicymak ers for the concession of v arious construc-
tion and infrastructure pro jects ( El Comercio P erú , 2014a ).
16
During the same y ear, China
Fishery Group announced the purc hase of shares o wned b y Cop einca ( Gestion , 2013a ), one
of P eru’s largest and most imp ortan t fishing and fish oil companies. In line with China’s
massiv e Belt and Road infrastructure initiativ e, firms lik e Sinoh ydro Corp oration, China
Three Gorges Corp oration, and COSCO b egan to seek participation in k ey renew able en-
ergy and construction pro jects in P eru. Nev ertheless, Chinese mining firms ha v e b een the
dominan t pla y ers in P eru’s in v estmen t landscap e. As a result, Chinese in v estmen t in P eru
generally refers to in v estmen t in the mining sector, whic h is the main fo cus of this analysis.
16
Go v ernmen t officials from the follo wing LA C coun tries w ere accused of corruption, leading to their
trial and/or imp eac hmen t: Argen tina, Colom bia, the Dominican Republic, Ecuador, Guatemala, Mexico,
P a nama, P eru, and V enezuela.
173
T able 6.3: Selected Chinese In v estors in P eru
Y ear Chinese In v estor Pro ject Sector
1992
Shougang Corp oration/Shougang
Hierro P erú
Marcona
Mining
1993
China National P etroleum Cor-
p oration (CNPC)/SAPET
Lot VI/VI I
Energy , oil, and
gas
2002 Tiens Group/Tianshi P erú
–
Man ufacturing
2005 CNPC/SAPET
Lot 111
Energy , oil, and
gas
2006
Zijin Mining Group/Río Blanco
Copp er
Rio Blanco
Mining
2006
P acific Andes In ternational Hold-
ings
–
F o o d & Fishing
2006 China Fishery Group
–
Fishing
2007
Alumin um Corp oration of China
(Chinalco)/Minera Chinalco P erú
T oromo c ho
Mining
2008 Jiangsu Sujia group
–
Mining
2008 Jiangxi Copp er/Lumina Copp er
Galeno
Mining
2008 Junefields Compan y Limited
Cercana
Mining
2009
Nanjinzhao Group/Jinzhao Min-
ing P eru
P ampa de
P ongo*
Mining
2010
Industrial and Commercial Bank
of China (ICBC)
–
Financial
2010 Bank of China**
–
Financial
Sources: A uthor’s elab oration using data from San b orn and Chonn Ching ( 2017 ), Red
ALC-China, fDi In telligence.
Notes: This table only indicates the first time a Chinese firm in v ested in P eru (greenfield
and mergers and acquisitions). Subsequen t in v estmen ts b y the same compan y are not
included in this list. When applicable, the firms’ lo cal names are included.
*P ampa de P ongo w as sold to Zhongrong Xinda (in a join t v en ture with HBIS Resources)
in 2020, after y ears of dela y ed progress on the pro ject.
**Bank of China established a “China Desk” in P eru in co op eration with In terbank.
174
T able 6.4: Selected Chinese In v estors in P eru (con tin ued)
Y ear Chinese In v estor Pro ject Sector
2013 China Construction Bank
–
Financial
2014 China Minmetals (MMG)
Las Bam bas
Mining
2014 CITIC Metal Compan y
–
Mining
2014 Hytera Mobilfunk
–
T elecomm unications
2016 Ingram Micro
–
Services (IT)
2016 China Three Gorges Corp oration
Chaglla - San
Gabán
Energy (Alt. & Re-
new able)
2017 Sinoh ydro Corp oration/Cohidro
Hidro vía
Amazónica
Energy (Alt. & Re-
new able)
2018 F osun In ternational
–
Services (Insur-
ance)*
2019 COSCO
Chanca y P ort T ransp ortation
2019 Didi Ch uxing
–
Services**
Sources: A uthor’s elab oration using data from San b orn and Chonn Ching ( 2017 ), Red
ALC-China, fDi In telligence.
Notes: This table only indicates the first time a Chinese firm in v ested in P eru (greenfield
and mergers and acquisitions). Subsequen t in v estmen ts b y the same compan y are not
included in this list. When applicable, the firms’ lo cal names are included.
*In co op eration with lo cal insurance compan y , La P ositiv a.
**This is an application that facilitates taxi services similar to Ub er or Lyft.
175
Comparativ ely , P eru is also the main recipien t of Chinese mining in v estmen t in the
region, surpassing another imp ortan t mining econom y in the region: Chile. F rom 2000
to 2019, P eru accoun ted for 33.3 p ercen t of China’s mining FDI in the region, follo w ed
b y Brazil, with a share of 22.1 p ercen t, and Chile, with 18.8 p ercen t. Other recipien ts
of significan tly less Chinese mining in v estmen t include Bolivia and Argen tina (Figure 6.6).
F u rthermore, according to information gathered b y the Regional Finance and Infrastructure
Group (GREFI) and the Red ALC-China, P eru is host to the largest n um b er of imp ortan t
Chinese mining firms in region: Shougang since 1992, Chinalco and Zijing Mining Group
since 2006, and China Minmen tals (MMG) since 2014 ( GREFI , 2017 ). The latter compan y
has also b een in Brazil since 2004, and in 2018, it w as announced that Co delco–Chile’s largest
copp er pro ducer–w as in talks to supply copp er to China Minmetals in three-y ear con tracts
( Desai , 2018 ). Ho w ev er, unlik e P eru, the presence of large mining corp orations in these t w o
coun tries is scarce, more so in Chile where only three companies are op erating or registered
in the mining and metals category .
Again, P eru’s w ealth in mineral endo wmen ts is an imp ortan t factor for the presence of
these Chinese companies in the coun try . Y et what mak es the P eruvian case unique is the
in terest of these in v esting firms despite the increasing demand for these Chinese companies to
engage with lo cal actors, sometimes v ery con ten tious ones, and comply with en vironmen tal
and lab or standards that are unfamiliar to man y of them. Since the early 2000s, P eru has
initiated a series of reforms in the extractiv e industries as one w a y to address the negativ e
effects of an econom y that is highly relian t on mineral exp orts. Issues of rev en ue transparency
and redistribution came to the forefron t, as did the need to follo w in ternational standards to
ensure go o d compan y-comm unit y relationships and corp orate so cial resp onsibilit y ( San b orn
and Chonn Ching , 2017 ). Lo cal conflicts also b ecame more apparen t as massiv e mining
pro jects threatened to affect protected areas and indigenous comm unities.
176
Figure 6.6: Chinese Mining In v estmen ts in Latin America, 2000-2019
Source: A uthor’s elab oration using data from Red ALC-China.
177
As suc h, these c hallenges put to test whether Chinese in v estors w ere sufficien tly prepared
when they arriv ed in P eru (and Latin America), and if the P eruvian economic and regula-
tory institutions had the capacit y to manage incoming Chinese FDI, particularly in suc h a
complex sector. A ccording t o Enrique Dussel P eters ( 2018 ; 2019a ), as a region, Latin Amer-
ica and the Caribb ean do es not ha v e the institutional capacit y to demand and offer suc h
a degree of go v ernance and accoun tabilit y . His collab orativ e w ork on Chinese in v estmen t
in a n um b er of coun tries sho ws that, while China brough t the resources and the financing
to large in v estmen t pro jects, go v ernmen t mismanagemen t, lac k of transparency , p o or reg-
ulatory structures, corruption, and miscomm unication on b oth the Chinese and the Latin
American sides ha v e caused the stagnation and dela y of man y pro jects, as w ell as gro wing
discon ten t and ev en rejection to w ard Chinese in v estmen t.
In Brazil, where b y 2010 clos e to 90 p ercen t of Chinese in v estmen t w as in the extractiv e
sector ( Dussel P eters et al. , 2018 ), Chinese FDI is the largest and most div ersified in com-
parison with neigh b oring coun terparts. By 2014, Brazil had Chinese in v estmen ts in the oil
and gas, energy , auto, IT, finance, and agricultural industries ( GREFI , 2017 ). While Brazil
is the top destination for Chinese in v estmen t, the coun try has not a v oided the c hallenges
Dussel P eters highligh ts. One of the most con tro v ersial pro jects with Chinese participation
has b een the Belo Mon te dam, whic h if successfully op erational w ould ha v e b een the w orld’s
third-largest dam. Ho w ev er, the pro ject w as determined to b e p oten tially non viable since
its announcemen t in 2010. Although the dam is op erated b y Nuev a Energia, a Brazilian
consortium, China’s State Grid w on the bidding in 2014 to build t w o transmission lines
that w ould run from the dam’s lo cation on the Xingu Riv er to Brazil’s southeast. Almost
a decade later, the dam is not only unprofitable but its future is also uncertain. En viron-
men tal concerns ab out the dam’s impact on the Xingu Riv er’s ecology and the surrounding
indigenous comm unities w ere only one w arning sign of the p oten tial failure of the pro ject.
