Dragonomics: How Latin America Is Maximizing (or Missing Out on) China's International Development Strategy

DRAGONOMICS

CAROL WISE

Dragonomics

HOW LATIN AMERICA IS MAXIMIZING (OR MISSING OUT ON) CHINA’S INTERNATIONAL DEVELOPMENT STRATEGY

Published with assistance from the foundation established in memory of Henry Weldon Barnes of the Class of 1882, Yale College.

Copyright © 2020 by Carol Wise. All rights reserved. This book may not be reproduced, in whole or in part, including illustrations, in any form (beyond that copying permitted by Sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), without written permission from the publishers.

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ISBN 978-0-300-22409-2 (hardcover : alk. paper)

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CONTENTS

Preface

Acknowledgments

Introduction: Debating the New Terrain

1   Dragonomics: An Internationalized Development Strategy

2   A Slow Thaw across the Pacific: From Socialist Revolution to Pragmatic Reform

3   From State to Market: A Fork in the Reform Road

4   Making Openness Work: Chile, Costa Rica, and Peru

5   An Institutional Resource Curse in Argentina and Brazil

6   Ratcheting Down the Industrial Ladder in Mexico

7   Latin America’s Pivot toward Asia

Notes

Index

PREFACE

THIS IS NOT A BOOK ABOUT CHINA. It is, rather, a book about Latin America’s reaction to and political economic interaction with China over the past two decades. This is admittedly a huge topic and a relatively new one. Since the explosion of trade, loans, and investment between the People’s Republic of China (PRC) and Latin America and the Caribbean (LAC) in the early 2000s, Chinese politicians and policy makers have sought to cast this burgeoning relationship as largely economic in nature. However, the very magnitude of these economic ties is eroding the PRC’s apolitical spin on them. The numbers are indeed significant: in 2018 total China–LAC trade (exports and imports) hit US$306 billion, up from just a few billion dollars in 2000. China’s total outflow of foreign direct investment (FDI) to LAC in 2018 was around US$129.8 billion, accounting for about 15 percent of LAC’s total FDI inflows. Total development lending from China’s two big policy banks to the LAC region since 2005 reached around US$150 billion in 2017. What are we to make of these numbers? Why now and why Latin America? How is tighter economic integration with China since the early 2000s shaping the political economies of its strongest LAC partners?

My first impulse was to research the ways in which Chinese exports had quickly burrowed through the North American market following China’s 2001 entry into the World Trade Organization (WTO). Seemingly overnight, in 2003 China bumped Mexico down a notch in its ranking as a US trade partner, and Chinese exports of intermediate manufactured inputs to both Mexico and the US were displacing products and producers within both of these markets. Was this just a one-shot phenomenon related to China’s having gained most favored nation status at the WTO? In violation of WTO rules Mexico responded with four-digit tariffs on over a thousand Chinese imports but to little effect. Was China becoming a de facto member of the North American Free Trade Agreement (NAFTA), regardless of Mexico’s efforts to shut it out with high tariff walls? These questions may have been compelling at the time, but editors at the big presses all deemed them too narrow. Think bigger, they all said.

Fast-forward seven years. In the aftermath of the 2008–9 global financial crisis (GFC) this picture had enlarged considerably. First, with a brief interruption during the GFC, it became clear that the biggest commodity boom ever had been under way since 2003, driven by China’s escalating need for precisely those commodities that some Latin American countries hold in abundance, such as copper, iron ore, crude oil, soybeans, and fish meal. Given China’s scarcity of natural resources, these commodities were essential for propelling the country’s ambitious manufacturing export-led model to ever-greater heights. Second, although the Latin American region went into the new millennium with anemic growth, Chinese demand for regional commodities helped to push average annual growth for the region as a whole to 4.8 percent between 2003 and the boom’s end in 2013—almost double the historical rate of growth. Third, while most of South America revived quickly from the GFC, countries in Central and North America were just surviving. Chinese imports had inundated Mexico and Central American markets, but these countries had little that China wanted to buy in return. North American trade deficits became the mirror image of the commercial surpluses that were accruing in South America.

