Evan Ellis: China Pulls Back from Argentina

02 China, 02 Diplomacy, 03 Economy, 05 Energy, 08 Wild Cards
Evan Ellis
Evan Ellis

I am writing to pass along to you a story from Argentina which, in addition to the story itself, says much about the nature of Chinese engagement in the region, including how the Chinese approach to pursuing business and political objectives in the region differs from that of the US.

For me, the story below illustrates well the nuances, contradictions and complexity of Chinese engagement in the region:  here, it is not the Chinese who are behaving badly, but rather, their partners.   The Chinese are powerfully exercising influence, yet using informal channels and indirect pressures, rather than public conditions and demands.  The Chinese are both attempting to “save face” for their partner, and yet also indirectly show their ire when they themselves ‘lose face.”  And finally, a reminder that the dynamics of the China-Latin America engagement is a story of PEOPLE, and not just countries and faceless companies.


The story builds on an interview with Franco Macri (who is not only one of
Argentina’s leading businessmen, but also has been one of the key players in the majority of Chinese projects in the country in recent years).

In the article, Macri argues that Chinese financing for two major
hydroelectric facilities in the country is falling apart.  This is important
in itself, but the true insight comes from both “why” this may be happening,
and also Why Mr. Macri has a strong interest in pointing this out.

Important historical context:  In 2010, following numerous protectionist
measures by Argentina against Chinese products, the Chinese government
announced in an “unrelated” action that levels of impurities in Argentine
soy oil (that it had previously overlooked) were no longer acceptable, and
that it was suspending indefinitely acceptance of Argentine soy oil
shipments to the PRC…A potential revenue loss to Argentina of $1.4 billion
per year.   In a display of subtlety, the Chinese government never
officially declared that the soy oil cutoff was retaliation for the
Argentine protectionism, but made it known through informal channels that this was the case (See “Mrs. Kirchner leaves China with no announcement on the soy-oil embargo dispute.”  (2010).  MercoPress. July 17.  Available at
http://en.mercopress.com/2010/07/17/mrs.-kirchner-leaves-china-with-no-announcement-on-the-soy-oil-embargo-dispute.)

The Argentine government tried multiple channels to persuade the Chinese
government to resume acceptance of soy oil shipments, including a visit by
Argentine Chancellor Hector Tinermann, to no avail.  Then in July 2010,
Argentine President Cristina Fernandez herself traveled to China.  In
traditional Chinese style, with subtlety and saving face for both sides,
there was no ‘official announcement’ regarding the agreement reached, but
President Fernandez announced an enormous new business opportunity for China, resolving the stalled negotiation by taking it in a completely new
direction:  The Argentine government would make a major investment in the modernization of its railroad infrastructure, including the country’s
principal network weaving the country together with its neighbors: the
Belgrano-Cargas system.  Chinese banks would fund the majority of the $10
billion in new work, while Chinese companies would receive both the
construction work, and the contracts for railcars and engines.  Behind the
scenes, the key beneficiary of the deal, other than the Chinese, was
arguably Franco Macri, with a long history of partnering with Chinese on
Argentine investment projects from electronics and a Urea plant in Tierra
del Fuego, to a contemplated automotive facility.  It was one of Mr. Macri’s
companies (in conjunction it is believed with Chinese partners), which held
the concession.

The Chinese appear to have complied with their side of the informal
deal…Approximately a month after the visit of President Fernandez to the
PRC, Chinese authorities quietly resumed acceptance of soy oil shipments.
But the Argentine government never kept its side of the informal deal: the
Belgrano-Cargas project became delayed within the Argentine political system for almost two years.

In this context, the June 2012 visit to Argentina by then Chinese Prime
Minister Wen Jiabao is key.  Graciously, without any mention to the two year delay in implementation of the deal, or the informal quid pro quo behind it, Premier Wen publicly announced in Argentina a PRC commitment to increase the Chinese loan commitment, effectively to get the Belgrano-Cargass project moving again.

I argue that Prime Minister Wen put a lot on the line personally with such a
public commitment under the circumstances…And thus for him it must have been particularly uncomfortable when, just weeks later, the Fernandez
Government announced that it was moving against the concession holder of the Belgrano-Cargass line, ultimately alleging multiple improprieties and taking the concession away.  Not only was this arguably a personal affront for the Chinese Premier, but also arguably appeared to represent the Argentine government moving against Mr. Macri, one of the Chinese’ closest business allies in the country.

Despite such problems, other Chinese companies continued to negotiate other projects, including the construction of  two major hydroelectric projects along the Santa Cruz River in the province of Santa Cruz: the Nestor Kirchner hydroelectric facility in Condor Cliff, and the Jorge Cepernic hydroelectric facility in La Barrancosa.  The two facilities would provide a combined installed electrical capacity of 5,246 GW, 4.7% of all electricity in the country. The work, valued at an astounding $21.6 billion, was to go to the Chinese company Sinohydro, and to be financed by Chinese banks.