The riv er’s seasonal flo w also threatened the p o w er pro duction capacit y of the dam, not to
men tion the high logistics costs due to the terrain of the pro ject’s lo cation. P o or planning,
178
bad decisions, and disregard for the en vironmen tal risks ha v e b een imp ortan t factors in the
pro ject’s failure ( Dussel P eters et al. , 2018 ; Dussel P eters , 2019a ; Higgins , 2020 ).
F or China, participation in Belo Mon te consolidated its p osition as an imp ortan t pla y er
in Brazil’s energy sector. But as large inflo ws of capital w ere in v ested in the construction
phase, greater due diligence w as needed to assess the feasibilit y of the pro ject–not only from
the Chinese side, but from all stak eholders ( Higgins , 2020 ). This scenario is reminiscen t of
early mining pro jects in P eru with Chinese participation, where companies failed to assess
all risks in v olv ed. Y et, as will b e further explained in the cases of Shougang and T oromo c ho,
these Chinese companies did sho w a learning curv e. An unkno wn, of course, is whether
Chinese firms in all sectors ha v e paid heed to these lessons. Are foreign companies from all
industries held with the same accoun tabilit y in the host coun tries? Giv en the imp ortance of
Belo Horizon te in Brazil, it is debatable if this in v estmen t w as treated with sp ecial standards.
In P eru, certain in v estmen t pro jects with Chinese capital ha v e b een prioritized or consid-
ered as of national in terest. While their success has b een asso ciated with P eru’s dev elopmen t
and gro wth efforts, the in v olv emen t of lo cal stak eholders lik e civil so ciet y has prompted p ol-
icymak ers to rethink what institutional deficiencies ha v e y et to b e addressed to curtail, for
example, civil unrest. In this instance, P eru’s success vis-à-vis China has not solely relied
on it b ecoming the second destination of Chinese FDI in the region or the top destination of
China’s mining in v estmen t. The engagemen t of Chinese companies with state stak eholders,
as w ell as other lo cal actors, and the efforts to meet in ternational standards and hold firms
accoun table, pain t P eru as a case where the establishmen t of m ulti-lev el fora can b e p ossible
ev en when a p o w erful actor lik e China is in v olv ed.
6.3.1 Reforming the Extractiv e Sector
With the increase of civil unrest and the n um b er of mega pro jects in the mining industry ,
the P eruvian state implemen ted a series of reforms in the extractiv e industries that sough t
to address the p opulation’s needs while also con tin uing to bring new pro jects to enhance
179
pro duction and increase rev en ue. As suc h, b etter go v ernance, transparency , and accoun t-
abilit y b ecame imp ortan t goals for the P eruvian leadership. One part of these reforms w as
the creation of the Ministry of the En vironmen t (MINAM) and the Office of En vironmen tal
Assessmen t and Con trol (OEF A) in 2008 to impro v e en vironmen tal regulation and o v ersigh t.
This decision w as influenced b y the gro wing n um b er of so cial conflicts and the amoun t of
pro jects that stagnated due to en vironmen tal concerns. Prior to that, the resp onsibilit y of
appro ving en vironmen tal assessmen ts (EIAs) w as assumed b y the Ministry of Energy and
Mines (MINEM)–a role that w as con tro v ersial giv en MINEM’s authorit y in promoting and
authorizing pro jects in the sector. In 2012, the National Service of En vironmen tal Certifica-
tion for Sustainable In v estmen ts (SENA CE) w as established to review and appro v e EIAs for
high-profile cases. Ov er the y ears, MINAM and OEF A ha v e enjo y ed widespread legitimacy
and the imp ortance of their role w as esp ecially highligh ted when an imp ortan t pro ject suc h
as Chinalco’s T oromo c ho w as temp orarily halted due to w ater con tamination found in t w o
lak es due to improp er drainage ( San b orn and Chonn Ching , 2017 ).
In terms of transpare ncy , rev en ue disclosure b y in v esting companies and lo cal redistri-
bution ha v e b een long-con tested issues in P eru. In related researc h with Cyn thia San b orn
( 2017 ), w e indicated that b y disclosing their rev en ues, companies can b e held more ac-
coun table to their differ en t stak eholders. Moreo v er, that kno wledge can also ensure that
these earnings are in some w a y used to con tribute to the dev elopmen t of the comm unities
where these companies are. Although P eru do es pro vide confiden tialit y for an individual or
a compan y’s taxes, P eruvian p olicymak ers ha v e esta blished and promoted initiativ es that
encourage greater transparency . One of these initiativ es is the Extractiv e Industries T rans-
parency Initiativ e (EITI).
Since 2005, P eru has b een part of the EITI, whic h is a global standard that seeks to
promote op enness and accoun tabilit y in the mining, oil and gas, and financial sector through
the disclosure of pro duction, rev en ue, and rev en ue redistribution information. P eru b ecame
a complian t coun try in 2011–the first in the Americas to do so–and has con tin ued to b e
180
listed as part of the initiativ e after receiving an extension in 2020 for completing its latest
rep ort.
17
Since P eru’s participation, Argen tina (2019), Ecuador (2020), Colom bia (2014),
and Mexico (2017) are some of the ma jor Latin American economies that are part of the
initiativ e.
18
Other coun tries with sizable extractiv e industries lik e Brazil and Chile are not
part of the initiativ e.
T o date, 68 companies in P eru are complian t with the EITI standard, of whic h only
one is Chinese: China Minmen tals (MMG). Although this lo w Chinese participation rate
is discouraging, only Shougang, Chinalco, MMG, and CNPC are companies that w ould b e
pa ying significan t taxes in the relev an t sectors. F urthermore, a greater n um b er of Chinese
firms ha v e b een part of other v olun tary so cial in v estmen t initiativ es. F or instance, “Obras
p or impuestos” (Pro jects for T axes) is a mec hanism that encourages greater participation of
the priv ate secto r (in collab o ration with public en tities) in public service pro jects. Through
this mo dalit y , companies can help in the planning, dev elopmen t, and construction of public
pro jects suc h that the amoun t that w as in v ested can b e redirected to the pa ymen t of taxes
using a certificate pro vided b y the P eruvian authorities.
This initiativ e w as created in 2008 through La w No. 29230, as part of P eru’s coun ter-
cyclical resp onse to the GF C and as an effort to promote the execution of m uc h needed
infrastructure pro jects.
19
As of 2020, close to 400 pro jects ha v e b een a w arded with a total
in v estmen t v alue of appro ximately PER 5.3 billion,
20
according to the Ministry of Econ-
om y and Finance. In 2013, the main tenance of pro jects w as also included in this initiativ e.
17
If a coun try misses a rep orting deadline, it faces susp ension. If the susp ension lasts more than a y ear,
then the coun try is tak en off the list of complian t coun tries. P eru’s most recen t status is as ha ving made
“meaningful progress. ” See EITI .
18
The Dominican Republic, Guatemala, Guy ana, and Honduras are other LA C coun tries also listed as
EITI participan ts.
19
Companies can b e registered in the Electronic System of State Con tracts (SEA CE or Sistema Electrónico
de las Con trataciones del Estado).
20
This refers to P eru’s national currency , Nuev os Soles. In U.S. dollars the amoun t w ould appro ximate to
o v er US$ 1.1 billion.
181
A ccording to P eru’s MEF, b et w een 2009 and 2021, there ha v e b een appro ximately 118 reg-
istered for the p ortfolio of pro jects under this mo dalit y , and Shougang, Chinalco, and MMG
ha v e b een part of “Obras p or impuestos. ”
Another mec hanism to impro v e the redistribution of b enefits in the mining sector is
the mining canon or “canon minero. ” Established in 2003, the mining canon is a rev en ue
redistribution system that distributes part of the income taxes paid b y the mining firms
to the national go v ernmen t to lo cal go v ernmen ts where the pro j ects is lo cated. The main
goal of this canon is to redirect rev en ues for the construction of lo cal pro jects related to
so cial dev elopmen t and basic infrastructure. Ho w ev er, the success of the canon has v aried
considerably . In some pro vinces and m unicipalities, rev en ue flo ws ha v e not b een efficien tly
disbursed or in v ested ( San b orn and Chonn Ching , 2017 ). Man y factors are at pla y , but p o or
budgetary planning, inexp erience, and mismanagemen t in public sp ending are some of the
elemen ts that ha v e questioned the effectiv eness of the canon. A dditionally , the asso ciation
b et w een v olatile commo dit y prices and rev en ue increases or decreases adds another la y er to
the c hallenges lo cal go v ernmen ts face as money exp ected for one public pro ject ma y b ecome
una v ailable due to price drops, for example ( Dargen t et al. , 2017 ).
