[Senate Hearing 109-442]
[From the U.S. Government Publishing Office]
S. Hrg. 109-442
CHALLENGE OR OPPORTUNITY? CHINA'S ROLE IN LATIN AMERICA
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON WESTERN HEMISPHERE,
PEACE CORPS AND NARCOTICS AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 20, 2005
__________
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
LISA MURKOWSKI, Alaska BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
------
SUBCOMMITTEE ON WESTERN HEMISPHERE, PEACE
CORPS AND NARCOTICS AFFAIRS
NORM COLEMAN, Minnesota, Chairman
LINCOLN CHAFEE, Rhode Island CHRISTOPHER J. DODD, Connecticut
GEORGE ALLEN, Virginia JOHN F. KERRY, Massachusetts
MEL MARTINEZ, Florida BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
(ii)
C O N T E N T S
----------
Page
Coleman, Hon. Norm, U.S. Senator from Minnesota.................. 1
Prepared statement........................................... 3
Johnson, Stephen, Ph.D., Senior Policy Analyst for Latin America,
The Heritage Foundation, Washington, DC........................ 27
Prepared statement........................................... 30
Lampton, Dr. David M., Ph.D., Director, China Study Program, Paul
H. Nitze School of Advanced International Studies, Johns
Hopkins University, Washington, DC............................. 35
Prepared statement........................................... 37
Luft, Dr. Gal, Ph.D., codirector, Institute for the Analysis of
Global Security, Washington, DC................................ 41
Prepared statement........................................... 43
Nelson, Hon. Bill, U.S. Senator from Florida..................... 5
Pardo-Maurer, Rogelio, Deputy Assistant Secretary, Western
Hemisphere Affairs, Department of Defense, Washington, DC...... 12
Prepared statement........................................... 15
Shapiro, Hon. Charles S., Principal Deputy Assistant Secretary,
Bureau of Western Hemisphere Affairs, Department of State,
accompanied by Robert Forden, Deputy Director for China and
Mongolian Affairs, Bureau of East Asian and Pacific Affairs,
Department of State, Washington, DC............................ 4
Prepared statement........................................... 8
Additional Statement Submitted for the Record
Hale, David, Hale Advisers, LLC, Chicago, IL, prepared statement. 55
(iii)
CHALLENGE OR OPPORTUNITY? CHINA'S ROLE IN LATIN AMERICA
----------
TUESDAY, SEPTEMBER 20, 2005
U.S. Senate,
Subcommittee on Western Hemisphere,
Peace Corps, and Narcotics Affairs,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:32 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Norm Coleman
presiding.
Present: Senators Coleman and Nelson.
OPENING STATEMENT OF HON. NORM COLEMAN, U.S. SENATOR FROM
MINNESOTA
Senator Coleman. This hearing of the Senate Foreign
Relations Subcommittee on Western Hemisphere, Peace Corps, and
Narcotics Affairs will come to order.
These are very busy times, I will note to the panelists.
First I want to thank them for their attendance and
participation today. This is a very important discussion. When
I left, our conference was having an all-conference briefing
from FEMA and the Coast Guard on Hurricane Katrina, so that
will, I think, account for some of my colleagues not being
here. But I did want to go forward with the hearing as
scheduled. This is part of what will be an ongoing conversation
and, I think, a very, very important conversation.
Minnesota native and Pulitzer Prize winning journalist, Tom
Friedman, has recently published a new book called ``The World
is Flat.'' The book is a major data dump of facts about how the
world has changed, particularly with the rise of China and
India. On some editions the cover depicts a boat sailing over
the edge of the Earth and the jacket cover says that the
painting is called ``I Told You So.''
That is kind of a grim joke, but it is a serious warning.
We have to understand the new dynamics at play in this
interconnected world. In the end, we will either ride the waves
of opportunity or we will be swept out to sea.
There can be no question that China is playing an
increasing role in Latin America, as it is elsewhere around the
world. Between 1999 and 2004 China's imports from Latin America
increased sixfold and its exports more than tripled. In 2003
Latin America was the destination of fully one-third of Chinese
foreign direct investment.
A number of high profile visits further illustrates China's
growing interest in Latin America. Since President Jiang
Zemin's 13-day tour of Latin America in April 2001, President
Hu Jintao has visited Latin America twice, including Mexico
earlier this month, and China's Vice President visited the
region in March of this year.
The overall pattern seems to be the following: A Chinese
official visits a Latin American country, China makes an
attractive offer to that country: Market access for
agricultural and other goods; a substantial commitment of
investment; and/or the country's designation as an official
tourist designation for Chinese visitors. In exchange, China
gets certain benefits: The country's designation of China as a,
``market economy,'' which decreases the country's ability to
apply antidumping measures against Chinese imports and/or the
country's switching its diplomatic recognition from Taiwan to
China.
China's outreach in Latin America includes military
cooperation. China is establishing and strengthening military
exchange programs in the hemisphere even as the United States
is restricting our military-to-military relations because of
differences over the International Criminal Court. In 2004, 20
senior Chinese defense officials visited Latin America. In
addition, China sent 125 peacekeepers to Haiti, the first
military operation in the Western Hemisphere with Chinese
troops.
China is also becoming increasingly active in hemispheric
multilateral institutions. China gained observer status at the
Organization of American States last year and would like to
join the Inter-American Development Bank.
Chinese criminal elements are having an impact on the
Western Hemisphere as well. It is estimated that two-thirds of
Brazil's pirated goods originate in China, and a considerable
amount is trafficked through the triborder region. China is a
major source country for ephedra, a principal component for the
manufacture of methamphetamine, which is a plague that is
growing larger and larger in the United States.
China's influence is not the same throughout the region,
however. Countries like Brazil, Chile, Argentina, and Venezuela
view China positively as an important and growing market for
their oil, copper, and soybeans. Places like Mexico, the
Dominican Republic, and Central America, on the other hand, may
be more concerned about the fact that many of their low-wage
jobs have been displaced to China.
Overall, China's influence in the region appears unlikely
to supersede the United States' any time soon. United States-
Latin America trade is 10 times greater than China-Latin
America trade and American investment in Latin America dwarfs
China's by even greater margins. Our history, values, and
geography also bind the United States to Latin America in a way
that China cannot match.
However, China's staggering economic growth and its
insatiable need for natural resources, particularly energy, is
a global phenomenon that will have an effect in the United
States and one that certainly merits our attention. At minimum,
we must find ways to ensure that American influence in the
Western Hemisphere is not diminished by an increasingly active
China. Economically, we should be looking for ways to work
cooperatively as a region to increase our global
competitiveness in the face of a growing China, a rapidly
developing India, and a united Europe. The United States must
also be aggressive in our diplomacy so as to dissuade any
notion of a vacuum that China is filling in the hemisphere.
I would also challenge our witnesses to look for the
opportunities presented by a major world power showing interest
in this hemisphere. Are there ways to engage China in Latin
America? Where there is instability in this hemisphere, can
China play a constructive role? Are there opportunities for the
United States, China, and Latin America to work together in
ways that benefit all?
[The prepared statement of Senator Coleman follows:]
Prepared Statement of Hon. Norm Coleman, U.S. Senator From Minnesota
Minnesota native and Pulitzer Prize winning journalist, Tom
Friedman, has recently published a new book, ``The World is Flat.'' The
book is a major data dump of facts about how the world has changed,
particularly with the rise of China and India. On some editions, the
cover depicts a boat sailing over the edge of the earth. The jacket
cover says the painting is called ``I Told You So!'' That's kind of a
grim joke, but it is a serious warning. We have to understand the new
dynamics at play in this interconnected world. In the end we will
either ride the waves of opportunity or be swept out to sea.
There can be no question that China is playing an increasing role
in Latin America, as it is elsewhere around the world. Between 1999 and
2004, China's imports from Latin America increased sixfold, and its
exports more than tripled. In 2003, Latin America was the destination
of fully one-third of Chinese foreign direct investment.
A number of high-profile visits further illustrate China's growing
interest in Latin America. Since President Jiang Zemin's 31-day tour of
Latin America in April 2001, President Hu Jintao has visited Latin
America twice, including Mexico earlier this month, and China's Vice
President visited the region in March of this year.
The overall pattern seems to be the following: A Chinese official
visits a Latin American country. China makes an attractive offer to
that country: Market access for agricultural and other goods, a
substantial commitment of investment, and/or the country's designation
as an official tourist destination for Chinese visitors. In exchange,
China gets certain benefits: The country's designation of China as a
``market economy'' which decreases the country's ability to apply
antidumping measures against Chinese imports, and/or the country's
switching its diplomatic recognition from Taiwan to China.
China's outreach in Latin America includes military cooperation.
China is establishing and strengthening military exchange programs in
the hemisphere, even as the United States is restricting our military-
to-military relations because of differences over the International
Criminal Court. In 2004, 20 senior Chinese defense officials visited
Latin America. In addition, China sent 125 peacekeepers to Haiti, the
first military operation in the Western Hemisphere with Chinese troops.
China is also becoming increasingly active in the hemisphere's
multilateral institutions. China gained observer status at the
Organization of American States last year, and would like to join the
Inter-American Development Bank.
Chinese criminal elements are having an impact in the Western
Hemisphere as well. It is estimated that two-thirds of Brazil's pirated
goods originate in China, and a considerable amount is trafficked
through the triborder region. China is a major source country for
ephedra, a principal component in the manufacture of methamphetamine.
China's influence is not the same throughout the region, however.
Countries like Brazil, Chile, Argentina, and Venezuela view China
positively as an important and growing market for their oil, copper,
and soy. Places like Mexico, the Dominican Republic, and Central
America, on the other hand, may be more concerned about the fact that
many of their low-wage jobs have been displaced to China.
Overall, China's influence in the region appears unlikely to
supersede the United States' anytime soon. United States-Latin America
trade is 10 times greater than China-Latin America trade, and American
investment in Latin America dwarfs China's by even greater margins. Our
history, values, and geography also bind the United States to Latin
America in a way that China cannot match.
However, China's staggering economic growth and its insatiable need
for natural resources, particularly energy, is a global phenomenon that
will have an effect in the United States, and one that certainly merits
our attention.
At a minimum, we must find ways to ensure that American influence
in the Western Hemisphere is not diminished by an increasingly active
China. Economically, we should be looking for ways to work
cooperatively, as a region, to increase our global competitiveness in
the face of a growing China, a rapidly developing India, and a united
Europe. The United States must also be aggressive in our diplomacy so
as to dissuade any notion of a ``vacuum'' that China is filling in the
hemisphere.
I would also challenge our witnesses to look for the opportunities
presented by a major world power showing interest in this hemisphere.
Are there ways to engage with China in Latin America? Where there is
instability in this hemisphere, can China play a constructive role? Are
there opportunities for the United States, China, and Latin America to
work together in ways that benefit all?
Senator Coleman. We will begin today's hearing with the
view from the Departments of State and Defense about how United
States policy in Latin America takes into account China's
growing presence. Ambassador Charles Shapiro is Principal
Deputy Assistant Secretary of State for Western Hemisphere
Affairs. A career member of the foreign service, Ambassador
Shapiro was most recently posted as Ambassador to Venezuela. He
has previously served as Director of the Office of Cuban
Affairs, as Deputy Chief of Mission in Santiago, Chile, as
Deputy Chief of Mission in Trinidad, and as a political officer
in San Salvador.
He has held numerous posts in Washington, DC, including
Executive Assistant in the Bureau of Western Hemisphere
Affairs, International Relations Officer in the Office of Latin
American Programs at the Bureau of International Narcotics and
Law Enforcement Affairs, and Deputy Director of the Office of
Andean Affairs.
Ambassador Shapiro will be supported by Mr. Robert Forden,
Deputy Director for China and Mongolian Affairs at the
Department of State. Mr. Forden is a career foreign supervisor
officer with experience in Beijing, Taiwan, and Hanoi.
Mr. Roger Pardo-Maurer is Deputy Assistant Secretary of
Defense for Western Hemisphere Affairs. Before joining the
Department of Defense, Mr. Pardo-Maurer was president of
Emerging Market Access, a Washington, DC, consulting firm. He
was also managing partner of Access NAFTA Project Management, a
trade investment advisory firm, and president of Chartwell
Information Group.
Mr. Pardo-Maurer has worked as a Latin American specialist
at the American Enterprise Institute and at the Center for
Strategic and International Studies. He has also served as
chief of staff of the representative of the Nicaraguan
resistance. Mr. Pardo-Maurer is an enlisted reservist in the
U.S. Army's 20th Special Forces Group.
We will begin with Ambassador Shapiro.
Ambassador Shapiro. Thank you very much, Mr. Chairman. I am
pleased to appear before you this afternoon to discuss the
diplomatic, political, and economic implications of----
Senator Coleman. Mr. Ambassador, if I can, since you just
started, I would love to give my colleague from Florida,
Senator Nelson, an opportunity to make a statement before you
begin your testimony.
Senator Nelson, when you catch your breath and gather your
thoughts.
STATEMENT OF HON. BILL NELSON, U.S. SENATOR FROM FLORIDA
Senator Bill Nelson. You are very kind, Mr. Chairman. This,
of course, is an enormously important subject to us, not only
for the Western Hemisphere but for the entire world. The
relationship that we have had with Venezuela, for example, is
now being strained, and one question is whether or not it would
be further strained by a growing oil relationship between
Venezuela and China..
Another issue of enormous importance to us is the extension
of terrorism out of the Middle East into Africa and Latin
America, and how the Chinese can be our partners in fighting
terrorism, because they have as much a stake in that as we do.
We are discussing Latin America today, but the United
States and China are increasingly coming together, for example,
in dealing with North Korea, and realizing it is not in China's
interests and certainly not in America's or the rest of the
world's interest that North Korea have a nuclear bomb.
So I am really looking forward to the discussion of this
panel here.
Senator Coleman. Thank you, Senator Nelson.
With that, Ambassador Shapiro.
STATEMENT OF HON. CHARLES S. SHAPIRO, PRINCIPAL DEPUTY
ASSISTANT SECRETARY, BUREAU OF WESTERN HEMISPHERE AFFAIRS,
DEPARTMENT OF STATE, ACCOMPANIED BY ROBERT FORDEN, DEPUTY
DIRECTOR FOR CHINA AND MONGOLIAN AFFAIRS, BUREAU OF EAST ASIAN
AND PACIFIC AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC
Ambassador Shapiro. Thank you very much, Mr. Chairman,
Senator Nelson. It is with great pleasure that I appear before
you this afternoon to discuss the diplomatic, political, and
economic implications of China's engagement in Latin America
and the Caribbean and the challenge and opportunity that this
presents the United States and our allies and friends during
the next quarter of a century.
I have provided the subcommittee with written testimony,
but there are several key areas that I would like to highlight
now with your permission. China's growth and development have
naturally brought growing relationships with traditional United
States allies in the region. This does not diminish U.S.
influence or capabilities. U.S. policy toward Latin America is
anchored in our strong and enduring alliances, which continue
to provide unprecedented stability and prosperity in the
region.
Our allies throughout Latin America believe good United
States-China relations are important to global peace,
prosperity, and stability. Our efforts to work with China
should enhance, not impair, our regional alliances.
United States policy in Latin America is built upon a
positive and constructive vision designed to advance freedom
and prosperity. We promote democracy and the rule of law so
that every citizen can decide what is best for him or herself
and is guaranteed the right to claim his fair share of
political freedom and economic opportunity. We promote free
enterprise as a perpetual engine of growth. We are committed to
working together with our neighbors to make things better for
the poorest among us so that things can be better for all of
us.
We are working constantly to achieve our goals. We are
working multilaterally with the United Nations, particularly in
Haiti, and with the OAS throughout the hemisphere. With the
strong support of President Bush at the Fort Lauderdale General
Assembly of the Organization of American States in June, we
joined with our neighbors in issuing the Declaration of
Florida, which advances our agenda of democracy and transparent
and accountable governments.
We have also contributed significant resources to support
the exercise of democracy in the more than a dozen countries
that will be holding Presidential elections through the end of
2006. That includes, among others, Haiti, Nicaragua, and
Bolivia.
