correct: An earlier version of this story said that the Hualong One nuclear technology has so far only produced electricity in mainland China. In fact, it also produces electricity in Pakistan. sorry.
Tonhey should It’s a perfect match, like steak and a glass of Malbec. Argentina has fertile land and skilled farmers. China has 1.4 billion mouths to feed. Bilateral trade should be hot. But Argentina’s policies have been so erratic that China often asks: Where’s the beef?
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Sometimes, literally. In 2018, China opened its market to Argentine beef. At first, trade prospered. However, in 2021, Argentina imposed a beef export ban on itself. “The Chinese couldn’t believe it,” recalls Patricio Giusto of the China-Argentina Observatory, a think-tank.
The complicated logic is like this. Rising domestic meat prices are unnerving Argentines who love barbecue. President Alberto Fernandez reasoned that if he stopped foreigners from gobbling up Argentine beef, domestic consumers would have more. The ban has done little to curb inflation, which is now close to 100%, largely due to the government’s frantic money printing. But the export ban has hurt Argentine farmers and angered their Chinese customers.
Smarter engagement yields huge benefits. Argentina desperately needs money; China has deep pockets. China is hungry for minerals; Argentina has mountains. The current Argentine government, made up of prickly left-leaning Peronists, has not taken advantage of these economic opportunities, prioritizing political and diplomatic relations with China, much to the alarm of the United States. A more pragmatic approach would be to seek to befriend the two great powers while taking advantage of the complementary ways in which the Argentine and Chinese economies can complement each other. Argentina’s next national election in October could bring such a government to power.
Economic relations between Argentina and China have developed rapidly in recent decades. Bilateral trade volume increased from US$2.3 billion in 2001 to US$26 billion last year. China has announced several large investment projects. More than half of the 62 loans issued by Chinese commercial banks in Latin America between 2007 and 2021 went to Argentina, according to the Inter-American Dialogue, a Washington think tank (see chart). Most of this happened after 2015. ICBCChina’s largest commercial bank, dominates the skyline near the Presidential Palace in Buenos Aires.
Recently, though, progress has stalled. As long as Argentina has a comparative advantage, the Fernández government will weaken it. A blanket ban on beef exports has been lifted, but a ban on seven popular types of beef remains in place, such as short ribs. The crop is subject to soybean export duties ranging from 7% (sunflower oil) to 33%. This discouraged investment and cost Argentina a lot of money. David Miazzo of Fada, a think-tank, estimates that it could boost grain and oilseed exports by $25bn a year within a decade if it pursues smart policies that stop halfway. equivalent to 5% of today’s gross domestic product. But the government desperately needs short-term cash, and shipments of grain are hard to hide and easy to tax.
Chinese investments that make headlines are often in trouble. A year ago, China announced an $8 billion deal to build a nuclear power plant near Buenos Aires. It is eager to show off its Hualong One nuclear technology, which has so far only generated electricity in mainland China and Pakistan. It also wants to lock Argentina into the kind of long-term relationship the nuclear program requires.
The problem is that Argentina can’t afford the price tag (plus interest, it could add up to $13 billion, estimates former energy official Julian Gardano). Its net foreign exchange reserves are just $2.5 billion, according to consultancy Econviews.Argentina owes more than any other country International Monetary Fund, and are working to secure another lifeline. After repeatedly renegotiating the nuclear program, Argentina begged Chinese lenders to cover 100% of the cost, up from 85%. Mr Gardano predicted that the project “wouldn’t happen”.
In 2014, during the presidency of Cristina Fernandez de Kirchner, now the country’s vice-president, Argentina borrowed $4.7 billion from China’s three major state-owned banks to build on Ms Fernandez’s political stronghold, Santa Cruz Two hydroelectric dams. Interest payments are now a big drain on the budget, and the dams haven’t produced any electricity yet. Last year, Chinese companies appeared well positioned to win a contract to build a pipeline to Buenos Aires to transport gas from Vaca Muerta, one of the world’s largest shale gas and oil reserves. But after some wrangling, they withdrew their bid. In 2020, Chinese oil giant Sinopec withdrew from Argentina after a dispute with unions.