21
Finally , the enactmen t of “previa consulta” or prior consultation in 2011, and the use of
mining dialogue roundtables (Mesa de Diálogo Minero) since 2000, w ere p erhaps an imp or-
tan t step forw ard in making so cial conflicts an issue of public and state in terest ( Dargen t
et al. , 2017 ; San b orn and Chonn Ching , 2017 ). As a coun try with one of the highest n um b ers
of indigenous p opulations in Latin America (according to estimates from ECLA C), the la w
of prior consultation has made it mandatory to consult with indigenous p eoples and gain
21
Relatedly , according to the National Institute of Statistics (INEI) and the P eruvian Institute of Eco-
nomics (IPE), o v er 20 p ercen t of the P eruvian p opulation is living in p o v ert y , and regions where some
imp ortan t mining and oil and gas pro jects are lo cated are suffering the most in this resp ect (i.e., Ca jamarca,
Huanca v elica, Puno). This in part explains some of the so cial conflicts that ha v e emerged in imp ortan t
mining areas and the call for reforms that could address these p opulations’ main concerns. As w as rev ealed
in fieldw ork in terviews, some mining companies con tin ue to b e the main source of public go o ds and services,
th u s undertaking resp onsibilities that corresp ond to lo cal go v ernmen ts and m unicipalities. Without prompt
resp onses from state and lo cal leaders, mining companies alone cannot reasonably b e exp ected to remain the
only suppliers of public services.
182
their appro v al (so cial license) as part of the assessmen t and feasibilit y phase of a pro ject.
Similar consultation la ws are also presen t in Bolivia, Brazil, Chile, Colom bia, Ecuador, and
V enezuela.
The increase of these conflicts during the first decade of the 2000s forced P eruvian author-
ities to create m ulti-stak eholder comm unication c hannels that could bring represen tativ es
from the comm unities, the in v esting companies, and lo cal go v ernmen ts together to express
their concerns and negotiate agreemen ts, th us offering more transparency and accoun tabilit y
from in v esting firms. Although most Chinese firms en tering P eru ha v e not necessarily b een
familiar with suc h t yp e of engagemen ts, the in v olv emen t of some of these firms in the dialogue
tables, suc h as Lumina Copp er, Shougang, and Chinalco, exemplify learning and adaptation
to the demands of the host coun try , in this case, P eru ( San b orn and Chonn Ching , 2017 ).
6.3.2 V arying Learning Curv es
As I men tioned earlier, China purc hased one of P eru’s most iconic and the largest iron-ore op-
eration in 1992. F rom then un til 2010, Chinese in v estmen ts ha v e b een concen trated in P eru’s
mining and oil sectors, sparking criticism regarding China’s influence in the re-primarization
of the Latin American economies and con tin ued dep endence on natural resources and com-
mo dities ( A v endaño et al. , 2017 ; Bárcena , 2015 ; Carv alho , 2019 ; CEP AL , 2013 ; Dollar , 2017 ;
Jenkins and de F reitas Barb osa , 2012 ; Correa Lóp ez and González García , 2006 ; Moran
et al. , 2012 ; Nolte , 2018 ). Moreo v er, serious faux pas committed early on b y some Chi-
nese firms in dealing with lab or groups and lo cal comm unities, as w ell as the p o or skills
of Chinese o wners in dealing with civil so ciet y demands, created the p erception of Chinese
in v estmen t as predatory and unruly . Ev en though Chinese in v estors ha v e visibly tried to
mend their w a ys–esp ecially since the construction of the T oromo c ho mine b y Chinalco–FDI
from China is still receiv ed with caution, esp ecially in up coming infrastructure pro jects with
large en vironmen tal and so cial risks.
183
But what ha v e Chinese firms learned, or rather, to what exten t ha v e they adapted and
complied with P eruvian regulations and demands? Shougang’s acquisition of the Marcona
iron mine w as certainly a con tro v ersial one: it w as allegedly sold for a b elo w-mark et price,
and the Chinese o wners had purc hased an old mine that w as already exp eriencing economic
losses, a strong and p oliticized union, and a comm unit y that had dep ended on the compan y
itself to pro vide public services suc h as w ater and electricit y ( Gonzalez-Vicen te , 2012 ; Irwin
and Gallagher , 2013 ; San b orn and Chonn Ching , 2017 ). One of the initial issues that had
spark ed tensions b et w een Shougang and the miners w as the hiring of Chinese w ork ers to
replace a p ortion of the lo cals that had b een fired up on Shougang’s purc hase. Although
the compan y promptly rectified the misstep due to violen t protests, this inciden t arguably
set the tone for relations b et w een Shougang and the mine’s w ork ers for at least the next
decade. T o da y , Chinese mining companies, including Shougang, and firms from elsewhere
are exp ected to hire lo cally to promote domestic emplo ymen t and pro vide training programs
for their w ork ers. Moreo v er, unlik e man y of its coun terparts in P eru, Shougang con tin ues
to pro vide housing for its emplo y ees and basic services to the comm unit y where it op erates
( San b orn and Chonn Ching , 2017 , p. 211-3). Y et its inabilit y to meet the union’s demands
and prop erly address the comm unit y’s en vironmen tal concerns at the b eginning rendered
Shougang a negativ e example of Chinese FDI in P eru–a reputation it has struggled to b e
freed from.
Similar issues regarding lo cal hiring w ere also presen t in some Chinese infrastructure
in v estmen ts in Costa Rica. While these pro jects w ere not in extractiv e sectors, the alleged
use of Chinese lab or in the construction of a high w a y expansion (Route 32) turned a pro ject
that had initially b een receiv ed p ositiv ely in to one that needed to b e w atc hed with caution.
22
Fieldw ork in terviews in 2018 indicate that the preference for Chinese lab or in this pro ject
ma y ha v e originated from the Chinese managers’ desire to ha v e a lab or force with similar
22
More details on the pro ject can b e found in Monica DeHart’s c hapter on Chinese in v estmen ts in Costa
Rica in Building a New Er a: Chinese Infr astructur e Development in L atin A meric a and the Caribb e an , edited
b y Enr ique Dussel P eters ( 2018 ).
184
or familiar w orking st yles. Despite the public outcry , a series of dela ys ha v e led to more
negotiations b et w een the national go v ernmen t and the compan y suc h that, in A ugust 2020,
Costa Rica’s Ministry of Public Infrastructure and T ransp ort (MOPT) agreed to bring 60
Chinese w ork ers from China to Costa Rica to sp eed up construction of the high w a y ( Umaña ,
2020 ). In 2019, an additional 600 w ork ers–of whic h 160 w ere from the impacted comm unities–
had b een hired ( El P ais–Costa Rica , 2019 ).
Lik e Shougang, in the Costa Rican case of Route 32, unfamiliarit y with Costa Rica’s
w orking and regulatory en vironmen ts app ears to ha v e caused mismanagemen t and miscom-
m unication from the Chinese side. Y et, while in P eru Shougang’s engagemen t with the lo cal
comm unit y w as necessary for impro v emen ts, in Costa Rica, discussions and re-negotiations
remained b et w een the Chinese firm and, mainly , the national go v ernmen t. Although not
completely comparable due to the nature of eac h pro ject, they sho w that Chinese firms con-
tin ue to struggle in conducting prop er due diligence in the host coun tries they are in v esting
in, as w ell as adjusting to lo cal requiremen ts.
F or Shougang, misunderstandings and p o or comm unication b et w een compan y managers,
lo cal authorities, and the comm unit y did not help in assuaging the tensions that already
existed prior to Marcona’s purc hase. The compan y’s adaptation has b een gradual but com-
p etition with new er firms–Chinese and otherwise–has demonstrated that, sometimes, the
issues ha v e more to do with a firm’s managemen t and strategies.
23
F or Costa Rica, w eak en-
ing commercial ties with China and faltering in v estmen t pro jects o v er the last decade bring
more questions than answ ers on ho w the coun try can con tin ue dev eloping its exc hanges with
China, despite an existing FT A and the promise of a new generation of high-lev el collab ora-
tions b et w een b oth sides.
While Shougang represen ted the negativ e side of Chinese FDI in P eru, Chinalco’s pur-
c hase of the T oromo c ho copp er mine and the relo cation of Moro co c ha in 2013 sho w ed a
new generation of Chinese in v estmen t in P eru–one that w ork ed closely with civil so ciet y and
23
See more on Shougang’s case and the lessons learned in Gonzalez-Vicen te ( 2012 ), Irwin and Gallagher
( 2013 ), and San b orn and Chonn Ching ( 2017 ).
185
closely follo w ed en vironmen tal regulations and p olicies b y MINAM and OEF A. A cquired in
2007, Chinalco made sure to con tin ue with the dialogue round-tables the former o wners,
Canadian P eru Copp er, had b egun with the lo cal comm unit y in preparation for its relo ca-
tion to mak e w a y to an op en pit mine. By main taining comm unit y relations through the
use of same consultan ts P eru Copp er had hired, and with the promise of retaining a P e-
ruvian managemen t and w orkforce, Chinalco app eared to start with the righ t fo ot in P eru.
Moreo v er, ev en when en vironmen tal concerns w ere raised after con taminated w ater leak ed to
t w o nearb y lak es due to improp er drainage, Chinalco resp onded quic kly and con tin ued with
op erations. No w, more than fiv e y ears since the relo cation, the initial excitemen t to w ard
Chinalco setting new standards has receded and, instead, conflicts with some residen ts still
living in the old Moro co c ha are ongoing and distrust in the compan y has reemerged. In this
instance, p o v ert y and economic dep endence on Chinalco are among the main factors that
ha v e reignited this op eration as one with high a p oten tial for conflict ( T orrico , 2018 ).