Our economic engagement in the region is extensive and
broad-based. United States trade with Latin America and the
Caribbean exceeded $445 billion in 2004 and is growing this
year at the rate of 10 percent. United States investment in
Latin America, direct investment, exceeds $300 billion. We have
free trade agreements with Mexico and Chile. Similar benefits
will soon be extended to the CAFTA-DR countries. Negotiators
are meeting this week in Cartagena, Colombia, with negotiators
from Colombia, Peru, and Ecuador. We also hope to soon conclude
a free trade agreement with Panama.
The Millennium Challenge Account offers great promise to
assist countries in making reforms necessary for long-term
growth. Both Honduras and Nicaragua have completed MCA
compacts.
An estimated 30 percent of foreign direct investment flows
into the region come from the United States. The United States
accounts for more than 50 percent of multinational firms doing
business in Latin America and the Caribbean.
We would not be so bold as to claim that all of our goals
have been met. There is still much to be done, but there has
been progress in many areas. Today every country in the
hemisphere save one has a democratic constitutional government.
We have improved the basis for security cooperation in the
hemisphere through a broad range of military-to-military
engagement and security assistance programs. The percentage of
the hemisphere's population, about 15 percent, living in
extreme poverty is decreasing. Reducing poverty and increasing
regional prosperity are key objectives and will be a focus of
the Summit of the Americas, which will take place in November
in Mar del Plata, Argentina.
For its part, China has many reasons to be engaged in Latin
America and the Caribbean. We see two major trends in Chinese
engagement: First and foremost, growing trade and investment to
fuel China's own rapid domestic development; second, China
wants to match its growing economic strength with political
influence. China is the world's seventh largest economy, the
world's third largest trading nation, and a major destination
for foreign direct investment from around the world. To sustain
economic growth, China has become more engaged with the rest of
the world, including Latin America.
Chinese trade with Latin America is growing at around 25
percent a year. China may become an important new investor in
the region. Its total investment at the end of 2004 was only
$8.3 billion. However, new pledged investments in
infrastructure and natural resources could be a significant
boost to the region if realized.
Let me go back. Our investment in the region is $300
billion. China's is about $8.3 billion. To give you a
comparison, Spain's direct investment in the region is
somewhere around $55 billion. China is also interested in
matching its economic power with political influence. China's
integration into the global economic and political community is
now largely complete. We encourage China to act as a
stakeholder in the international system of which it is a major
beneficiary. We support China's engagement in the region in
ways that create prosperity and promote transparency, good
governance, and respect for human rights. We also want to
ensure vital renewable resources, such as fisheries and
forests, are used in a sustainable way.
Given this subcommittee's interest in narcotics, let me
touch for a minute on China's role in narcotics control in the
region. China has a large and developed chemical industry and,
like the United States, it is one of the world's largest
producers of precursor chemicals; chemicals which have
legitimate uses but are also used in the production of cocaine
and synthetic drugs.
China notifies the DEA of shipments of precursor chemicals
to the United States and Mexico so that tracking may be done to
prevent diversion of those chemicals for illicit purposes.
Nevertheless, some precursor chemicals are, in fact, diverted
from legal use to manufacturing methamphetamine destined for
U.S. markets.
We are following closely what appears to be expanding
military-to-military contacts between China and countries in
the region, and my colleague on the panel will address that
more. As China considers arms sales to the region, we will
apply our general policy of seeking transparency and
accountability in these sales and are concerned about the risk
of diversion of weapons to illegal armed groups.
We do not have reliable figures for China's military
assistance to the Western Hemisphere. However, we note that
United States assistance is preconditioned on adherence to
basic principles of good governance and transparency and we
encourage China to adopt similar principles. I would also note
that in comparison, United States military assistance dwarfs
Chinese security assistance to the region.
There is much that is complementary with China in our
approach to the region and much on which we look forward to
cooperating with them. As the President said on May 31, our
relationship with China is complex, but in recent years we have
been able to communicate often to address common challenges.
Of course, we have differences with China on a variety of
important issues, including human rights, nonproliferation,
Taiwan, and some aspects of trade and finance, among others. We
intend for our relationship with China to be based both on a
realistic appraisal of our common interests and, equally
important, a frank exploration of differences through dialog.
Let me conclude with a couple of observations. First, our
relationships with our neighbors in the Western Hemisphere are
strong and stable, based on shared values, economic ties, and
defense relationships. A strong, secure United States and a
strong, secure, prosperous, and stable Western Hemisphere
remains our goal and a continuing reality.
Second, we must continue to work with our neighbors and
with our partners around the world to ensure that China's
development takes place within strong regional and global
security, economic, and political arrangements. That is the
policy articulated by President Bush, by Secretary Rice, and is
a key objective of the United States-China senior dialog led by
Deputy Secretary Zoellick. I assure you that in pursuing this
goal our guiding principle remains to advance the interests and
values of the United States of America.
Thank you for this opportunity to testify. I would be
pleased to take your questions.
[The prepared statement of Ambassador Shapiro follows:]
Prepared Statement of Charles S. Shapiro, Principal Deputy Assistant
Secretary, Bureau of Western Hemisphere Affairs, Department of State,
Washington, DC
Mr. Chairman, members of the Subcommittee on Western Hemisphere,
Peace Corps, and Narcotic Affairs, I am pleased to appear before you
this afternoon to discuss the diplomatic, political, and economic
implications of China's engagement in Latin America and the Caribbean.
China's emergence--its economic and political development, its
engagement in a rules-based international world, its evolution as an
interlocutor on security issues in Asia and beyond--will be an
important opportunity and a key challenge for the United States over
the next quarter of a century and beyond. To the extent that China's
engagement promotes policies that contribute to the fundamental
interests of the American People, we welcome that engagement.
THE UNITED STATES IN THE WESTERN HEMISPHERE
U.S. policy in Latin America has been built upon a positive and
constructive vision designed to advance freedom and prosperity in the
region. We have promoted democracy and the rule of law so that every
citizen can decide what is best for him or herself, and is guaranteed
the right to claim his fair share of political freedom and economic
opportunity. We promote free enterprise as a perpetual engine of
growth. We are committed to working together with our neighbors to make
things better for the poorest among us so that things can be better for
all of us.
We pursue our many goals on a daily basis with our partners in the
region. For example, we work multilaterally with the United Nations in
places like Haiti and with the OAS throughout the hemisphere to further
the interests shared by all the nations of the hemisphere. With the
strong support of President Bush at the Fort Lauderdale meeting of the
OAS General Assembly in June, we joined with our neighbors in the
region to issue the ``Declaration of Florida,'' which among other
things advances our agenda of delivering the benefits of democracy to
ordinary citizens by making governments more effective, transparent,
and accountable. We have also contributed significant resources to
support the exercise of democracy in 13 countries that are holding
elections in the year ahead.
In November, Argentina will host the Fourth Summit of the Americas,
where the focus will be on creating jobs. We are developing, in concert
with the other 33 democratically elected governments in the hemisphere,
a Summit Plan of Action that will meet this objective head on. We are
striving for a plan of action that has meaningful initiatives, with
measurable outcomes, designed to ensure that the summit has real
meaning in advancing the welfare of the hemisphere's citizens. The role
of governments is to help establish a framework in which the private
sector can thrive; one that promotes more competitive economies,
attracts investment and fosters private enterprise--small- and medium-
sized enterprises in particular. In 2004, at the Special Summit of the
Americas in Monterrey, the hemisphere's leaders committed themselves to
practical steps to boost economic growth and open economic opportunity
to all. They agreed to strengthen and enforce property rights, lower
barriers to remittances, remove obstacles to starting small businesses,
and increase access to capital for small businessowners. And we have
already seen results. For example, in the 22 Western Hemisphere
countries (excluding the United States and Canada), the average time of
starting a business has been reduced from 71 days in 2004 to 63 days in
2005. A good start, but we hope to do much better. We will strive for
similar, measurable outcomes in the upcoming summit.
Our economic and trade links with countries in the region foster
prosperity and promote democracy and the rule of law. The ties between
economic opportunity and political empowerment are clear. Our economic
relations are about breaking down entrenched interests, stigmatizing
corruption, rewarding reforms that bolster competitiveness, and
ensuring that the very poor have the tools they need to claim their
fair share of economic opportunity.
Our economic engagement in the region is extensive and broad-based.
We have comprehensive trade and investment relationships with Mexico
and Chile through existing free trade agreements; CAFTA-DR was just
approved, and we hope to conclude an Andean free trade agreement, as
well as one with Panama, in the near future. The Millennium Challenge
Account offers great promise to assist countries in making the reforms
necessary for long-term growth, and two of the first four countries to
have MCA compacts--Honduras and Nicaragua--lie within our hemisphere.
Of course, the heavy lifting in the region, as it should be, is done by
the United States private sector. An estimated 30 percent of foreign
direct investment flows into the region are from the United States, and
the United States accounts for more than 50 percent of multinational
firms doing business in the region.
While we are not so bold as to claim all of our goals have been
met--and there is still a lot to do--there has been progress in many
areas. Today every country in the hemisphere, save one, has a
democratic, constitutional government. We improved the basis for
security cooperation in the hemisphere through a broad range of
military-to-military engagement and security assistance programs. And
the percentage of the hemisphere's population--about 15 percent--living
in extreme poverty is decreasing, although the numbers of poor are
increasing due to population growth and persistent income inequalities.
Reducing poverty and increasing regional prosperity remain key
objectives.
CHINA IN THE WESTERN HEMISPHERE
We see two major trends in China's engagement with Latin America
and the Caribbean. First and foremost, growing trade and investment are
necessary to fuel China's own rapid domestic development. Second, China
wants to match its growing economic strength with political influence
in order to advance its own national agenda.
CHINA'S ECONOMIC INFLUENCE
China is the world's fifth largest economy (with an economy about
the same size as Italy's), the world's third largest trading nation,
and a major destination for foreign direct investment from around the
world. Its economy has grown at over 9.5 percent per year for the past
25 years.
Rapid growth and development are significant sources of legitimacy
for the Chinese Communist Party. To sustain that growth, China has
increasingly engaged with the rest of the world, including with Latin
America, to secure inputs it needs and markets for its surging exports.
China's demand for Latin American goods has helped fuel economic
growth in many countries. At the same time, however, China's exports,
especially in textiles, apparel, and shoes, pose stiff competition for
some Latin American and Caribbean producers, primarily in third-country
markets.
China's imports from Latin America reached $22 billion in
2004 and are up 16 percent in the first half of this year.
Primary imports from Latin America include metal ores,
soybeans, and copper.
China's exports to Latin America reached $18 billion in 2004
and were up an additional 32 percent in the first half of this
year. China's top exports to Latin America include machinery,
electronics, and apparel.
While it is difficult to attribute what portion of overall
economic growth in Latin America is attributable to particular
factors, it is clear that China's boom has expanded markets for
Latin exports, and thus contributes to economic growth. For
example, the value of Chile's net exports to China more than
doubled in 2004, increasing by about $1 billion in a $94
billion economy.
China is an important new investor in the region as it
searches for resources. Still Chinese investment is rather
small, at approximately $8.3 billion at the end of 2004,
according to Chinese data. And the lion's share of that sum
consists of investments in tax-haven countries, such as the
Cayman Islands and British Virgin Islands. However, deals for
future investments, primarily in infrastructure and extractive
sectors, could be a significant boost to the region if
realized.
China is now the world's second largest consumer of
petroleum, and has become a net importer of oil. We believe
that securing reliable access to petroleum products from the
hemisphere is an important element of China's engagement in the
region, especially with Venezuela, Colombia, and Ecuador.
In comparison, U.S. trade with, and investment in, the region dwarf
China's, and is distinct from what China has to offer. We provide high-
tech and knowledge-based goods and services. U.S. trade with the region
exceeded $445 billion in 2005, 10 times China's level; Latin America's
exports to the United States are up 10 percent and imports from the
United States are up 15 percent in the first half of this year. U.S.
investment in Latin America is over $300 billion. The region needs and
values our market and our expertise for its continued development.
CHINA'S POLITICAL INFLUENCE
China is also interested in matching its economic power with
political influence in the region. China's desire to compete with and
ultimately isolate Taiwan diplomatically is a key factor in Latin
America, home to 12 of the 26 countries that have diplomatic relations
with Taiwan. China will continue to offer assistance to countries like
Dominica and Grenada, which switched their recognition from Taipei to
Beijing in March 2004 and January 2005 respectively.
The Chinese are also skillfully employing ``visit diplomacy.'' On
the margins of the APEC Summit in Santiago in November 2004, where
President Bush and President Hu Jintao met, President Hu Jintao also
visited Argentina, Brazil, Chile, and Cuba. Hu promised tens of
billions of dollars for improving infrastructure--again, mainly to
improve access to, and transport of, raw materials.
In December 2004, Venezuelan President Hugo Chavez visited Beijing,
signing agreements that would increase China's investment in
Venezuela's oil sector and boost bilateral trade, which, as Chavez
stated, could reach $3 billion in 2005, more than double the total for
2004.
In January and February 2005, Vice President Zeng Qinghong visited
Mexico, Venezuela, and Peru, and attended the opening ceremony of the
first ministerial-level meeting of the China-Caribbean Economy and
Trade Cooperation Forum 2005 in Kingston.
En route to the United Nations General Assembly in New York,
President Hu Jintao recently visit Canada and Mexico, and on September
12 signed several trade agreements on such areas as tourism, taxes, and
agriculture. President Hu Jintao also promised to take action against
illicit Chinese commerce arriving in Mexico.
Apart from its diplomatic competition with Taiwan, we believe China
should step up to global responsibilities commensurate with the
benefits that it derives from being both a member and a stakeholder in
international systems and organizations. For our part, one of the most
important foreign policy goals of seven American Presidents--over 30
years--has been to engage China in a way that helps it peacefully and
responsibly integrate into the international system. As Secretary Rice
said in her March 19 speech in Tokyo, the United States ``welcomes the
rise of a confident, peaceful, and prosperous China . . . [and wants]
China as a global partner,'' but one that is ``able and willing to
match its growing capabilities to its international responsibilities.''
We also seek a China that is moving toward greater openness and rule of
law at home, though it clearly has a long way to go.
China's integration into the global economic and political
community is now largely complete. It has a permanent seat on the U.N.
Security Council, is a WTO member, is active in the World Bank and IMF,
interacts with the G-7 and G-8, plays a strong role in a number of
regional bodies such as APEC and ASEAN, has contributed significantly
to Asian security through the Six Party Talks, and has permanent
observer status in the OAS.
We support China's engagement in the region in ways that create
prosperity and promote transparency, good governance, and respect for
human rights. We also want to ensure vital natural resources, such as
fisheries and forests are used in a sustainable way. China's
determination to achieve energy security is an important aspect of its
global outreach, and it is critical that China understand the
fundamentals of global energy markets. But equally important, we need
to work with China and with our friends and allies to ensure that every
effort is taken to promote policies that converge with our interests.
We will continue to monitor China's presence in the region to ensure
this is the case--that its presence does not detract from our goals of
prosperity, democracy, and respect for human rights.
We expect that China's increasing engagement in the region will
lead to increased cooperation between China, the United States, and
other Latin American and Caribbean governments on matters affecting
regional stability, especially terrorism; transnational crime, and
counternarcotics. We view positively China's participation in the U.N.
peacekeeping mission in Haiti in a way that contributes to the mission.
CHINA'S ROLE IN NARCOTICS CONTROL
Given this subcommittee's interest in narcotics, let me elaborate
on China's role in narcotics control in the region. China has a large
and developed chemical industry, and, like the United States, it is one
of the world's largest producers of precursor chemicals, which have
legitimate uses but are also used in the production of cocaine and
synthetic drugs. In particular, China is the world's leading exporter
of bulk ephedrine (used in cold medicines and weight loss tablets) and
a source country for much of the ephedrine and pseudoephedrine imported
into Mexico.
China notifies the DEA of shipments of precursor chemicals to the
United States and Mexico so that tracking may be done to prevent
diversion of these chemicals for illicit purposes. Nevertheless, some
precursor chemicals are diverted from legal use to manufacture
methamphetamine destined for the United States.
To regulate its chemical industry, China is a party to the 1988
U.N. Drug Convention and has regulations for recordkeeping and import/
export controls on all chemicals included in the Convention. Several
provinces have more stringent controls than called for in the
Convention. In the State Department's International Narcotics Control
Strategy Report we have noted, however, that China needs to improve its
infrastructure to adequately monitor its large chemical production
capacity and international trade in chemicals.
