Chile and China

In early April of this year, Chile and its President Sebastian Piñera were  fine tuning plans and juggling resources for three huge image-defining events for the nation: A State visit to China and hosting the Asia-Pacific Economic Cooperation forum (APEC) and the next global climate change conference (COP25).

President Piñera’s four-day visit to China the end of April underlines the steady increase in commercial relations between the two countries, now grown to the point where China is Chile’s largest trading partner, replacing the US for that distinction.

The APEC summit scheduled for November in Santiago brings together leaders of 21 countries of the Asian/Pacific region, including China, Japan, the US, and Russia. The APEC countries represent 60% of world GDP, and 40% of global population. The APEC meeting is a forum to promote growth, technical and economic cooperation, trade facilitation and liberalization, and investment in and between the member countries.

That Chile is hosting and therefore chairing this meeting at a sensitive time in the trade negotiations between the two largest economies of the group, US and China, places Chile in a high profile and demanding diplomatic situation. The last APEC meeting held in Papua New Guinea failed, for the first time since its inception in 1994, to produce a consensus statement at the end of discussions, due mainly to conflicts regarding the role of the World Trade Organization (WTO).

So, the pressure is really on Chile, as chair of the forum, to deliver a meaningful outcome. Where the trade war between the US and China stands at the time will surely color the nature, dynamics, and outcome of the Chile APEC meeting at the end of this year.

The COP25 climate change gathering, since the withdrawal of the US from the Paris Global Climate Change Convention, will be a struggle to keep the initiative going in the face of the actual official US approach, better yet dismissal of climate change. The terms of the Convention are due to take effect in 2020.

The meeting, scheduled for December in Santiago, will give Chile a grand opportunity to put on display their notable progress in renewable energy, electrification of public transport (the largest electric bus fleet in South America), and notable expansion of public and private natural area parks and reserves. It will also, unfortunately, expose participants to serious air quality, waste disposal, and Ocean pollution problems.

So, at the beginning of this month (April 2019), about two weeks prior to Piñera’s visit to China, the US Secretary of State, Michael Pompeo, in his characteristic bulldog style, swept through Santiago to alert the Chileans to the dangers of  “corrosive” investments related to the Chinese Global Belt and Road Initiative (BRI).

This BRI is essentially an aggressive Chinese government global geopolitical strategy focusing on infrastructure development and investment in 152 countries throughout the world. Begun in 2013, the BRI is an ambitious initiative projected to be completed in 2049, the China’s (PRC) 100th anniversary. Pompeo explained to the Chileans the dangers of “debt traps” other countries have found themselves in as a result of Chinese infrastructure investments. 

He also warned Chileans of the security threats the US believes Chinese digital technology could present should Chile choose to involve Chinese tech companies in their telecommunications development projects. Specifically, Pompeo warned against getting involved with the Chinese high tech company Huawei.

Past Foreign Minister Heraldo Muñoz was apparently not favorably impressed by Pompeo, a most fervent practitioner of  US President Trump’s “transnational muscular unilateralism” (a Nicholas Burns term) and characterized Pompeo’s visit to Chile as a most “arrogant display of US diplomacy”.

It is worth noting that Chile was the first Latin American country to recognize the Popular Republic of China in 1970, under President Salvador Allende. Formal diplomatic relations between the two countries have been sustained since then, including very warm bilateral relations during the Pinochet dictatorship (1973-1989), which led to the Chinese building the Great wall Station a short distance from the Chilean base in Antarctica. In 2005 Chile was the first country to sign a bilateral free trade agreement with China. Since then, Chile exports to China have risen to about 25 billion US$, a 382% increase under the free trade agreement.

Chilean exports to China are largely from the mining sector (79%), but between 2007 and 2018 forestry/agriculture/fisheries exports increased by 43%, a sector both countries believe will grow significantly in the future.

From 2006, imports from China to Chile grew 213%, to over 16 billion US$ at the end of 2018. China is by far Chile’s main trading partner, totaling over 41 billion US$ compared to 24 billion$ US/Chile trade.

Chinese ambassador to Chile Xu Bu followed up on Pompeo’s visit with a frank and direct rebuttal to the anti-China statements made by the US Secretary of State while in Santiago, especially his suggestion that doing business with Chinese companies like Huawei were risky. He suggested that “Pompeo’s body has moved into the 21st Century, but his brain is still in 20th Century, driven by hegemony and the logic of the Cold War”.