On the one hand, the lac k of clarit y regarding t he conditions and emplo ymen t opp ortu-
nities of the new to wn brough t concerns regarding ho w b eneficial the new lo cation w as for
lo cal residen ts. In comparison with the old lo cation, p eople from the comm unit y no w liv e
farther a w a y from the main high w a y that connects them to other to wns, th us presen ting
c hallenges to lo cal en trepreneurs and w ork ers from other neigh b oring mining pro jects. On
the other hand, this relates to P eru’s ongoing efforts to fo cus on economic gro wth b y at-
tracting foreign capital, sometimes at the exp ense of also prioritizing so cial issues suc h as
the pro vision of b etter qualit y education, public services, and the div ersification of regional
economies ( Dargen t et al. , 2017 ). As also seen in the Marcona case, o v erreliance on the com-
panies for the pro vision of some public go o ds and services that w ould b e the resp onsibilit y
of lo cal go v ernmen ts has created a compan y-comm unit y dynamic that exp ects the in v esting
firm to fill in the gaps left b y lo cal leaders and p olicymak ers.
24
In this sense, altho ugh P eru
24
T o note, in T orrico’s piece ( 2018 ) ab out Moro co c ha, it is indicated that the lo cal go v ernmen t and the
p o lice force ha v e generally w ork ed and sided with Chinalco, esp ecially in terms of dealing with so cial tensions.
While it could b e argued that some of the residen ts of the old to wn are seeking comp ensation b ey ond what
186
has tak en steps in making impro v emen ts in some of its most imp ortan t economic sectors
to resp ond to mark et demands, to reassure in v estors, and to ensure the w elfare of the p op-
ulation, an ongoing c hallenge for P eruvian p olicymak ers is not only ho w to hold in v esting
firms accoun table, but to clarify what the exp ectations are for incoming foreign firms, the
comm unities, and the lo cal and national go v ernmen ts to o.
The mining pro ject of Las Bam bas is also another em blematic in v estmen t with Chi-
nese capital that has exp erienced lo cal opp osition since Glencore sold the pro ject to China
Minmetals (MMG) in 2014 ( El Comercio P erú , 2014b ). Lo cated in what is kno wn as the
“Corredor Minero del Sur” (Southern Mining Corridor), Las Bam bas b ecame the largest
mining in v estmen t in P eru with an estimated US$ 1 billion in v estmen t, according to up-
dated information published b y P eruvian outlets.
25
Although the compan y states that more
than 90 p ercen t of its w orkforce is P eruvian, the tensions with surrounding comm unities
include comp ensation demands from farmers due to the usage of their land, the relo cation of
comm unities, extortion allegations, and ev en requests to receiv e a larger share of the profits
( Gestion , 2019 ).
26
As exp ected, m ultiple m ulti-stak eholder negotiations ha v e tak en place
o v er the y ears with on-and-off so cial conflict, and most recen tly , MMG announced that it
w ould extend op erations in Las Bam bas un til 2040. A t a glance, MMG app ears to b e will-
ing to negotiate with the comm unities, but asymmetries in the access to legal resources b y
the compan y and b y the lo cal farmers highligh t the spaces where deep er reform (b ey ond
economies) is needed.
Then ho w do these cases signal P eru’s suc c essful engagemen t with China in the in v estmen t
realm? P eru’s mineral endo wmen ts are a k ey factor in making it an attractiv e destination for
FDI; ho w ev er, ev en with this comparativ e adv an tage, it do es not fully capture the t w o-w a y
in teraction and lessons on b oth sides. On China’s part, the p erformance of its companies
w as originally agreed up on ( San b orn and Chonn Ching , 2017 ), this case also underlines issues regarding lo cal
state and compan y capacities.
25
The op eration w as initially purc hased at US$ 5.85 billion.
26
Organizations suc h as SER VINDI and Conflictos Mineros ha v e traced most of these conflicts in P eru and
similar ones in the rest of the Latin America. In most cases, these are recurring across the region b et w een
lo c al comm unities, farmers, and the in v esting firm.
187
abroad matters, suc h that the reputation of these Chinese companies has influenced ho w
they are p erceiv ed and whether they will b e w ell-receiv ed in the coun tries they are planning
to in v est in. F or example, the early missteps b y Shougang Hierro P erú in Marcona only
confirmed the fears b y some P eruvians regarding the Chinese compan y’s noncompliance
with some lab or and en vironmen tal regulations. In Moro co c ha, Chinalco sho w ed that not all
Chinese companies are the same. In fact, in b oth cases, when prompted b y the corresp onding
regulatory authorities, these companies tend to comply . Precisely , the P eruvian exp erience
sho ws that, ev en in a coun try that still faces a m yriad of c hallenges, the prioritization of
some enforcemen t and accoun tabilit y mec hanisms can still mak e a difference.
In comparison with some cases of Chinese in v estmen t in Ecuador–a coun try that also has
a significan t indigenous p opulation and where so cial conflict caused b y so cio-en vironmen tal
concerns has also b een notew orth y–P eru’s dep endence on China has b een significan tly less,
for example. The pac kaging of the Co ca Co do Sinclair dam pro ject in to a deal that in v olv es
Chinese financing and co nstruction has placed E cuador in a difficul t p osition where i t app ears
to ha v e “lost” against China due to its increasing debt to the Asian coun try .
27
A ccording
to Jonas Bun te ( 2019 ), Ecuador’s plans to expand its h ydro p o w er sector and its p o or
credit conditions led its leadership to c ho ose Chinese financing for the pro ject despite its
initial rejection of the conditions presen ted b y the Chinese creditors. In this case, supp ort
from corp oratist groups for China’s financing influenced the final decision ( Bun te , 2019 ).
Also, the requiremen t of ha ving a Chinese compan y , Sinoh ydro, build the dam instead of
Ecuadorian firms w as actually view ed fa v orably due to Sinoh ydro’s building capacit y and
access to resources, whic h w as exp ected to b enefit Ecuadorian firms that w ould serv e as
sub con tractors.
I bring up this case b ecause, at first glance, it pain ts China as a dominan t actor that has
trapp ed Ecuador. Y et, b y p oin ting out the Ecuadorian leadership’s decision to c ho ose the
27
F or more details ab out the Co ca C o do Sinclair case, see the c hapter on Chinese in v estmen ts in Ecuador
b y P aula Garzón in Dussel P eters ( Dussel P eters et al. , 2018 ). Jonas Bun te ( Bun te , 2019 ) offers more
information regarding Chinese financing of this pro ject in his man uscript R aise the Debt–How Developing
Countries Cho ose their Cr e ditors .
188
Chinese alternativ e despite kno wledge of the p oten tial risks, I reiterate m y main argumen t
that, when in teracting with China, LA C coun tries do ha v e space to mak e c hoices. Of course,
there is alw a ys the c hance for miscalculations and unexp ected results; nev ertheless, it is in
this scenario where p olicymak ers in these coun tries are tested in ho w to resp ond.
28
P eru is still learning. China’s gro wing in terest in infrastructure in v estmen t pro jects and
P eru’s eagerness to attract suc h in v estmen ts has generated high exp ectations of ho w P eru
ma y b enefit, esp ecially as part of BRI. F or example, the construction of the Chanca y p ort
b y COSCO and the Chaglla h ydro electric p o w er plan t b y China Three Gorges Corp oration
are bringing a new set of issues for P eruvian p olicymak ers. F or one, additional financing
from China will b e required. Moreo v er, unlik e mining companies that ha v e b een op erating
in P eru since the 1990s, this is a new group of firms that are m uc h larger and that ma y
ha v e to face p oten tial so cial conflicts, div erse geographies and protected areas, and gro wing
p olitical discon ten t. Th us, the balancing act that P eruvian leaders had to p erform in the
last decade has b ecome more complicated.
Ho w ev er, this do es not undermine the progress that has b een ac hiev ed th us far. The
success in P eru’s in v estmen t exc hanges with China is not solely due to the n um b er of trans-
actions the coun try has receiv ed in comparison to its regional coun terparts. The inclusion of
differen t P eruvian stak eholders in the negotiation, preparation, construction, and op eration
of man y Chinese in v estmen t pro jects–alb eit sometimes b elatedly or ev en reluctan tly–sho ws
the lev erage P eruvians can ha v e when searc hing for foreign capital and resources. P eru is
not a p erfect mo del, but it is an example of ho w Chinese companies (and those from other
coun tries) can learn to w ork with lo cal actors as long as there are c hannels and structures
that facilitate this kind of in teraction.
28
Although outside the scop e of this dissertation, it is w orth men tioning that the pac kaging of Chinese
in v estmen t and loans is not particular to only Ecuador. China has similar practices in other regions, th us
raising questions regarding when and where China c ho oses to offer this kind of deal.