This greater complementarity between China and the South American commodity-producing countries helps explain their rapid exit from the GFC. The financial crisis actually struck these countries on the trade side, and once China restored its growth with a huge fiscal stimulus they were back in business by 2010. Mexico, with its overwhelming dependence on the US market, took a major hit on both the current and capital accounts, registering the lowest returns on aggregate and per capita income growth among the top six Latin American countries between 2003 and 2013. Although the decade-long commodity price cycle had cooled by 2014, in 2017 prices on copper, fish meal, and iron ore remained two to three times above their 2000 levels. Nevertheless, this did not stop Argentina and Brazil from entering a downward economic spiral with no clear exit in sight, and Mexico continued to tread water. And yet the two smaller South American countries, Chile and Peru, held steady with positive rates of aggregate and per capita GDP growth.

I now had a book-length take on China–LAC ties, but how to make sense of these from the Latin American angle? I began with the premise that China, despite projecting the image of a behemoth Asian developmental state, faces serious natural resource constraints. The country’s leaders face the urgent need to feed the world’s largest domestic population and to fuel the world’s soon-to-be largest economy. Of necessity China has had to internationalize its development strategy. In his tour de force Chinese Economic Statecraft, William Norris analyzes China’s deft orchestration of foreign economic policy to these ends from the Chinese perspective. The task I have set here is to capture the ways in which China’s strategic foreign economic policies have crystallized within Latin America, which since the turn of the new millennium has served as one of several regional arenas in which this internationalized development strategy is playing out. This strategy is viable due to China’s accumulation of the world’s highest level of foreign exchange reserves—the first emerging economy to accomplish this feat.

What about the Latin American side of this equation? Once the dust had settled on the commodity price bonanza, the winners in terms of Chinese inflows of FDI were Brazil, Peru, and, a distant third, Argentina. Mexico had the strongest trade ties with China, although the bulk of this was on the import side, while Brazil, Chile, and Peru followed, in that order; furthermore, all three have maintained a more even trade balance with China since 2001. China has now displaced the US as the top trade partner for Brazil, Chile, Peru, and Uruguay. The other major capital inflow from China is lending from its two policy banks. As of 2017 the top loans went to Venezuela (US$67.2 billion), Brazil (US$28.9 billion), Ecuador (US$18.4 billion), and Argentina (US$16.9 billion). All of these figures flagged some initial puzzles. Why, for example, would Ecuador and Venezuela score so large on policy bank loans from China but rank quite low on FDI inflows from the PRC? How could a small, open economy like Peru attract nearly double the amount of Chinese FDI that Argentina had received up until 2017? Finally, why has Mexico, where high-value-added manufactured goods count for nearly 80 percent of exports, been virtually paralyzed in standing up to Chinese competition and instead resorted to self-defeating protectionism?

I tackled these puzzles with a three-pronged approach. First, I looked for lessons and themes that could build on and update long-standing theories and models of development. Second, I constructed a comparative macroeconomic database that measured everything from per capita growth to capital formation to long-term institutional performance. Third, I compiled three analytical development narratives along the lines of the methodological approach taken in Dani Rodrik’s edited collection In Search of Prosperity. It is too soon to attribute causality in the context of the China–LAC relationship. However, the development economics literature offers rich insights that help frame the emergent country scenarios.

I begin with three small, open economies—Chile, Costa Rica, and Peru—which out-performed Argentina, Brazil, and Mexico by a wide margin during the China boom and thereafter. All three of these smaller states had advanced considerably on macroeconomic and institutional reforms prior to the boom and were thus well positioned to accept China’s offer to each to negotiate a bilateral Free Trade Agreement (FTA). The proliferation of FTAs between developed and developing countries in the 1990s triggered a wave of mainly neoliberal analyses that touted their benefits based on computable-general-equilibrium models and comparative advantage. As my analysis shows, entering into a South–South FTA with China opened up new options for these countries while also defying narrow neoliberal parameters. China’s FTAs with Chile and Peru allowed for numerous exceptions in each country’s manufacturing sector, and all three FTAs offered immediate access for up to 90 percent of the Chinese market. Services and investment are covered in all three of these bilateral accords, which was a great leap forward for China.

