Chile’s once-pioneering relationship with China is turning into dependency

You are reading chapter 2 of the MERICS  Paper on China "Beyond blocs: global views on China and US-China relations". Click here to go to the table of contents.

Chile was a pioneer in Latin America’s relationships with China. It has the highest number of instruments of association and cooperation with China at the Latin American level and built the bilateral relationship around pragmatism and economic cooperation. The pragmatic trend is likely to continue, though Chile’s asymmetrical relations with China may well be accentuated under President Gabriel Boric’s left-wing government, formed on March 11, 2022. He inherits Chile’s institutional weaknesses and crisis-prone economy.¹ The Chilean communist party (PC) plays a strong role in his government (ministers, under-secretaries and advisers in more than half the ministries, in the Presidency, Defense, Interior, General Secretary of Government, Finance, Labor, Sciences, Energy, Mining, Education, Justice, Transport and Communications).² Furthermore, PC ties with the Chinese communist party (CCP) could influence Boric’s stance towards international relations, specifically US-China rivalry. The new government has already ceased to criticize the war in Ukraine. China’s presence in Chile will continue to grow. However, public opinion is also shifting and has become increasingly critical of the relationship.

China has continued to consolidate its position as Chile’s main trading partner. In 2021, China accounted for 38.3 percent of Chilean exports, while the United States was second with 16.4 percent; the EU took 8.6 precent, Japan 7.7 percent and the four-nation regional Mercosur trade bloc 6.2 percent.³

In 2021, Chile’s bilateral trade with China rose to USD 57.72 billion, up 39.8 percent on 2020, according to Chile’s National Customs Service. The growth was due to a substantial rise in Chile’s imports of Chinese products, which in 2021 totaled USD 25.56 billion, representing an increase of 68 percent year-on-year. China is now positioned as Chile’s largest source of imports, accounting for 29.2 percent of the total. Meanwhile, Chile’s exports to China were worth USD 35.42 billion in 2021, up 31 percent on 2020. China therefore remained the main buyer of Chilean products, taking 38.4 percent of Chile’s total exports.⁴

The trade balance between the two countries is nominally favorable to Chile, but is largely dependent on mineral exports. Mining made up 84.4 percent of Chile’s shipments to China. Copper minerals and their concentrates rose 62.9 percent in 2021. Non-mining products accounted for just 15.6 percent of exports, of which forestry products formed more than a third.⁵ Chile’s export basket is much more limited than China’s.

Investments from China rose by 167 percent to USD 4.85 billion in 2019. The number of projects rose by 55 percent compared to 2018, with 31 initiatives registered at the end of 2019. Chinese investments are mainly directed at: 1) natural resources (focused on materials for non-conventional renewable energy); 2) construction (with a focus on concessions) and 3) the financial sector. China has become the main foreign investor in Chile, overtaking the United States and Canada.⁶ However, China’s interests in Chile have sparked objections, as they are in strategic sectors, prompting parliamentarians from both left and right to advocate greater regulation of foreign investment.⁷

In 2021, the Financial Market Commission authorized China Exim Bank to operate in Chile, making it the third Chinese bank in Chile, alongside Bank of China (2018) and China Construction Bank (2016). All three banks regard Chile a suitable location to host their regional platforms thanks to its digital eco-system and skilled workforce. All three focus on corporate banking; their target clients are Chinese companies operating in Chile, large Chilean companies and export and import companies trading between the two countries.⁸

Two decades ago, Chilean foreign trade was directed mainly to North America, Asia and Europe, in a balanced way. The data shows a trend towards greater dependence on a single market has been emerged over the last decade; Chile’s accentuated dependence on China and on a single product has been called “copper dependency.”⁹ China’s growing demand for raw materials means this trend will intensify, along with Chile’s vulnerability to Chinese economic slowdowns.