This is the context for the article that I am sharing with you below…The
news that the Chinese are now sending signals that their willingness to
finance the new $21.6 billion in work is now in doubt, and the indirect
suggestion that the treatment by the Argentine government of the
Belgrano-Cargass deal might have something to do with it.

In fairness, it is difficult to interpret from Washington exactly what is
happening.  Mr. Macri certainly has ample motive to link the Argentine
government’s new problems to their past mistreatment of his own business
interests in Belgrano Cargass.  The Chinese may or may not be sending a
signal.  They may be seeking to apply pressure on the Argentine government to begin moving on all of these projects.  They may, conversely, be seeking to back away from their support for the Argentine government in a quiet and face-saving way.

There is an interesting comparison here also between Argentina and
Venezuela.  Following that nation’s contested political succession, the
Chinese did a different kind of face-saving deal.  They refused to provide
to the new Maduro government the approximately $10 billion
no-strings-attached loan that it had been seeking to solve its deepening
liquidity crisis, but instead, agreed to a new $5 billion loan, tightly tied
to specific new projects for Chinese firms.  There seem to be two lessons:
(1) the importance of “face” in all Chinese political negotiations, and (2)
that the Chinese are willing to accept high amounts of political risk and
mismanagement in the use of their money, but are not willing to accept
mistreatment or betrayal at senior levels by the leadership of countries to
which they are providing tens of billions of dollars of financial,
investment, and trade benefits…

I hope that you find this analysis, and the article below, of interest.  My
thanks to my respected Argentine colleagues who provided me insights for
this email…and my apologies in advance for any details that I may have
gotten wrong.

I look forward to interacting with each of you in the coming year, and hope
that 2014 brings to you many good things…

Respectfully,

Evan


http://www.lapoliticaonline.com/nota/77414-franco-macri-confirmo-el-fracaso-del-gobierno-en-la-gestion-de-creditos-en-china/

Franco Macri confirmó el fracaso del gobierno en la gestión de créditos en
China LPO. El empresario Franco Macri aseguró que la no ejecución de créditos anteriores otorgados por China es el principal motivo de los problemas de financiamiento para las represas de Santa Cruz. LPO había adelantado el fracaso de las gestiones.

“Hay que respetar las normas escritas y no escritas. China, si otorga un
préstamo a un país, y ese país no lo usa, es difícil que dé otro préstamo.
La presidenta firmó acuerdos por US$ 10 mil millones en 2010 y no se usó ni un dólar todavía”. Así explicó el empresario Franco Macri los problemas del gobierno nacional para conseguir financiamiento para la obra de las represas de Santa Cruz adjudicadas a la cordobesa Electroingeniería.

Como adelantó LPO, el viaje a Beijing encabezado por el secretario de
Finanzas Adrián Cosentino y el de relaciones económicas internacionales,
Augusto Costa, fracasó y los funcionarios se volvieron sin conseguir los
avales para construir las millonarias obras. Sin ese paso la licitación tan
ansiada por Cristina volverá a fojas cero.

“Teniendo una financiación pendiente es muy difícil que los chinos otorguen otra. Nadie ofertó financiamiento. Las normas son las normas. Las relaciones políticas de China con Latinoamércia son totales. Pero la financiación responde a normas muy estrictas. No te dan un préstamo si tenés otorgados y sin usar US$ 10 mil millones”, explicó Macri en una entrevista con el diario Perfil.

El empresario conoce muy bien el esquema de negocios chino. Vive 6 meses por año en tierras del presidente Xi Jinping y es consejero senior para
inversiones chinas en América Latina. Hasta ostenta el título de Ciudadano
Ilustre de Xianxi: un reconocimiento por sus gestiones -que ya llevan dos
décadas- entre Asia y América Latina, sin olvidar que él fue uno de los
principales promotores de la creación de la Cámara de la Industria y
Comercio Argentino-China.

LPO explicó que un seguro que garantice el crédito es el primer paso para
acceder al financiamiento internacional y es uno de los problemas centrales
que vive el gobierno.

La principal es que Néstor y Cristina no ejecutaron casi ninguno de los
proyectos que acordaron con el Gobierno chino y en todos los casos
utilizaron aseguradoras de ese país.

En Beijing Cosentino y Costa no pudieron más que escuchar las razones de los chinos para no darle avales a la Argentina. “Hasta que no se cumpla con los acuerdos previos no hay acuerdos nuevos”, fue la frase más repetida por los chinos.

Más tarde, a principios de diciembre, la gira a la que Julio de Vido y Axel
Kicillof se embarcaron en China, también arrojó resultados negativos.
El ministro de Economía logró colarse a último momento a la visita que su
par de Infraestructura había planeado para intentar destrabar los fondos que permitan comenzar las obras de las represas “Néstor Kirchner”.