China’s South American Oil Deals Raise Suspicions

2006-02-16
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Venezuelan President Hugo Chavez. Photo: AFP/Francisco Batista

China’s energy investments in South America seem to have little commercial value, but its other activities in the region raise strategic concerns, experts say.

Of all their investments in far-flung regions, including Africa and the Middle East, the deals made by China’s state-owned oil companies in South America seem to make the least strategic sense, analysts say. China’s supply routes across the Pacific are twice as long as those from the Persian Gulf and are potentially more vulnerable to hostile naval power.

But this hasn’t stopped Chinese energy firms from striking deals over the last five years with at least half a dozen South American countries—Bolivia, Brazil, Colombia, Ecuador, Venezuela, and Peru.

In interviews with Radio Free Asia, experts said that China’s presence in the region has sparked a debate about its true intentions.

As a kind of way to say, ‘We’ll help you deal with the United States hegemon’—which is very attractive to a lot of Latin American countries—the Chinese say, ‘Sign energy contracts with us.'

June Teufel Dreyer, a University of Miami political science professor and commissioner on the U.S.-China Economic and Security Review Commission, said Chinese energy ventures in South America support China’s policy of promoting a “multipolar world.”

New leverage

“As a kind of way to say, ‘We’ll help you deal with the United States hegemon’—which is very attractive to a lot of Latin American countries—the Chinese say, ‘Sign energy contracts with us.’”

These countries are “only too happy to do this,” Dreyer said, because it gives them a source of leverage against the United States.

In testimony last year before a U.S. congressional panel, Dreyer noted that 12 of the 26 countries in the world that maintain diplomatic ties with Taiwan are in Latin America.

China does business “with an eye towards undermining Taiwan’s diplomatic ties to the region,” Dreyer said.

Stephen Johnson, a former State Department official and now senior policy analyst at the Washington-based Heritage Foundation, agreed that China’s goals in regional investment go beyond energy sourcing.

“It also wants to develop markets for its products,” Johnson said, “and in addition to that, have a region in which it can project power and influence that would challenge the United States.”

Other options

Johnson said China faces practical problems in simply moving oil from the region.

In the case of Venezuela, oil must be shipped from the country’s Caribbean ports through the Panama Canal. This limits quantities and raises costs, Johnson said. China’s other options would be to build a pipeline through Colombia to the Pacific or to expand and reverse the flow of an existing pipeline in Panama. Johnson observed that both alternatives would be costly.

In landlocked Bolivia, plans to build a gas pipeline to the Pacific also face tough going because of disagreements with neighboring Chile.“That particular project might be more expensive than the effort is worth,” Johnson said.

Johnson said China’s other activities in the region make the issue of energy investment hard to view in isolation.

China has cooperated with Brazil since 1999 on spy-satellite technology, Johnson said, and has exchanged rocket technology for digital/optical capabilities for imaging from space.

China has also moved into a former Russian intelligence center in Cuba from which it now monitors telephone signals along the U.S. East Coast, he said.

“I think there’s definitely a willingness on China’s part to push the envelope and to try to develop military relations and develop spying capabilities to keep its eye on the United States and to be a competitor.”

Edward Chow, a Washington-based international energy consultant, noted that China’s investments in Venezuela in particular have developed a political dimension.

This, he said, is because both countries seek a world “that is less dominated so much politically, militarily, and economically by the U.S.”

Ultimately though, Chow argued, the United States may benefit from increased Chinese investment in Venezuela, since this will expand the world supply of oil.

“My feeling is that if other countries are willing to invest their own money into expanding the production capacity for oil and gas in Latin America … we should enjoy that incremental supply as well.”

Washington probably should not take Chinese investment in Venezuela as a challenge, Chow said.

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney and Sarah Jackson-Han.

Original reporting in Chinese

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