Military cooperation with China has gradually increased in strategic areas, especially military exchanges consisting of official visits from senior military figures, training exchanges and visits to military units. For instance, in 2013, a Chinese naval task force conducted joint military exercises with their Chilean counterparts, before passing through the difficult waters of the Magellan Strait to make port calls in Argentina and Brazil. In 2019, the PLA Navy icebreaker Xue Long II made its maiden voyage to Antarctica.¹⁰ China is currently in talks with Chile to gain access to Punta Arenas so it can resupply its Antarctic bases from there.

Sharply rising financing for China’s Antarctic Program is another trend likely to affect the region’s geopolitical environment. Argentina and Chile are fundamental to China’s geostrategic perspective, because of their proximity to Antarctica and because they have the largest, oldest, permanent Antarctic bases capable of operating non-stop throughout the year – Orcadas de Argentina base, set up in 1904, and Captain Arturo Prat of Chile, 1947.¹¹

In the space sector, the Chinese Academy of Sciences’ South American Astronomy Center (CASSACA) stands out as it was among the first International Research Centers financed by China’s government. CASSACA began operating in Santiago in October 2013 from offices located atop Cerro Calán, next to the National Astronomical Observatory and the University of Chile’s Department of Astronomy.¹²

China’s initiatives are driven by a macro strategy embodied in White Papers on Latin America and the Caribbean, produced in 2008 and 2016. The White Papers establish China’s objectives and priorities for the short, medium and long term and highlight the region’s growing importance for Chinese foreign policy. Topics covered include geostrategic, political, economic-commercial, military, cooperation, education and cultural matters. By contrast, there are hardly any instances of debate in Chile about the appropriate scope of military cooperation with China. The new leftist government of President Boric and his Minister of Defense Maya Fernández (Socialist Party) is likely to shrink the minimal spaces for debate that exist, such as the National Academy of Political and Strategic Studies (ANEPE). These may cease to be spaces for professional and academic analysis¹³ because despite President Boric’s campaign promises “the appointments he has made to the front line of the government have not been exempt from criticism for prioritizing political quota,”¹⁴ which suggests a trend towards greater political clientelism.

Chinese investment in Chile’s critical infrastructure is another under-considered issue. Currently, Chinese companies control an unprecedented 57 percent of electricity distribution. The growing Chinese presence in Chile’s digital architecture is also a concern for the intelligence services.¹⁵

The United States and China are Chile’s main trading partners, so any sustained negative effect on their economies has a direct impact on Chile – specifically, on the price of copper. If tariffs hurt US demand for Chinese goods, then China needs less key industrial raw materials such as copper, which dampens Chile’s exports.¹⁶ A domino effect is generated because once Chilean exports contract so do mining investments, the public portfolio, private accounts and the labor market. If Chile’s exports and consumption fall, rating agencies may downgrade the country’s credit rating. Chile would then have to pay higher interest rates on capital market funds, with further negative impacts on large and small companies.

Concerns also exist about the Digital Silk Road, 5G technology and possible consequences for data handling. Chinese firms invest in the technology sector because they consider Chile has acquired leadership in digitalization within Latin America, and so has a good infrastructure and human resources base to run regional operations.¹⁷ For instance, Huawei’s Data Center opened its second data center in Chile in 2020, focused on AI and Big Data services. Chinese interests in Chile have generated public debate, along with US pressure to revoke the Visa Waiver.¹⁸ In 2021, the tender for Identity Card and Passports in the Civil Registry was awarded to Aisino (one of China’s top five tech firms) but later withdrawn under public pressure.¹⁹

US influence in the Southern Cone has declined in the last two decades relative to China’s. However, Washington’s presence has become more visible in recent years, because of its struggle with China in a region of traditional US influence. Chile’s position has been to maintain equidistance and pragmatism vis-à-vis the two powers, given its asymmetric relationship with both of them. But the important role of the Chilean communist party (PC) within the new government and its greater closeness to China may change this policy framework.

