New Developments inPRC Engagement with Latin America

R. Evan EllisStrategic Studies Institute, U.S. Army War College

Presentation for theHudson Institute

Washington D.C.18 October, 2017

Phases of PRC-Latin AmericaEngagement

Exponentially Expanding Trade

Growing Physical Presence

Economic Adjustment and New Pragmatism

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

PRC

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With more Chinese companies and personnel in the region, PRC is driven to become more interested in the conditions and internal affairs of the region

$106B PRC to LAC 2010-14?

$813B PRC SWF$3.1T FOREX Res.

PRC Objectives in Latin America

• Principally economic objectives to advance rise/security of the PRC Pres. Xi July 2014 1+3+6 framework, Nov 2016 PRC-LAC White Paper Access to:

o Commoditieso Foodo Markets (goods + services)o Technology

• But also Strategic Shaping Multipolarity + Web of Friendships (7 “strategic partnerships” / 6

“comprehensive”—Important changes Fall 2016) PRC style Multilateralism (CELAC v OAS, FTAA-P, BRICS+, AIIB/OBOR) Change to International Financial Framework (RMB in IMF reserve basket,

use in LAC transactions, IDB partnerships ) Cautious development of conflict options if power transition cannot be

conducted “peacefully”?o Coalition formation, intel, deployment, sustainment, move to bases in

region if major hostilitiesFor more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

• Accelerating since 2009, 2016• Different Sectors, each with own dynamics

• Mining and Petroleum• Agriculture / Fishing / Lumber• Construction• Manufacturing and Retail• Telecom, Banking, other Services

• Importance of local partners, minority shares, service companies

Physical Presence ofChinese Companies in the Region

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

$86B+ in sunk investment

25% Peru mining25% Ecuadoran oil

via Chinese companies

• How will PRC use its “soft power”? • Different perspectives b/w MOFCOM, MFA, MINDEF, etc

Recent Trends: Takeoff in Brazil

87 projects for $46.8B: ($19B since 2015)• Electricity

• SPIC: São Simão, Pacific Hydro ($2.5B), Acq. Of CEMIG stake in San Antonio?• State Grid: Belo Monte approved ($3.5B), Acq. Of CPFL ($10.8B) • China Three Gorges Acq. of Duke Energy ($1B)• CNNC completion of Angra 3 nuclear project w. Electrobras?

• Logistics:• CCCC: Babitonga Bulk Terminal (São Francisco do Sul) + 2016 agreement WPR

Participacoes ($700M--São Luis Maranhao)• CMPort Acq. of TCP Participações ($922M)Paranagua Container Tmnl• HNA stake in Rio (Galeão) Apt; E-W Integration Railway? (Porto do Sul),

• Agriculture:• Pengxin 2016 Acq Fiagril ($290M), Belagricola ($253M) • CITIC buys Dow Agro Sciences ($1.1B) • COFCO to buy Revati sugar refinery (Renuka) in São Paolo

• Telecom: China Mobile offer for bankrupt Oi, Huawei, Unicom transatlantic cable• Medicine: China Meheco + CDB in Ceará: $4B in facilities +equipment• Finance: CCB, ICBC, FOSUN buys Torre Sucupira in Sao Paolo ($140m)

• Brazil-China fund ($20B--May 17), $30B swap, $10B CDB, Banco do Brasil?For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

Recent Trends in PRC Projectsin Latin America (2)

↑ Clean Energy: (loans, PRC labor, components, local partner)• Nuclear (Angra 3 + Atucha), Hydro (San Antonio, São Simao, Pacific Hydro, Rositas

(C3G, CWE), Irivizu (Sinohydro-Cochabamba), Chaglla (OdebrechtCT3-Huanuco $1.4B), Sta. Cruz river AR (Ghezouba), Coca Coda Sinclair, Patucha III, Aqua Zarca); Solar (Chile China Sky Solar ($1B)), Wind.