With Pompeo’s clumsy warnings fresh in their minds, and with President Trump’s recent declaration that clauses of the 1996 Helms-Burton Act related to property confiscated by the Cuban government after the revolution would be applied more aggressively, a Chilean public opinion poll (CADEM) asked: Should Chile deepen commerce with the US, China, or both? 51% responded China, 25% the US.

The CADEM poll also asked the Chileans if they had a positive opinion of the two countries, and their leaders. Results: US 61% positive, China 77%  positive; US leader 30% positive, China leader 61% positive.  (Similar opinion polls in Mexico, Argentina, and Peru, when asked about their positive feelings for the two countries, come out in a similar fashion: Mexico 57% China, 43% US; Argentina 51% China, 45% US; Peru 59% China, 56% US. Andres Oppenheimer, in a recent column on inter-american relations, concluded, after citing these poll numbers, that “Until now, his (Pompeo) campaign against Chinese influence in Latin America has gone terribly”.

So, with that background, Piñera spent four days visiting China. He and his delegation made up of Ministry, Congressional, and private sector representatives met with President Xi Jinping and the official Chinese delegation and honed a “Road Map” for the next three years to deepen Chile’s relationship with China. They outlined activities in 14 areas, especially trade, agriculture, and telecommunications including 5G technology.

The Chilean President also spoke at the Second Forum of International Cooperation for the Belt and Road infrastructure initiative. He joined Xi Jinping and Vladimir Putin on the dais for that presentation; he was the only Latin American to speak at this forum. In his speech he criticized the protectionism and anti-multilateralism of old proponents of open markets, clearly implying but without mentioning by name the US.

During the meeting, the Chinese promised their support for the APEC meeting in Chile in November, and Piñera reports that he appealed (privately) to the Chinese to as soon as possible (hopefully before November’s APEC meeting) reach an agreement on trade with the US.

Piñera and the Chilean delegation then visited Shenzhen, a modern city of over 12 million inhabitants, the Silicon Valley of China.  They held meetings with 16 Chinese businesses, and a working lunch with CEOs including the CEO of Huawei. They signed an agreement of cooperation with the Province of Guangdong, where Shenzhen is located, a State-to-Region agreement very similar to the two agreements Chile has with California and Massachusetts.

While Chile’s President was in China encouraging Chinese high tech companies like Huawei to participate in Chile’s telecommunications sector, including bidding in 2020 on contracts for the trans-Pacific fiber optic cable from China to Chile, and introduction and expansion of 5G technology, the Trump administration’s Department of State (read Pompeo) was further threatening that any country that uses “unreliable” technology (read Huawei) will be subject to limits on sharing sensitive information. This threat did, of course, irritate some, probably most, Chileans. In response, ex-Minister Muñoz asked, rhetorically, “Why wouldn’t Chile be willing to work with leading 5G providers like Huawei?”  This response is especially relevant since Huawei is a company that  is committed to help define the world’s technological future, and in fact, already is doing so.

Well, there are some reasons to at least be cautious. Or at least, some considerations. They have to do with differences on issues of transparency, individual rights including privacy, and the rule of law. But from the Chilean’s perspective, even though Chile is more of the liberal “West” on these issues, and more inclined through history, habit and custom to align with more democratic and open economic systems like the US, they are apparently becoming skeptical about the trade offs inherent in remaining too aligned with the US especially as they see such opportunity growing from China and the other Asian Pacific countries. And, as it becomes more and more disagreeable to deal with US “America first” mentality and actions, the old alliance is being evaluated.

President Piñera clearly expressed to the Chinese his country’s desire to parlay its present advantage as a economically and politically stable Latin American country which, given its commitment to free trade and the rule of law and its favored exposure to the Pacific ocean, offers an opportunity to serve increasingly as a solid platform for Chinese investments in Chile and the rest of Latin America.

Chile seems intent on deepening its relationship with China. The question is: can they manage that effort to the benefit of the broader goals of Chilean development in a way that at the same time keeps a solid and productive relationship with the US and other democratic and open economies. Chile will have to devise a “Chile First” approach to its relationships with both China and the US without sacrificing its serious commitment to multilateralism, free and open trade, the rule of law, and aggressive pursuit of human rights. It may, actually, turn out that it is precisely these commitments that will allow Chile to walk the fine line, and provide the open door between the West and the East, that facilitates greater commerce, integration, and cooperation between them.

It is a truly bold idea.

Posted on May 1, 2019, In Leesburg, Virginia.