The funds that China put in the Latin American countries has increased and this will promote the economy in this region to some extent. However, in fact, to get this new financing, these countries have to pay a fee. Although it is claimed by the parties concerned that China has implemented these transactions in the Latin American region out of enthusiasm, in fact, the money lent by the China State Development Bank has terms that are more stringent than the World Bank. There are long-term debt problems in Latin American countries in the history. In some countries such as Argentina and Ecuador, debt default even emerged recently. If not being handled properly, these debt problems may also exacerbate.
Meanwhile, although China has not attached to loans policy conditions to the loans, the borrowing countries are required to purchase Chinese equipment and employ Chinese workers, and even in some cases, they are required to sign oil and gas agreements. Areas where loans are invested will focus on Latin America’s raw materials manufacturing, such as petroleum, iron ore, copper, beef, soybeans, and the construction of infrastructure to support these transactions above. It is not surprising that China hopes that the Latin America develop in these fields as it is these key exports that has attracted the Chinese people to Latin America.
One point worth being noted is that the raw materials manufacturing is not labor-intensive industry, and it is not closely related to other parts of the whole economy. Relying solely on the manufacturing of raw materials may also be stricken by the energy curse – currency appreciation resulting in manufacturing jobs, while the service sector can not compete on world markets, and ultimately industrialization setback and the economy becomes fragile.
Finally, manufacturing natural resource-based products will also bring a considerable degree of environmental degradation, a phenomenon embodied in all environmentally sensitive areas of Latin America. However, in a report made by the Boston University, it was found that a series of environmental requirements developed by the Chinese banks is actually more stringent than the West Bank and the provisions enacted in the same stage of development. But even so, regardless of the provisions of China or the West of those provisions, the vision of the 21st century, still are not enough and can match the status quo in Latin America.
The opportunity is always accompanied by challenges. Latin America countries now have a new funding source to create more space to achieve their development goals. But if these new injection of funds is not to be used to support macroeconomic stability, economic diversification, economic equality and even environmental protection, the huge new opportunities will be easily transformed into a grave risk.
And if Latin America is able to grab the opportunity to manufacture with the Chinese capital, the international financial institutions will be forced to rethink the approach taken in the provision of finance and development projects. From past experience, this is not a bad thing.