United States and Chinese cooperation in chemical control and
counternarcotics is good and has been steadily improving. This was
highlighted by a joint operation involving the DEA and several PRC law
enforcement agencies in October 2004, leading to the world's largest
seizure of the synthetic drug Mandrax (18 metric tons), and the seizure
of 10 tons of pseudoephedine tablets (a key precursor for
methamphetamine) in Los Angles in September 2004. While China is a
transit country for heroin produced in Southeast Asia to international
markets, the DEA's Heroin Signature Program indicates less than 1
percent of heroin seized in the United States comes from Southeast
Asia.
CHINA'S MILITARY INFLUENCE
We have noted, and are following closely, what appear to be
expanding military-to-military contacts between China and countries in
the region. You may recall that in previous testimony before Congress,
General Bantz Craddock of the United States Southern Command noted that
national-level defense officials from China made 20 visits to Latin
America and the Caribbean, while Defense Ministers and Chiefs of
Defense from nine regional countries have visited China. In addition,
we are watching closely increased educational exchanges between China
and several Latin American and Caribbean countries, and seek to ensure
that they do not undermine the commitment of Latin American militaries
to democracy and civilian control. As China considers arms sales to the
region, we will apply our general policy of seeking transparency and
accountability in these sales and are concerned about the risk of
diversion of weapons to illegal armed groups, which threaten the peace
and security of the hemisphere.
We do not have reliable figures for China's military assistance in
the Western Hemisphere. However, we note that U.S. military assistance
is preconditioned on adherence to basic principles of good governance
and transparency, and we encourage China to adopt similar principles.
In comparison, U.S. military assistance, incorporating article 98
restrictions, dwarfs China's security assistance to the region.
OVERALL RELATIONSHIP
There is much that is complementary with China in our approach to
the region and much on which we look forward to cooperating with them.
As the President said on May 31, our relationship with China is
complex, but, at least in recent years, we have been able to
communicate often--in remarkably candid and direct fashion, when
necessary--and to address common challenges--regional and global,
economic and political. Of course, we do have differences with China on
a variety of important issues, including human rights,
nonproliferation, Taiwan, and some aspects of trade and finance, among
others. Let me say again that we intend for our relationship with China
to be based both on a realistic appraisal of our common interests and
equally important, a frank exploration of differences through dialogue.
China's growth and development have naturally brought growing
relationships with traditional U.S. allies in the region. This does not
diminish U.S. influence or capabilities. U.S. policy toward Latin
America is anchored in our strong and enduring alliances, which
continue to provide unprecedented stability and prosperity in the
region. Our allies throughout Latin America believe good United States-
China relations are important to global peace, prosperity, and
stability. Our efforts to work with China should enhance, not impair,
our regional alliances.
SOME FINAL OBSERVATIONS
Let me conclude with a couple of observations.
First, our relationships with our neighbors in the Western
Hemisphere are strong and stable, based on our shared values, economic
ties, and defense relationships with the countries of the region. A
strong, secure United States in a strong, secure, prosperous, and
stable Western Hemisphere remains our goal, and a continuing reality.
Second, we must continue to work with China, and with our partners
around the world, to ensure that China's development takes place within
strong regional and global security, economic and political
arrangements. This is the policy articulated by President Bush and
Secretary Rice, and is a key objective of the United States--China
Senior Dialogue led by Deputy Secretary Zoellick. I assure you that in
pursuing this goal, our guiding principle remains to advance the
interests and values of the United States.
Thank you for this opportunity to testify. We would be pleased to
take your questions.
Senator Coleman. Thank you, Ambassador Shapiro, for that
optimistic presentation.
Mr. Pardo-Maurer.
STATEMENT OF ROGELIO PARDO-MAURER, DEPUTY ASSISTANT SECRETARY,
WESTERN HEMISPHERE AFFAIRS, DEPARTMENT OF DEFENSE, WASHINGTON,
DC
Mr. Pardo-Maurer. Thank you, Mr. Chairman. I am delighted
to see Senator Nelson here, whose State has such an important
relationship with Latin America. In fact, Senator Nelson's
appearance tempts me to take the risk of straying from my
prepared remarks and perhaps beg a question from the Senator,
based on a reflection.
The last year was a big year for the People's Republic of
China, or the last year or so. They can rightly take pride in
having placed second in gold medals at the Olympics. They
placed troops in the Western Hemisphere, participating in the
U.N. force in Haiti, and they put a man in space, or two men, I
think it was. There is no question but that transforms the view
of the world, not only of those people who are so fortunate as
to have been able to look at our planet from that perspective,
but of the entire nation.
So, no question their views of their world, and their place
in it, are evolving, and it is only natural that our inquiry
here should take that into account and see how we can influence
those views. I take this hearing as an opportunity to do so, so
I am delighted to see you here. Thank you, sir.
China was only, yesterday, a marginal presence in our
neighborhood, but now it is a growing feature of this new
geostrategic map. At the 2004 APEC summit in Chile, President
Hu of China thrilled the region by raising expectations that
China would invest $20 billion, at least, and by some media
reports up to $100 billion, over the next decade.
This was widely heralded in Latin America as signaling the
arrival of a new age, and certainly as perceived by the Latin
Americans, President Hu's tour through the Americas was all the
more remarkable for having attracted scant comment in the
United States.
We can expect Beijing's influence in the Western Hemisphere
to grow considerably over the next decade. China offers Latin
America and the Caribbean what some may see as alternatives or
counterweights to the democratically accountable free markets
which are the cornerstone of the inter-American system as we
know it today.
Our objective, as Ambassador Shapiro has pointed out,
should be to ensure that China's rise as a commercial power in
the Americas opens economic opportunity for all and raises the
standard of living of all our peoples, while strengthening
mutual trust and security and helping to consolidate the rule
of law and democratic institutions in what Michael Novak, a
scholar of the Americas, has called ``this hemisphere of
liberty.''
To the extent that China's rising political, economic, and
strategic competitiveness is not properly addressed or
understood, it harbors the potential to sow discord between the
United States and the People's Republic of China and the
region.
China is still in the early stages of its quest for global
influence. I might add there were few people who, even a few
years ago, realized that China was pursuing a global strategy.
The rules of the game are evolving. To be helpful, the rules
should help us distinguish clearly the things that are threats
from the things that are not threats. They should help sort out
diplomatic and commercial pursuits from strategic pursuits.
They should inject predictability into the system, create
efficiencies and economies, and avoid misunderstandings.
Ultimately, good rules should help identify those areas in
which we can and should cooperate with China and our regional
partners. The evidence suggests that in this hemisphere China
is not unresponsive to United States sensitivities, but only
when those sensitivities are made evident. So this process is
unfolding as we speak and it is not surprising, therefore, that
our understanding of China's role in the Western Hemisphere is
evolving. That is why this hearing is so important and why I
commend you on the spirit in which it is held.
To start with the things that we do not know, there appears
to be no consensus among the experts as to whether China's
policy toward the Western Hemisphere is informed by an
authoritative long-term strategy, by short-term tactics, or
some pragmatic mixture of both. I would suggest that our
understanding would benefit further if this inquiry were to
explore the broader context of China's activities in the
Americas, and if your colleagues were to pose the same
questions being asked here, today, to our specialists for other
important regions--Africa, the Middle East, Central Asia, South
Asia, and East Asia.
With few exceptions, the United States is the security
partner of choice for the nations of the Americas. We should
not take this for granted. It was not accomplished overnight or
by shirking from difficult, and at times, thankless tasks. The
friendly defense relations between the United States and the
nations of the Americans are the product of hard work by
generations of civilian officials of the U.S. Government and by
the men and women of our Armed Forces. Our goal should be to
maintain these privileged and longstanding relationships.
The importance of the Latin American democratic revolution
of the 1980s and 1990s to sustaining our friendly defense
relations in the Americas cannot be overstated. The virtual
disappearance in this hemisphere of interstate military
rivalry, so recently the bane of the continent, is one of the
most cherished accomplishments of the democratic revolution. By
virtually any indicator, Latin America and the Caribbean,
today, comprise the least militarized region of the world.
This means that the United States is able to approach Latin
America and the Caribbean as a, ``economy of force,'' theater.
We want to keep it that way. The strength of our economic and
cultural ties with our neighbors permit us to maintain a
strategic posture that requires a relatively and indeed
historically small investment of military forces and security
assistance.
This positive situation should be seen as one of the core
strategic assets of the United States. Should another actor
attempt to become a serious competitor for military influence
and cooperation in the region, an effective response by the
United States could become much more costly.
Our relationship with each country is different and is
conducted on unique terms. Nevertheless, throughout the region
our friendship is reflected in the entire range of military
cooperation, in operations, exercises, training, equipment,
education, doctrines, even uniforms, and, for lack of a better
term, elan.
We do not see China as directly competitive in this area.
There is no evidence of Chinese interest in establishing a
continuous military presence in the region, nor is there
evidence that Chinese military activities in the Western
Hemisphere, including arms sales, at this time pose a direct
conventional threat to the United States or its friends and
allies.
That is not to say, however, that there are no concerns,
and in particular we need to be alert to rapidly advancing
Chinese capabilities, particularly in the fields of
intelligence, communications, and cyber warfare, and their
possible application in the region. We continue to be concerned
about China's capabilities or activities in these areas. As I
noted in my recent testimony to the House International
Relations Committee, we encourage other nations in the
hemisphere to take a close look at how such activities could
possibly be used against them or the United States.
I hope this testimony will stimulate a discussion and
better understanding of China's changing role in the world and
its long-term implications for the United States and that it
will stimulate a discussion of how closely the national
security of the United States remains linked to the security of
the Western Hemisphere. Global, hemispheric, and homeland
security are a continuum, not discrete spheres, and our
security is ultimately tied to the advancement of economic
opportunity and democracy in this hemisphere.
Indeed, these interconnections are what inform U.S. policy
toward the hemisphere. We must recognize that China and the
United States will compete for trade opportunities and that
competition can itself benefit the nations of this hemisphere.
But we must remain mindful that China also has its own set of
political, economic, and military interests, requiring us to
carefully distinguish between legitimate commercial initiatives
and the possibility of political or diplomatic efforts to
weaken the democratic alliances we have forged.
So, above all, I hope this hearing will challenge any
complacent belief that our enduring vision of the new world as
a land of freedom and opportunity for all can somehow be
conceived in isolation from our long-term strategic interests.
Thank you.
[The prepared statement of Mr. Pardo-Maurer follows:]
Prepared Statement of Rogelio Pardo-Maurer IV, Deputy Assistant
Secretary, Western Hemisphere Affairs, Department of Defense,
Washington, DC
This month's visit by Chinese President Hu Jintao to Mexico
underscores China's increasing interest and involvement in the Western
Hemisphere and makes it appropriate and timely for this committee to
inquire what these developments mean for a region of such importance to
the United States.
China, only yesterday a marginal presence, is now a growing feature
of the new geostrategic map of our neighborhood. At the 2004 APEC
Summit in Chile, President Hu thrilled the region by raising
expectations that China would invest $20 billion, and by some media
reports, up to $100 billion over the next decade. This was widely
heralded in Latin America as signaling the arrival of a new age. As
perceived by the Latin Americans, President Hu's tour through the
Americas was all the more remarkable for having attracted scant comment
in the United States.
We can expect Beijing's influence in the Western Hemisphere to grow
considerably over the next decade. China offers Latin America and the
Caribbean what some may see as alternatives or counterweights to the
democratically accountable, free markets which are the cornerstone of
the Inter-American system as we know it today.
Our objective should be to ensure that China's rise as a commercial
power in the Americas opens economic opportunities for all and raises
the standard of living of all our peoples, while strengthening mutual
trust and security, and helping to consolidate the rule of law and
democratic institutions in what scholar Michael Novak has called ``this
Hemisphere of Liberty.''
To the extent that China's rising political, economic, and
strategic competitiveness is not properly addressed or understood, it
harbors the potential to sow discord between the United States and the
PRC and within the region.
China is still in the early stages of its quest for global
influence. The ``rules of the game'' are evolving. To be helpful, the
rules should help us distinguish clearly things that are threats, from
things that are not threats. They should help sort out diplomatic and
commercial pursuits from strategic pursuits, inject predictability into
the system, create efficiencies and economies, and avoid
misunderstandings. Ultimately, good rules should help identify those
areas in which we can and should cooperate with China and our regional
partners.
The evidence suggests that, in this hemisphere, China is not
unresponsive to U.S. sensitivities--but only when those sensitivities
are made evident.
This process is unfolding as we speak. It is not surprising,
therefore, that our understanding of China's role in the Western
Hemisphere is evolving. That is why this hearing is so important, and
why I commend this committee on the spirit of inquiry in which it is
held.
This inquiry would do well to concern itself with:
The competitive potential of a nondemocratic, extra-
hemispheric system, with vast and growing resource
requirements;
What these developments mean for the fragile internal
equilibriums of democracies for whom the United States is at
present the political, economic, and strategic ``partner-of-
choice'';
The potential for misunderstandings; and,
Intelligence gaps and things we do not know.
To start with the things we do not know, there appears to be no
consensus among the experts as to whether China's policy toward the
Western Hemisphere is informed by an authoritative long-term strategy,
by short-term tactics, or some pragmatic mixture of both.
This lack of consensus necessarily injects a tentative note in our
discussions, and our vision of a way ahead. It simply may be that
China's approach to the Western Hemisphere must be understood as a
complex and evolving process.
The drivers of China's policy toward the Western Hemisphere
specifically, appear to be, in no particular priority: (1) The
isolation of Taiwan; (2) the cultivation of new sources of energy, raw
materials, and foodstuffs; (3) the quest to open new export markets,
and (4) the recruitment of allies to diminish U.S. influence and build
a ``multipolar'' world order. Also noteworthy is the desire for new
technologies, as exemplified by the ambitious Sino-Brazilian
partnership for development of earth reconnaissance satellites and the
exploration of space.
Our understanding would benefit further if this inquiry were to
explore the broader context of China's activities in the Americas, and
pose the same questions being asked here today, to our specialists for
other important regions: Africa, the Middle East, Central Asia, South
Asia, and East Asia.
With few exceptions, the United States is the security partner of
choice of the nations of the Americas. We should not take this for
granted. It was not accomplished overnight or by shirking from
difficult, and at times thankless, tasks. The friendly defense
relations between the United States and the nations of the Americas are
the product of the hard work by generations of civilian officials of
the U.S. Government and by the men and women of our Armed Forces. Our
goal should be to maintain these privileged and longstanding
relationships.
The importance of the Latin America's Democratic Revolution of the
1980s and 1990s to sustaining our friendly defense relations in the
Americas cannot be overstated. The virtual disappearance in this
hemisphere of interstate military rivalry--so recently the bane of the
continent--is one of the most cherished accomplishments of this
Democratic Revolution. By virtually any indicator, Latin America and
the Caribbean today comprise the least militarized region of the world.
This means that the United States is able to approach Latin America
and the Caribbean as an ``economy of force'' theatre. We want to keep
it that way. The strength of our economic and cultural ties with our
neighbors permit us to maintain a strategic posture that requires a
relatively (and historically) small investment of military forces and
security assistance. This positive situation should be seen as one of
the core strategic assets of the United States. Should another actor
attempt to become a serious competitor for military influence and
cooperation in the region, an effective response by the United States
could become more costly.
Our relationship with each country is different and is conducted on
unique terms; nevertheless, throughout the region our friendship is
reflected in the entire range of military cooperation: Operations,
exercises, training, equipping, education, doctrine, even uniforms and,
for lack of a better term, elan.
We do not see China as directly competitive in this arena. There is
no evidence of Chinese interest in establishing a continuous military
presence in the region. Nor is there evidence that Chinese military
activities in the Western Hemisphere; including arms sales, at this
time pose a direct conventional threat to the United States or its
friends and allies.
This is not to say, however, that there are no concerns. In
particular, we need to be alert to rapidly advancing Chinese
capabilities, particularly in the fields of intelligence,
communications, and cyberwarfare, and their possible application in the
region. We continue to be concerned about China's capabilities or
activities in these areas. As I noted in my recent testimony to the
House International Relations Committee, we encourage other nations in
the hemisphere to take a close look at how such activities could
possibly be used against them or the United States.