Petroleum: Diversification beyond Venezuela/Ecuador• Peru (CNPC $2B inv.); Mexico (CNODC Perdido blocks); Brazil (Petrobras-CNPC

Strategic Partnership); Argentina (Bridas+PAE in Vaca Muerte); Caribbean (Curacao Refinery: $1.5B Guangdong Zhenrong)

Logistics: Renewed advances after Hutchison “stall”/Manta…but mostly Brazil• Brazil (CCCC: São Francisco do Sul, São Luis Maranhao; CMPort: Paranagua); Panama

(China Landbridge: Margarita Island)Construction: Broadening beyond ALBA: ↑ Sophistication, ↑ own equity capital• OdebrechtChaglla (Sinohydro), Galeão (HNA) Magdalena R. (Sinohydro)?• Public-Pvt Partnerships (Santiago roads, 4G (Sinohydro) in COL, JAM N-S Hwy)Manuacturing: Problems w. CKD factories in Brazil…but progress in smaller market countries (BYD, JAC Quito, Foton Bogota)Banking: ↑Branch banking: ICBC (Brazil, Argentina, Mexico, Peru), CCB (Brazil)Renewed Diplomatic Battle: (GambiaSao TomePanama…Who Next?)• Wang Yi visit to PA, CR, CU; • Panama advances: Margarita Is. Port; Logistics; Huawei hub, Confucius Ins., FTA/MFN?

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

Types of DifficultiesObstacles to entry

• Resistance to mergers and acquisitions• PAE, Standard Bank, Barra

• Winning competitive public bids• Approval of government projects

• Rio Blanco, Chone, Dragon MartOperational challenges

• Relations with the local labor force contratistas• Shougang, China Harbour

• Relations with local authorities• Guyana (Bai Shan Lin), Venezuela, Ecuador, Bolivia

• Resistance from environmentalists, local communities, indigenous groups and others affected by the projects• Tarapoa, Orellana, Las Bambas, Rio Blanco, Puebla

• Challenges from crime and insecurity• Huawei and Great Wall in Colombia, robbery in Venezuela

• Differences in capabilities among Chinese companies in managing challenges

• Different perspectives between MOFCOM, MFA, MINDEF, etc

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

Cautiously expanding in nature and scope MINUSTAH Angel de la Paz Peace Ark” hospital ship (2x)

• Harmony 2015: Peru, Barbados, Grenada

Increasing Sophistication ofExercises and Activities in the Region

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Exercises w Chile, Brazil, Argentina–Dec ‘13 20th Naval Escort TF – Cuba (Jan ‘16)

Explicit role for Mil-Mil + defending overseas economic interests in 2015 PRC

Defense Strategy White Paper

Military Education: Defense Studies Institute of NDU (Changping) PLA Navy, Army Command Schools

(Nanjing) Special forces education (Shijiazhuang) Military Academy (Beijing)

Technical Training in the PRC: Pilots, mechanics, cyber, IT, satellites

PLA to LATAM for tactical training Manaus (riverine, jungle tng),

Tolemaida (Demining & Lanceros (lite) courses)

Expansion ofMilitary Exchanges, PME & Training

Relationship building + capabilitiesfor future global operations

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

Increasing Sophistication ofMilitary Engagement – Arms Sales

• ↑ value-added chain / Venezuela as a launching point• Sophistication of arms companies: Offsets + Contesting procurements

+ presence at shows: LAAD, FIDAE, SITDEF, Exponaval Chile (2) For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil 43

• Venezuela: K-8s [6 more],L-15s?, Y-8s, Y-12s; APCs, (VN-1,VN-16, VN-4 (to GNB)), HJ-730 Anti-tank, C5/LM3; Z-9C ASW helos, SR-5 MLRS, SM-4 SP mortars, JYL-1 Radars

• Ecuador: 10,000 AK-47s, 3 patrol boats, previously JYL-2 Radars (CETC $280M lawsuit), MA-60s

• Bolivia: 31 armored vehicles (Jul ‘16), Z-9 helos (but dissatisfaction), K-8s, MA-60s, busses, trucks…

• Peru: 40 Type 90B MLRS, WMZ-551 APCs + trucks (Beiben, Dong Feng, Shaanxy)

• Trinidad and Tobago: OPV• Uruguay: MilCon donation; OPVs, Z-9s / L-15s?• Guyana: Tng, N-L,K-8, 31 pcs of constn equip. (Apr ‘17)• Colombia + Costa Rica: Y-12s

Deepening of Activities inTelecommunications & Space

• Advance of Huawei, ZTE in commercial products + contracts for 3G/4G infrastructure

• Including CENTAM, Caribbean, Mexico?• Xinwei/CooTel mobile net in NI [$200M]

• Surveillance systems: ECU-911, Bol-110, etc.• Brazil

• 4 Satellites (CBERS) launched (latest Dec 2014), 2 failures, [CBERS 4A - Dec 2018 next?]

