A few days ago, the People’s Republic of China and El Salvador announced the start of talks to quickly reach a free trade agreement (FTA) that would unite one of America’s smallest economies with the Asian giant.
Surprise, questions, and other interpretations immediately arose about what this approximation represents in concrete terms in what the United States still regards as its backyard.
Some “clowns” comment that this is a hard blow to Washington because El Salvador seems more like an American county than a regional state, perhaps due to the proliferation of businesses that advertise in English with billboards and lights. We do.
In an assessment of the movement, the digital publication Naked Capitalism assured that China is leading the big movement in Latin America, in an exhibition that breaks down that country’s actions throughout Latin America.
Last week, the publication explained, two important things happened in El Salvador, one of the smallest countries in Latin America. First, on 7 November, the country’s Vice-President Félix Ulloa announced that China had offered to buy the country’s $21 billion of sovereign debt.
On 10 November, Salvadoran President Nayib Bukele announced on Twitter that his country would “sign a free trade agreement with China” after meeting with the ambassador from Beijing.
Before making this announcement, his government canceled a free trade agreement with Taiwan. Shortly after the announcement, China’s Ministry of Commerce said that both countries planned to conclude the agreement as soon as possible.
The Chinese Foreign Ministry announced that China and El Salvador are willing to start the procedures related to free trade negotiations as soon as possible and will do their best to finish those procedures as soon as possible.
This occurs in a context fraught with complications for America’s so-called Tom Thumb. It is close to defaulting on its debt despite repeated denials from its executives.
The Salvadoran government has about $670 million in bonds that mature on January 24 after completing a debt repurchase process that many analysts consider a success.
That debt is currently rated CCC+ by S&P Global Ratings, seven notches below investment grade. Fitch has already warned investors to expect some kind of default in January.
This scenario includes significant losses due to the country’s commitment to bitcoin late last year, when the cryptocurrency was nearing its all-time high. Bukele made bitcoin legal tender just two months before the crash began in September 2021, and invested an undisclosed amount of public money in the cryptocurrency.
Since then, bitcoin has lost 67 percent of its value. Perhaps it is no coincidence that Bukele announced a free trade agreement with China on the same day that FTX, a major platform that triggered the crypto asset crisis, declared bankruptcy.
It is not known for certain how much Bukele has invested in bitcoin, but based on announcements he has made on social networks, it is estimated that the loss to public finances so far is around $70 million, according to Ricardo, an economist. Institutions according to Castaneda. Central American Fiscal Studies (ICEFI).
Now in mid-November, the president and savior of cryptocurrencies has assured that his country will buy one bitcoin daily. What is the reason for this? Is there any significant hidden support behind this bet and decision? Ask some people who do not deny China’s support for this initiative.
It is possible that this is the case, since the loss of this virtual currency, if true, has a very high opportunity cost for a country like El Salvador, since it represents, for example, almost the total budget of the Ministry of Agriculture of Castañeda. According to a country where half of the population is suffering from food insecurity.
In this context, China has decided to enter the scene. The decision will surely provoke disapproval from the United States, which is El Salvador’s main trading partner and which already views with suspicion China’s growing influence in its “backyard”, Naked Capitalism said.
It’s a striking experiment, analysts conjecture, when assessing this synergy between a world big and small in an otherwise dollar economy.
The announced free trade agreement with China is almost certain to escalate tensions with Washington and if China injects capital into El Salvador to support the virtual currency, which would be detrimental to the dollar standard, it could be at the heart of Salvador’s foreign policy. represents a reorganization. , according to experts, is moving away from the United States and closer to China, Russia and Turkey.
Without going too far, the remarkable rapport between Beijing and San Salvador, despite the well-known asymmetry between a giant and a “little thumb”, will become a laboratory that will yield results for the Asian nation’s further expansion in a region that That is looking for capital to promote technological development that processes large quantities of raw materials.
In the specific case of El Salvador, the recipient in recent months of significant Chinese economic contributions for social development work, trade with China declined from 74.8 million in 2021 to 4.6 million by September 2022. That will increase by about 150 percent from now.
According to expert estimates, this century, China’s trade with countries in Latin America and the Caribbean grew 26-fold from $12 billion to $315 billion, a spiral in the coming years.
As a trading power, at least for now, the Americans completely dominate Central America. And pound for pound, it remains Latin America and the Caribbean’s largest trading partner, but if Mexico (71 percent) is excluded, the Chinese have already passed the United States as Latin America’s largest trading partner. America has gone ahead.
With that exception, imports and exports between China and Latin America reached $247 billion last year, well above the United States’ $173 billion.
Clearly, neighbors to the north have forgotten their counterparts to the south by turning their attention to the Middle East, where they have spent trillions of dollars wreaking havoc and death and raising a whole new generation of terrorists.
This unique opportunity was seized by China, which quietly gained access to Latin American resources, particularly food, oil and strategic minerals such as lithium.
In this regard, naked capitalism appreciated that the governments of the entire region, from Brazil to Venezuela, passing through Ecuador and Argentina, turned to the left and began to cooperate in several forums.
The super cycle of raw materials was born. Since then, China has become the most important trading partner for nine countries in the region (Paraguay, Brazil, Chile, Argentina, Peru, Venezuela, Cuba, Uruguay, and Panama). The digital publication said 22 of the 33 countries in the region have joined China’s Belt and Road Initiative, including four in Central America (Nicaragua, Costa Rica, Panama and El Salvador).
What is the difference between competitors.
Unlike the United States, China does not usually intervene in the internal politics of the region, or at least it has not so far, and in the Salvadoran case, for example, has kept its presence very low profile. , however contribution to local development is significant and exists in millionaire projects.
Naked Capitalism makes a solid claim “money speaks loud and clear”. In 2020, the sector attracted $94 billion of Chinese investment. This figure is less than half of the $252 billion invested by US companies. In 2021, China’s trade volume with Latin America is set to increase by 40 percent year-on-year, partly because the region’s economies are recovering rapidly after a sharp decline in activity in 2020.
Examples exist, even in the so-called Thumb of the Americas, Chinese companies finance large infrastructure projects quietly, without much publicity, even denying media access to their representatives here , who generically respond to interview requests with, “We’ll let you know”, something that is understood as a no.
Apart from crypto assets, it would be remiss to write a post about China’s growing influence in Latin America without mentioning BRICS.
Currently, the BRICS grouping (Brazil, Russia, India, China and South Africa) represents more than 40 percent of the world’s population and more than 25 percent of global GDP. But it’s about to get huge. Following the group’s decision earlier this year to allow new members, more than a dozen countries have applied to join, according to Russian Foreign Minister Sergei Lavrov. Among them are the third largest economies of Latin America, Argentina and Nicaragua.
In this scenario, it is not risky to say that El Salvador is about to become the laboratory that will demonstrate the clash between the two great economies for resources and strategic influence in the new Cold War, a contest that, according to the digital publication Naked, is capitalism, for the time being. , China is winning.