I hope this testimony will help stimulate discussion and a better
understanding of China's changing role in the world and its long-term
implications for the United States.
I also hope this testimony will stimulate a discussion of how
closely the national security of the United States is linked to the
security of the Western Hemisphere. Global, hemispheric, and homeland
security are a continuum, not discrete spheres, and our security is
ultimately tied to the advancement of economic opportunity and
democracy. Indeed, these interconnections are what inform U.S. policy
toward the Western Hemisphere.
We must recognize that China and the United States will compete for
trade opportunities and that competition can itself benefit the nations
of this hemisphere. But we must remain mindful that China also has its
own set of political, economic, and military interests, requiring us to
carefully distinguish between legitimate commercial initiatives and the
possibility of political or diplomatic efforts to weaken the democratic
alliances we have forged.
Above all, I hope this hearing will challenge any complacent belief
that our enduring vision of the New World, as a land of freedom and
opportunity for all, can somehow be conceived in isolation from our
strategic interests.
Senator Coleman. Thank you.
First, an observation. I have a very strong belief that as
we look into the next decade and decades to come; as we see a
Europe that is eliminating trade barriers and political
divisions and trying to develop a unified economic strength; as
we see the emergence of a growing China; a growing India; that
ultimately our ability as the Western Hemisphere to work
together to take advantage of the resource opportunities that
we have, of the labor opportunities, our future lies in working
together as a hemisphere. We must build upon what I get from
both of you gentlemen, which is an optimistic assessment based
on the longstanding ties between the United States and Latin
America and Central America.
One of my concerns, though, is what Ambassador Shapiro
talked about: China's growing economic strength with political
influence. My question then is about that political influence.
The nature of democracy in Central America and Latin America is
still fragile; concerns obviously that many of us have about
the direction that Venezuela has taken, the political
instability in Peru, the rise of the cocaleros and what is
happening in Bolivia with an election coming soon, in Nicaragua
the Bolanos administration being squeezed by Ortega on the left
and Aleman on the right.
With that concern about the fragility of what you have both
reflected upon--the democratic revolution, Mr. Pardo-Maurer,
that you talked about--for a country that does not have a deep
and abiding commitment to democratic principles, can we talk a
little bit about your perspective of Chinese foreign policy
objectives when it comes to Latin America? Do we see any
involvement in some of the political divisions that were being
played out in some of the countries that I have talked about?
How would you describe China's goal or their vision when it
comes to some of the challenges that democracy is facing in
Central America and Latin America?
Ambassador Shapiro. Mr. Chairman, I am going to defer to my
colleague here, who is an expert on China whom I brought along,
Mr. Forden from East Asian and Pacific Affairs Bureau of
Department of State.
Senator Coleman. Mr. Forden.
Mr. Forden. Thank you, Mr. Chairman.
Well, I am not an expert on the political dynamics of Latin
American countries, so I would defer to Ambassador Shapiro on
the effects of China's foreign policy or potential effects in
the domestic political scene. But in terms of China's foreign
policy on Latin America in general, we do not see any evidence
that China has a concerted policy or interest in intervening in
the domestic political dynamics in these countries that you
mentioned.
I think primarily from our point of view what China is
looking at is growing economic ties to these countries,
opportunities to secure access to resources that they need to
fuel their domestic economic development, opportunities to seek
access and expanded access to markets for their exports of
their goods, and a foreign policy in this hemisphere which is
mostly designed to secure and maintain good relationships with
those countries in Latin America, with the primary purpose of
maintaining and securing their economic ties.
Ambassador Shapiro. If I may add to that, Mr. Chairman,
these markets in Latin America are important to us and they are
of increasing importance to China, both as a market for Chinese
exports and as a place where they purchase the things that they
need. To the extent that that trade is taking place in an open
manner with a level playing field, to the extent that Latin
American countries are wealthier from selling their exports to
China, those countries are going to be more stable and they are
going to, in turn, be better trade partners for the United
States as well. There is no reason why China should not be
involved in Latin America the way that other economic powers,
we hope, will not only trade with Latin America, but Latin
America will trade among itself.
Senator Coleman. Mr. Pardo-Maurer.
Mr. Pardo-Maurer. Mr. Chairman, I concur with the remarks
of both of my colleagues and I would add the following. We do
need to be alert to the possibility of a sort of Gresham's law
working here, where the bad money drives out the good. As
Ambassador Shapiro said, what is important is that there be a
level playing field. The fact is that American, United States,
commercial relations with Latin America are embedded within a
much larger context than merely economic considerations. We
have a human rights component to our diplomacy. We have
cultural aspects to our diplomacy. There is all kinds of other
things that go on within the context of our economic relations.
What is more, I would argue that our relationship, the
relationship of United States businessmen with Latin American
businessmen, is one that also takes place within a larger
social context. So from that point of view there is something
very real out there, which we call the Inter-American System,
that is undergirded not only by binding institutions between
governments, but by ethics and mores and a common vision of the
world.
China is not part of that system at all. It is not a
democracy, it is not a place where you can speak freely. It is
a place, as my colleague indicated, whose interests in Latin
America are economic. So from that point of view, we need to be
sure that we are able to work with the Inter-American System so
that China is competing on a level playing field.
What is the equivalent of the Corrupt Foreign Practices Act
that should restrict businesses from not bribing businesses or
governments in other countries for contracts and so forth? What
is the equivalent of Rotary Club or Kiwanis or any of these
many other organisms of civil societies that act as watchdogs
and that shape the behavior of the business community?
These exist in Latin America and the degree of development
of civil society in each country is different, and, therefore,
a one-size-fits-all approach will not necessarily work. But I
think by working together within the Inter-American System we
can help bring China in as a constructive partner that builds
up institutions and ultimately is a more constructive player on
the world stage. So I think we need to keep that in mind.
Senator Coleman. Thank you.
Senator Nelson.
Senator Bill Nelson. Ambassador Shapiro, given that we
import 13 percent of our daily consumption of oil from
Venezuela, what is going on between China and Venezuela and how
is that going to affect us?
Ambassador Shapiro. Thank you for the question, Senator. I
have to note that we talked about this in Caracas as we were
jogging through the neighborhoods around my house.
Senator Bill Nelson. And that was 2 years ago.
Ambassador Shapiro. That was 2 years ago.
What Venezuela supplies China is primarily ``orimulsion,''
which is a hybrid fuel developed in Venezuela, a mixture of
bitumen and water, that is used in powerplants. I think at the
peak our estimate was that they were selling 100,000 barrels a
day of orimulsion. Right now it looks like it is at about
40,000 barrels a day of orimulsion.
The China National Petroleum Company has a joint venture
with PDVSA, the Venezuelan oil company, to produce this
orimulsion. PDVSA has opened an office in Beijing and China is
active in Venezuela.
But the one thing I would like to note is that the Chinese
Ambassador to Venezuela, in a press interview with the
Venezuelan press, noted China's interest in furthering its
energy relationship with Venezuela, but went on to note that
China does not seek to replace the United States market, adding
that North and South America are Venezuela's natural markets.
Senator Bill Nelson. When was that statement made?
Ambassador Shapiro. It was made earlier this year, Senator.
Our ports in the gulf are 4 days away from Venezuela.
China's ports are, I think, 3 weeks away from Venezuela.
Senator Bill Nelson. How do you square that statement with
the statements of the President of Venezuela threatening to cut
off oil to the United States?
Ambassador Shapiro. Venezuela sells the United States
somewhere around 1.4 million barrels a day of oil, primarily to
its own subsidiary, Citgo. The United States does not buy oil
from countries. We buy oil from companies. Companies import
that oil. That is a market-driven decision that is in the
interest of both the seller, like any market-driven decision,
and in the interest of the buyer.
Our refineries on the gulf coast are designed to refine
Venezuelan crude oil, which is very heavy and has a high
sulphur content. At this point Chinese refineries cannot
process that oil.
Senator Bill Nelson. How long would it take them to develop
those refineries?
Ambassador Shapiro. They could do that. It would require an
investment of billions of dollars and would take--I cannot give
you an exact date because it would depend upon how much money
they are willing to put into it, not just in refineries, but
also in tanker capacity to transport that oil from Venezuela to
China. It is 4 days sailing time to the United States and 20
days sailing time to China. Obviously, you need five times as
many tankers to carry the same amount of fuel to China.
Senator Bill Nelson. So your conclusion and advice to this
committee, then, is that despite the bombastic statements by
Hugo Chavez, President of the Bolivarean Republic of Venezuela,
it would be impractical for him to suddenly cut off his oil
shipments to the United States and look elsewhere on the world
market, particularly to China?
Ambassador Shapiro. He could do it. The world markets would
adjust. It would be very expensive for Venezuela. It would be
very expensive for the United States.
Senator Bill Nelson. Mr. Chairman, thank you. I have got to
go on to another hearing. We have Max Mayfield up there. We
have got a hurricane ravaging across Key West as we speak.
I have asked my questions with a certain edge on my words,
but I am one of the people who wanted to have a good
relationship with the leader of Venezuela. The Ambassador and I
have talked long and hard, and yet I have been very upfront and
critical of the Chavez government. I am disappointed because I
thought that our relationship with Venezuela would get better,
but it got worse because of the rhetoric that came out of
Venezuela.
Your comments have been most helpful in light of the
rhetoric that we have heard.
Senator Coleman. I appreciate your concern, Senator Nelson.
I had a chance to visit with President Chavez and he had made
the comment to me that: I could cut oil off from Citgo just
like that. My comment was: You could cut off your left arm,
too; would you feel better? I think it would hurt. I think it
would hurt.
Certainly what I am hearing today is about the realities of
space, distance, market, production, a range of other things.
That is something, at least for today, we are not going to lose
a lot of sleep over. But again, these are things worth keeping
an eye on. So I appreciate your concerns. Thank you, Senator.
Let me continue by talking about the military foreign
affairs perspective, and then I am going to move on to some
other issues. But I believe, Ambassador Shapiro, in your
written testimony I recall a concern being raised about, ``As
China considers arms sales to the region, we will apply a
general policy of seeking transparency and accountability in
these sales, and are concerned about the risk of diversion of
weapons to illegal armed groups which threaten the peace and
security of the hemisphere.''
Either to the Ambassador or to Mr. Pardo-Maurer: I would be
interested if you can tell us what groups are we talking about
and how serious is that concern?
Ambassador Shapiro. Senator, that is a general concern
about all arms sales anywhere in the world. But my concern is
this area of the world. At this point in time, I believe that
China's sales to the Western Hemisphere are somewhere around 2
percent of total purchases by Latin American and Caribbean
countries. So it is quite small.
That said, we are in touch with the Chinese. We are working
with the Chinese. We want to ensure that those sales are
transparent, that they go to the intended users and do not get
diverted to illegal armed groups anywhere.
Senator Coleman. Mr. Pardo-Maurer, anything to add to that?
Mr. Pardo-Maurer. As Ambassador Shapiro said, that is a
general concern. There are other countries that are selling
weapons to specific countries in Latin America. I could cite
Russia with Venezuela, that we have repeatedly, repeatedly, at
the highest levels expressed our concerns to and our desire
that they work within the established procedures for
transparency and confidence and security-building measures of
the Inter-American System.
As a general principle, I would say the smaller the items
sold the greater our concern. It is much harder to keep track
of a single round than it is to keep track of an aircraft
carrier. To the degree that China is pursuing military
relationships with the region, we have to think in terms of
where are we going to be 5, 10, and 15 years from now. That is
the way they think. We are told that they have a 50-year plan.
We do not know if that is true. We do not know if that is what
it is.
But suppose they do have a 50-year plan? In that sort of
scenario, everything we have been talking about--their energy
relationships, their diplomatic relationships, even their
cultural and demographic relationships--take and a different
light.
Senator Coleman. I am going to spend a little more time
with the second panel talking about article 98 agreements that
we have and the impact that is having on our IMET training of
military personnel in Latin America. When I was in Brazil,
Uruguay, Chile just a couple weeks ago, those issues came up
consistently. We are losing the ability to strengthen the
military-to-military contacts because of some of the concerns
about article 98 and the inability then to continue on with
IMET training.
Do you see a void being created by that, and is anyone
rushing to fill the void? In particular, is China looking to
fill the void?
Ambassador Shapiro. We are supportive of concluding article
98 agreements in those countries where we do not have them. We
think that it is important. We do not perceive a void. I want
to avoid that word. We are continuing to work to the extent
that we can.
The number of Latin American students who go to China to
study each year is minimal. I saw an estimate that was under 50
total regionwide. I think 2,500 Latin American students,
military students, were in the United States last year at
various military schools. The same thing applies to our
military assistance personnel in U.S. Embassies and to military
sales. ``Void'' is not a word that I would use, sir.
Senator Coleman. Mr. Pardo-Maurer, do you want to add? Is
``void'' too harsh a word, too strong a word?
Mr. Pardo-Maurer. What I would say is that we have
different types of relationships with different countries and
in some countries we have very, very active, important
relationships where we are working on solving serious problems
that affect us both. Colombia and the United States would be a
good example. We have an agreement with Colombia.
We aim to have good relations with all the countries in the
region. The article 98 agreement is a way to ensure that our
service members will not be subject to kangaroo courts and
governments that change depending on the weather. This has
happened before in Latin America.
So I think the concerns we are seeking to address by
article 98 are very, very, very important concerns. When we
lose our ability to provide material or perhaps even more
importantly in the case of Latin America, where relationships
are such an essential part of our military engagement, then,
yes, we have to counterbalance that. It was never an easy
decision. It was never an easy decision.
Where we have probably seen the most difficult situation is
with regard to IMET, the money that we use for training. There
is no question but that this has made it much more difficult to
bring qualified Latin American officers and enlisted men to the
United States to train. That is an extremely important part of
our relationship.
I would not say that I have seen other countries rushing to
fill a void or whatever you want to call it, but it has led
other countries to look elsewhere. There is no question that
China is ramping up its cooperation. They have established what
is the largest Latin American studies program in the world.
That is new. Who knows what may happen 1 or 2 or 3 years from
now with military relationships?
It is not just China. Venezuela and Cuba are offering
alternatives for training, not in the military field, but Cuba
just recently graduated 12,500 Latin American students in--they
call them doctors; we would call them paramedics. But
nonetheless, they are training professionals to deal with
health issues that are not being addressed in the countries
where these students came from.
So our ability to develop relationships has been hampered,
there is no question.
Senator Coleman. I would say, first of all, I fully
understand the concerns that are reflected in the article 98
agreements and the protection that we are looking to afford to
American service men and women, which they rightly deserve. I
do think, Ambassador, that we are creating a void when it comes
to IMET, that those relationships are very, very important, and
to the extent that we are losing--these are our friends--the
ability to strengthen those relationships, then a void is
created. It may be in a specific area and it certainly does not
void, using that term, all other relationships. But I think
something is lacking there.
But what I am hearing is that we are not seeing anybody
rushing into that at this point in time. But clearly, other
countries, and China in particular, are looking to strengthen
those relationships. Relationships are important.
Ambassador Shapiro. They are important and they are the
relationships that are made by young officers as they go
through their career that are important. We want to have them,
so that we know them, they know us, they know our culture, our
military culture, and so that we can work with them.
That is why we are working so hard to conclude these ASPA
agreements.
Senator Coleman. I mentioned it particularly in regard to
China because it gets back to my earlier question, that we have
a culture, a military culture, still built on foundations of
democracy and foundations of rule of law, and that is not the
Chinese experience, democracy. So we are losing the ability to
train young military officers with a fundamental respect and
appreciation for what democracy has to offer, and if that is
then being filled in any way by countries that do not have that
same tradition, we should be concerned. We are not talking
about economics now. We are not talking about GDP. We are
talking about fundamental respect for human rights. We are
talking about fundamental respect for democracy, rule of law,
and the impact that has on the military. You want officers who
understand that. If somehow what we are offering is being
replaced, it raises concern.
Mr. Pardo-Maurer.