Price controls reduce incentives to invest in energy. Households pay almost nothing for electricity and waste a lot of it. Power outages are common.
Gerardo Morales, governor of Jujuy province, said that regardless of the business, “Chinese companies face the same problems as all companies that want to invest in Argentina”. In addition to high inflation, investors must contend with currency controls, which make it difficult to repatriate profits. Multiple exchange rate regimes (there are at least a dozen for the U.S. dollar) create confusion and distortion. Exporters must hand over dollars at the official exchange rate, which is about half the dollar’s value. The government distributes hard currency at reduced prices in a process fraught with corruption. Specials apply to rock concerts (“Coldplay” rates) and streaming services (“Netflix” rates), among others. Chinese companies are finding it difficult to do business in a country where policies change direction as frequently and unpredictably as a soccer ball at Messi’s feet.
Argentina seems more interested in being an ally of China than a supplier to China. Vice President Fernandez (no relation to his titular boss) recently gushed that China is “the most successful capitalist system”. China has highlighted similarities between Taiwan and the Falkland Islands, a British territory claimed by Argentina. (One similarity it doesn’t mention is that the Falklanders, like the Taiwanese, don’t want to be ruled by their bigger neighbors.)
Much of Argentina’s recent collaboration with China has been dominated by political symbolism rather than economic substance. Some of them have already angered the United States. Last year, Mr Fernandez announced that Argentina would join China’s global infrastructure program, the Belt and Road Initiative. The agreement does not include new financial commitments. China has established a space observatory in Patagonia, which it claims is purely for scientific purposes – the extreme southern latitude allows it to see into the universe that it cannot see from China. Others suspect it is espionage; unlike similar European observatories, China’s is closed to the public and staffed by military personnel. In September, the governor of Tierra del Fuego, Argentina’s southernmost island, said his province was China’s “gateway” to Antarctica and had a logistics base for ships.
The Fernandez administration may have underestimated the recent US animosity towards China and its determination to prevent China from gaining a foothold in its hemisphere. Any look-alike Chinese military activity in the region is sure to irritate any U.S. government. While Argentina is not like the dictatorships of Cuba or Venezuela, which the US views as enemies, some hotheads in Washington say it is heading in that direction. On February 28, US Congressman Maria Elvira Salazar said that Argentina had reached an agreement with China to build Chinese fighter jets in Argentina. She calls it “a pact with the devil that can have biblical consequences.” The Argentine government has said it has no such plans.
Although the Peronists were skeptical of the Washington government, they did not want to alienate it, not least because of the support it had International Monetary Fund Depends on the goodwill of the United States. They have already begun to abandon the deal with China that the United States most opposes. Argentina now says it will use its own money to build a sea base in Tierra del Fuego, meaning that is unlikely to happen. Argentina’s plan to buy Chinese fighter jets was canceled in December; Argentina may now buy older American jets if it can find the money.
Frustrated with Argentina’s central government, some Chinese investors have dealt directly with provincial governments. Governor Morales of Jujuy Province has visited China many times. Jujuy’s arid soil is barely suitable for farming, but it has sunlight and minerals. Cauchari’s solar park, built on heights plateau (Plateau) Generate enough electricity for 160,000 households with Chinese capital and technology. The nearby $852 million Sino-Arab Lithium Project is expected to start producing the metal used in electric vehicle batteries this year. Mr Morales said Argentina had “enormous opportunities … in a world hungry for food and energy”. If it removed capital controls and had only one exchange rate, it would get “much greater investment flows”.
Elections in October are expected to bring in a government with more robust economic policies, which should help Argentina’s business relationship with China. It may also be less willing than the Peronists to promote Chinese ambitions in the Western Hemisphere. “We are democratic and believe in human rights. We do not [share the Chinese] view of the world,” said a senior member of the opposition. But economically, “they need what we have and we should take advantage of it, [by exporting] minerals and food. Mr Giusto agrees. He points out that Uruguay is Argentina’s better-governed neighbor and has good relations with the US and China. It exports beef and behaves predictably.
The Chinese communist regime may complain if Argentina elects a government that is less friendly to its strategic goals and closer to the United States. But if it makes Argentina’s economic policy less outlandish, Chinese investors may quietly welcome it. ■
