China Ramps Up Latin America Push During the Pandemic
Aid to fight COVID-19 could lead to investment and deals down the road. Lawyers in the region have been busy getting in on the action.
By Amy Guthrie / July 30, 2020
China has embarked on what some have called "mask diplomacy" by delivering —and donating— scarce medical equipment, protective gear and COVID-19 tests across the region. Credit: Shutterstock
China may be positioned to gain more clout in Latin America following the arrival of COVID-19, lawyers say, as troubled businesses and governments seek investment and assistance.
While the U.S. has ramped up protectionism in recent months, Latin America has rolled out the welcome mat to China. Latin American economies and health systems are getting crushed by the virus and efforts to contain it. Brazil, Mexico and Peru have logged some of the highest total COVID-related deaths worldwide.
Meanwhile, China has embarked on what some have called "mask diplomacy" by delivering —and donating— scarce medical equipment, protective gear and COVID-19 tests across the region. The efforts to soothe hard feelings about a virus that first appeared in Wuhan, China could clear the way for more business ahead.
China wants to present itself "as a trustworthy partner," said Mauricio París, regional manager for Latin America at the Spanish law firm ECIJA, which has a China desk staffed with lawyers to help clients navigate the language and cultural nuances of contracts and purchases in China.
ECIJA has been busy during the pandemic helping clients in Latin America source goods like surgical masks from China.
Last week, Mexican Foreign Minister Marcelo Ebrard announced that Chinese Foreign Minister Wang Yi promised a $1 billion loan to help Latin American and Caribbean countries access its COVID-19 vaccine.
He said the pledge came via a virtual meeting that was also attended by ministers from Argentina, Barbados, Chile, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, Panama, Peru, Trinidad and Tobago and Uruguay.
"It seems likely that Beijing will look to further solidify its ties—and presence—throughout Latin America, as the world struggles with the pandemic," said Ashley Craig, co-chair of Venable's International Trade Group in Washington, D.C.
China sees Latin America and the Caribbean as an "indispensable participant" in its Belt and Road Initiative, which undertakes infrastructure projects in developing countries.
Critics including the White House see Belt and Road as a state-backed campaign for global dominance. But many in Latin America and the Caribbean view Chinese investment as a friendly overture in tough times that they must balance with longstanding ties to the U.S.
"It's a cordial but cautious relationship," said París, who is based in Costa Rica.
China Inc.
China has made major inroads in Latin America and the Caribbean in recent years through infrastructure investments and aid, while rising to become the region's second-largest trade partner after the U.S. Investment tends to focus on agro-exports and extractive industries that produce goods that China needs, coupled with infrastructure to improve connectivity.
Mergermarket data shows that Chinese investment in the region plummeted 89% by deal value on the year during the first half of 2020 versus a 77% overall fall as the new coronavirus stunted deal activity.
But lawyers see deals with China recovering.
"There's still appetite and interest for Chinese investment in the region, and there's certainly interest by Chinese investors as well," said Randy Bullard, the Miami-based co-chair of Morrison & Foerster's Latin America desk.
The International Monetary Fund estimated in June that the region's gross domestic product will shrink 9.4% this year, the worst recession on record for Latin America and the Caribbean. That compares with an IMF prediction for a more modest 4.9% global contraction.
Gabriel Gomez-Giglio, head of Baker McKenzie's banking and finance practice for Latin America, says the sheer size of Chinese banks mean they will inevitably be active in the region.
The four largest banks in the world are state-owned Chinese institutions with combined assets of $14.8 trillion, according to S&P Global.
"Looking forward, South America, as well as all other world regions, will need more financing and assistance and will therefore be competing for all available credit lines," said Gomez-Giglio, who is based in Buenos Aires.
"China will definitively play a role even in a more inward looking economic scenario."
White Knight
There are some signs of protectionism and opportunism on the ground during the pandemic. The Argentine government attempted to take over the country's top soybean processor in June in part to keep the insolvent company from falling into foreign hands. President Alberto Fernández argued that the nationalization should be fast-tracked because of COVID-19.
Mexico has also become more hostile toward foreign investment. In May, the country prevented dozens of renewable energy projects from going online purportedly to keep the national grid stable during the health emergency. Several of the blocked solar and wind projects were backed by international investors who sought to compete with the state electricity firm.
Yet Chinese firms have continued to make inroads during the pandemic.
The state-owned China Communications Construction Company won a $626 million contract to build the first leg of the Mayan Train in Mexico as part of a consortium that included Portugal's Mota-Engil and two Mexican companies.
The rail line is a pet project of President Andrés Manuel López Obrador, who wants to connect Mayan ruins with popular beach towns like Cancun and ports on the Yucatán Peninsula.
In Brazil, Embraer has suggested that a Chinese firm may come to the rescue after the jet maker's planned merger with Boeing Co. collapsed in April.
Carlos Barbosa Mello, managing partner of the Brazilian law firm Lefosse Advogados, says that Chinese firms haven't shown a clear preference for working with one law firm over another in Latin America's biggest economy. Often Chinese clients will go with the firm that offers the best price.
Lefosse has worked multiple Chinese deals, usually on behalf of Brazilian clients.
"I think they will continue to purchase," said Mello. "They do not have enough food or minerals or these kind of things, and we offer them a cheap way of getting those things."
About a third of Brazil's exports go to China, more than twice the amount of products headed to the U.S.
"China is too big to be ignored, even though I think they have an agenda which we as westerners do not completely understand," said Mello.
Along with local Latin American firms, many Spanish firms are also active in the region, using the country as a bridge between their Chinese and Latin American office and clients.