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Chapter 7
Building a Strategic P artnership with China
With the gro wth of China’s global influence, sc holars ha v e turned to the analysis of its
diplomatic partnerships and what they ma y mean or represen t. Some of the earliest researc h
in this area iden tified these partnership announcemen ts as a mec hanism for China to conduct
foreign p olicy and build a net w ork of partners in the in ternational comm unit y ( F eng and
Huang , 2014b ). Despite the lac k of clarit y of ho w eac h lab el is c hosen or what exactly
it ma y mean, these lab els app eared to b e assigned taking in to consideration the nature of
China’s relationship with a coun try and its o wn in terests in that particular relationship ( F eng
and Huang , 2014b ; Y ue , 2018 ). Other sc holars ha v e delv ed in to ho w a coun try’s economic,
ideological, and p olitical alignmen t with China ma y ha v e influenced the announcemen t of
a particular partnership ( Strüv er , 2014 ; Xu , 2016 ; F eng and Huang , 2014a ). Their findings
indicate that Chinese economic in terests and pursuits are influen tial in China’s diplomatic
goals and, more often than not, win-win co op eration and m utual collab oration tend to b e
the main themes of these partnership announcemen ts.
Recen t studies ha v e found China’s partnerships as an alternativ e to alliances ( Li and Y e ,
2019 ), whic h, in the fields of in ternational relations and in ternational securit y , are generally
asso ciated with the concept of balance of p o w er ( Morgen thau , 1948 ; W alt , 1985 ). When
applied to China, it sp ecifically refers to its relationship with the United States and whether
China’s net w ork of partners represen ts a c hallenge to U.S. global p o w er and influence, and
190
ho w the dynamics b et w een these t w o p o w erful coun tries ma y affect global stabilit y ( Gold-
stein , 2020 ; Ik en b erry , 2014 ). Ho w ev er, according to Li and Y e ( 2019 ), China has established
partnerships without necessarily searc hing for sp ecific t yp es of alignmen t. Instead, economic
co op eration and cult ural exc hange ha v e b een the principal fo cus in most partnerships. Some-
times, the inclusion of other areas has also v aried from coun try to coun try ( Li and Y e , 2019 ,
p. 70-71). This ec ho es earlier findings b y F eng and Huang ( 2014b ), Strüv er ( 2017 ), and
Y u e ( 2018 ), who emphasize the examination of the nature of China’s bilateral relationships,
the in terests b oth sides are pursuing, and the con text under whic h these partnerships are
generated.
Despite the lac k of partnership standardization, Li and Y e ( 2019 ) do highligh t that
these net w orks are not random. T w o factors are applicable to the Latin American and
the Caribb ean region: the usage of partnerships to alleviate pressure from the United States
and to supp ort China’s mo dernization. The former could b e asso ciated with calls for China
to build a sphere of influence in Latin America, but it is the searc h for economic co op eration
and resource accessibilit y that app ears to b e the main driv ers of China’s partnerships in
the region since 2000s. As explained b y Qu and Zhong ( 2018 ) in their analysis of China’s
foreign diplomacy to w ard the dev eloping coun tries, China collab orates with this group of
coun tries to pursue dev elopmen t in terests. Therefore, it is not surprising to observ e “m utual
dev elopmen t,” “win-win co op eration,” and “b eneficial dev elopmen t” emphasized in man y
partnership announcemen ts and do cumen ts.
Brazil w as the first coun try China established a strategic partnership with, in 1993. This
partnership w as arguably part of China’s effort to rebuild its in ternational image after the
1989 ev en ts in Tiananmen. As a result, this w ould fit in to the category of China trying to
gain supp ort in the dev eloping w orld. Y et Latin America did not see another partnership
un til 2001, when China announced its strategic partnership with V enezuela. A ccording to the
Chinese text of the partnership announcemen t with V enezuela, a notable common in terest
w as V enezuela’s p ositioning as the main re cipien t of Chinese in v estmen t in Latin America at
191
the time ( FMPR C , 2001 ), th us making this partnership one that China pursued for economic
purp oses. After the announcemen t of this partnershi p, a bilateral co op eration plan of ten
y ears w as also issued. After V enezuela, other coun tries lik e Mexico (2003) and Argen tina
(2004) joined in the ranks of b ecoming a strategic partner. In terestingly , while Argen tina’s
partnership announcemen t w as accompanied b y the coun try’s recognition of China as a
mark et econom y via a b ilateral memorandum on trade and in v estmen t co op eration, one
y ear after Mexico’s announcemen t, the coun tries declared that neither China nor Mexico
w ere considering the establishmen t of an FT A due to concerns regarding the dumping and
sm uggling of Chinese pro ducts in to the coun try ( FMPR C , 2004 ).
T able 7.1 is an extension of T able 3.4 in c hapter 3, whic h lists China’s partnerships
in Latin America. In this instance, it sho ws the more detailed dev elopmen t of China’s
partnerships with the coun tries China has had significan t in teractions with. Brazil, Chile,
and P eru are the only LA C coun tries that ha v e announced a new partnership, one that
app ears to b e an upgrade from a “comprehensiv e strategic partnership” with China, whic h
is arguably the highest lev el attained b y Latin American coun tries in the last t w en t y y ears.
These coun tries’ “deep comprehensiv e strategic partnership” has b een accompanied with the
announcemen t and/or signing of co op eration memoranda or join t collab oration in div erse
areas, including further in v estmen t opp ortunities, visa facilitation, join t researc h in sectors
of in terest (i.e., telecomm unications), and ev en topics concerning climate c hange (i.e., the
P aris A ccord).
With the exception of Costa Rica, whic h attained a strategic partnership in 2015 without
other accompan ying announcemen ts and ev en ts, most upgrades listed in T able 7.1 o ccurred
during the same y ear other deals w ere also announced, sometimes at the same time as the
partnership. F or example, Chile w as declared a comprehensiv e partner in 2004 and, in the
follo wing y ear, it signed a bilateral FT A with China. This w as also the case for P eru, whic h
b ecame a strategic partner in 2008, the same y ear when negotiations b egan for a bilateral
FT A . Moreo v er, Hu Jin tao–then presiden t of China–w as in vited to P eru to a visit that led
192
T able 7.1: Selected P artnerships with China in Latin America
Coun try Y ear P artnership
Argen tina
2004 战略伙伴关系 Strategic P artnership
2014 全面战略伙伴关系 Comprehensiv e Strategic P art-
nership
2015 加强全面战略伙伴关系 Enhanced Comprehensiv e Strate-
gic P artnership
Brazil
1993 战略伙伴关系 Strategic P artnership
2009 加强战略伙伴关系 Strengthened Strategic P artner-
ship
2012 全面战略伙伴关系 Comprehensiv e Strategic P art-
nership
2014 深化全面战略伙伴关系 Deep Comprehensiv e Strategic
P artnership
Chile
2004 全面合作伙伴 Comprehensiv e P artnership
2012 战略伙伴关系 Strategic P artnership
2016 全面战略伙伴关系 Comprehensiv e Strategic P art-
nership
2017 深化全面战略伙伴关系 Deep Comprehensiv e Strategic
P artnership
Costa Rica 2015 战略伙伴关系 Strategic P artnership
Mexico
2003 战略伙伴关系 Strategic P artnership
2013 全面战略伙伴关系 Comprehensiv e Strategic P art-
nership
P eru
2008 战略伙伴关系 Strategic P artnership
2013 全面战略伙伴关系 Comprehensiv e Strategic P art-
nership
2016 深化全面战略伙伴关系 Deep Comprehensiv e Strategic
P artnership
V enezuela
2001 战略伙伴关系 Strategic P artnership
2014 全面战略伙伴关系 Comprehensiv e Strategic P art-
nership
A uthor’s elab oration. Data from the Ministry of F oreign Affairs of the PR C (FMPR C),
F eng and Huang ( 2014b ), Li and Y e ( 2019 ), Strüv er ( 2017 ), Xu ( 2016 ), and Y ue ( 2018 ).
193
to the signing of a memorandum on financial co op eration and the expansion of the trade of
agricultural pro ducts (i.e., oranges and tangerines) to China. While Brazil b ecame a strategic
partner in 1990s, it w as not un til 2009 when b oth coun tries declared the strengthening of their
strategic partnership ( 加强 战 略 伙 伴 关 系 jiāqiáng zhànlüè h uŏbàn guānxì) and co op eration
agreemen ts on mining, renew able energy , and oil and gas w ere signed. A join t action plan
(2010-2014) w as added to prioritize co op eration in agriculture and tec hnology b et w een b oth
coun tries.
As a result, these partnerships do matter. Who, when, and what is announced is a go o d
indication of the tra jectory (or lac k thereof ) of a coun try’s ties with China. In spite of Mex-
ico’s strategic partnership announcemen t in 2005, the message of not pursuing an FT A with
China due to dumping concerns a y ear later is indicativ e of the tense economic relationship
b oth coun tries had b een exp eriencing since the mid-1990s and the p ossibilit y of China’s ef-
forts to ameliorate the situation with that partnership announcemen t. Although these lab els
are not en tirely conclusiv e, other LA C examples do suggest that these partnerships can b e
a diplomatic to ol that sho w cases a recipro cal relationship b et w een China and a coun try . In
other w ords, LA C coun tries are exp ected to resp ond in one w a y or another to the deals that
China offers and/or to recipro cate China’s diplomatic gestures. F or example, P eru receiv ed
its most recen t partnership lab el when then-Presiden t P edro P ablo Kuczynski c hose China as
its first in ternational visit after assuming the presidency in 2016. While it could not b e said
that the visit w as the main factor that led to P eru’s status upgrade, fieldw ork in terviews
highligh t this ev en t as an imp ortan t gesture that Chinese leaders to ok in to consideration
and recipro cated accordingly . It sho w ed that the new P eruvian leadership at the time w as
willing to collab orate with China (in terview SP , P eru, 2019).