When considering perceptions of China in Chile, it is important to distinguish between the Chilean authorities’ official discourse and that of non-official elite groups. Official discourse is marked by a positive perception of China. It lauds Chile’s first place position in the Latin American context and the “special relationship.” This narrative flows from Chile’s pioneering status in forging relations with China: in 1970, it was the first country in South America to establish diplomatic relations with China, and the second at the Latin American level. In 1982, Chile was the first Latin American country to agree a joint venture with China in 1982; it was the first Latin American nation to support China’s entry to the WTO in 1999; then to recognize China as a market economy in 2004; and to sign a Free Trade Agreement (FTA) in 2005. Chile has the largest number of instruments of association and cooperation with China at the regional level.

However, though the official discourse of political and diplomatic elites manifests positive perceptions, there is also a non-official discourse. Here, the perceptions of the same elites are permeated by mistrust and fear towards China, due to the disparity in capabilities and accentuated asymmetry in multiple fields (geopolitical, diplomatic, political, economic, etc.).²⁰ Chile agreed to “comprehensive strategic association” status in 2016. However, a requirement to obtain that status was that Chinese officials should hold coordination meetings with counterparts in key Chilean ministries such as mining and agriculture. Distrust of this mechanism forms part of the unofficial narrative.

Political and academic actors also view the strengthening of the military dimension in bilateral relations with concern. They cite the increase in military cooperation with China, interests in Antarctica as a key geopolitical point, joint military exercises, and China’s sales or donations of military equipment to Chile.

In the corporate sector, positive or negative perceptions of China tend to correlate with the degree of success or opportunity that China represents for businesses. Among large business associations (exporters of raw materials and importers of Chinese manufactures), China is perceived as a “source of opportunities” – especially since the FTA and boom in demand for raw materials. But perceptions differ among small and medium-sized enterprises (SMEs); negative perceptions are at their strongest in the local footwear sector, which has almost disappeared due to Chinese competition. Although perceptions vary among sectors, there is a common denominator; the sense that China is an increasingly dominant and complex counterpart, due to different economic and cultural variables involved in business processes.

The 2014 “The Americas and the World” survey found 25 percent of the Chilean public considered China a “friendly country,” and 67 percent considered it a “partner country”. Favorable opinions towards China are also seen in how Chileans rate its influence in their country: In 2013, 75 percent believed China had a very positive or positive influence in Chile and only 8 percent saw a very negative or negative influence (CIDE, 2014). The trend remains. More recently, China has begun pursuing a strategy to enhance its positive image in the Chilean media (using paid space for inserts in the local press), which has increased its cultural influence. Chile has also seen a recent wave of Chinese migration – it was among the 10 most important migratory flows in 2010.²¹

However, Covid-19 was a turning point in the decade-long positive perceptions of the “China Boom.” Broad public opinion perceives China as “guilty” of the pandemic and trying to make amends with the “diplomacy of masks and vaccines,” which has been a theme in various opinion blogs. There have also been negative perceptions surrounding the award of key tenders, such as for passports in the Civil Registry, which was then reversed.

In any case, it is key to consider that the study “China In The World 2022” places Chile among the 15 countries most influenced globally by China in the media, economy and local politics, and therefore has a clear impact on perceptions.²²

The backbone of Chilean state policy towards China has been pragmatism based on economic and trade relations. It is possible that this pragmatism will continue with the center-left coalition of President Boric, but it is very likely that asymmetry in the bilateral relationship will be accentuated, given Chile’s greater institutional instability, a new constitution giving more powers to the regions (in line with a referendum under the previous president),²³ and the potential for economic and fiscal crises. The current government has given a key role to the Chilean communist party (PC),²⁴ is very close to the Chinese communist party (CCP) and takes a favorable view of China.