I then turn to Argentina and Brazil, countries that ostensibly have it all in terms of rich factor endowments and strong trade complementarities with China. These countries are the most closely integrated into China’s internationalized development strategy and ostensibly industrialized enough to have avoided a full-blown episode of the resource curse. However, the boom caught each in the immediate aftermath of economic crisis and reform fatigue. I turned to recent work on the resource curse that broadens its definition to include the institutional landscape. From this angle, during the China price boom both countries suffered an institutional resource curse, if you will, signaled by the erosion of state and economic institutions, the adoption of seriously misguided public policies, and the stalling of essential reforms. Broad questions for analyzing an institutional resource curse include how did a critical juncture like the China boom work to strengthen (or weaken) domestic institutions, lower (or elevate) the threshold for achieving significant reform, and open (or obstruct) the way for new leadership, organizational change, and policy innovation? Both Brazil and Argentina come out on the negative side of this ledger. In Brazil, for instance, the boom set the backdrop for one of the world’s biggest corruption scandals—the skimming of billions of dollars from the state majority-held oil company (Petrobras)—while in Argentina it enabled executive interference and resource grabbing from a handful of private and public entities, including the reserves of the Central Bank of Argentina.

Mexico is my third country narrative. With the country’s accession to NAFTA in 1994, policy makers kicked away Ha-Joon Chang’s iconic development ladder (Kicking Away the Ladder: Development Strategy in Historical Perspective), jettisoning industrial policy and state intervention. Ironically, the triumph of securing this groundbreaking deal distracted subsequent Mexican administrations from carrying out the considerable backlog of reforms that would be required for the country to thrive in the global economy, NAFTA or no NAFTA. The trade deal alone and the neoliberal macro- and micro-economic policy approaches that framed it simply failed to trigger the kind of transformation that policy makers in the ruling party had promised. Instead, they delivered rampant corruption, burdensome regulation, a credit drought, and a mammoth infrastructure deficit. As Mexico has learned the hard way, an FTA is one possible venue for development but not an ultimate destination. The results depend largely on the hard work of public and private actors on the domestic front. With Washington’s renegotiation of NAFTA—now renamed the US–Mexico–Canada–Agreement, or USMCA—into a mercantilist manifesto that favors the US market, and China continuing to crowd out Mexican exports abroad, Mexican policy makers literally need to get a new life. This means climbing back up the ladder with better state guidance, articulating a formidable trade and competition strategy along Chinese (versus US) lines, and, finally, closing some mutually favorable investment deals with the PRC outside of the oil sector.

At least one external reviewer of this manuscript challenged my decision to exclude the cases of Venezuela and Ecuador as a fourth narrative. My rationale for doing so is as follows: because neither of these oil-abundant countries has made a convincing effort to diversify its economic base and both have rejected the kinds of institutional and macroeconomic reforms that could have helped to harness the China boom more productively, there is little more than an old-fashioned resource curse on which to base a narrative. Neither case contributes to theory building or to the larger body of rich literature on this topic by pioneering scholars like Terry Karl and Michael Ross. As this manuscript goes to press, postboom Venezuela remains mired in hyperinflation, authoritarian backsliding, and a tragic humanitarian crisis. The postboom milieu in Ecuador is not as dire, although by some estimates the government has mortgaged the bulk of the country’s oil reserves to China.

For China, both countries were low-hanging fruit, an easy way to get its foot in the door of the LAC region with infrastructure contracts that were high in Chinese content (labor, equipment, etc.) and low on environmental precautions. Venezuela has little to show for the billions lent to it by China’s policy banks. In his pathbreaking work on patient capital, Stephen Kaplan finds that in both Venezuela and Ecuador these were state-to-state loans made by China with no transparency or conditionality. Some were loans-for-oil deals, on which both countries are now in steep arrears; former presidents in both countries funneled other Chinese loans through special projects that are now largely untraceable. Ecuador, at least, has some highways and bridges to show for its Chinese loans. But it also has the US$19 billion. China-backed Coca Codo dam, already infamous for its corruption scandals and for shorting out the country’s electrical grid. The overall scenario is one of capital squandering and corruption. Sadly, this is nothing new in Latin America. Although Trump’s Washington has accused China of setting a debt trap for developing countries, the Venezuelan situation is playing out in the reverse: in the absence of conditionality and woefully behind in servicing its debt payments to China, Venezuela has ensnared Beijing in a creditor trap. Ecuador is not far behind it.