Mr. Pardo-Maurer. Yes. I would just like to throw a
poignant example into the discussion here. I was just in Peru
with Secretary Rumsfeld, where we visited with President
Toledo. President Toledo was from a very humble family, an
indigenous family from the highlights of Peru, I believe one of
16 children, 7 of whom died in infancy. Someone, somewhere, saw
this young man back in the sixties and said: He can play
soccer. And he went on a soccer scholarship to the University
of San Francisco and from then went on to get a Ph.D. in
economics from Stanford on scholarships and eventually became
President of his country.
I can tell you, we have a good friend in President Toledo.
President Uribe of Colombia has said few if anyone have been as
supportive of his efforts as President Toledo. So that is the
kind of difference that a single scholarship can make.
Senator Coleman. I share that perspective. President Toledo
said he is President by accident and where he grew up people
did not get that, an education. He did and is President of his
country. I am tempted to have my kids learn to play soccer
better if that is the path.
Let me ask one other foreign relations question and then I
want to just turn to economic matters. President Lula has
spoken of developing a strategic partnership with China. Can
anyone give me their sense of what does that mean? Has Brazil
achieved this? What are the implications for the United States
regarding that relationship? Mr. Forden. Ambassador.
Ambassador Shapiro. Well, when President Hu went to China
they signed a number of agreements that promise great
investment. It will be interesting to see how many of those are
actually realized, how much money actually is invested.
Senator Coleman. When you said ``President,'' you mean when
President Hu went to----
Ambassador Shapiro. Brazil.
Senator Coleman. Brazil. You said to China.
Ambassador Shapiro. I am sorry. I apologize. I got it
backward there.
Both are regional powers, both Brazil and China. It is
normal that they would trade with each other and that they
should seek to improve their relations with each other. We do
not see that as a threat to the United States. We see it as a
normal part of both of those countries as their economies are
growing and as they have more power, economic power and
political power beyond their borders, to deal with each other.
Let me go back to the point we have been making throughout,
and that is that rules are important. What we want to see are
rules of the game. We think it is important for China to have
an interest in the rules. Because it has investments in Latin
America, it will have an interest in stability in Latin
America. We want to ensure that Chinese investors and Chinese
exporters compete on a level playing field with United States
investors and United States exporters.
Senator Coleman. Mr. Pardo-Maurer.
Mr. Pardo-Maurer. We, at the Defense Department, have a
very particular interest in what is happening in terms of the
scientific and technical cooperation between Brazil and China.
We, at the Defense Department, take the science capabilities of
the Southern Cone countries very, very seriously. By many
measures--and this is, if I may put in an advertisement, this
is a good subject for further inquiry by the Western Hemisphere
Subcommittee.
By many measures, the Southern Cone is one of the fastest
growing regions of the world for quality scientific research
and articles. That is according to the National Science
Foundation. I can get this report to you.
We recognize this. In 2002 we established an Office of
Naval Research office in Santiago. We established a counterpart
from the Army in Buenos Aeres and we have made a lot of
progress toward establishing an Africa office for Brazil.
They are doing tremendous research and we are benefiting
from that. Dr. Sega, a former astronaut colleague of Senator
Nelson who is the Director of Defense Research Engineering,
came to Brazil with Secretary Rumsfeld to further our
cooperation in this area. When we see Brazil developing very,
very fruitful relationships in aerospace, in satellite
technology, even launching satellites with China, what we see
is a country that we want to be working with, too. Everything
we can do to strengthen that scientific relationship is
important.
What is important is that countries like China and Brazil
and everyone else see that this can be mutually beneficial.
This is not a zero sum world at all when it comes to that kind
of research. We can cooperate, and our aim in establishing
these offices in the Southern Cone is to promote just that kind
of interchange and cooperation.
Senator Coleman. Though we talk about interchange and
cooperation, we have sent a very strong message to the
Europeans, a very strong message of concern about selling
military technology, scientific capability that can be
converted to military use, to the Chinese. Have we communicated
that same message to Brazil or countries in the Southern Cone
that have access to technology that would be of concern were it
to be sold to the Chinese?
Ambassador Shapiro. It is not a policy vis-a-vis Europe. It
is a global policy of the United States, our concerns
concerning certain exports to China.
Senator Coleman. So I take it then the answer is----
Ambassador Shapiro. Yes.
Senator Coleman [continuing]. That it is as applicable to
the Southern Cone----
Ambassador Shapiro. It is a consistently applied policy,
yes.
Senator Coleman. Let me just ask if I can, two other
questions. First, regarding human trafficking. Ambassador, any
concerns the State Department may have regarding Chinese human
traffickers operating in Latin America and the Caribbean? How
are we working to address this?
Ambassador Shapiro. Yes, it is a concern. We estimate that
between 20 and 30,000 Chinese migrants enter the United States
illegally each year. Now, they are not just going through Latin
America. They are going through Asia, Europe, Canada, and Latin
America to get to the United States.
We are working with the Chinese, we are working with the
governments of Latin America, to try to stop that, interdict
that traffic. We have stopped several ships recently in the
Pacific. It is not just a Chinese phenomenon. Other Latin
Americas are coming by ship up the west coast of Latin America
to the United States. So we are working to stop that. The Coast
Guard is working very hard on it and we are working with
governments on that.
Our Trafficking in Persons Office at State Department has
paid particular interest to the whole trade in people, which is
a very lucrative and illicit trade.
Senator Coleman. How would you then describe the level of
Chinese cooperation as we are working with them to stop this?
Ambassador Shapiro. I have to turn to my China expert.
Mr. Forden. Well, as Ambassador Shapiro mentioned, Mr.
Chairman, this is an issue that has drawn a lot of attention
from our Office of the Ambassador for Trafficking in Persons.
Geared toward our annual review of the trafficking in persons
problem around the world, our annual report, we have an ongoing
dialog with China. We share our concerns with them. The
Government of China has been cooperative, has officially agreed
and cooperated with us that this is a problem that they would
like to work with us to attack and to try and stop.
We have worked together with--our law enforcement people
have worked with their law enforcement people on individual
cases. But given the enormity of China's population and the
push pressures from population pressures there and the pull of
opportunities in the United States and other places outside of
China, it is a problem that is not likely to go away very
quickly, but one that we are working with China to resolve.
Senator Coleman. Thank you, Mr. Forden.
Mr. Pardo-Maurer, does the Pentagon have any concerns
relative to China and the Panama Canal?
Mr. Pardo-Maurer. There is a common concern out there that
somehow, because a company--this emerged a few years back
because a company controlled by Chinese investors had gained
control of the terminal facilities of the canal, that somehow
this was going to be a threat, and it is not, that we can tell.
The redevelopment of the Panama Canal is going to be one of
the biggest infrastructure projects in history. It is probably
a $16, $20, $25 billion project. Panama has reached the final
stages of the decision to go ahead with this, and they are
going to be looking for investors. They are going to be looking
for governments and companies and individuals who are going to
be stakeholders in this project. It is something that we have
looked at.
I think it is very much in the interest of the United
States to ensure that this project goes ahead in ways that
strengthen the countries that use it responsibly and that are
members of the responsible global trading community. Now, China
is one of the largest users of the canal and fast-growing. I
think it is the third largest user. So from what we can tell,
it is in their interest to have a canal that works and is
dependable and is reliable.
So to me the canal is actually a classic example of how
bringing China in or helping China become a responsible trading
partner, a responsible member of the world trading community,
is in our interest. It makes the Panama Canal, which is truly--
it is Panama's of course, but it is a global asset. It makes
the canal something that they have an interest in cherishing
and defending.
So there are two aspects to this. One is who controls the
canal from here to the future, and that is Panama's
prerogative. The canal belongs to Panama. The other is securing
international cooperation so that the canal is safe.
We do know that al-Qaeda has sent people to scope out the
canal and that it was on their list of targets. So to the
degree that China can be a partner in protecting that asset,
whether because of what it knows in its part of the world or
other ways, that is an important thing.
I am not sure I answered your question by saying that, but
the short answer is that the most common concerns that I have
seen out there, that because a certain company that has Chinese
investors, controls the terminal facilities of the canal, that,
therefore, we need to be concerned, that I think is not a
concern.
Senator Coleman. You have answered the question. The
question stemmed from those kind of conversations and concerns
that have been raised.
But I do appreciate, to the entire panel, your going beyond
that, because, as I said after listening to the testimony
before the questioning, I felt this was rather optimistic,
which is nice. I am an optimist. This was a rather optimistic
perspective on what is happening with China and Latin America--
that, in fact, we in the United States have a history, have
relationships, have strong economic ties with the hemisphere
that far exceed other ties. Even though China certainly is
looking to expand its place--the need for resources,
opportunity for markets--the sense I am getting is that that
does not have to be a threat, that we can work with China, and
in the end if we can add to the economic opportunity, add to
the economic security, and continue to work with China and this
community of democratic nations, this is not a bad thing.
So this has been very, very helpful. I want to thank you
gentlemen for your testimony, and this panel is excused.
Our second panel is composed of: Mr. Stephen Johnson,
senior policy analyst for Latin America, the Catherine and
Shelby Cohen Davis Institute for International Studies at the
Heritage Foundation. Mr. Johnson is a former State Department
officer who worked at the Bureaus of Inter-American Affairs and
Public Affairs as a writer and researcher, as director of the
Central America Working Group, and as chief of the editorial
division in the Bureau of Public Affairs.
A former Air Force officer, he served as Assistant Air
Force Attache in Honduras. Later as a member of the Air Force
Reserve, he was a Public Affairs Officer and Strategic Planner
in the Office of Public Affairs for the Secretary of the Air
Force, and was also a Public Affairs Officer for the United
States Southern Command.
Dr. David Lampton is dean of faculty, George and Sadie
Hyman Professor, and director of China Studies of the Johns
Hopkins School of Advanced International Studies, as well as
founder and director of China Studies at the Nixon Center.
Before assuming these posts, he was president of the National
Committee on United States-China Relations in New York City
from 1988 through 1997.
Prior to 1988, Dr. Lampton was founder and director of the
China Policy Program at the American Enterprise Institute and
associate professor of political science at the Ohio State
University. Dr. Lampton is the author of numerous books and
articles on Chinese domestic and foreign affairs.
Dr. Gal Luft is codirector of the Institute for the
Analysis of Global Security. He has published numerous studies
and articles on security and energy issues in various
newspapers and publications, appears frequently in the media,
and consults to various think tanks and news organizations
around the world.
We will begin with Mr. Johnson, then go to Dr. Lampton, and
end with Dr. Luft. With that, gentlemen, thank you for being
here today and I look forward to your testimony.
STATEMENT OF STEPHEN JOHNSON, PH.D., SENIOR POLICY ANALYST FOR
LATIN AMERICA, THE HERITAGE FOUNDATION, WASHINGTON, DC
Mr. Johnson. Thank you, Chairman Coleman.
Members of the committee, it is an honor and a privilege to
appear before you today to discuss the influence of the
People's Republic of China in Latin America. I would commend
you, as the previous panel did, for holding a hearing as China
carves a role for itself in this hemisphere and undoubtedly
will become a factor in affecting relations between the United
States and its neighbors.
The United States has become the greatest power in the
world based on its tradition of free choice. Choice goes hand
in hand with competition to keep markets vibrant and government
accountable. Human talent from all over the world has come here
to prosper by these values.
Starting in the 1960s, there was ideological competition
from abroad. The Soviet Union was able to intrude, supporting a
dictatorship first in Cuba and later insurgencies in Central
America. In the end, liberal reforms won out. Encouraged by the
United States, reforms have generally helped Latin America
states become more politically, economically, and commercially
viable.
Once again, emissaries are coming from the other side of
the world, this time to compete in commerce, diplomacy, and
military-to-military relations. We are not sure that we like
it. The People's Republic of China is a Communist State that is
embracing market-based commercial concepts, but it is still a
nonmarket economy where a disciplined totalitarian party
through the central government retains full authority over
nonstate investment and trade.
Latin America is rich in natural resources and developing
markets, which China needs. There is no question it has its
foot in the door and seeks access to advance its own interests,
as any nation would.
We can shrink from this intrusion or we can attempt to
contain it. But maybe it is best to look after our hemispheric
interests and mitigate China's presence by relying on an old
friend: Competition. Specifically, we can do this by
consolidating trade relationships with Latin America and
dropping our own protectionist barriers, developing
comprehensive relations as opposed to narrow interest
diplomacy, such as counternarcotics, minimizing unproductive
restrictions on assistance to our neighbors, and by pressing
harder for democratic and economic reforms, prioritizing
support for these purposes, and reenergizing our public
diplomacy.
China is not only a nation, but also the world's oldest
continuous civilization, with more than 3,500 years of written
history. Relatively recently, it suffered hard times. Communism
did little to help. But in 1978 Communist Party leader Deng
Xioa-Peng introduced economic reforms that have steadily
transformed the PRC into a socialist market economy. Twenty-
five years into this experiment, we witness that China has one
of the world's largest economies, the third biggest defense
budget, the highest population of any nation at 1.3 billion
persons. According to the World Bank, its gross domestic
product of $1.6 trillion is growing about 9 percent per year,
and at $230 billion in trade it is our second biggest partner
in commerce, something that we should think about as we look at
how we might want to contain its relations in Latin America.
Resources must feed that economy and China does not have
sufficient oil, natural gas, aluminum, copper, iron to satisfy
those needs. Furthermore, China needs trade partners to buy its
electronics, apparel, toys, and footwear. Asian neighbors are
competing for many of the same markets, as are Europe and the
United States.
For China, Latin America has promising characteristics. It
is relatively unindustrialized and has lots of raw materials.
Moreover, signing purchase agreements with the, perhaps,
corrupt officials who lead some of the governments--and I say
some of the governments, not all of them--is much easier than
dealing with a panoply of private corporations because it makes
possible one-stop shopping.
China's main rival for global preeminence is the United
States. It sees the United States preventing Taiwan's
reunification with the mainland and thwarting Beijing's rise as
a power. While it has become our second largest trade partner
after Canada, China challenges our influence where it can. It
may soon possess more attack submarines than we do.
Science, sports, and military exchanges characterized Sino-
Latin American relations in the 1980s. Economic ties did not
develop significantly until after 1990, President Yang Shangkun
visited Latin America with an upbeat message: ``A new
international political and economic order,'' he called it.
Soon after that, the pace picked up. In April 2001 Chinese
President Jiang Zemin made a 12-day visit to cement trade ties
and attack Washington's unipolar scheme. Last November,
President Hu Jintao flew to Argentina, Brazil, Chile, and Cuba,
where he signed 39 bilateral agreements and announced $100
billion in investments over the next 10 years.
Because China's demand for oil has been growing to satisfy
industrial needs and demands for consumers, it has pursued
agreements with such producers as Venezuela, Ecuador, Colombia,
Argentina, Brazil, and even Mexico. Obviously, the best fit is
Venezuela, whose authoritarian leader Hugo Chavez directly
controls the state oil industry. President Chavez even invited
the Chinese National Petroleum Corporation to help explore the
rich Orinoco Belt and last year President Chavez advanced an
agreement with Colombia to build a pipeline to the Pacific Port
of Tribuga to enable China to access Venezuelan oil from the
Pacific coast.
China also has a bid on concessions to Ecuador's major oil
fields and also has interests in an Argentine firm that has
concessions on fields in northern Argentina as well as Peru.
On the military front, China has expanded ties through
exchanges. It reportedly has direct military-to-military
relations with Venezuela, as well as Argentina, Chile, Peru,
and Uruguay. The PRC began collaborating with Brazil on spy
satellite technology in 1999, providing needed rocket launch
expertise in exchange for digital optical technology. Access to
Brazil's space tracking facilities could give it the ability to
attack United States satellites.
But perhaps the most fruitful collaboration of all has been
with dictator Fidel Castro in Cuba. In 1999 China was
reportedly intercepting satellite signals from facilities in
eastern Cuba. In 2000 it obtained access to a base outside of
Havana to intercept U.S. telephony along the east coast. In
2001, Russia announced it would abandon its extensive
electronic espionage center at Lourdes and the PRC now
reportedly occupies it.
At first blush, expanding ties between Latin America and
China may seem like a good fit. China makes deals on the spot
without a lot of strings. Its transactions are based on simple
exchanges, and China's markets are indeed expanding. However,
such dealings pose problems. It shames American-style
bottleneck diplomacy. Latins find that obtaining any kind of
assistance from us requires compliance on a battery of
restrictions from protecting the environment to signing
promises not to send U.S. military personnel to the
International Criminal Court. Some say, why bother?
