Venezuela has announced a further round of multi-billion loan-for-oil deals with Chinese state-owned companies, deepening their trade relationship and raising concerns that the South American nation is becoming too dependent on the world’s second-largest economy.
President Hugo Chavez announced on state TV last week that Chinese financial conglomerate CITIC Group will extend a $4 billion credit to fund the construction of 20,000 homes across the country, in return for which CITIC and Venezuelan state oil firm PDVSA will jointly develop and operate mature crude oil fields in the country.
Venezuela’s executive office announced on March 25 that it expects to sign two loan agreements with China totalling $8 billion “in the next few weeks”. And trade minister Edmeé Betancourt told local media that these loans would be “paid for with oil shipments”.
The deals come days after Chavez announced that he hopes to export 1 million barrels of oil per day to China within the next three years, up from 400,000 barrels per day at present.
The Venezuelan government estimates that Chinese state-owned institutions have extended $28 billion in loans to Venezuela over the past 12 months, in return for which China has become far and away the largest export market for Venezuelan oil. These loans have been used to finance projects ranging from housing to infrastructure.
Leonardo Vera, economics professor at the Federal University of Venezuela, told Emerging Markets that, in addition to providing financing, Chinese companies have also been managing projects and importing workers.
Chinese companies are also providing consumer goods to the government-run supermarket chain Supermercado Bicentenario on a tariff-free basis, Vera said. Chinese car and electronics manufacturers are also rapidly gaining market share in the country.
Vera suggested that Chinese companies were getting “many preferences” in their dealings with Venezuela. “Venezuela needs Chinese investment, so China has lots of bargaining power,” he said.
President Chavez has presented Chinese investment in the region as a manifestation of “south-south” trade ties, ending Latin America’s traditional dependence on the USA.
But Michal Meidan, a China analyst at Eurasia Group, believes that the Chinese see Venezuelan loan-for-oil deals in a purely economic light. “The Chinese look at Chavez with distrust. They are not bound or committed by what he’s saying,” she said. From China’s standpoint, the Venezuelan deals provide significant volumes of oil and, some observers believe, preferential pricing.
Kevin Gallagher, associate professor of international relations at Boston University, who published a book on Chinese trade and investment in Latin America last year, warned that the massive influx of Chinese commodity-driven investment risked deepening the region’s overreliance on commodity exports.
“It could exacerbate the region’s resource curse,” he told Emerging Markets.