The China boom threw LAC’s reform gaps and institutional weaknesses into stark relief while also highlighting multiple paths forward for the very diverse mix of countries considered here. While the opportunities for closer economic integration with China are seemingly infinite, so too are the risks. This book shows that success has varied according to issue areas, sectors, and projects across these countries. For reasons analyzed throughout the book, the three small, open economies fared best by advancing institutional and macroeconomic reforms during and after the boom, whereas Argentina, Brazil, and Mexico were not able to seize the opportunities at hand for reform and restructuring. The work of the Nobel Prize–winning economist Douglass North (Institutions, Institutional Change, and Economic Performance) reminds us that the tedious Venezuelan pattern of the past repeatedly recurring in the present is far from inevitable. I note the tremendous room for maneuver afforded by the China boom and the opportunity for human agency in undertaking the kinds of reforms and promotional policies that could strengthen a given country’s ability to benefit most from its increased economic ties with China.

Although China has become a steady feature of the political-economic landscape in Latin America, this book makes clear that the China–LAC relationship is still a work in progress. Inevitably, the best outcomes have stemmed from China-related endeavors where rule of law, regulatory oversight, and a clear strategy exist on the Latin American side. As the China–LAC relationship moves into its third decade, this analysis suggests that political leaders, policy makers, and economic elites across the LAC region need to step up in brokering deals around the rich trade, lending, and investment opportunities China is offering, while also finding creative ways to minimize the risks.

ACKNOWLEDGMENTS

THIS BOOK WAS A LONG TIME IN THE making. I conducted fieldwork in all six of my case study countries, and I met with country representatives at the Beijing embassies of Argentina, Brazil, Chile, Mexico, and Peru. During the book’s completion I made presentations on this research at numerous universities and institutions, including Renmin University in Beijing, Carleton University (Ottawa), the University of Chicago, Boston University, Carleton College, the University of Virginia, the University of Alberta (Canada), the University of Illinois at Urbana-Champaign, Pacific University (Lima, Peru), FLACSO-Buenos Aires (Argentina), EAFIT University (Medellín, Colombia), FLACSO-Quito (Ecuador), Sergio Arboleda University (Bogotá, Colombia) and the University of the Andes (Bogotá, Colombia). Colleagues in the Latin American Institute at the Chinese Academy of Social Sciences in Beijing have been so very helpful. I received other valuable feedback during presentations I made at the Central Reserve Bank of Peru, the Guadalajara International Book Fair, at Canada’s Ministry of International Trade, the National Business Federation of Bogotá, and the Inter-American Dialogue in Washington, DC. Although it is simply not possible to mention everyone by name, I want to express my gratitude to all for their hospitality and collegiality.

My home department, Political Science and International Relations at USC, could not have been more supportive of this project. From funding to research assistance to a manuscript review seminar, my colleagues really came through. In my department (and in no special order), I thank Erin Baggott Carter, Gerry Munck, Pat James, David Kang, Ben Graham, Joshua Aizenman, Brett Carter, and Wayne Sandholtz for their feedback, support, and encouragement of my work. Ben Graham and his research assistant, Claire He, worked their magic in formatting the book’s figures for me. David Kang hosted the manuscript review seminar at our Center for International Studies and brought in Richard Feinberg and Barbara Stallings as external discussants. I want to acknowledge the very helpful insights from Richard and Barbara as well as the feedback from our doctoral students who participated in the seminar: Jennifer Roglá, Victoria Chonn Ching, Mariana Rangel, and Stephanie Kang. Many of my former and present doctoral students have also helped to sharpen my thoughts, including Christina Faegri, Cíntia Quiliconi, Fabian Borges-Herrero, Hai-vu Phan, Shiming Yang, Juvenal Cortes, and Nicolás Albertoni.