By c ho osing a more flexible mec hanism to in teract with div erse gro ups of coun tries, China
has concen trated on building and renewing its relationships v ersus imp osing a set of rules to
gain co op eration with other coun tries ( My ers and Barrios , 2021 ; Strüv er , 2017 ). F or China’s
Latin American partners, it allo ws them to prioritize the areas in whic h they w an t to and
194
can collab orate with China. Although it is uncertain whether ha ving more partnership t yp es
is indicativ e of ha ving a b etter standing with China, eac h attained lev el certainly pro vides
an additional opp ortunit y to discuss the expansion and/or establishmen t of new deals.
7.1 Upgrading Diplomatic P artnerships with China
Throughout this man uscript, P eru has b een highligh ted as an example of success when
in teracting with China in the areas of trade and in v estmen t. The existence of a bilateral
FT A with China and its p osition as the second-largest destination of Chinese FDI in Latin
America certainly underlines P eru as an imp ortan t partner for China in the region. This
view is reinforced b y the differen t diplomatic partnerships it has also established with China.
In comparison to other coun tries in Latin America with a similar amoun t of partnerships, it
to ok eigh t y ears for P eru to progress from a strategic partnership to a deep comprehensiv e
strategic partnership. F or Brazil, t w o decades w ould pass for that dev elopmen t to tak e place
and o v er a decade for Chile. In the case of Argen tina, 11 y ears elapsed b et w een its status as a
strategic partner and the announcemen t of an enhanced comprehensiv e strategic partnership
with China (see T able 7.1). In terestingly , Ecuador b ecame a strategic partner in 2015 and,
in 2016, the coun try had announced its comprehensiv e strategic partnership with China.
A t first glance, Ecuador ma y seem to b e an un usual case. Ho w ev er, it is w orth p oin ting
out that in 2015, Ecuador w as the rotating c hair of CELA C and, as a result, it facilitated
the first China-CELA C F orum. In 2016, China’s presiden t, Xi Jinping, visited Ecuador–the
first time a Chinese presiden t had done so since the establishmen t of diplomatic relations
b et w een b oth coun tries–to comm unicate China’s supp ort of Ecuador’s presidency of the
G77 the follo wing y ear and to promote South-South co op eration ( Xinh ua , 2016 ). Y et, since
then, bilateral relations b et w een the t w o coun tries ha v e shifted to one of disenc han tmen t.
The financing and loan bundles Ecuador signed with China to increase basic infrastructure
in v estmen t ha v e transformed the small econom y in to China’s third-largest debtor in Latin
195
America, after V enezuela and Brazil ( Bun te , 2019 ; Gallagher and My ers , 2020 ). Difficulties
in pa ying China bac k ha v e led to the renegotiation and restructuring of its foreign debt to
alleviate the Ecuadorian econom y . As a result, it is not alw a ys the case that a strategic
partnership or a comprehensiv e strategic partnership with China can b e a guaran tee of
p ositiv e bilateral exc hanges–ev en if the upgrade b et w een lev els is fast.
Moreo v er, despite the initial motiv ation to con tin ue building rapp ort, the gradual dete-
rioration of bilateral ties b et w een China and Ecuador w as driv en b y p o or decision-making
and economic managemen t on the Ecuadorian side. On China’s part, it is clear that the
coun try w as in terested in expanding ties with the Andean coun try and it used its economic
capacit y to do so. A ccording to some sc holars, this usage of economics as a diplomatic to ol
can b e considered as part of China’s soft p o w er ( Aranda and V an de Maele , 2013 ; Ellis , 2009 ;
Urdinez et al. , 2016 ). Giv en that the ma jorit y of China’s diplomatic partnerships are with
dev eloping coun tries, China has relied on the theme of “m utual dev elopmen t” and, hence,
the pro vision of economic assistance and resources to build rapp ort in ternationally ( Qu and
Zhong , 2018 ). But as I also argue, ho w this rapp ort ev olv es also dep ends on what China’s
partners do to con tin ue mo ving forw ard or let the relationship stagnate. P eru has b een one
example of go o d and stable ties with China.
Putting things in con text, the establishmen t of P eru’s FT A with China represen ted a suc-
cess for P eruvians in the trade area. The institutionalization of P eru’s commercial exc hanges
with China w as indicativ e of their join t agreemen t and commitmen t to uphold in ternational
trade norms as mem b ers of the in ternational trade comm unit y . P articularly for P eru, this
FT A sho w ed the abilit y of its p olicymak ers to expand P eru’s trade net w orks globally . This
commercial commitmen t b et w een P eru and China w as reinforced b y P eru’s attainmen t of a
strategic partnership with China in 2008, whic h w as accompanied b y Xi Jinping’s visit to
P eru during the same y ear. This is not to sa y that the only or most imp ortan t diplomatic
in teractions b et w een P eru and China ha v e solely tak en place during this (or future) part-
nership announcemen ts. Y et the ev en ts that ha v e tak en place b efore or after underline the
196
sym b olic significance of this announcemen t in 2008 for b oth sides. This situation is not that
differen t from Chile’s, when the announcemen t of a comprehensiv e partnership also to ok
place during the y ear the coun try w as negotiating its FT A with China (2004).
The establishmen t of P eru’s next partnership lev el with China–comprehensiv e strategic
partnership–to ok place in 2013, almost fiv e y ears later. It is around this p erio d that bi-
lateral ties with China app eared to need a renew al giv en China’s economic slo wdo wn and
the upsurge of so cial conflicts in P eru in opp osition to imp ortan t mining pro jects–some of
whic h w ere Chinese ( Flannery , 2013 ). During this time, there w as gro wing opp osition to
the relo cation of the to wn of Moro co c ha as part of China’s in v estmen t in P eru’s largest
copp er-molyb den um mine, T oromo c ho; and with the exp ectation of more Chinese FDI in-
flo ws to P eru, the P eruvian and the Chinese leadership restated their commitmen t to m utual
collab oration and co op eration.
A ccording to do cumen ts from China’s Ministry of F oreign Affairs, 11 co op eration do cu-
men ts w ere signed along with the comprehensiv e strategic partnership ( FMPR C , nd ). These
co op eration do cumen ts included an agreemen t on economic and tec hnological co op eration,
an executiv e program that enhanced cultural exc hanges for the p erio d of 2013 to 2018, a
memorandum of co op eration in agriculture researc h and dev elopmen t, and a memorandum
of understanding on in ternational education co op eration. More imp ortan tly , the announce-
men t of these do cumen ts from China’s Ministry of F oreign Affairs explicitly men tioned the
imp ortance of T oromo c ho for the deep ening of China-P eru economic co op eration ( FMPR C ,
nd ).
It is also imp ortan t to note the similar circumstances of the partnership upgrades in
the same lev el for other Latin American coun tries. China’s announcemen t of Brazil’s com-
prehensiv e strategic partnership preceded P eru’s b y one y ear. In this instance, the Chi-
nese coun terpart recommended six areas of collab oration: the creation of new mark ets to
coun ter the financial crisis, energy and mineral resources, China’s s upp ort in the construc-
tion of energy and transp ortation infrastructure, trade in lo cal currencies, co op eration in
197
the space industry , and the deep ening of education exc hanges b et w een China and Brazil
through sc holarships and the creation of a Chinese culture cen ter in Brazil ( FMPR C , 2013 ).
F o r Argen tina, the announcemen t of its comprehensiv e strategic partnership with China in
2014 w as accompanied b y more than 20 trade and economic deals, including in v estmen t
in shipbuilding, railw a ys, and supp ort to build a n uclear plan t and h ydro electric dams in
San ta Cruz ( Xu , 2016 ). It could b e said that the imp ortance of these infrastructure pro jects
created the incen tiv es to reiterate the imp ortance of the bilateral ties b et w een Argen tina
and China. In the case of Chile, the coun try w as lab eled as one of China’s comprehensiv e
strategic partner in 2016, when China w as b eginning to deep en its economic collab orations
in the Latin American region to other areas. In this particular announcemen t, b oth coun-
tries issued a join t action plan and the China Construction Bank op ened its Chilean branc h
( FMPR C , 2016b ).
But to recall from the previous section, Ecuador’s comprehensiv e strategic partnership
did not app ear to bring as man y economic deals or co op eration agreemen ts. The announce-
men t of V enezuela’s comprehensiv e strategic partnership with China in 2014 also seemed to
exp erience a similar fate: what w as emphasized w as the celebration of the 40th anniv ersary
of the establishmen t of diplomatic relations b et w een V enezuela and China. But aside from
the more generic language of m utual supp ort and collab oration, it app ears that no other
additional deals w ere brough t up. Then, this could confirm that ev en if a coun try is “up-
graded,” what comes along with the upgrade can b e a go o d indication of the stage of its
relationship with China.