The growth of Chinese investment in Chile has caused a series of negative perceptions and public criticisms. Parliamentarians (from left and right parties) led by Jaime Naranjo from Partido Socialista (PS), and Miguel Mellado from Renovación Nacional (RN) have expressed their concern at how the Chinese state company State Grid now controls more of half of Chile’s electricity distribution market. They have presented a bill highlighting the strategic nature of the electricity sector and their concerns that State Grid will hold the personal data of 4 million customers. They argue their action is not “against the Chinese State but against any State,” nor is it an anti-investment law, because it does not target private firms, “but it is very different when another State invests as such. That must be regulated so that tomorrow we don’t get any kind of surprise.”²⁵

China is currently impacting Chile though foreign investment; as an exporter of manufactured goods; as a buyer of raw materials, thereby intensifying Chile’s dependence on commodities (especially copper); as an investor in infrastructure to ensure access to markets, raw materials and energy resources. But though Chinese investment has gained prominence in some areas, such the energy sector, its participation in foreign direct investment (FDI), remains limited compared to the United States and other Western countries with historical influence in Chile.²⁶

China’s soft power in Chile manifests itself in different ways to influence public views. In this regard, it would be necessary to review the influence of China in the media through paid sections in the local press, as well as influence in the academic sector to counter critical analysis through the financing of projects, scholarships or infrastructure (even in public universities).

And finally, the advance of Chinese investment within strategic sectors such as energy, mining, technology and telecommunications, banking and health is a key issue. Two recent examples are that Sinovac will install a ‘Fill and Finish’ facility to convert bulk vaccines into doses,²⁷ and the award in January 2022 to Chinese vehicle battery maker BYD Chile SpA10 of one of five lithium exploitation quotas tendered by Chile.²⁸ BYD provides electric buses for Santiago’s public bus network RED Metropolitana de Movilidad.

Endnotes

1 |The Guardian (2022), Gabriel Boric, 36, sworn in as president to herald new era for Chile. 11 Mar. Available at: https://www.theguardian.com/world/2022/mar/11/gabriel-boric-chile-president-new-era Accessed: June 10,2022.

2 | El Líbero (2022), El Comité Central del PC captura bastiones del gobierno de Boric con foco en Apruebo y refundación. 23 de mayo. Available at: https://ellibero.cl/actualidad/el-comite-central-del-pc-captura-bastiones-del-gobierno-de-boric-con-foco-en-apruebo-y-refundacion/. Accessed: May 25, 2022.

3 | Subdirección de Relaciones Económicas Internacionales. SUBREI. Gobierno de Chile (2022), “Comercio
exterior de Chile crece 41% en 2021 impulsado por envíos no cobre y servicios.” 07 de enero. Santiago. Available at: https://www.subrei.gob.cl/sala-de-prensa/noticias/detalle-noticias/2022/01/07/comercio-exterior-de-chile-crece-41-en-2021-impulsado-por-env%C3%ADos-no-cobre-y-servicios. Accessed: March 30, 2022.

4 | Servicio Nacional de Aduanas. Gobierno de Chile (2022), “Diario Financiero: Intercambio Chile-China salta en 2021 gracias a las importaciones.” 18 de enero. Santiago. Available at: https://www.aduana.cl/diario-financiero-intercambio-chile-china-salta-en-2021-gracias-a-las/aduana/2022-01-18/150942.   html. Accessed: June 27, 2022.

5 | Ibid.

6 | InvestChile. Ministerio de Economía. Gobierno de Chile (2021), “China lidera visas para inversionistas.“ 27 de Julio. Santiago. Available at: https://blog.investchile.gob.cl/bloges/china-lidera-visas-para-inversionistas. Accessed: January 18, 2022.

7 | Emol (2021), “Chile como destino favorito para la inversión china en la región: Expertos analizan el "enganche" con el gigante asiático.” Santiago, 10 de Agosto. Santiago. Available at: https://www.emol.com/noticias/Economia/2021/08/10/1029162/chile-atractivo-inversiones-china.html. Accessed: March 28, 2022.

8 | Bank of China (2018), Agencia en Chile. Available at: https://www.bankofchina.com/cl/es/aboutus/ab1/201803/t20180322_11786200.html. Accessed: January 17, 2022.