• Venezuela – 3 (Venesat-1, VRSS, VRSS 2 [Oct 2017])• Manuel Rios (BAMARI)[Guarico], Luepa (SE Bolivar)

• Bolivia - Tupac Katari (Dec 2013), Bartolina Sisa (201?)• Amachuma [La Paz], La Guardia [Santa Cruz]

• Ecuador – Pegasus Microsat (Apr 2013) – But damaged• No associated infrastructure

• Nicaragua - Nicasat-1?• Argentina: Neuquén radar facility, San Juan Observatory,

failed attempt to join ARSAT• Chile: FASAT replaced by Beidou? Paranal observatory

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

Transpacific Organized Crime

LAC Security Forces lack language skills, people, Asia contacts↑ PRC-LAC Cooperation?

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

• Trafficking in persons: • Pacific, CaribbeanUS; Pi Xue (AR)• Colombians for prostitution in PRC

• Trafficking in narcotics and precursor chemicals• Sinaloa/CJNG ephedrine from China, India• Cocaine LAC->Asia (eg. EcuadorShanghai)

• Trafficking in contraband goods• Colon FTZ, Tri-Border Area, etc.• Also minerals going other way (Madre de Dios, Michoacán)

• Arms: Cuba-bound Chinese ship smuggling small arms (Apr 15); Fraudulent NORINCO sale to BACRIM

• Money laundering: ↑ options (eg. 12 LAC counries with Union Pay): goods, financial vehicles, projects

• Eg. BoC, HSBC->Sinaloa, PCC• $5B by BACRIM via PRC banks, money exchanges, goods

China’s Strategic Interest in theSurvival of an Anti-US Venezuela

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

• Loans: $50.3B (790 projects)…but only $13.7B outstanding, secured by parallel LOC & oil delivery contracts + little money since 2015: Less motives to abandon Maduro than often assumed

• All PRC-based companies try to link to LOC (eg. Haier, Chery)

• PdVSA moved accounts to CITIC bank (2014)

• PRC talking to opposition…but code of friendship with regime + minimal risk + strategic benefit for PRC from survival of regime)

• ↑ leverage over fate of regime (esp. with US sanctions)?

• Arms sales: Displacing Russians (eg. armored vehicles to GNB)

• Re-loaning from existing LOCs: $2.7B in 22 projects (Feb ‘17), including Petrozumanao expansion (800,000 b/d to PRC), Jieyang Refinery

• Chinese business and ethnic community (200,000 Chinese) quietly leaving: stalled projects + danger

PRC wants long-term access to oil…not so worried about getting repaid

Geopolitical Implications:A World Transformed: Winners & Losers

For more information, contact Dr. R. Evan Ellis Tel: 717-245-4085 Email: robert.e.ellis78.civ@mail.mil

Latin America and the Caribbean: ↓ leverage in pursuing policy goals• PRC as an alternative source of credit and markets• PRC companies ↑ using soft power wisely as local actor • Persistence of centers of resistance to “Washington Consensus” • ↑ “Trade not rules” oriented Pacific regime (FTAAP, OBOR, bilateral)• ↑ Defense + Information Security considerations from ( ↑ commercial

presence +↑ PLA familiarity with region )World: A weakened, divided western voice in institutions, politics, norms• A less dollar-denominated international economy (↓ latitude for

US/European deficits, more Chinese leverage over them• ↑ Returns to capital and associated decisions about value chains from PRC

vs. Western countries and companies• New moral environment: Reluctance to criticize China, weakened voice of

moral order (restricted topics, geographies WHERE West can have a human rights discourse)

• Changing International relations rules and dynamics: ↑ concentric circles

Questions?Comments

For more informationPlease Contact:Dr. R. Evan Ellis

Tel: 717-245-4085Email: robert.e.ellis78.civ@mail.mil