Penetrating the region from all angles

Stronger Economic Ties

No one seems to be quite sure of the reason China has increased its participation in the Caribbean. With the exception of the few resource-rich members of the Caribbean Community and Single Market Economy, most Caribbean countries do not fit the trade profile, in particular, of China.  Trade between China and the countries of the Latin American and Caribbean region has grown significantly over the last 10 years.  With a focus on mineral and agricultural commodities, China has done quite a bit to convince the region that it is serious about the economic interests that it has been pursuing.  Between 2008 and 2011, trade between China and Latin America and the Caribbean jumped 71 per cent from $110 billion at the end of 2007 to $188 at the end of 2011.  In the process of developing stronger economic ties with the region, China has surpassed the USA as the largest investor and trading partner of Brazil.  Brazil now accounts for 40 per cent of the region’s trade with China.

In addition, China joined the Inter-American Development Bank and its many trade and investment facilities.  More specific to the Caribbean, China has held three trade and investment initiatives with it, the most recent being in Trinidad and Tobago in September last year.  While it might be clear to China what its intentions are, and as a whole the region is pleased to do business with China, there remains a high degree of uncertainty as to where the relationship with the Caribbean is heading.  Even some of the more informed writers on China-Caribbean relations are still trying to settle on the rationale for the laser-like interest that China has shown on the Caribbean.  Three issues linked to foreign policy and economic goals might offer some insights.

Dismantle network

LUCAS STOCK INDEX The LSI rose 4.89 per cent in the third week of trading in March 2012. The robust gain came from the stocks of Demerara Bank Limited (DBL) and Banks DIH (DIH) which recorded increases of 25.77 and 9.49 percent respectively. The stocks of Demerara Distillers Limited (DDL) recorded no change. The positive gain pushed the index above the Treasury yield by more than four points on the year.

 

One of things that is at the heart of China’s foreign policy is the status of Taiwan.  As far as Beijing is concerned, Taiwan is no separate country.  It is, and will always be, a part of mainland China, what is known as the “One China” policy.  That is not the way some 11 Caribbean countries see the relationship and there is no doubt that China is trying to change that situation.  Bringing Taiwan back into the fold is no secret mission of China.  It is a well-known goal of China’s foreign policy.  Taiwan’s biggest and most ardent supporter has been the USA and China understands clearly the influence that the USA has over the Latin American and Caribbean region as a whole, but particularly the Caribbean.  China realizes that it has to dismantle the network of supporters that the USA has in the region and rebuild one to its own liking.  This means persuading countries of the Caribbean that still recognize Taiwan as separate from the mainland to break relations with that entity.  China clearly has to show that there are real economic and financial benefits to severing the relationship and has set out on that path.  It has been trying for years but, in the last five years, the investment by China in the region has jumped fourfold and exceeds $7 billion.  With China becoming an active member of the IDB in 2009 and pledging closer and deeper economic and investment ties to the Caribbean during the third Caribbean-China Economic and Trade Forum in September 2011, that investment can be expected to increase further.

Cheaper and easier

There is no doubt that China is interested also in the resources of the Latin American and Caribbean region.  The economy of China continues to grow at an impressive rate and is in need of a variety of raw materials and agricultural supplies to keep it going.  China has a large population to feed and it has a vast export market to satisfy.  China’s economic engine must keep running or it will suffer major setbacks.  The raw material needs cannot rely on single sources for reasons of variety and security of supply.  It appears therefore that China is seeking to penetrate the Latin American resource base from all sides, and a relationship with the member states of the Caribbean Community affords it that opportunity.  The prime place of interest is Brazil.  It is not surprising to see, for example, that China committed itself to building a deep-water harbor for Suriname and a road that links it to Brazil.  Such facilities make it cheaper and easier for China to access the resources of the South American giant.

International financial market

A third reason for China’s interest in the Caribbean might be linked to its burgeoning global economic influence and an effort to solidify its position in the global power play.  China holds a veto in the Security Council, what is often thought of as the supreme organ of the United Nations as against the General Assembly of the world body.  The political power of the Security Council veto is not enough to always guarantee China the political outcome that it seeks.  Invariably that power requires some economic force behind it to have the desired impact.  China therefore seems to be attempting to consolidate its global economic influence.  There is some likelihood that China will seek to bring its currency, the Renminbi, into the international financial market through its growing economic ties with Latin America and the Caribbean.  China is under pressure to allow its currency to operate under market conditions, but does not want to be rushed into a new experience where it loses control over its monetary policies and finds itself in a highly volatile external economic environment.

Time will tell

Like everything else, China wants to liberalize its currency on its own terms.  It committed itself to doing so in trade with Brazil, Russia, India and South Africa, the other countries that make up the block of BRICS of which China is a part.   Some experts conclude that China was likely to test its currency in the Latin American and Caribbean market.  The deepening of China’s intervention into the Caribbean is well timed to take advantage of adjustments in economic relationships that were occurring globally.  The global economic crisis has left many Caribbean countries struggling to maintain economic progress and its traditional partners distracted by their own woes.  The Caribbean market is left wide open to China’s management. Its small size can be seen as a safe testing ground for the international use of China’s currency.  Any financial losses were unlikely to be significant and were nothing that China could not bear.   Expected too is the diversification of risk vis-à-vis the US dollar in the use of the currency in the larger markets of Latin America.  In that case, the use of the currency is likely to be with China itself as a guarantee for contracts when the euro or the dollar displays too much instability.  Whether this is the case or not, only time will tell.

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