9 | Meller, P. (2013), La viga maestra y el sueldo de Chile. Mirando el futuro con ojos de cobre. Santiago: Editorial Uqbar. pp. 1-15.

10 | Ellis, E. (2021), “China y su avance militar estratégico en Argentina / China’s Strategic Military Advance in Argentina.” Red China y América Latina: Enfoques Multidisciplinarios (REDCAEM), Columna sobre Geopolítica y Geoestrategia, 1 de noviembre. Available at: http://chinayamericalatina.com/china-y-su-avance-militar-estrategico-en-argentina/ Accessed: March 10, 2022.

11 | Council of Managers of National Antarctic Programs (COMNAP) (2009), “Antarctica and the Southern Ocean: main Antarctic facilities operated by the National Antarctic Programs in the Antarctic Treaty area (south of 60° latitude south).” Kingston, Tasmania: COMNAP.

12 | Embassy of the People's Republic of China in Chile (2022), “China y Chile unidos por las estrellas.” Santiago, 22 de febrero. Available at: http://cl.china-embassy.gov.cn/esp/zggx/kjww/202202/t20220222_10644241.htm. Accessed: April 1, 2022.

13 | El Mostrador (2022), “La ministra de defensa tiene la palabra.” 17 de abril. Available at: https://www.elmostrador.cl/noticias/opinion/2022/04/17/la-ministra-de-defensa-tiene-la-palabra/. Accessed: April 17, 2022.

14 | El Líbero (2022), “ʻPremios de consueloʼ: Un tercio de la primera línea del gobierno de Boric acaba de perder una elección." 6 de abril. Available at: https://ellibero.cl/investigacion/premios-de-consuelo-un-tercio-de-la-primera-linea-del-gobierno-de-boric-acaba-de-perder-una-eleccion/. Accessed: April 17, 2022.

15 | Ellis, E. (2022a), “Riesgos del compromiso chino en las Américas.” Available at: https://dialogo-americas.com/es/articles/riesgos-del-compromiso-chino-en-las-americas/#.Yl2l-63eW_t. Accessed: April 18, 2022.

16 | Biobiochile.cl (2020), “Los efectos en Chile del acuerdo comercial de China y EEUU: "Si ellos andan bien, también nosotros." 16 de enero. Available at: https://www.biobiochile.cl/especial/lo-que-debes-saber-hoy/2020/01/16/los-efectos-en-chile-del-acuerdo-comercial-de-china-y-eeuu-si-ellos-andan-bien-tambien-nosotros.shtml. Accessed: April 14, 2022.

17 | BCN. Biblioteca del Congreso Nacional de Chile (2022), Inversión de China en Chile: análisis de IED de China en la última década.” 8 de marzo. Available at: https://obtienearchivo.bcn.cl/obtienearchivo?id=repositorio/10221/32890/1/Inversion_de_China_en_Chile.pdf. Accessed: March 15, 2022.

18 | Interferencia (2022), “Aisino se retira de Chile a cuatro meses de perder licitación impugnada por sus competidores.” 20 de abril. Available at: https://interferencia.cl/articulos/aisino-se-retira-de-chile-cuatro-meses-de-perder-licitacion-impugnada-por-sus-competidores. Accessed: April 22, 2022.

19 | La Tercera (2021), “Licitación de pasaportes: Aisino refuta al Registro Civil y aclara que cumplió todas las exigencias.” 20 de noviembre. Available at: https://www.latercera.com/pulso/noticia/licitacion-de-pasaportes-aisino-refuta-al-registro-civil-y-aclara-que-cumplio-todas-las-exigencias/NVCHK2AZZNHW5FPLXZ6V5RAJOM/. Accessed: April 2, 2022.

20 | Aróstica, P. (2021), “China and Chile 50 years of relationships: Asymmetries, perceptions and perspectives.” In: Noesselt, N. (Ed.) China's Interactions with Latin America and the Caribbean. Conquering the US's Strategic Backyard? Baden-Baden, Germany: Tectum Verlag. pp.141-162.