As for research assistance, I am proud to say that I relied almost entirely on our brilliant undergraduate students at USC. The provost’s office generously awarded me two Provost Undergraduate Research Fellows each year over the course of this project. The dean’s office also kicked in, providing research funding under the auspices of our Student Opportunities for Academic Research program. I thank David Glasgow in the USC Provost’s office and Steve Lamy in the Dean’s office of Dornsife College for their commitment to these programs and their support in pairing me with so many vibrant undergraduate research assistants. Because these are mentoring programs, many of these research assistants started during their sophomore year and worked with me all the way through to their graduation. I had fantastic number crunchers in Vijeta Tandon, Chengxi Shi, Scotty Huhn, and Hannah Kwon; bilingual whizzes in Dawn Powell, Erin Piñeda, Daniel Paly, Lucy Santora, and Qiong Wu; and other genuine talents in Becky Turner, Brittney Kidwell, Savannah Wiseman, Nick Engler, Chris Roman, Susan Ye, Felix Tam, Victor Paredes, Michael Lampe, Lauren Deife, Maureen Clougherty, Jason Tse, and Chenyan Zhou. Scotty Huhn, who left me long ago for Silicon Valley, compiled the final database for this project and graciously agreed to stick with me on a consulting basis through the publication of the book. Thank you so much, Scotty.

Five close friends—Debby Brautigam, Helen Shapiro, Cynthia Sanborn, Monica DeHart, and Erin Baggott Carter—read the entire manuscript word for word. They were hard critics, and I so appreciate the truthful feedback. Other supportive colleagues include Kevin Gallagher, Rebecca Ray, Tom O’Keefe, Shaun Breslin, Jonathan Fox, Leonardo Stanley, Margaret Myers, Guo Jie, Manuel Pastor, Michael Shifter, Stan Rosen, Rolando Avendano, Jeff Dayton-Johnson, Diana Tussie, Clay Dube, Shoujun Cui, Carol Graham, Stephen Kaplan, Alison Brysk, Martin Monsalve, and Benjamin Creutzfeldt. Enrique Dussel Peters has been an indefatigable force in gathering data on and promoting the study of China–Latin America relations. I rely heavily on Enrique’s data analyses. Because I knew little about China prior to undertaking this project, I want to acknowledge some of the authors and scholars whose work was instrumental in my increased understanding of this wondrous, complex country. I have cited them all in the book: Yasheng Huang, Minxin Pei, Yuen Yuen Ang, Justin Yifu Lin, Xiaolan Fu, Hu Angang, Susan Shirk, Barry Naughton, William Norris, Elizabeth Economy, William Overholt, Arthur Kroeber, and, finally, Ezra Vogel, for his masterful biography of Deng Xiaoping.

It was my luck to meet Jaya Chatterjee, my editor at Yale University Press, at the very point when she was launching a new series on Latin America. Thank you, Jaya, for your enthusiasm and unwavering support and for guiding me through this project. Eva Skewes and Dorothea Halliday at Yale University Press could not have been more helpful in finalizing the manuscript for publication. Lawrence Kenney did the copyediting, Bill Nelson finalized the figures, and Jeff Schier brought the galley proofs to life. They are all perfectionists, and for this I thank them. The editor of Pacific Affairs, Hyung-Gu Lynn, has the patience of a saint. He mentored me through my first publication in an Asia Pacific journal, and for this I am grateful.

In January 2018 I attended an exhibit called Winds from Fusang: Mexico and China in the Twentieth Century at the USC Pacific Asia Museum. The centerpiece of the exhibit was a large mural entitled Winds from Fusang painted in the tradition of the Mexican mural artist Diego Rivera by the Chinese artists Jingbo Sun and Shengtian Zheng. The mural blended powerful images from the Mexican and Chinese revolutions, and it featured iconic figures like Rivera, Frida Kahlo, Zhou Enlai, and Leon Trotsky. In 1956, at a very young age, Shengtian Zheng had seen the large Rivera mural The Victory of War at a rare exhibit of Mexican art in Beijing. This confluence of Mexican and Chinese culture confirms that the history between China and Latin America goes back much further and the ties have been closer than the mainstream narrative suggests. I thank these artists for granting me the privilege of using their work for the cover of my book.

INTRODUCTION

Debating the New Terrain

The United States is no longer our privileged partner. Now the privileged partner is China.

