The persistent decline in oil prices has seriously impacted the economies of Latin American countries. As political and economic landscapes in Latin America continue to evolve, this situation will offer both challenges and opportunities for cooperation between China and Latin America.
China is the world's largest energy consumer with a high foreign oil dependency. The recent fall in its daily domestic crude oil production makes it even more reliant on foreign oil. Meanwhile, Latin America is a major oil exporter in the world. The region exported 232 million tons of crude oil in 2015 with China as the second largest destination for the region's oil exports. Such a situation makes China and Latin America highly complementary. With the backdrop of low oil prices, Latin America is in even more urgent need of China's oil demand, which offers a good opportunity for the two sides to cooperate. China could expand its oil imports from Latin America and enhance its energy cooperation with major oil producers in the region to ensure a steady supply of oil.
Additionally, as low oil prices impact the economy of major oil producers in Latin America, the actual purchasing power of local residents remains low and unemployment has increased. Such a situation may increase the possibility that Latin American countries will launch anti-dumping probes on Chinese products as has been the tendency in previous cases. In July, Brazil announced anti-dumping investigations on steel strands imported from China. Furthermore, under the influence of nationalism as well as the hype of Western media about the so-called China threat, some cooperation projects China has conducted in Latin America, particularly in the energy field, are likely to draw resistance from the local population. Additionally, unstable political situations in some Latin American countries and regime changes in the region may threaten the safety of Chinese companies' investments and assets. These factors are likely to hinder cooperation between China and Latin America.
While cooperation between China and Latin American countries may face challenges, the fact that China is one of the world's largest oil consumers and its oil imports continue to grow means no oil producing country can afford to lose the Chinese market. It is certainly in the interest of both sides to boost cooperation. There are a few factors that Chinese companies need to be cautious while investing in Latin America in order to minimize loss when problems occur.
First, Chinese investors should take into consideration the interest of the local people and focus on creating more jobs where there is a weak local economy. Second, Latin America is under great influence of Western culture given its history and the local people's impression of China is naturally influenced by the Western media. Chinese companies should observe the local laws and regulations to prevent any environment- and security-related incidents from tarnishing the image of Chinese investors. Third, the governments of some Latin American countries are hugely different from China's political system. Its legal framework and policies are also different, which may be challenging for some Chinese companies to adapt to. Therefore, while the Chinese government seeks to enhance political and cultural exchanges with Latin American countries, Chinese companies should also increase communication with local businesses and the public and try to build a corporate culture compatible with the local culture. Moreover, China has always pursued the principle of not interfering with other countries' internal affairs while engaging with foreign countries and not imposing any political conditions. This is the foundation of China's cooperation with any foreign country and should certainly stick to it while cooperating with Latin American nations. Last, China should also make an effort to prevent some Latin American countries from raising the cost of oil exports by taking advantage of the competition between different energy importers.
Countries in Latin America have different national conditions and their relations with major powers outside the region are complicated, with some historical issues left unsolved. China may take advantage of the situation to enhance political and economic exchanges with Latin American countries. In doing so, it can not only promote energy and economic cooperation between the two sides but also counterweigh strategic pressure from the US and Japan.
The author is dean of China Institute for Studies in Energy Policy, Xiamen University at Xiamen University. firstname.lastname@example.org