Seventy kilometers north of Lima, the gleaming new Port of Chancay is being put through its paces. This is South America’s first fully automated and intelligent port facility, and it is set to take trade ties between Asia and Latin America into the 21st century.
The port, a US$1.4 billion investment by Chinese logistics giant Cosco Shipping Ports and Peruvian mining company Volcan Compañía Minera, will soon be able to handle up to four vessels at a time, each carrying up to 18,000 20-foot containers. This will allow goods to flow directly across the Pacific (rather than via Mexico or the United States), reducing sailing times by 10 to 12 days and slashing shipping costs by up to 20%.
When giving the port its official launch last November, Chinese President Xi Jinping said Chancay represented a new Inca Trail across the Pacific that would boost prosperity on both sides of the ocean.
His expectation is shared. “Not only will we be able to export more to China of what we already do but also other products we don’t yet export because it’s going to be cheaper,” says Carlos Aquino, an Asian economies specialist at the National University of San Marcos in Lima.
Costco and Volcan are already studying a $2.2 billion expansion that would add 11 more docking sites. This could be completed by 2032.
With the completion of cross-continent road and rail links to the port, authorities expect Chancay to quickly begin handling exports and imports not just along South America’s Pacific Coast but also shipments of beef, soy and wheat from Argentina, Brazil and Paraguay across the Pacific to China.
BUILDING TIES
Chancay is just one of the latest signs of the growing trade between China and Latin America. It hit $500 billion last year, up tenfold from two decades earlier. As in previous centuries, raw materials have dominated the export flow, from Brazilian iron ore to Chilean copper and Venezuelan oil, while cars, clothes and electronics have flowed the other way.
“We all knew China was going to become a major economic power, but this has exceeded all our forecasts,” says Aquino, who has been studying Asia for the last four decades.
Today the relationship encompasses not just trade but also investment and infrastructure spending. China’s huge expansion has had massive benefits for Latin America. One study by the National Autonomous University of Mexico found that roughly one in six of the jobs created in Latin America between 1995 and 2021 can be attributed to Chinese trade and investment.
Enrique Dussel Peters, an economist and one of the report’s authors, says, “Imagine a day without China. No shoes on our feet, no underwear, no mobile cell phones, and our airports in disarray. It would be tricky.”
Despite this unprecedented growth, China is still a long way from dominating the region, he notes. Trade across the Pacific still accounts for less than 15% of Latin America’s foreign trade, and 14 countries have not received any Chinese investment in infrastructure.
Steady growth
Aquino also says there is plenty of room for growth. “China is clearly to remain the world’s factory for the next 10, 15 years,” he says. “No one is producing everything they can.”
COZYING UP AGAIN
Two years ago, fears that China’s protracted exit from the COVID-19 pandemic and growing financial difficulties could spell headwinds for Latin America proved overdone.
Now as US President Donald Trump tries to remake the global trading system with punishing tariffs, countries in Latin America are turning again to China.
Countervailing Chinese tariffs on US farm exports should open opportunities for Argentine and Brazilian farmers.
“It’s a very good opportunity for some Latin American countries right now to do a great deal with China,” says Ricardo Hammoud, an economist at Ibmec, a Brazilian business school.
This is happening. In May, the presidents of Brazil, Chile and Colombia led large delegations to Beijing for the China-CELAC Forum, a dialogue between China and Latin American and Caribbean countries. The presidents sought promises of increased trade and much-needed investment in not only energy and transport infrastructure but also more advanced industries like manufacturing.
Chinese carmakers are already lining up to build manufacturing plants in Brazil and Mexico to serve these markets, the two largest and most populated economies in the region at more than 212 million and 130 million people, respectively. Using its lithium resources as bait, Chile has sought to attract the Chinese manufacturers BYD and Tsingshan to invest in battery production, although the slump in lithium prices appears to have scuppered the plan for now.
MURMURS OF DISCONTENT
But not everyone is happy with China’s growing economic presence in Latin America.
Washington is particularly worried that China’s economic reach could soon have strategic implications as relations between the world’s two superpowers deteriorate. Indeed, the US military brass have warned that Chancay could soon become an unofficial base for the Chinese navy, similar to those that have appeared in Africa and Asia.
Meanwhile, the Chilean government has suspended a deal between a local university and the Chinese Academy of Sciences to build a high-powered observatory in the Atacama Desert that Washington says could be used to track orbiting satellites.
“Geopolitics will play an increasingly central role in the nature of these relationships due to the strategic rivalry between China and the United States,” predicts Jorge Sahd, director of the International Studies Center at the Pontifical Catholic University of Chile.
The fear is that Latin American governments will increasingly have to choose between angering one side or the other, balancing the economic and geopolitical costs and risks. In the worst case scenario, if the new Cold War suddenly turned hot, such as with a military conflict over Taiwan, Latin American countries could see their exports of raw materials to China blockaded by the United States, unleashing devastating economic consequences.
“Our countries are not prepared politically or institutionally to navigate these waters,” says Sahd.
The impacts have been limited so far. In 2019, following warnings from then US Secretary of State Mike Pompeo, Chile rejected a proposal by the Chinese telecommunications firm Huawei to build a direct fiber-optic link across the Pacific. Chile opted instead for one that went via Australia and New Zealand, both US allies.
Some linked that decision to Chinese custom inspections of Chilean cherries the following year that caused huge losses for exporters.
But the move might have paid off. The US tech giants Amazon, Google and Microsoft are planning to invest billions of dollars in data centers in Chile over the next decade thanks to its world-class information technology infrastructure and undersea links.
But as global geopolitical tensions grow, many see Washington’s ability to influence Latin American governments as limited.
“The carrot is missing,” notes Sahd. “Without a strategy that combines economic incentives with a clear value proposition, it is likely that the efforts of the United States to stop the expansion of China face significant difficulties.”
The US’ strategy so far has largely consisted of stark warnings about the threat that Chinese influence represents to prosperity and democracy in the region. Officials and think tanks frequently point to the dire straits that have befallen countries like Sri Lanka and Venezuela after straying too far into China’s orbit. But given the fiscal and social pressures most governments in the region face, these admonishments cannot compare with the riches that Beijing can offer.
“Latin America needs markets and Latin America needs investment,” says Aquino, “and the US can’t offer either of them.” LF