F urthermore, an imp ortan t dev elopmen t for Latin America is the establishmen t of a “deep
comprehensiv e strategic partnership” b et w een China and three coun tries: Brazil, Chile, and
P eru. While the text of the announcemen ts app ears to imply the furthering of the previous
partnership, it is notew orth y that only in P eru’s partnership announcemen t is it men tioned
that this is an effort to push for a new lev el of co op eration. As previously men tioned, this
partnership came ab out as P edro P ablo Kuczyinski c hose China as his first in ternational
198
visit as P eru’s newly elected presiden t in 2016. During the same p erio d, P eru, China, and
Brazil had started discussions regarding the construction of the In ter-Oceanic Railw a y , a
transcon tinen tal rail pro ject that ev en tually fell apart due to its so cio-en vironmen tal im-
pact. Brazil’s announcemen t of a deep comprehensiv e strategic partnership w as issued t w o
y ears prior, in 2014, and it w as accompanied b y 56 memoranda with a v ariet y of economic
deals and co op eration agreemen ts. Chile’s upgrade w as published in 2017–the most recen t
one in all three cases–and it included the promotion and expansion of in v estmen t deals,
scien tific collab oration, cultural exc hange, and other issues of m utual co op eration that ha v e
also b een comm unicated in the announcemen ts of its other t w o regional coun terparts ( FM-
PR C , 2014b , a , 2017b , a , 2016d , c ). One of the particularities of Chile’s announcemen t is the
emphasis of the upgrade of the Chile-China bilateral FT A. F or P eru, the optimization of its
o wn bilateral FT A with China b egan in 2019.
So what do es this mean? Comparativ ely sp eaking, all these coun tries are k ey partners
for China in the Latin American region. While the foundation of eac h bilateral relationship
has b een ro oted in trade and other economic exc hanges, the ev olution and expansion of these
coun tries’ ties with China, as sho wn through the c hanges of their diplomatic partnerships,
are indicativ e of t w o-w a y in teractions where China is not the sole main pla y er.
7.2 Successful to What Exten t?
In the analysis of ho w China engages with other coun tries, China has t ypically b een p ortra y ed
as one with v ery strong economic and financial capacit y , and with a gro wing in terest to
expand globally–sometimes, an expansion that can b e seen as more costly for the coun try’s
in ternational partners. In Latin America, co ncerns ab out dep endency , neo colonialism, and
imp erialism ha v e often pain ted China as an opp ortunit y that should b e considered with
caution ( Bárcena , 2015 ; Carv alho , 2019 ; Devlin et al. , 2007 ; Dussel P eters , 2019b ; Ellis ,
2011 ; Gallagher and P orzecanski , 2010 ; Gallagher , 2010 , 2016 ; K otsc h w ar , 2014 ; My ers and
199
Wise , 2017 ; Stallings , 2020 ; V adell , 2019 ; Wise , 2020 ). T o reiterate, China has b ecome the
top commercial partner in the region’s main economies, with asymmetric exc hanges that
ha v e relied on the exp ort of natural resources and commo dities from Latin America, and the
imp ort of man ufactured go o ds from China ( Bárcena , 2015 ; CEP AL , 2010 , 2011 ; Gallagher
and P orzecanski , 2010 ).
Although an understanding of China’s in terests is imp ortan t, m y dissertation has fo-
cused more on ho w Latin American coun tries, and more sp ecifically P eru, ha v e resp onded to
China’s increased in terest and influence giv en the conditions of these LA C coun tries and the
ob jectiv es they are pursuing vis-à-vis China. As I ha v e explained in early c hapters, not ev ery
Latin American coun try has dev elop ed close ties with China. Their size, natural endo wmen t,
as w ell as eac h coun try’s op enness (or cautious approac h) to w ard China has shap ed eac h
bilateral relationship o v er time. Argen tina, Brazil, Chile, Costa Rica, Ecuador, Mexico, and
P eru are among the coun tries China has had the most con tact with in the region. In other
w ords, not all in teractions ha v e ev olv ed with the same degree of rapp ort.
Using the areas of trade, in v estmen t, and diplomatic partnerships, the p erformance of
these coun tries has v aried with only a n um b er of them p erforming relativ ely w ell in all three
areas. These parameters are not m utually exclusiv e and they ma y not necessarily guaran tee
go o d ties with China. Ho w ev er, they pro vide a b etter understanding of what some of these
LA C coun tries prioritize or are in terested in when in teracting with China. Using a mo dified
v ersion of T able 3.1 from c hapter 3, T able 7.2 sho ws that, not surprisingly , trade exc hanges
with China are the main priorit y for these coun tries, th us resulting in China’s p ositioning
as a top trade partner. Whether China is a top exp ort or imp ort partner, or b oth, most
LA C economies ha v e ties with China in this regard. Among these economies, the Chilean,
P eruvian, and Costa Rican cases are the only instances where trade relations w ere further
dev elop ed through the establishmen t o f a bilateral trade agreemen t. Y et, as men tioned in
c hapters 3 and 5, only Chile and P eru ha v e main tained more activ e trade exc hanges b y
seeking nic he mark ets and adding v alue to pro ducts within categories to expand their sale.
200
T able 7.2: Comparing the Degrees of Success of Selected LA C Coun tries with China
P erformance A ccording to Areas of Success
Coun try T rade In v estmen t P artnership
Argen tina
V ery go o d: China as
top imp ort and exp ort
partner
Go o d: 4th-highest
destination of Chinese
FDI
High: Enhanced com-
prehensiv e strategic
partnership
Brazil
V ery go o d: China as
top imp ort and exp ort
partner
High: 1st-highest des-
tination of Chinese
FDI
High: Deep compre-
hensiv e strategic part-
nership
Chile
High: FT A in 2005
V ery go o d: 3rd-
highest destination of
Chinese FDI
High: Deep compre-
hensiv e strategic part-
nership
Costa Rica
High/Lo w: FT A in
2010; y et stagnation
p ost-FT A
Go o d: Limited but
ongoing in v estmen ts
Go o d: Strategic part-
nership
Ecuador
V ery go o d: China as
top imp ort and exp ort
partner
Go o d: Energy in v est-
men ts
V ery go o d: Compre-
hensiv e strategic part-
nership
Mexico
Lo w: China as top im-
p ort partner
Go o d: Limited in v est-
men ts
V ery go o d: Compre-
hensiv e strategic part-
nership
P eru High: FT A in 2009
High: 2nd-highest
destination of Chinese
FDI in LA C
High: Deep compre-
hensiv e strategic part-
nership
Sources: A uthor’s elab oration based on data from WITS (2000-2018), fDi In telligence,
Red ALC-China, Dussel ( 2020b ), Strüv er ( 2017 ), Xu ( 2016 ), Y u ( 2015 ), Y ue ( 2018 ),
Zhongping and Jing ( 2014a ).
201
In terms of in v estmen ts, the p erformances of LA C coun tries are more v aried. While
eac h coun try’s natural endo wmen ts do pla y an imp ortan t role in ho w attractiv e they are to
Chinese FDI, the managemen t of these in v estmen ts are also represen tativ e of these coun tries’
institutional strength and capacit y to demand accoun tabilit y and transparency from Chinese
firms. Brazil’s p ositioning as the main destination of Chinese FDI in the region is a reflection
of the coun try’s economic size and div ersit y in natural resources, whic h ha v e allo w ed Brazil
to expand and attract in v estors to its energy sector, for example. But as p osited in Carol
Wise’s Dr agonomics , Brazil’s institutional stagnation c hallenges the exten t to whic h the
coun try ma y con tin ue to b enefit from China’s in v estmen ts. In other w ords, this is not a
question of whether the inflo w of Chinese capital to Brazil will come to a halt. Instead, what
remains to b e seen is ho w the b enefits will tric kle do wn to Brazilians.
Similar concerns ha v e also b een raised in P eru, Latin America’s second-highest destina-
tion of Chinese FDI. In c hapter 6, I pro vided an o v erview of a series of reforms the P eruvian
state implemen ted to 1) attract foreign in v estmen t, and 2) address so cio-en vironmen tal con-
cerns that ha v e emerged as a result of gro wing FDI in the extractiv e industries. While I did
highligh t P eru’s efforts to increase engagemen t with m ulti-lev el stak eholders in in v estmen t
transactions, these efforts ha v e not completely solv ed the w eaknesses of the P eruvian state.
T o b e clear, corruption, bureaucratic red tap e, and lac k of national decen tralization are still
some of the issues that hinder P eru’s dev elopmen t. Nev ertheless, b y cen tering on ho w P e-
ruvian leaders ha v e engaged with Chinese in v estmen t, I do underline the efforts to demand
firms’ greater compliance and transparency . This is relev an t as Chinese in v estmen t has con-
tin ued to gro w w orldwide amid concerns of noncompliance and en vironmen tal degradation.