Latin American leaders have noticed that China's exports
are much cheaper than their own, and our own as well--leading
to big trade deficits. Chinese goods are made by laborers who
toil for about a third of the wages of Latin American
counterparts and tolerate worse working conditions. For every
dollar's worth of goods Mexico sells to China, we are told, the
PRC reportedly makes $31 from exports to Mexico.
Now, some analysts believe that China is encouraging a
commodities-based trade model that will supplant the progress
that the region has made toward industrialization. While
countries like Chile and Brazil have gotten beyond raw
materials exports, powerful Presidents and comfortable
oligarchies may be tempted to fall back on plantation
economics. Income gaps between the rich and the poor may widen.
Greater inequality and political instability could depress U.S.
exports to the region and worsen migration problems.
In conclusion, the United States and China have competing
interests in Latin America. The best way to address them is to
rely on America's strength, which is competition. U.S.
policymakers should make true competition paramount, and in
doing so they should accelerate free trade agreements by
dropping agricultural and steel subsidies that dissuade
potential partners and cost taxpayers money. United States
trade relations with Andean neighbors and eventually the
Southern Cone countries can open market access for both United
States and Latin America enterprises and provide a solid outlet
for nonstate industrial growth.
We should adopt more comprehensive relationships as opposed
to single-issue diplomacy, such as counternarcotics, as we had
initially with Colombia. Plan Colombia is working because the
United States is helping its South American partner expand
public safety zones, reactivate the economy, and strengthen
public institutions.
Cut strings on assistance to the greatest extent possible.
Certifications and restrictions are blunt instruments that do
not necessarily cover every situation and even harm some U.S.
security interests.
Press harder for reforms. U.S. support for democracy and
economic reforms has actually declined over the past 15 years.
United States public diplomacy, which is reactive toward Latin
America, needs strengthening and needs to be more supportive of
our development agenda.
Mr. Chairman, thank you for this opportunity to address the
committee. I could easily go on. But this is a big subject.
Thank you very much.
[The prepared statement of Mr. Johnson follows:]
Prepared Statement of Stephen C. Johnson, Senior Policy Analyst for
Latin America, the Kathryn and Shelby Cullom Davis Institute for
International Studies, the Heritage Foundation, Washington, DC
Chairman Coleman, members of the committee, it is an honor and a
privilege to appear before you today to discuss the influence of the
People's Republic of China in Latin America.
I commend you for holding a hearing on this topic as China carves a
role for itself in this hemisphere and undoubtedly will become a factor
affecting relations between the United States and its neighbors in the
Americas.
I testify today as an individual and do not necessarily reflect the
views of my employer, the Heritage Foundation.
STRANGERS IN THE NEIGHBORHOOD
The United States has become the greatest power in the world based
on its tradition of free choice. Choice goes hand in hand with
competition to keep markets vibrant and government accountable. Human
talent from all over the world has come here to prosper by these
values. Ironically, most of our neighbors in Latin America are just
awakening to the benefits of competition, abandoning imposed rule for
electoral choice and open markets.
The region is awakening to another kind of competition as well.
When distances were great and communications poor, the United States
was the dominant actor and could warn extra-hemispheric powers against
meddling in the neighborhood. By the 1960s, the Soviet Union was able
to intrude, supporting Fidel Castro's dictatorship in Cuba and, later,
insurgencies in Central America.
Although some countries, like Colombia, have always been democratic
and trade oriented, Soviet intervention triggered competition between
right-wing authoritarianism, democracy, and Marxism. In the end,
liberal reforms won out. Encouraged in by the United States, they have
generally made Latin American states more independent politically,
economically, and commercially.
Now, emissaries from the other side of the world are coming to our
hemisphere to compete in commerce, diplomacy, and military relations.
And we are not sure we like it. The People's Republic of China (PRC) is
a Communist State that is embracing market concepts. But it is still a
nonmarket economy where a disciplined totalitarian party, through the
central government, retains full authority over nonstate investment,
import, export, and financial decisions.
Latin America is rich in natural resources and developing markets--
which China needs. There is no question it has its foot in the door and
seeks access to advance its own interests. We can shrink from this
intrusion or attempt to contain it--with disastrous consequences in
each case. Perhaps the United States can best look after its
hemispheric interests and mitigate China's presence by relying once
more on its competitive tradition. Specifically by:
Consolidating trade relations with Latin America and
dropping our own protectionist trade barriers;
Developing comprehensive relationships as opposed to narrow-
interest diplomacy such as counternarcotics;
Minimizing unproductive restrictions on assistance to our
neighbors; and by,
Pressing harder for democratic and economic reforms,
prioritizing support for these purposes and re-energizing
public diplomacy.
CHINA'S AGENDA IN THE AMERICAS
China is the world's oldest continuous civilization with more than
3,500 years of written history. In the mid-1800s, the ruling Qing
Dynasty began to crumble, inciting a period of decline and foreign
intervention. At the end of World War II, China's Nationalist
government had been weakened by a decade of war against Japan, and was
wracked by corruption and incompetence. Then the Nationalists embarked
on a civil war against Chinese Communist Party bases and were defeated.
By 1950, Communist leaders like Mao Zedong believed their
authoritarianism would return China to glory, a belief that expired
after 30 million starved to death in state-induced famines in the early
1960s, and another 10 million perished in fanatical ideological
campaigns. In December 1978, after several ``great leaps'' backward,
the Communist Party leader Deng Xiaoping introduced economic reforms
that have steadily transformed the PRC into a remarkable hybrid--a
``socialist market economy''--in essence a Communist State that uses
market-based pricing principles.
Feed the Dragon. Twenty-five years into this experiment, China has
the world's second largest economy, the third biggest defense budget
according to some analysts, and the highest national population of any
nation at 1.3 billion persons. According to the World Bank, its gross
domestic product of $1.6 trillion is growing about 9 percent per year.
Resources must feed that economy and China does not have sufficient
oil, natural gas, aluminum, copper, iron, to satisfy energy or
manufacturing needs. Furthermore, it needs trade partners to buy its
electronics, apparel, toys, and footwear.
Asian neighbors are competing for many of the same markets, as are
Europe and the United States. But Latin America has promising
characteristics. It is relatively unindustrialized and has lots of raw
materials. Moreover, authoritarian leaders and/or corrupt oligarchies
control a number of governments. Signing purchase agreements with them
is much easier than dealing with a panoply of private corporations and
enables one-stop shopping.
Challenge the United States. China's main rival for global
preeminence is the United States. It sees the United States preventing
Taiwan's reunification with the mainland and thwarting Beijing's rise
as a power. Once isolated, it now plays key roles in Asian geopolitics
and aspires to do so elsewhere. Besides status as a nuclear nation, it
is a member of the United Nations Security Council, the World Trade
Organization, the Group of 77 developing nations, Asia Pacific Economic
Cooperation group, and holds observer status in the Organization of
American States.
And while it has become our second largest trade partner after
Canada, it challenges our influence wherever it can. In fact, it may
soon have more attack submarines than the United States, with the
addition of four Russian Kilo-class subs and new diesel-electric
vessels equipped with technology that will allow them to run more
silently than some nuclear technology.
According to former U.S. Ambassador to Beijing James Lilly, ``. . .
the facts are that they run massive intelligence operations against us,
they make open statements against us, their high-level documents, show
that they are not friendly to us.'' Its military white papers promote
power projection and describe the U.S. policies as ``hegemonism and
power politics.'' \1\
---------------------------------------------------------------------------
\1\ Jane Bussey and Glenn Garvin, ``China Exerting Regional
Influence, Analysts Warn of Political, Strategic Challenges to U.S. in
Latin America,'' the Miami Herald, April 15, 2001, p. 1-A.
---------------------------------------------------------------------------
Isolate Taiwan. Separate since the 1949 civil war, free, prosperous
Taiwan has been the ``renegade province'' that must be reunified with
the PRC. Part of Beijing's plan to bring it back into the fold has been
to isolate it diplomatically. In the 1950s, most of Latin America had
relations with Taiwan. Then, the Cuba's Fidel Castro regime established
ties with China in 1960. Then Chile led a major shift in favor of the
PRC in 1970. Globally, just 25 countries accord Taiwan status--a
quarter of them in Latin America: Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, Panama, and Paraguay. Taiwan pays dearly,
providing development aid and disaster assistance to these states.
WESTERN WELCOME MAT
Science, sports, and military exchanges characterized relations in
the 1980s. Economic relations did not develop significantly until after
1990. A year after China repressed dissidents in Tiananmen Square,
President Yang Shangkun visited Latin America. His trip heralded the
beginning of an increasing number of high-level missions to lay the
foundation for ``a new international political and economic order,'' as
he described it.\2\
---------------------------------------------------------------------------
\2\ Beijing Liaowang Number 15, Xinhua News Agency, April 9, 2001,
pp 3-4, cited in ``Chinese Infrastructure Projects in Latin America,''
Intellibridge, July 19, 2004, p. 2.
---------------------------------------------------------------------------
The pace picked up at the turn of the new century. In April 2001,
Chinese President Jiang Zemin presided over a 12-day mission to cement
economic and trade ties, as well as attack what he called Washington's
``unipolar'' scheme.\3\ His itinerary included Argentina, Uruguay,
Brazil, Cuba, and Venezuela. In November, Li Peng, the chairman of the
Standing Committee of the People's National Congress followed up. Last
November, President Hu Jintao flew to Argentina, Brazil, Chile, and
Cuba where he signed 39 bilateral agreements and announced $100 billion
in investments over the next 10 years. This May, Communist Party
chairman, Jia Qinglin, visited Colombia, Mexico, Uruguay, and Cuba.
---------------------------------------------------------------------------
\3\ Jane Bussey and Glenn Garvin, op. cit.
---------------------------------------------------------------------------
Building on simple commercial agreements, China has advanced to
economic assistance, direct investment, a few joint ventures, and
military ties. When Argentina's financial collapse rippled through
South America's Southern Cone, China quickly seized the chance to
increase its stake in Argentina and Brazil, even though U.S. investment
declined by nearly half. Joint ventures include partnerships with Great
Dragon Telecom in Cuba and in Casanare Department in Colombia. China is
partnering with Brazil to improve its railways and establish a link to
the Pacific to cut transportation costs on iron ore and soybeans.
Chile's congested port at Antofagasta may get a facelift thanks to the
PRC.
Because China's demand for oil has been growing to satisfy
industrial needs and demands of consumers, it has pursued investments
and agreements with such oil producers as Venezuela, Ecuador, Colombia,
Argentina, Brazil, and even Mexico. The best fit is with Venezuela
whose authoritarian leader Hugo Chavez directly controls the state oil
industry. President Chavez has invited the Chinese National Petroleum
Corporation (CNPC) to participate in exploring in the rich Orinoco
belt. Meanwhile, the CNPC has invested $300 million in technology to
use Venezuela's Orimulsion fuel in Chinese powerplants.
For now, Venezuela plans to increase exports to China by 300,000
barrels per day and recently signed an agreement with Colombia to build
a pipeline to the Pacific coast of Port of Tribuga, since supertankers
cannot transit the Panama Canal. A proposal with Panama would modify a
pipeline there to facilitate Pacific shipping. On a visit to Beijing
last year, President Chavez said shifting exports to China will help
end dependency on sales to the United States.
In 2003, China bid on concessions to Ecuador's major oil fields.
The same year, the CNPC acquired a stake in the Argentine oil and gas
firm Pluspetrol that operates fields in northern Argentina and Peru.
While Mexico's Constitution prohibits foreign investment in Pemex, a
boost in petroleum exports is expected to address Mexico's trade gap
with the PRC. And, although it has no current profile in Bolivia,
China's market and presence could be ideologically acceptable to a
future populist President, like Evo Morales, in lieu of Western private
investment.
On the military front, China has expanded ties through exchanges.
It reportedly has direct military-to-military relations with Venezuela,
as well as Argentina, Chile, Peru, and Uruguay. The PRC began
collaborating with Brazil on spy satellite technology in 1999,
providing needed rocket-launch expertise in exchange for digital
optical technology that will permit high resolution, real-time imaging.
Moreover, access to Brazil's space tracking facilities could give China
the ability to attack U.S. satellites with a variety of technologies
under development.
Perhaps the most fruitful collaboration has been with dictator
Fidel Castro in Cuba. In 1999, China was reportedly intercepting
satellite signals from facilities in eastern Cuba. In 2000, it obtained
access to a base outside of Havana to intercept U.S. telephony. In
2001, Russia announced it would abandon its extensive electronic
espionage center at Lourdes. PRC personnel now reportedly occupy it. A
February 2004 agreement cloaks such operations under the pretext of
technical communications cooperation. In fact, Radio China
International signals originate from Cuba. But so, too, does
interference with U.S. east coast radio communications and air traffic
control according to Federal Communications Commission complaints.\4\
---------------------------------------------------------------------------
\4\ Cited by Albert Santoli, ``China's Strategic Reach into Latin
America,'' testimony before the U.S.-China Economic and Security Review
Commission, 124 Dirksen Senate Office Building, Washington, DC, July
21, 2005 at www.uscc.gov/hearings/2005hearings/written_testimonies/
05_07_21_22wrts/santoli_albert_wrts.htm (September 18, 2005).
---------------------------------------------------------------------------
WILLING PARTNERS
At first blush, expanding relations with China may seem a good fit.
Dealing with China, a major world power, elevates a small country into
the big leagues of global actors. It provides respect for those living
in the shadow of the prosperous U.S. colossus. The novelty of frequent
high-level visits suggests that American leaders--who visit less
often--have ignored the region.
Few Requirements. China makes deals on the spot without a lot of
strings--its transactions are based on simple exchanges. Their leaders
have broad authority to negotiate foreign deals with worrying about
legislative oversight, rule of law, or altruistic objectives. And,
there is no need build up Latin American trade capacity to deal with
diverse businesses, because these Chinese leaders represent state
monopolies--which meshes well with Latin American government ownership
or management of telecommunications, mining, and energy industries.
Leverage Against Uncle Sam. China's markets are expanding--a
temporary boon to resource-rich Latin America. Imports from the region
have grown more than 600 percent in 5 years.\5\ Compared with United
States-Latin America trade figures for 2004 at $410 billion, China's
$40 billion trade with the region might seem inconsequential. But
Chinese trade and investment gives Latin politicians and business
elites, who largely control commodities, a bargaining chip to boost
prices when dealing with the United States.
---------------------------------------------------------------------------
\5\ See U.S. International Trade Administration at www.ita.doc.gov/
td/industty/otea/usfth/tabcon.html (September 18, 2005); and Kerry
Dumbaugh and Mark P. Sullivan, ``China's Growing Interest in Latin
America,'' Congressional Research Service, April 20, 2005, p. 2.
---------------------------------------------------------------------------
CONCERNS FOR WASHINGTON
Even so, China's growing influence poses problems for both the
United States and Latin America.
Bad for Bottleneck Diplomacy. China's flexibility cuts into U.S.
leverage. Obtaining any kind of assistance from the United States
requires compliance on a battery of restrictions from observing human
rights, protecting the environment, signing agreements not to send U.S.
military personnel to the International Criminal Court, not assisting
current or former terrorists, or violating orders not to use U.S.-
provided equipment for any other than its stated purpose. American
commitments also depend on legislative approval and can be reversed,
depending on the mood of the U.S. Congress.
Competition for Resources. China offers direct investment in
infrastructure development to obtain commodities. The United States, on
the other hand, has no direct-tie state industries and can only offer
development aid, now in decreasing amounts. Millennium Challenge
Account (MCA) money may be less of an incentive to democratize
governments and liberalize markets with Chinese competition. There is a
1- to 2-year lead time from the time an MCA award is proposed to when
it is dispersed, during which some volatile governments can back away
from market-oriented performance requirements.
Growing Trade Deficits. Latin America leaders who sign trade and
investment deals with the PRC have noticed that China's exports are
more affordable than their own--contributing to trade deficits. After
all, Chinese goods are made by laborers who work for a third of the
wages of Latin American counterparts and who tolerate worse working
conditions. Officials in Argentina, Brazil, and Mexico have signaled
their unease about trade with such a hot competitor. This month,
Mexican President Vicente Fox made it clear to visiting President Hu
Jintao that dumping electronics and clothing was unacceptable. For
every dollar's worth of goods Mexico sells to China, the PRC makes $31
from exports to Mexico.\6\
---------------------------------------------------------------------------
\6\ James C. McKinley, Jr., ``Mexico Builds Trade Ties with
China,'' The New York Times, September 13, 2005, p. 3.
