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China’s Green Energy Investments Aim at Latin America Amid Competition With the US

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China’s Green Energy Investments Aim at Latin America Amid Competition With the US

Chinese investments in Latin America are shifting to focus on decarbonization and renewable energies, using technologies that are strategic for the future of the global economy. 

China’s Green Energy Investments Aim at Latin America Amid Competition With the US
Credit: Photo 145573754 | China © Elkov Oleg |

China’s growing presence in the trade and investments landscape in Latin America has drawn attention from policymakers and businesses in the United States. Accustomed to the status of leading regional power, the U.S. and its traditional allies are now facing competition coming from China. 

This trend started two decades ago. China’s greater economic engagement with Latin America began after its entry in the World Trade Organization (WTO) and the launching of the Going Global strategy in 2001. The balance of trade between Latin America and China grew from $12 billion in 2000 to more than $445 billion in 2021. 

Chinese engagement has only grown stronger throughout the years with increasing foreign direct investment (FDI), diplomatic efforts, and greater trade complementarity. Chinese FDI initially aimed at assuring food and energy security through mergers and acquisitions with local and foreign companies in Latin America’s agricultural, oil and gas sectors. The first White Paper outlining Beijing’s vision for the engagement with the region was launched in 2008, at a time when its firms were still acquiring knowledge as well as assessing strategic objectives and learning to navigate the political economy, regulatory and institutional environment in different countries. 

After 2013, during Xi Jinping’s first mandate and the launch of the Belt and Road Initiative (BRI), the vision changed. Big infrastructure projects, mostly focusing on the energy sector, were the focus of Chinese investments. In 2016 China released a second, more detailed White Paper outlining its policy for Latin America, focusing on cooperation for development, energy, and sustainability in a South-South framework. 

Between 2005-2012 it is estimated that China’s total FDI toward South America plus Mexico totaled around $63 billion, while between 2005-2023 the total FDI of Chinese firms in the same countries reached $212 billion. Brazil represented just over one-third of the total, with $71.6 billion worth of Chinese investment in 235 projects.

Chinese FDI in Latin America continued to grow steadily until it was interrupted by the social and economic challenges of the pandemic, aggravated by China’s strict lockdown and zero COVID policies. In 2020 and 2021, Latin America saw a downfall of the total amount invested by China in the region. 

However, the investment flows grew in 2022 and 2023 – only this time, the funds were directed toward new sectors such as solar, wind, and hydropower as well as electric vehicles (EVs). Mining in strategic materials such as lithium and rare earth minerals, which are crucial as supplies for the value chains of many advanced technologies involved in decarbonization are also a priority. A great number of Chinese firms acting in these new subsectors are privately owned, such as BYD and Great Wall Motors, for example. 

Greater geopolitical tensions have given rise to the importance of industrial and technology policies in governments across the developed North and the Global South. The CHIPS and Science Act and the Inflation Reduction Act in the United States are examples of this trend, as much as China’s focus on indigenous innovation and domestic technology encapsulated in the 14th Five Year Plan (2021-2025) and the Made in China 2025 strategy, for example. Analysts have pointed to the term “New Infrastructure,” which has been appearing in Chinese media and policy documents, as the lexicon designating the sectors China wants to develop at home while also becoming a competitive global player. 

Information technologies linked to data centers, semiconductors, and artificial intelligence are important focuses of policymakers in Beijing, but so are renewable energy generation and electric vehicles. Technology is a key aspect in China’s efforts for reviving its domestic economy and competing with the United States. 

In Latin America in 2022-2023 the general trend of Chinese investment has been of a higher number of smaller projects. This means a shift from the previous trend of big infrastructure projects under the Belt and Road Initiative (BRI), such as State Grid’s and China Three Gorges’ multi-billion investments in Brazil and Argentina, for example, toward more nimble, numerous, and technologically intensive projects. Albeit smaller in size, these new projects are directed toward strategic areas. 

The shift in foreign investment policy reflects the changing priorities and characteristics of the Chinese economy. Concepts such as new “quality productive forces,” “small but beautiful,” “indigenous innovation,” and self-reliance have risen as priorities for the Chinese state. The government is trying to reignite economic growth amid the difficulties and slowdown caused by an aging population, high youth unemployment, the property crisis in the real estate sector, and a recovery in consumption post-COVID that was not as exuberant as Beijing had expected. All of these reflect in Chinese firms investing abroad, which are trying to find new markets and trade partners, focusing on technology and innovation, while also exporting overcapacity in industries where domestic demand is falling, as the case of EVs. 

In 2022, there were two FDI acquisitions in the lithium sector in Argentina, conducted by Ganfeng Lithium and Zijin Mining Group, with a total value of $1.7 billion. Greenfield investments in battery factories and mining by Chinese automobile manufacturer Chery and a lithium carbonate factory from Liex, a subsidiary of Zijin Mining Group, were both announced in Argentina in 2023. In Chile, the Chinese EV maker BYD announced an investment of $290 million to exploit lithium. 

In addition to that, automobile manufacturer Geely acquired seven plants globally, including one in Cordoba, Argentina, by forming a joint venture with Renault. The plants make aluminum parts for gearboxes that will be used in its subsidiary Horse, which produces gearboxes at other plants in Chile and Brazil and supplies companies like Renault, Dacia, Nissan, and Mitsubishi. 

In Brazil, there was continued investment by Great Wall Motors, which in 2021 bought a Mercedes-Benz factory in São Paulo state aiming to produce electric vehicles and batteries. The firm continues building production capacity with an investment plan of 4 billion Brazilian real ($776 million) between 2022-2025. The automaker will manufacture electric cars and hybrids, in addition to developing research and development projects. 

Volvo, a Swedish automaker whose main shareholder position has been acquired by the Chinese firm Geely, made an investment of 881 million real in its factory in Paraná state, Brazil. These funds will be used for the development of products and services focusing on electromobility and decarbonization and are part of a greater investment cycle that is projected to reach 1.5 billion yuan between 2022-2025.

BYD is investing 1.1 billion real in the Brazilian state of Bahia to produce chassis for electric buses and trucks, manufacture electric and hybrid passenger vehicles (with an initial projected capacity of 150,000 units annually), as well as processing lithium and iron phosphate in Brazil, that will later be exported to global markets. In July 2023, the project was confirmed. BYD will take over three factories formerly owned by U.S.-based Ford Motors in the Bahia state, which left the country in 2021 after more than 40 years of operations in Brazil. BYD expects to start production in Brazil in the second half of 2024 and has already partnered with local energy firm Raizen to build charging network stations in eight large metropolises in the country. 

In summary, China’s state-owned enterprises were the firstcomers in Latin America, building the basis in electricity and other capital-intensive sectors. But in the last decade, private companies have been investing in sectors that allow for greater profits, and which are more intensive in technology. It may yet be too soon to affirm, but evidence point to the articulation of a regional value chain in green technologies led by Chinese firms, with Chile and Argentina producing strategic minerals and batteries, for example, while manufacturing capacity for EVs and solar panels is located in Brazil, which could serve as a hub for exporting to the region as a whole. 

If this configuration confirms itself, it would be a case of geoeconomic influence or economic statecraft – concepts related to when a state uses economic resources to attain objectives related to its national interest or global influence. Latin American countries should develop their own plans and strategies for creating higher value-added goods, innovating, and industrializing their production in order to make use of Chinese capital for their developmental processes. 

Finally, this means greater geopolitical tensions and competition with the United States, even in a region which was previously under the incontestable influence of the U.S. Reality does change quickly, even more so through the power and influence granted by capital, finance, and the employment of new technologies.