F u rthermore, b y con trasting the p erformances of Shougang, Chinalco, and MMG in P eru, I
note the differences in firms’ b eha vior and ho w they can still meet in ternational standards
as long as the host coun try generates the p olicies and structures to mak e suc h demands.
Finally , the sym b olic nature of China’s diplomatic partnerships is not lost to Latin Amer-
ican states. In comparison to the 1990s, the m ultiple bilateral visits b et w een Chinese and
202
Latin American leaders are indicativ e of b oth sides’ in terest increasing co op eration despite
the negativ e atten tion to w ard increased Chinese engagemen t in the region, esp ecially b y the
United States.
1
Y et not all coun tries ha v e succeeded in main taining and/or resp onding to
China’s in terest. Argen tina, Brazil, Chile, and P eru are the coun tries that ha v e managed
to dev elop differen t lev els of diplomatic partnerships with China o v er the y ears (T able 7.1)
and obtain additional co op eration deals b et w een eac h lev el. Although it is not clear the
exten t to whic h these deals w ere implemen ted or completed, the main tak ea w a y is that these
partnerships ha v e help ed to main tain China’s engagemen t with coun tries in the region.
Then, when comparing the LA C coun tries China engages with the most using these
three issue-areas, P eru has sho wn a high p erformance in all three (T able 7.2). Although P eru
stands with Chile and Costa Rica, small states that ha v e succeeded in institutionalizing their
commercial ties with China, of the three coun tries P eru has attracted m uc h higher lev els of
Chinese FDI and cross-P acific exc hanges. Moreo v er, lik e Chile, P eru’s abundance of mining
resources has b een the main basis for a strong Sino-P eruvian economic relationship. But P eru
also demonstrates that a small state can o v ercome asymmetric in teractions with a b ehemoth
lik e China b y follo wing institutional norms that target greater domestic comp etition, uphold
in ternational trade standards, and demand increased en vironmen tal safeguards. Giv en P eru’s
past history , this is not a scenario that w as though t p ossible three decades ago.
P eru’s reinsertion in to the global econom y in the 1990s and its ongoing efforts in ex-
panding its in ternational mark ets p oin t to a coun try that has tak en a more pragmatic and
flexible approac h to meet its economic targets. By negotiating a free trade agreemen t with
China and managing ma jor in v estmen t exc hanges with Chinese firms, P eru has sho w cased
its o wn strategic economic statecraft instead of falling victim to its reliance on China’s re-
source in terests, as some dep endency theorists w ould ha v e exp ected. Instead, P eru has found
areas of expansion to con tin ue dev eloping its ties with China. P eru has y et to address other
1
Alb eit outside the scop e of m y analysis here, the lac k of U.S. foreign p olicy to w ard the region during
the last decade ga v e China the opp ortunit y to expand and deep en its influence. As it stands, a renew al of
U.S.-Latin American ties is needed, but it is one that should fo cus not on China’s con tainmen t in the region.
Instead, it should b e a strategy that includes China as a significan t new pla y er.
203
concerning issues at the domestic lev el, but in terms of facing a p o w erful coun terpart lik e
China, as it has for the last thirt y y ears, comparativ ely sp eaking, P eru has managed to hold
its o wn.
7.3 Existing Issues and F uture Researc h
P eru’s economic p erformance is w orth noting. Ho w ev er, I am a w are of the limitations of
the presen t analysis. T o clarify , I ha v e emphasized P eru’s economic p erformance and the
strengthening of its economic institutions o v er time giv en the nature of the coun try’s rela-
tionship with China–one that is founded on trade and gro wing in v estmen t exc hanges. F rom a
macro economic p ersp ectiv e, P eru has b een successful in stabilizing its econom y and restoring
its gro wth tra jectory ( San tos and W erner , 2015 ). Ho w ev er, the coun try’s curren t p olitical
crisis and increased so cial conflicts raise questions ab out the dev elopmen t and strength of
other state and p olitical institutions ( Dargen t et al. , 2017 ). After all, t w o of P eru’s most
recen t presiden ts and congressional represen tativ es ha v e b een in v olv ed in corruption scan-
dals that ha v e called for their imp eac hmen t and ab dication ( El Comercio , 2019 ; Jaquette and
Lo w en thal , 2017 ). Y et P eru’s abilit y to reb ound and con tin ue with its economic path in spite
of these p olitical c hallenges underline the solidit y of its economic institutions ( A quino , 2019 ;
Barria , 2018 ). The question no w is ho w the P eruvian state can adapt its curren t economic
mo del b y also addressing and prioritizing inequalit y , education, and health issues ( Dargen t
et al. , 2017 ; In ternational Monetary F und , 2017 ; San tos and W erner , 2015 ; Jaquette and
Lo w en thal , 2017 ).
Relatedly , while I pro vided some sp ecific case comparisons to con trast P eru’s in terac-
tions with China with those of its regional coun terparts, it is relev an t to further examine
the cases in whic h Latin American leaders had to curtail their engagemen ts with China–or
more sp ecifically , the instances in whic h coun tries ha v e tak en a more cautious approac h. As
sho wn in Ecuador, the coun try’s high indebtedness to China has demanded a redirection
204
of its foreign economic p olicy to w ard the coun try and a call for supp ort from the W estern
institutions Ecuador once rejected. Some factors asso ciated with this outcome include bad
decision-making and mismanagemen t b y Ecuadorian leaders. China’s offering of pac kaged
in v estmen t and financing deals has b ecome increasingly attractiv e in the dev eloping w orld–
ev en more so since the launc hing of BRI. These deals can arguably offer more maneuv ering
space for coun tries that ha v e struggled to meet the conditionalit y imp osed b y W estern fi-
nancing institutions ( Bun te , 2019 ). Y et not all coun tries ha v e tak en the plunge and some
of those that ha v e done so ha v e struggled to pa y bac k to Chinese creditors. In this sense,
to what exten t are these c hoices driv en b y the scarcit y of options or, on the con trary , are
China’s offers comparativ ely more attractiv e?
Finally , the United States has b een Latin America’s long standing most p o w erful partner.
Ho w ev er, China’s incr eased influence in the region has called for the renew al and revision
of U.S. foreign p olicy to w ard the region. Whereas recen t U.S. administrations ha v e fo cused
on China’s con tainmen t, suc h an approac h migh t do more harm than go o d. My fieldw ork
in terviews with former go v ernmen t officials and business represen tativ es do indicate that
increased exc hanges with China do not necessarily represen t reduced in terest in the United
States. Instead, coun tries seek to maximize the alternativ es they ha v e, suc h that this do es
not need to b e a zero-sum scenario. In other w ords, what w ould b e needed is a revised U.S.
strategy that includes China as a new actor in the region.
205
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225
Abstract (if available)
Abstract
This dissertation focuses on China's rapid emergence as a main economic player in Latin America in the 21st century and how it has impacted smaller economies in the region. In my analysis, I show that, contrary to conventional narratives that characterize these smaller countries as passive players when engaging in asymmetric exchanges with an economic behemoth like China, they can actually succeed in establishing viable working relationships and beneficial deals with their more powerful counterparts. Using a case study of the Peru-China relationship, I demonstrate that Peru has been successful in overcoming its asymmetries with China by adhering to institutional norms that have been created to respond to global markets. While Peru's abundance of agricultural and mining resources has been the basis for its strong Sino-Peruvian economic relationship, Peru's negotiation of a bilateral free trade agreement with China and its higher levels of Chinese foreign investment are indicative of the country's own experience in effectively coping with major international economic changes in the last two decades, which has demanded policy learning, flexibility, and adaptability. In other words, Peru's ability to navigate its exchanges with China was already supported by economic structures that were created for the country's insertion into international markets.
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Asset Metadata
Creator
Chonn Ching, Victoria
(author)
Core Title
Economic policy-making in a changing environment: the politics of success in Peru vis-à-vis China
School
College of Letters, Arts and Sciences
Degree
Doctor of Philosophy
Degree Program
Political Science and International Relations
Publication Date
05/03/2021
Defense Date
03/08/2021
Publisher
University of Southern California
(original),
University of Southern California. Libraries
(digital)
Tag
china,China-LAC,China-Peru,dependency,Economic development,economic policy making,investment,Latin America,OAI-PMH Harvest,Peru,strategic partnerships,trade
Language
English
Contributor
Electronically uploaded by the author
(provenance)
Advisor
Wise, Carol (
committee chair
), Aizenman, Joshua (
committee member
), Munck, Gerardo (
committee member
), Nugent, Jeff (
committee member
)
Creator Email
chonnchi@usc.edu,vichonn@gmail.com
Permanent Link (DOI)
https://doi.org/10.25549/usctheses-c89-459223
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UC11668452
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etd-ChonnChing-9584.pdf (filename),usctheses-c89-459223 (legacy record id)
Legacy Identifier
etd-ChonnChing-9584.pdf
Dmrecord
459223
Document Type
Dissertation
Rights
Chonn Ching, Victoria
Type
texts
Source
University of Southern California
(contributing entity),
University of Southern California Dissertations and Theses
(collection)
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The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...
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Repository Location
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Tags
China-LAC
China-Peru
dependency
economic policy making
investment
strategic partnerships