---------------------------------------------------------------------------
Disinterest in Economic Reform. Some analysts believe that China is
encouraging a commodities-based trade model that will supplant the
progress Latin America has made toward industrialization. While
countries like Chile and Brazil have gotten beyond raw materials
exports, powerful Presidents or ruling oligarchies may be tempted to
fall back on plantation economics. Income gaps between the rich and
poor may widen. Moreover, those economies might not be sufficiently
diversified to withstand downturns in commodity prices. Some 44 percent
of Latin Americans already live below the poverty line. If these
countries fail to adopt reforms, social inequality, and political
instability could depress U.S. exports to the region, and worsen
migration problems.
Eye on America. From electronic espionage facilities in Cuba to
port facilities run by Hong Kong billionaire Li Ka-Shing's Hutchison-
Whampoa conglomerate in Panama, China has an eye trained on the United
States. U.S. intelligence agencies are aware of this, it is possible
that Washington's penchant for focusing on one threat at a time could
leave America vulnerable.
RECOMMENDATIONS
The United States and China have competing interests in Latin
America. Washington would like to see its hemispheric neighbors develop
into stable, democratic, prosperous trade partners that embrace the
rule of law. Beijing sees the region as a source of raw materials, a
market for manufactured goods, as well as platform for power
projection. U.S. interests probably coincide more with Latin American
needs. In contrast, China represents an opportunity to temper American
dominance with broader alliances.
Unfortunately, Chinese aid and commodity imports may buy time for
state industries, powerful Presidents, and influential oligarchs. Most
of all, such commerce could delay needed reforms and industrialization
that might lift half of the Latin America's people out of poverty.
America's strength is competition. It should influence the rules of the
game in that direction. As a good neighbor and acting in both its own,
Latin America's interests, and even China's, the United States should:
Accelerate free trade agreements--the hallmark of U.S.
policies toward the region since the 1990s. As inducement,
America should drop its agricultural and steel subsidies that
dissuade potential partners and cost taxpayers money. U.S.
trade relations with Andean neighbors and eventually Southern
Cone countries will open market access for both U.S. and Latin
American enterprises and provide an outlet for industrial
growth.
Adopt more comprehensive relationships as opposed to single-
issue diplomacy such as counternarcotics. Plan Colombia is
working because the United States is helping its South American
partner to combat terrorism, expand public safety zones,
strengthen institutions, reactivate the economy, and promote
rural peace.
Cut strings on assistance to the greatest extent possible.
Certifications and restrictions are blunt instruments that do
not cover every situation. Occasionally they backfire by
withdrawing support for allies in areas of mutual interest--
such as security. If the U.S. Congress considers them
necessary, they should be tailored to do minimal damage to key
interests.
Press harder for reforms, use public diplomacy. Once Latin
America had elected leaders and fledgling markets in the 1990s,
U.S. support for democracy and economic reforms declined.
Although it is each country's responsibility to solve its own
problems, external pressure can encourage progress. U.S. public
diplomacy, which is mostly reactive toward Latin America,
should be strengthened and more supportive of U.S. development
goals.
CONCLUSION
The Department of State tells us that total trade between China and
the United States grew from $33 billion in 1992 to over $230 billion in
2004. U.S. companies have entered agreements establishing equity joint
ventures, contractual joint ventures, and wholly foreign-owned
enterprises in China. Cumulative U.S. investment in China is valued at
$48 billion.
In a globalized world, the Monroe Doctrine has declining relevance.
Democracies have relations with whom they wish and nation competitors
like China cannot be blocked from visiting the hemisphere. However, the
United States can be more proactive in consolidating relations with its
neighbors and promoting a truly open, competitive marketplace.
Thank you, Mr. Chairman, for this opportunity to address the
committee.
Senator Coleman. Thank you, Mr. Johnson. I do appreciate
the very specific recommendations that you have set forth in
both your written and your oral testimony.
Dr. Lampton.
STATEMENT OF DAVID M. LAMPTON, PH.D., DIRECTOR, CHINA STUDIES
PROGRAM, PAUL H. NITZE SCHOOL OF ADVANCED INTERNATIONAL
STUDIES, JOHNS HOPKINS UNIVERSITY, WASHINGTON, DC
Dr. Lampton. Thank you, Mr. Chairman, for inviting me to be
here today. I would ask that the full statement--I am going to
be brief--be entered into the record.
Senator Coleman. Without objection.
Dr. Lampton. I first want to associate myself with the end
remarks you made at the previous panel. I found myself entirely
in agreement with that; it reflects my perspective.
I have three overriding messages in this testimony. To
start, I do not believe it is accurate to conceive of the PRC
as an 8-foot giant striding across Latin America; most of the
testimony we have heard has been very moderate and certainly
consistent with that. Indeed, if China overpromises, such as
the $100 billion that we have heard about, when its economy is
humming today, it runs the risk of disappointing Latin America
when Chinese growth slows, as it will.
Moreover, China has substantial problems in projecting its
power, certainly military power. There are conflicts of
interest between China and Latin America that will reduce
Beijing's ability to cooperate in the region. And Latin
America's interests in the United States will remain enormous
for the foreseeable future.
We must restore balance to our views of China, a balance
that does not exaggerate Chinese power while respecting it.
Second, although Chinese activity in the region can
complicate U.S. diplomatic life, for example with respect to
Cuba and the Chavez regime that we have been talking about in
Venezuela, overall Chinese economic activity in the region,
carried out under relatively free trade conditions, will boost
the economic wellbeing in Latin America, though some economic
sectors in the region will be hurt.
In fact, I talked with some Mexican scholars early last
week, and they were very alarmed at what is happening to
Mexican manufacturing employment. So there are going to be
resource-extracting countries that do rather well. There are
going to be labor-intensive industrial sectors that are going
to be hurt quite a bit. But nonetheless, a healthier, more
diversified Latin America is in the interest of the United
States.
Finally, though the focus of this hearing is Chinese
activity in Latin America, Latin America is not the principal
foreign policy priority of Beijing.
I have been asked briefly to address the issue of China's
global strategy and the role Latin America plays in that
strategy. The PRC's national strategy can be described
succinctly: China seeks sustained, rapid economic growth to
provide the long-term foundation for comprehensive national
power.
China has less than the global per capita average of almost
every single natural resource, including water, petroleum,
other precious metals, not to mention arable land. Beijing,
therefore, counts on its foreign policy to provide needed
markets, natural resources, capital, and technological inputs,
and to create an international environment so that China does
not have to spend excessively on defense.
Latin America fits into this strategy because of its
resources and markets and is part of Beijing's economically
driven foreign policy. Chinese actions are not principally to
compete with the United States geopolitically.
Secondarily, China is in Latin America--and I have been
surprised, nobody has mentioned the following--to reduce the
degree to which states in the region recognize Taiwan.
Currently 12 of the 24 nations that recognize Taipei globally
are in Latin America and the Caribbean. Indeed, I understand
Taiwan's President is on his way down to Latin America. I am
sure he has multiple objectives, but one I am sure is to stem
the loss of Latin American countries that recognize the
Republic of China.
With respect to policy recommendations, I have three. To
start, notwithstanding our many disagreements with the PRC in
the trade, human rights, proliferation, Taiwan, and other
areas, America has a symbiotic relationship with the PRC. We
need each other. Beijing needs the jobs, the technology, the
markets, and relatively secure external environment that the
United States can provide. The United States needs cooperation
on issues such as the global war on terror, as we have seen
recently in North Korea, and a host of other national and
transnational issues. Huge numbers of American families benefit
from the low interest rates that Beijing helps make possible
through its purchase of U.S. debt.
As we think about China's interaction with Latin America,
our policy should be devised against this larger background of
common as well as competitive interests.
Second, China's growing involvement in Latin America is not
a crisis for United States foreign policy. To the degree that
it is a subject of concern, the focus should be on positively
increasing U.S. influence in the region rather than being
overly sensitive. And I very much agree with Mr. Johnson: The
whole area of public diplomacy, students, all of that, and just
the obstacles that now exist to getting business people and
students into the United States, that is where we really ought
to focus and not worry so much about what Beijing is doing.
Finally, if Washington takes a broad future-oriented
perspective, we may be surprised at some of the common
interests we share. That list of shared or broadly compatible
interests, in my view, includes the following: One, if China
invests in oil and energy resources in Latin America when
others are not prepared to do so, the PRC is contributing to a
larger global pool of available energy. Latin American oil
brought to the surface by Chinese companies or firms or
interests probably is going to end up in the United States, as
we just heard in the previous panel, the same way that Asian
oil brought to the surface by American companies and interests
probably is going to end up in China and Japan.
Second, the United States is China's most important market
for exports and getting to the entire eastern half of the
United States market depends considerably on the Panama Canal.
As China builds resource and food relations with the big
eastern seaboard nations of Brazil and Argentina, the canal and
free passage through it assumes ever more importance to
Beijing. The idea that the PRC would somehow choose to impair
passage through the canal strikes me as very unrealistic. That
was the conclusion I drew from the earlier discussion on the
first panel.
Finally, the 2005 annual report of the Pentagon on the
military power of the People's Republic of China makes clear
that China still possesses very limited long distance
conventional power projection capacity. This is going to remain
true for a very long time, though improvements are occurring.
It was only in July 2002 that a Chinese naval vessel first
circumnavigated the world. There is no Sino-American military
competition in Latin America now and there will not be for the
foreseeable future. In short, a zero sum view in this
globalized world is no longer appropriate and Chinese-United
States-Latin American interaction is a good example of that new
reality.
Thank you, Mr. Chairman.
[The prepared statement of Dr. Lampton follows:]
Prepared Statement of David M. Lampton, Dean of Faculty, Hyman
Professor, and Director of China Studies Program, School of Advanced
International Studies, Johns Hopkins University, and Director, Chinese
Studies Program, the Nixon Center, Washington, DC
Mr. Chairman and subcommittee members, thank you for inviting me to
share my views on the People's Republic of China's (PRC) growing
activity in Latin America with you.
I have three overriding messages in this testimony: To start, I do
not believe it is accurate to conceive of the PRC as an 8-foot giant
striding across Latin America compromising vital American interests.
China has, and will continue to have, substantial problems projecting
its power (certainly military power), there are conflicts of interest
that diminish Beijing's ability to cooperate in the region, and Latin
America's interests in the United States will remain enormous for the
foreseeable future. We must restore balance to our views of China, a
balance that does not exaggerate Chinese power while respecting it.
Washington's relations with our southern neighbors should be a major
U.S. foreign policy concern; currently, a defensive worry about China's
regional activities do not rise to the level of a major foreign policy
concern, particularly given other challenges.
Second, although Chinese activity in the region can complicate U.S.
diplomatic life, for example with respect to Cuba and the Chavez
government in Venezuela, overall Chinese economic activity in the
region carried out under relatively free trade conditions will boost
economic well-being in Latin America, though some economic sectors in
the region will be hurt. A healthier, more diversified Latin America is
in the interests of the United States. As a matter of principle, if the
Chinese wish to invest in the Western Hemisphere, as the rest of the
world is investing in the PRC, this should be welcome.
And finally, though the focus of this hearing is Chinese activity
in Latin America, Latin America is not the principal foreign policy
concern of Beijing. Rather, building ties within the PRC's own region
and with nations along its periphery is Beijing's central focus, along
with keeping healthy ties with the United States. Moreover, China is
trying to improve relations with the EU, Russia, Central Asia, Africa,
and India. Beijing's still limited capacities for influence are going
to be spread pretty thin.
The topic of this hearing leads me to address three sets of issues
below:
I. CHINA'S NATIONAL STRATEGY, FOREIGN POLICY, AND ACTIVITIES IN LATIN
AMERICA
China's National Strategy and Broad Foreign Policy: In our
pluralized, checks and balances system, it is hard to imagine that a
complex society can have a fairly coherent national strategy; one that
embraces both internal development and foreign policy. I believe that
the PRC does have a broad national strategy, that this strategy has
implications for internal development and foreign policy, and that
Beijing is (with remarkable consistency and skill) implementing this
strategy at home and abroad, though there are problems--sometimes big
problems. Beijing's policy in Latin America is one reflection of all
this. Nonetheless, the clarity of the strategy and the overall skill
with which it is being implemented invites the United States to be
correspondingly coherent and nimble.
The PRC's national strategy can be described succinctly and was
devised by Deng Xiaoping in the late 1970s and early 1980s and evolved
thereafter: (1) China's future lies in global integration; (2) to be
globally integrated, the PRC must be economically competitive; (3) to
become economically competitive requires rapid, sustained economic
growth, which in turn requires two things--internal stability and an
absence of large-scale external threat for a long time; (4) with
respect to the domestic requirements for high-speed economic growth,
one needs high savings, high domestic and foreign investment, and a
workforce that has material incentives and higher levels of education;
(5) in terms of the foreign policy requirements, China needs an absence
of external military threat (relatively low defense expenditures for a
sustained period), markets and access abroad, capital and technology
inputs from abroad, and resources to fuel economic expansion--China has
less than the global per capita average of almost every single major
natural resource, including water, petroleum, and other precious
minerals, not to mention arable land.
Every day that China's leaders get up in the morning, the first
thing on their minds is how to meet the internal challenges the country
faces in maintaining both high-speed growth and tolerable social
stability. They look at foreign policy from the perspective of
providing the conditions and resources that will make the management of
their domestic challenges possible. Foreign policy is a means to
essentially domestic ends. America's genuine problems with Chinese
foreign policy stem not principally from a Chinese desire to diminish
U.S. power, though Beijing would like to see an international system
more balanced in power terms. Rather, U.S. problems with Chinese
foreign policy often stem from Beijing's domestically driven policies
that often ignore the broader consequences of China's actions, or
nonactions. What do I mean? China needs oil, so it develops relations
with Sudan, not caring much about the murderous situation in Darfur.
China wants stability on its borders, so it is reticent to push
Pyongyang very hard on its nuclear weapons program(s). Beijing needs
internal cohesion, so sometimes its leaders use anti-Japanese
nationalism to forge unity at home as, incidentally, do some in Japan.
Increasingly China and America, in the words of Deputy Secretary of
State Robert Zoellick, need to act as common ``stakeholders'' in an
increasingly fragile and interdependent international system. China is
not out principally to weaken the United States, it is out to meet the
needs of its people. Beijing needs to pay more attention to the
international consequences of that effort.
Beijing's Interests and Activities in Latin America: Latin America
is a moderately and increasingly important market for inexpensive PRC
manufactured goods--it provides employment in China. Latin America is
an important source of agricultural produce such as soya and corn that
China needs at affordable prices. Latin America is an important source
of minerals such as iron for the world's biggest consumer of steel and
a major source of copper--China accounted for 100 percent of global
demand growth in copper during 1995-2003. Some Latin American countries
have energy reserves (e.g., Venezuela, Brazil, Bolivia, Peru, and
Colombia) and China has accounted for about 50 percent of the growth in
global oil demand in the last 3 years; in 1995-2003 the PRC accounted
for 68 percent of global oil demand growth. China's emerging middle
class (perhaps 250 million or more persons if one has a modest
threshold for middle-class status) is eating more meat, buying more
houses, and purchasing more automobiles.
Looking at the Panama Canal, that waterway has facilitated the
explosive growth in United States-China trade as well as rapid trade
expansion between China and Latin America itself. In FY 2004, the
Panama Canal Authority reported that China was the number two origin of
cargo going through the canal and the number three destination of cargo
going through the canal. Overall, China was the number two user of the
canal as measured by the total origin and destination of cargo tonnage
going through it. It is worth noting, however, that the United States,
in the number one position, has more than three times the tonnage
moving through the canal in terms of origin and destination.
There is another interest for the PRC that is important--Taiwan.
Taipei has formal diplomatic relations with only 26 countries around
the world, mostly in the South Pacific, Latin America, the Caribbean,
and Africa. Fourteen of the thirty-three nations in Latin America and
the Caribbean recognize the Republic of China (Taipei), and Taiwan's
own Yearbook describes the region as a diplomatic ``stronghold.''
