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Venezuela: Another black eye for Chinese economic diplomacy

  • The Borneo Post
  • 15 Feb 2019

BEIJING: China and Venezuela seemed like natural bedfellows: one is the planet’s top crude- oil importer and the other possesses the world’s largest reserves.

But Venezuela’s descent into crisis – with President Nicolas Maduro and self- proclaimed leader Juan Guaido vying for control as the economy unravels – has highlighted the gamble inherent in China’s US$ 60 billion investment in the South American nation.

Over the past decade Beijing has extended vast amounts of credit to Caracas for oil shipments and infrastructure deals, in what China has touted as a “mutually beneficial” relationship.

Yet Venezuela is wracked by recession and hyperinflation while millions of people are suffering from shortages of basic necessities such as food and medicine – and vital oil production has dropped to a three- decade low.

“Venezuela’s story is an important one,” said Margaret Myers, director of the Asia & Latin America Programme at the InterAmerican Dialogue, a US-based think tank.

“Other countries in the region commonly reference Venezuela as a cautionary tale when determining how best to engage with China.”

The situation also shines more unflattering light on Beijing’s US$1 trillion ‘Belt and Road’ project, a Chinese initiative to offer loans or investment in infrastructure and other projects across a range of countries.

Critics say the project saddles countries with debt that they cannot repay, increasing China’s influence over them.

“By playing such a central role in Venezuela, China has provided evidence for the US government’s argument that Beijing’s financing worsens corruption and ensnares emerging-market borrowers in a debt trap,” said Benjamin Gedan, senior advisor at the Wilson Centre’s Latin American Programme.

China began lending to Venezuela more than a decade ago, reaching a peak in 2010 when statebacked China Development Bank offered US$ 20 billion in soft loans, according to Chinese official news agency Xinhua. That same year, Venezuela’s then-leader Hugo Chavez announced a US$16 billion investment package from China involving multiple energy deals as he leveraged the country’s oil wealth for financing.

Increasing oil shipments to China also fulfilled a political goal of the socialist Chavez – reducing the nation’s reliance on US purchases of its oil.

But in the chaos after the 2013 death of Chavez – who was succeeded by his anointed successor Maduro – followed a year later by the cratering of world oil prices, Venezuela is buried under about US$ 150 billion in external debt, of which roughly US$ 20 billion is Chinese.

Instead of working more with other international financial institutions and oil firms and adhering to their best practices, Venezuela’s leadership essentially rejected them and turned to Russia and China instead, said Matt Ferchen, a scholar with the Carnegie-Tsinghua Centre for Global Policy. — AFP

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