China and Venezuela seemed like natural bedfellows: one is the planet’s top crude-oil importer and the other possesses the world’s largest reserves. But Venezuela’s descent into crisis — with President Nicolas Maduro and self-proclaimed leader Juan Guaido vying for control as the economy unravels — has highlighted the gamble inherent in China’s $60 billion investment in the South American nation.
Over the past decade Beijing has extended vast amounts of credit to Caracas for oil shipments and infrastructure deals, in what China has touted as a “mutually beneficial” relationship. Yet Venezuela is wracked by recession and hyperinflation while millions of people are suffering from shortages of basic necessities such as food and medicine — and vital oil production has dropped to a three-decade low.
China has signalled its readiness to work with whomever leads Venezuela, and opposition leader Guaido can ill-afford to alienate deep-pocketed China.
“Venezuela’s story is an important one,” said Margaret Myers, director of the Asia & Latin America Program at the Inter-American Dialogue, a US-based think tank. “Other countries in the region commonly reference Venezuela as a cautionary tale when determining how best to engage with China.”
The situation also shines more unflattering light on Beijing’s $1 trillion “Belt and Road” project, a Chinese initiative to offer loans or investment in infrastructure and other projects across a range of countries. Critics say the project saddles countries with debt that they cannot repay, increasing China’s influence over them.
“By playing such a central role in Venezuela, China has provided evidence for the US government’s argument that Beijing’s financing worsens corruption and ensnares emerging-market borrowers in a debt trap,” said Benjamin Gedan, senior advisor at the Wilson Center’s Latin American Program.
China began lending to Venezuela more than a decade ago, reaching a peak in 2010 when state-backed China Development Bank offered $20 billion in soft loans, according to Chinese official news agency Xinhua. That same year, Venezuela’s then-leader Hugo Chavez announced a $16 billion investment package from China involving multiple energy deals as he leveraged the country’s oil wealth for financing.
Other countries in the region commonly reference Venezuela as a cautionary tale when determining how best to engage with China.
Increasing oil shipments to China also fulfilled a political goal of the socialist Chavez — reducing the nation’s reliance on US purchases of its oil. But in the chaos after the 2013 death of Chavez — who was succeeded by his anointed successor Maduro — followed a year later by the cratering of world oil prices, Venezuela is buried under about $150 billion in external debt, of which roughly $20 billion is Chinese.
Instead of working more with other international financial institutions and oil firms and adhering to their best practices, Venezuela’s leadership essentially rejected them and turned to Russia and China instead, said Matt Ferchen, a scholar with the Carnegie-Tsinghua Center for Global Policy.
China facilitated “poor decision-making on the part of Venezuela, especially in the aftermath of the financial crisis… when Venezuela may have been forced to go in a different direction,” he said.
“Chinese loans to Venezuela have had few conditions and little accountability,” said Myers of the Inter-American Dialogue, which she said speeds up lending but can lead to the abuse of funds. “In Venezuela, billions of dollars were used for politically-motivated projects or, in some cases, disappeared altogether,” she said.
China began lending to Venezuela more than a decade ago, reaching a peak in 2010 when state-backed China Development Bank offered $20 billion
China has tamped down the stream of lending as concerns mounted over Venezuela’s decreasing oil output and its ability to repay debt. A report by the Inter-American Dialogue said Venezuela received no financing from government-controlled Chinese “policy” banks in 2017, despite being among the top recipients of their lending previously.
China has signalled its readiness to work with whoever leads Venezuela, and opposition leader Guaido can ill-afford to alienate deep-pocketed China. He said earlier this month that he will honour Venezuela’s commitments to China if he assumes full control.
But analysts warn that nothing is certain. The political crisis “could imperil China’s oil deliveries from Venezuela, disrupt Chinese state-owned enterprises operating in Venezuela, and ultimately bring to power new Venezuelan authorities who might repudiate China’s multi-billion-dollar loans,” said Gedan.
China has tamped down the stream of lending as concerns mounted over Venezuela’s decreasing oil output and its ability to repay debt.
Already, some infrastructure deals backed by China have stalled or been shelved. In October, Sierra Leone scrapped plans for a $400 million Chinese-built airport, calling it “uneconomical,” and last month Malaysia suspended a multi-billion dollar China-backed rail project that was approved by a previous corruption-riddled government, citing its high cost.
“There’s a sense that China actually believes and wants others to believe that… as a developing country, China understands and cares about the concerns of other developing countries,” said Ferchen. “And here it watched as its developing-country partner, with which it had built up a special relationship, faced political, economic, and humanitarian crisis — and China’s done nothing.”
© Agence France-Presse