Ricardo Patriño, former foreign minister of Ecuador¹

BEGINNING IN THE EARLY 2000S, when most of the region was still reeling from the effects of the dot.com bust in the US and the deepening of this recession by the 9/11/01 terrorist attacks on New York City and Washington, DC, China became a much bigger player in Latin America and the Caribbean (LAC). Whereas LAC’s growth was in the dumps in 2001, this trend turned around almost overnight (fig. I.1). As Mother Nature would have it, the LAC region is home to those very commodities that China needed to propel its high-growth, export-led development model to a more mature stage. Under the impulse of voracious Chinese demand, prices for oil, copper, iron ore, soybeans, and fish meal soared (table I.1). For South America in particular the decade from 2003 to 2013 would turn out to be the biggest commodity lottery ever. Average annual growth for the region as a whole was 4.8 percent between 2003 and 2013—almost double the historical rate of growth for the region.² While there is certainly more to this story than the simple rise of China in Latin America, China’s trade demand and capital supply have helped to grease the wheels of LAC’s growth since the turn of the new millennium.

Figure I.1. Percentage growth of gross domestic product (GDP), 1998–2017.

Source: The Conference Board Total Economy Database™ (Adjusted version), March 2018.

Latin America’s growth spurt came on the heels of a major reform effort that had been under way in the region since the late 1980s and early 1990s. Dubbed the Washington Consensus (WC) by the economist John Williamson, this market-based approach rested on three pillars: privatization, liberalization, and deregulation.³ Nearly three decades later the record shows that LAC countries have indeed made strong inroads with the privatization of state-held assets; trade regimes have been liberalized, and there has been a diversification of trade partners; financial markets have been opened, deepened, and deregulated; external debts have been reduced; and a number of countries have built up large arsenals of foreign exchange reserves.⁴ This is another world altogether from earlier times in Latin America, when short-lived price spurts reaped large returns for the region but in the absence of sound macroeconomic policies or resilient economic institutions. This latter scenario, for example, was the backdrop to the 1982 debt shocks, which hurled LAC into the lost decade of high inflation, capital flight, and zero growth during the 1980s.

When we skip ahead twenty-five years to LAC’s responses to the 2008–9 global financial crisis (GFC), the difference is like that between night and day: not a single country was forced to turn to the International Monetary Fund (IMF) for assistance. Neither has the LAC region ever fully rebounded, as it did in 2010, from a crisis of this magnitude without relying on a kick-start from the motor of the US economy. Although the GFC was a financial crisis at heart, it hit Latin America, China, and most other emerging economies (EEs) on the trade side. This is because EE banks, for the most part, had avoided the reckless high-risk financial instruments that brought the US banking system to the brink in 2008. The impacts of the GFC clearly varied across the EEs and developed countries, but the responses were quite similar. Both China and the US moved quickly, with policy makers in both countries infusing a huge fiscal stimulus into their respective domestic economies. In 2009 alone the US spent 5.9 percent of GDP in its efforts to fend off a full-blown economic depression, while China’s fiscal stimulus amounted to 4.8 percent of GDP that same year.⁵

Table I.1. Annual commodity price trends in real (2010) dollars, 2000–18

Source: World Bank Global Economic Monitor (GEM). Available at http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?source=global-economic-monitor-%28gem%29-commodities.

Argentina, Brazil, Chile, and Peru were able to ride out the recovery on China’s shirttails, enabling each to similarly engage in counter-cyclical policies when the GFC struck.⁶ Recent research conducted by the Inter-American Development Bank (IDB) economist Ambrogio Cesa-Bianchi and his colleagues has found that the long-run impact of a [positive] Chinese GDP shock on the typical Latin American economy has increased three times since 1990.⁷ Thus for all but Mexico the quick pickup in Chinese growth and demand for LAC’s commodities put these countries back in business long before the US recovery. Mexico, being more tightly integrated with the US market, was beholden to US economic recovery and thus much slower to rebound. The overall picture, however, looked rosy. Brazil made the November 9, 2009, cover of the prestigious Economist magazine under the title Brazil Takes Off.⁸ Even Argentina, the bête noire of international financial markets following its messy US$100 billion bond default in 2001, was lauded by the IMF for making a much stronger than expected rebound from the GFC.⁹

