"The future of resource cooperation between the two countries is rather optimistic."
This statement by Wu Baiyi, a Latin American economic specialist at the Chinese Academy of Social Sciences, is carefully positive about the future of Sino-Venezuelan relations. Based on recent investments and Beijing’s lack of comment on political unrest in Caracas, it seems safe to assume that the relationship is stable and moving forward. Yet, some analysts warn that Beijing may be moving too quickly in a region with an unclear future.
In the past several years, Chinese-Venezuelan relations have improved and expanded dramatically as Hugo Chavez and Hu Jintao formed a close working relationship. Following the death of Chavez and the leadership change in Beijing, the two countries appeared to remain close with Venezuelan President Nicolas Maduro visiting Xi Jinping this past fall, followed by a series of deals and investments. The relationship is vital to both sides, with Venezuela relying on China as one of its biggest export markets and Beijing requiring the ties for a stable flow of oil imports. As Beijing avoids interference in what it deems the internal affairs of foreign nations, it is unlikely to let political unrest affect such a significant relationship.
China is now Venezuela’s second largest trade partner and Venezuela is China’s biggest investment destination in Latin America. In recent years, there have been several multi-billion-dollar agreements on investments in oil, energy, construction and high-tech industries between the two nations. Additionally, China has provided more than $36 billion in loans to Venezuela since 2008. The vast majority of trade and loans between the two is a result of Venezuela’s massive oil industry. Venezuela is the world’s largest holder of oil reserves, with which it repays most of its debt to China (to the tune of 600,000 barrels per day). As the largest net importer of oil in the world, China requires a highly reliable source. For Venezuela, China provides a refreshingly apolitical export market as a counterbalance to the United States, with which it has not had friendly relations for years.
Since coming into power, Nicolas Maduro has made efforts to continue this mutually beneficial relationship. In fact, his ties with China began before even becoming president. During his six years as the Minister of Foreign Affairs under Chávez, Maduro visited China six times. In September, several months after his election, he arrived in Beijing to meet with Xi Jinping and sign several major investment deals (the largest with Sinopec which agreed to a $14 billion dollar development of Venezuela’s Junin oil field). Beijing too has highlighted the importance of Latin America in the foreign affairs of the current president. Xi Jinping’s second foreign trip as President of the People’s Republic was to Latin America, a region with which China’s trade has risen from practically nothing a decade ago to over $250 billion.
Beginning in February of this year, there have been violent protests in Venezuela’s capital, Caracus, against the government of President Maduro. Allegations against him include human rights abuses, a chronic shortage of basic necessities, high levels of violence (with Caracus listed as one of the most dangerous cities in the world), and poor economic practices leading to severe inflation.
Unlike most prominent nations and institutions around the globe, Beijing has remained largely neutral on the topic. State run media issued a statement saying, “Venezuela’s government and people have the ability to handle internal affairs, protect national stability and promote social development.” This is consistent with Beijing’s policy of avoiding interference in other nations’ domestic concerns and generally not allowing this to affect their trade relations. Derisively dubbed “dictator diplomacy” by Western nations, this policy has allowed Beijing to maintain ties with “pariah states” and keep politics out of economic policy.
There have been several major investments made by Chinese companies in the last few months since Maduro’s election. These include the $14 billion investment of the Junin 10 block in the Orinoco Oil Belt mentioned earlier, which was in addition to an earlier $14 billion investment in nearby Junin 1 block. This is predicted to bring in an estimated 1 million barrels of crude oil in the coming two years. Another project includes the investment of $5 billion into a joint development fund between Venezuela and the China Development Bank. The Export-Import bank of China is also making a sizeable investment of $390 million into a new port being developed by Venezuela’s state petrochemicals company Pequiven. Another major Chinese bank, China’s Citic Group, has made moves to fund gold-mining projects in Venezuela’s large Las Crinstinas deposits. Between these and other smaller projects, China’s state-affiliated companies have significant investments in the now-tumultuous Latin American country.
While Beijing’s continued close relationship with Caracus has been beneficial thus far, Chinese leaders must certainly have a watchful eye on the Venezuelan economy and the deteriorating political situation. With a looming currency crisis, stagnating production at the main government-run petroleum company (PDVSA), immense inflation and mounting corruption problems, Venezuela could be a sinking ship in which China has invested too heavily. Politics aside, China’s choice to move forward in Venezuela may be a risky gamble, but the lure of the largest oil resources in the world seems likely to maintain an increasingly mutually-dependent relationship into the coming years.