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China seizes opening in US backyard after Trump upends policy

Friday, December 2, 2016 - 11:18
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As Donald Trump weighs plans to tear up trade deals and deport illegal migrants from Latin America, Chinese President Xi Jinping is moving swiftly to reset relations in America's backyard.

[HONG KONG] As Donald Trump weighs plans to tear up trade deals and deport illegal migrants from Latin America, Chinese President Xi Jinping is moving swiftly to reset relations in America's backyard.

Mr Xi returned from a Latin American swing last week having lavished Ecuador with US$10 billion in energy and infrastructure deals, and bestowed Ecuador and Chile with China's highest diplomatic status. He told Peru's Congress relations were "standing at a new historical starting point."

While attending a summit in Lima with his lame duck US counterpart, Barack Obama, he cast China as the region's most eager trade advocate.

The Chinese leader's trip highlighted how Mr Trump's surprise election win was tipping the geopolitical scales even before the Republican takes office with his "America First" platform. Until the vote, China had grappled with how to advance its more than 15-year foray into the traditional US sphere, as its demand for commodities slows and left-wing political allies face setbacks in the region.

Now China finds itself in position to become Latin America's primary growth driver, increasing its chances of surpassing the US as the region's largest trading partner. Mr Trump, meanwhile, is vowing to crack down on immigration from places like Mexico and withdraw the US from the 12-nation Trans-Pacific Partnership free trade pact, which includes Chile, Mexico and Peru.

"As China exhibited last week, the Mr Trump shock presents a period for China to accelerate its Latin American ties as it may offer more and better trade deals along with more financing with less strings attached."

Improving ties with China was a "smart card to play" if the region's governments wanted to gain leverage with the incoming US administration, said Gallagher, a professor of global development policy at Boston University.

Mr Xi signed more than 40 deals - spanning agriculture, energy, finance, infrastructure, technology, tourism and other areas - during his week-long visit to the region, his third since becoming president in 2013. He upgraded Ecuador and Chile to "comprehensive strategic partnerships" and expanded trade deals with Chile and Peru, the latter granting him a congressional medal of honor.

Peruvian President Pedro Pablo Kuczynski, who in September chose China for his first overseas trip, told Mr Xi that he wanted to team up against protectionism.

"China is the most important country in the Asia-Pacific region, as well as the biggest market for Peru's exports. It has become the engine for world economic growth," Mr Kuczynski told China's state broadcaster in an interview before the meeting.

Chinese trade with Latin America has ballooned more than 20-fold over the past decade, reaching US$237 billion last year, according to the official Mr Xinhua News Agency. That compares with US trade of US$268 billion with the region. China and ministers from the region agreed at a meeting in Beijing last year to increase trade to US$500 billion within a decade.

Council of Americas vice president Eric Farnsworth, whose group represents US business interests in the region, called views of China's and the incoming US administration's commitment to Latin America "deeply contrasting." "The perception is that we've changed track and that policies will begin to reflect that," Mr Farnsworth said.

Still, China's focus on Latin America as a source of raw materials - including iron ore, oil and soybeans - does little to promote industrialisation in the region and has made it vulnerable to the country's current slowdown. The political and economic turmoil engulfing Venezuelan President Nicolas Maduro, a key Beijing ally, has shown China's need to diversify its relationships in the region.

"A reset of the China-Latin America relationship is now long overdue," said Matt Ferchen, head of the Carnegie-Tsinghua Center for Global Policy's China and the developing world program in Beijing. "A reset would involve a real, honest and probably difficult conversation about what kinds of trade, investment, financial and diplomatic relations would truly contribute to Latin American and Chinese development at this stage."

A Chinese Ministry of Foreign Affairs policy paper on the region released last week called for greater trade in services, e-commerce and higher-value goods. Chinese companies should align their activities with local needs to "enhance their capacity for independent development," it said. The report urged greater outreach between political parties "to further enhance mutual understanding and trust."

Ran Jiao, head of mergers and acquisitions for LongRun Tea Group Co, which specialises in food and health products, touted the need for stability in the aftermath of Mr Trump and Brexit on the sidelines of the Asia-Pacific Economic Cooperation summit in Lima.

"We can guess all we want about Mr Trump, but who knows?" said Mr Jiao, who was looking for agricultural deals in the region, especially in Peruvian "superfoods". "Stability is the main question."

Mr Xi also struck an agricultural theme while explaining China's commitment to Apec, noting his fondness for sweet potatoes, which originated in Latin America.

"The vines of a sweet potato may stretch in all directions, but they all grow out of its roots," Mr Xi said in a Nov 19 speech. "China, with its root in the Asia-Pacific, will continue to contribute to its development and prosperity."

BLOOMBERG