Yet in the world of commodity price booms what goes up inevitably comes back down. Prices on all but crude oil began to drop in 2014–15 (see table I.1); by early 2016 oil prices had gone into their own freefall, dipping to just below US$30 per barrel.¹⁰ By 2019 they had stabilized at around US$62 per barrel. Reminiscent of the 1986 crash in oil prices, the combination of excess production and the slowing of Chinese growth from its thirty-year average of 9–10 percent annually down to about 6.5 percent showed how swiftly a negative GDP shock from China could dampen world growth. For the LAC region, just as China’s positive GDP shock was a godsend in 2003–13, its reversal was a negative jolt. The pain has been acute for those that were the most celebrated countries just three years earlier—Brazil and Argentina. In both cases the economy has shrunk, deficits are exploding, and social tensions are palpable.¹¹ Argentina, after paying off its IMF debt in 2006 and declaring a public relations war on the institution, was forced to return to the fund in mid-2018 with egg on its face. The IMF demonstrated that it held no grudges, cobbling together a new loan package for Argentina in the range of US$57 billion.¹²

According to Beijing, China’s slowing of growth has been partly intentional, as policy makers there seek to shift away from a heavy reliance on manufactured exports and big investment projects at home toward more services, technology, and domestic consumption. But China’s slower growth also reflects domestic reform bottlenecks across the board, especially in the financial (bloated state enterprise debt and other nonperforming loans) and real estate sectors. The pass-through for the LAC region as a whole has been a slowing of growth to 1–2 percent on average since 2014.¹³ Moreover, as the aura of plenty fades, long-standing reform gaps on both sides of the Pacific have become more glaring. China and LAC both face stern challenges in the realm of government effectiveness, regulatory quality, rule of law, and the control of corruption. But LAC, much more so than China, still lags sorely on indicators of efficiency, competitiveness, and productive investment.¹⁴

This current juncture is the impetus for this book. Commodity lotteries are seemingly random and unpredictable, and rarely do they leave a positive footprint once they taper down. In much earlier times Peruvian guano (fertilizer) producers and Brazilian rubber barons found this out the hard way. For price swings on more cyclically volatile commodities like oil, the present postboom economic plight of petroleum-producing Venezuela is like the rerun of a B-grade movie.¹⁵ Unlike past booms, though, China’s presence in the LAC region continues to hold strong. In fact, according to statements made by President Xi Jinping of China at a forum hosted by Beijing in January 2015 with thirty-three member countries of the Community of Latin American and Caribbean States (CELAC), the Chinese government is committed to doubling China–LAC trade to US$500 billion by 2025 and to investing US$250 billion in Latin America over the next decade.¹⁶ It is this commitment to stick around that has triggered debates concerning China’s true intentions in the region. At the same time, scholars and policy analysts have worried openly about the trade and investment asymmetries that are coming to characterize China–LAC economic relations.

Debating the New Terrain

Despite the emergence of a rich literature on the political economy of China–LAC relations, we are still scratching the surface in terms of our grasp of this phenomenon.¹⁷ Was the recent China boom just another flash in the pan for Latin America, or will there be some staying power to the apparently thick trade and investment ties that have been forged? Is it true, as the realist gurus John Mearsheimer and Stephen Walt have recently argued, that Washington needs to focus more on preserving US dominance in the Western Hemisphere?¹⁸ Since the advent of the administration of Donald Trump this call has been partially answered, as hardliners at the State Department and the National Security Council have sought to cast the China–LAC relationship as a threat to US hegemony in the Western Hemisphere. Within the ivory tower a slew of recent articles point to the emerging patterns of trade and investment asymmetry between China and the LAC region, casting this as a form of neo-dependency.¹⁹

In a similar vein, a new wave of scholarship cautions that stronger trade ties with China can lead to a convergence on foreign policy stances between LAC and China that represent a setback on the LAC side. For example, although based on thin data, Gustavo Flores Macías and Sarah Kreps report a dissemination of China’s less favorable voting preferences on country-specific human rights issues