21 | Ibid.

22 | La Tercera (2022), “Estudio ubica a Chile entre los 15 países más influenciados a nivel global por China en medios, economía y política local.” 5 de mayo. Available at: https://www.latercera.com/mundo/noticia/estudio-ubica-a-chile-entre-los-15-paises-mas-influenciados-a-nivel-global-por-china-en-medios-economia-y-politicalocal/4Q5WSHLI7JCP7KU7OKDG42T5WU/. Accessed: June 10, 2022.

23 | Castro, M. & Critchley, A. (2022), “Chile’s Gabriel Boric Sworn-In, Faces Major Economic and Political Challenges”. Bloomberg en linea, 11 de marzo. Available at: https://www.bloomberglinea.com/2022/03/11/chiles-gabriel-boric-sworn-in-faces-major-economic-and-political-challenges/.  Accessed: March 30, 2022.

24 | Paúl, F (2021), “Gabriel Boric: ¿cuánto peso tendrá el Partido Comunista en su gobierno?” BBC News Mundo. 20 de diciembre. Available at: https://www.bbc.com/mundo/noticias-america-latina-59725321. Accessed: April 15, 2022.

25 | La Tercera (2020), “Arremetida china en la energía de Chile empuja a diputados a presentar proyecto para reglar participación extranjera en sectores estratégicos.” 2 de diciembre. Available at: https://www.latercera.com/pulso/noticia/arremetida-china-en-la-energia-de-chile-empuja-a-diputados-a-presentar-proyecto-para-reglar-participacion-extranjera-en-sectores-estrategicos/NA26W6AWJ5HPHDVHJQVTD5L524/. Accessed: March 30, 2022.

26 | Biblioteca del Congreso Nacional de Chile (2022), Inversión de China en Chile: análisis de IED de China en la última década.” 8 de marzo. Available at: https://obtienearchivo.bcn.cl/obtienearchivoid=repositorio/10221/32890/1/Inversion_de_China_en_Chile.pdf. Accessed: March 15, 2022.

27 | Ibid.

28 | France24 (2022), “Chile adjudica por USD 121 millones explotación de litio a empresas china y chilena”. 12 de enero. Available at: https://bit.ly/3KkYlj9. Accessed: April 14, 2022.

29 | CEPAL (2022), The economic and financial effects on Latin America and the Caribbean of the conflict between the Russian Federation and Ukraine. Santiago, April. Available at: https://hdl.handle.net/11362/47832. Accessed April 18, 2022.

30 | El Mostrador (2022), “Presidente Piñera rechaza conflicto armado en Europa: "Chile condena la agresión armada de Rusia y su violación a la soberanía e integridad territorial de Ucrania". 24 de febrero. Available at: https://www.elmostrador.cl/dia/2022/02/24/presidente-pinera-rechaza-conflicto- armado-chile-condena-la-agresion-armada-de-rusia-y-su-violacion-a-la-soberania-e-integridad- territorial-de-ucrania/. Accessed: May 1, 2022.

31 | Emol (2022), “Cámara de Diputados repudia invasión de Rusia a Ucrania y pide a Gobierno revisar la relación internacional con el Kremlin”. Santiago, 3 de Mayo. Available at: https://www.emol.com/noticias/Nacional/2022/05/03/1059850/diputados-ucrania-rusia-relaciones-chile.html.
Accessed: May 3, 2022.

32 | Ibid.

33 | López, A. (2022), “Explican posibles impactos económicos en Chile por conflicto Rusia-Ucrania”. 3 de marzo. Available at: https://www.utalca.cl/noticias/explican-posibles-impactos-economicos-en-chile- por-conflicto-rusia-ucrania/. Accessed: April 18, 2022.

You were reading chapter 2 of the MERICS  Paper on China "Beyond blocs: global views on China and US-China relations". Click here to go to the table of contents.