Beijing is employing its economic power to provide inducements to
remaining governments to move into the PRC's diplomatic column, as does
Taipei which frankly acknowledges that it too ``stimulate[s] investment
by Taiwanese entrepreneurs in countries with diplomatic ties with
Taiwan'' [ROC Yearbook]. One will note that when Chinese President Hu
Jintao visited Latin America in November 2004 and in September 2005,
there were both signings of investment, trade, and cooperative
agreements and reaffirmation of each country's support for the ``one
China policy.''
Perhaps the most notable thing about PRC activity in Latin America
is the frequency of visits by senior Chinese leaders--they are paying a
lot more senior-level attention to the region than is the United
States. China's Premier Wen Jiabao was in Mexico in late 2003, China's
President Hu Jintao was in the region in 2004 and 2005, and China's
Vice President Zeng Qinghong was there in January 2005, not to mention
innumerable other visits by lower ranking Chinese officials and trade
groups. For their part, Latin American Presidents and senior officials
have been trekking to China in great numbers; the Brazilians under
President Lula are particularly active. The resulting cooperation has
been extensive, measured in the tens of billions of U.S. dollars in
promised trade and investment in resource and infrastructure projects
and signed deals for agricultural imports. In his 2004 speech to the
Brazilian Congress, President Hu said China would invest up to $100
billion regionally in the decade to follow. With Argentina and Brazil,
China is cooperating in high-tech areas such as space and satellite
projects. Nonetheless, we need to keep this in perspective--in 2003,
trade with China accounted for only 3.8 percent of Latin America's
total trade; the United States accounted for 48 percent.
II. THE POINTS OF FRICTION IN CHINA'S RELATIONS WITH LATIN AMERICA
There are several areas where Chinese interests and those of
individual countries in the region are not identical (sometimes
incompatible); this causes frictions. China's capacity for cooperation
in Latin America is finite and so while Washington appreciates
Beijing's assets it also ought to recognize PRC liabilities. Some
examples:
In 2004 China was contracted to take delivery of large
volumes of soya beans from Brazil, but the global price dropped
by around $50 per ton between the contract and delivery dates.
Given the volume of beans in transit and their perishable
nature, the Chinese erected some health barriers and refused to
take timely delivery until renegotiations produced a more
satisfactory price. The larger point is that China, as a big
importer of food, has an interest in low prices, which is
contrary to exporters' interests. This same dynamic will apply
to relations with Latin American resource exporters who will
want high prices for the commodities that China will want to
buy as cheaply as possible. In short, importers and exporters
have natural conflicts.
In a related vein, President Hu Jintao was just in Mexico
and the interaction between Mexican President Fox and the
Chinese President made it clear that a major point of
contention is Mexico's very large trade deficit with the PRC--
Mexico imported $93 worth of goods from the PRC for every $3 it
exported to China. So countries with a trade surplus with
Beijing (like Brazil in 2003) will have a different view than
nations that run perennial deficits with the PRC.
During trips to the region by senior Chinese leaders,
rhetoric about large future PRC investments is employed, but
China remains a poor country in per capita terms and in many
cases actual investment in Latin American economies may fall
well short of expectations. If this occurs, China's failed
promises will not be preferred over the failed promises of
others.
Last week I met with a group of scholars from Mexico who
study China. I asked what was on their mind with respect to the
PRC and they responded: ``Lots of our manufacturing [has been]
lost to China--clothing, toys; it has cost [Mexico] a lot of
industry.'' ``Many enterprises are angry [at China].'' ``Medium
and small enterprises are not competitive [in Mexico]; labor
costs [here in Mexico are too high].'' ``Mexico opposed China's
entry into WTO very strongly [till the end], but the Mexican
Government can do nothing because of low Chinese wages.''
Different sectors and nations in Latin America will
differentially benefit from economic ties with China. Resource
extractors and high value-added suppliers will gain--many
labor-intensive manufacturers will lose. What economists call
``readjustment'' is called ``unemployment'' and ``insecurity''
by ordinary people. The economic dislocation caused by
globalization will create a great deal of friction between the
PRC and many in Latin America.
And finally, a Chinese official who is an observer at the
Organization of American States, Cai Runguo, pointed to the
cultural barriers that separate China and Latin America:
``Chinese entrepreneurs have very little knowledge of [South
America], and when they have begun to invest or explore the
possibilities of investment they have encountered
difficulties.''
In short, Beijing will make progress in its relations with Latin
America, but it will not be frictionless.
III. U.S. INTERESTS AND A POLICY PERSPECTIVE
To start, policy recommendations should take account of the overall
character of the United States-China relationship and the overall
interests Washington and Beijing have in ties with each other.
Notwithstanding our many disagreements with the PRC in the trade, human
rights, proliferation, Taiwan, and other areas, America has a symbiotic
relationship with the PRC--we need each other. Beijing needs the jobs,
technology, markets, and the relatively secure external environment
that the United States can provide. The United States needs cooperation
on issues like the Global War on Terror and on the North Korean nuclear
problem, and huge numbers of American families benefit from the low
interest rates that Beijing helps provide through its purchase of U.S.
debt instruments. More broadly, there now are three locomotives to the
world economy--the United States, Europe, and China. Stalled growth or
widespread disorder in the PRC spilling out into the international
system would be harmful to everyone. The challenge is to manage all
aspects of our relationship with Beijing in a way that maximizes the
benefits and minimizes the costs. As we think about China's interaction
with Latin America our policy should be devised against this larger
backdrop.
Second, China's growing involvement in Latin America is not a
crisis for U.S. foreign policy. To the degree that it is a subject of
concern the focus generally should be on increasing U.S. influence and
positive sway in the region rather than trying to offset what Beijing
is perceived to be doing.
And finally, if Washington takes a broad, future-oriented
perspective on PRC involvement in the region we may be surprised at
some of the common interests we share. That list of shared or broadly
compatible interests includes the following:
If China invests in oil and energy resources in Latin
America when others are not prepared to do so, the PRC is
contributing to a larger global pool of available energy. Latin
American oil brought to the surface by Chinese interests
probably will end up in the United States the same way that
Asian oil brought to the surface by American interests probably
will end up in Japan or China.
With respect to possible U.N. Security Council reform
(expansion), while current members of the P-5 may each have
their own favorites (among India, Argentina, Germany, Brazil,
South Africa, and Japan) for some form of permanent membership
on the Security Council, the United States and China actually
agree that reform of that body should be premised on making it
more effective. Truth be told, neither Beijing nor Washington
wants its veto in the Security Council diluted by additional
veto-wielding members, nor its efficiency diminished by too
many more members.
The United States is China's most important export market
(including re-exports from Hong Kong, SAR) and getting to the
entire eastern half of the U.S. market depends considerably on
the Panama Canal. As China builds resource and food relations
with the big eastern seaboard nations of Brazil and Argentina,
the Canal and free passage through it, assumes ever more
importance to Beijing. The idea that the PRC would somehow
choose to impair passage through the Canal strikes me as very
unrealistic.
While China's (and Latin America's) interests in reduced
tariffs and subsidies for agricultural exports are not
identical to Washington's, Washington's preference for low-
developed country barriers to most developing countries'
agricultural exports is close to that of China and stands in
stark contrast to the protectionist policies of Europe and
Japan that contribute to poverty among the poorer agricultural
nations.
The 2005 annual Pentagon report to Congress on ``The
Military Power of the People's Republic of China'' makes clear
that China still possesses very limited long-distance
conventional power projection capacity and this will remain
true for a considerable period of time, though improvements are
occurring. It was only in July 2002 that a Chinese naval ship
first circumnavigated the globe. There is no Sino-American
military competition for influence in Latin America now, nor
will there be for the foreseeable future.
And finally, the United States has an interest in an
economically advancing Latin America. As long as the trade
flows are dictated by free negotiations between buyers and
sellers, there will be mutual benefit and this generally should
foster development and welfare to America's south. This, in
turn, creates wealthier citizens in Latin America who will have
more money to buy what the United States has to sell.
In short, a zero-sum view in a globalized world is no longer
appropriate and the Chinese-United States-Latin American interaction is
a good example of this reality. The broad policy implications are
twofold. Washington and the U.S. private sector should get more
involved in Latin America and U.S. observers and policymakers generally
should be relatively relaxed about Chinese activity there.
Senator Coleman. Thank you very much, Dr. Lampton.
Dr. Luft.
STATEMENT OF DR. GAL LUFT, PH.D., CODIRECTOR, INSTITUTE FOR THE
ANALYSIS OF GLOBAL SECURITY, WASHINGTON, DC
Dr. Luft. Thank you, Mr. Chairman.
Since we are facing a major challenge with regards to
energy, I will limit my remarks to the field of energy security
and how China's activities in Latin America affect America's
energy security. There is no doubt that China's robust economic
growth has already been felt on the global energy scene and
contributed substantially to this year's hike in oil prices.
But no less important is the impact of China's energy
activities on its relations with the United States and the
international community at large.
Energy is today perhaps the main driver of China's recent
international behavior. Many of China's foreign policies in the
Middle East, East China Sea, Central Asia, and Africa are
shaped by its energy expediencies, often at the detriment of
the United States. China's recent effort to drive the United
States out of Central Asia and in support of terrorist-sponsor
regimes like Iran and Sudan just because it needs their oil are
the latest testimonies of this trend.
With global reserves of cheaply recoverable oil and gas
being depleted, China is already competing with the United
States over the same oil reserves in some of the world's most
unstable areas.
When it comes to Latin America, China's demand for oil has
resulted in a series of deals with a number of countries,
primarily Peru, Cuba, Ecuador, Bolivia, Argentina, Brazil,
Mexico, and Venezuela, which is America's fourth largest oil
supplier.
Though this hearing focuses on Latin America, I want to
mention here that there is also a lot of activity going on in
Canada, our top petroleum supplier.
I will not go into the full roster of activities. It is all
in the written testimony. But the main point I want to make
here is that the single most important thing to remember about
China's energy acquisitions in the Western Hemisphere is that
they will eventually make the United States more dependent on
the Middle East and other volatile areas, and I would like to
explain why.
The Western Hemisphere is estimated to hold 13.5 percent of
the world's proven conventional oil reserves. This amounts to
about 160 billion barrels of oil, of which 101 billion barrels
are concentrated in Central and South America, particularly in
Venezuela, Brazil, Colombia, Ecuador, Argentina, and Peru.
These countries accounted for 8 percent of total world output
in 2004. Of the region's largest producers, only Brazil and
Ecuador still experience production growth. Conventional oil
production in the rest, namely Peru, Colombia, Argentina, and
Venezuela, has been declining. The same goes for Mexico.
According to a study by PFC Energy, non-OPEC Latin
America--that is excluding Venezuela, of course--will peak
around 2007 and decline steeply thereafter. Considering the
projection that in the next 20 years the region's own need for
oil will nearly double, it seems that Latin America's long-term
ability to satisfy the needs of the growing United States
market will be increasingly compromised.
China's pursuit of Latin American oil will only make
matters worse. With half of its oil imports coming from the
Western Hemisphere and with oil imports in the United States
projected to surge 60 percent during the next two decades, the
United States cannot afford to lose chunks of Western
hemispheric crude. Every barrel of oil China buys in the
Americas means one less barrel of Western hemispheric oil
available to the United States market. This means that China
will have to--the United States will have to look for this oil
elsewhere, and that will be particularly in the Middle East,
which is contrary to President Bush's pledge to make the United
States less dependent on, ``places that don't particularly like
us.'' So when it comes to oil, Mr. Chairman, this is a zero-sum
game.
I must add that I am talking about conventional crude.
There are a lot of reserves of nonconventional crude. I can
address that, too, and that is part of the reason that China is
very interested in Venezuela, which holds a vast endowment of
extra-heavy crude.
As consumer of a quarter of the world's oil supply, and
holder of merely 3 percent of global reserves, the United
States cannot afford to ignore the implications of 1.3 billion
people who are gradually relinquishing their bicycles in
exchange for passenger cars. In addition, with its current
consumption habits the United States lacks the moral authority
to preach to the Chinese about the need to address their oil
problems, nor can it ask them to deny their people the high
standard of living that Americans have been enjoying for
decades.
The United States should look inward and begin to seriously
address its growing addiction to oil and, more broadly, assign
a large role for energy policy in its global strategy. This can
only be done through multinational cooperation on energy and a
joint commitment by the United States, China, and other
consuming countries to work toward reducing oil dependence
through efficiency and development of alternative energy
sources.
China's interests in Latin America are not restricted to
petroleum, but also to the continent's alternative fuel market.
In response to its growing need for fuel, China has decided to
dive into the alcohol market. Its main focus is sugar-based
ethanol coming from Brazil and the Caribbean. China is now in
the process of developing a fleet of flexible-fuel vehicles
that can run on any combination of gasoline and alcohols and is
showing strong interest in emerging sugar markets in Central
and Latin America. I must add that Latin America is for sugar
what the Middle East is for oil.
Should oil prices continue to stay high, the United States
will have no other option but to do the same. Ramping up
ethanol supply requires incentives for domestic producers, as
you have done as part of the energy bill, Mr. Chairman. But
more importantly, it entails opening the biofuels market to
imports from our neighbors in the Western Hemisphere. Today
such imports are prevented due to protectionist policies
enacted by Congress which impose a stiff tariff on ethanol
imports. Oddly, Mr. Chairman, we are willing to import
petroleum from Saudi Arabia, but not ethanol from Brazil.
Blocking ethanol imports to the United States not only
undermines U.S. energy security, but also has geopolitical
consequences that this committee should be aware of. While the
United States could encourage sugargrowers in Latin America and
Central America to increase their output and become fuel
suppliers, creating economic interdependence with its
neighbors, it is China that is doing exactly that.
This is likely to make our neighbors in the Western
Hemisphere increasingly dependent on China with regards to the
agricultural sector, hence strengthening China's foothold in
America's backyard. Needless to say that such development would
undermine U.S. energy security in the Western Hemisphere.
So I urge this committee to take a serious look at how we
can shift our energy imports from regions that are increasingly
hostile to the United States to those that have the strongest
likelihood of being our true allies.
Thank you.
[The prepared statement of Dr. Luft follows:]
Prepare Statement of Dr. Gal Luft, Executive Director, Institute for
the Analysis of Global Security (IAGS), Washington, DC
Mr. Chairman, members of the committee, I would like to thank you
for inviting me to brief you on China's foreign, economic, and security
policies, which stem from its growing energy consumption and their
effects on U.S. interests in Latin America.
Since it became a net oil importer in 1993, China has traversed the
globe in a relentless quest for energy sources to fuel its booming
economy. In recent years its state-owned energy companies concluded oil
and gas deals in close to 30 countries, many of them in Latin and
Central America. There is no doubt that China's robust economic growth
has already been felt on the global energy scene and contributed
substantially to this year's spike in oil prices that brought oil
prices to reach the $70 a barrel mark. But no less important is the
impact of China's energy activities on its relations with the United
States and the international community at large.
Energy is the main driver of China's recent international behavior.
In a lecture at Beijing University in March 2004, its Deputy Foreign
Minister, Wang Yi, admitted that Chinese foreign policies are ``at the
service of China's economic development.'' And indeed, many of China's
foreign policies in the Middle East, the East China Sea, Central Asia,
and Africa are shaped by its energy expediencies, often to the
detriment of the United States. China's recent effort to drive the
United States out of Central Asia and its support of unsavory regimes
like Iran, Sudan, and Uzbekistan just because it needs their oil, are
the latest testimonies of this trend.
China's pursuit of energy resources comes at a time that the world
is finally waking up to the idea that oil and natural gas are finite
commodities and that world demand currently and for the foreseeable
future will exceed world supplies. This reality is becoming
increasingly accepted by the major oil companies. Earlier this year
David O'Reilly, chairman and CEO of Chevron Corporation, admitted in an
open letter that ``the era of easy oil is over. Many of the world's oil
and gas fields are maturing,'' he wrote, ``and new energy discoveries
are mainly occurring in places where resources are difficult to
extract--physically, technically, economically, and politically. When
growing demand meets tighter supplies, the result is more competition
for the same resources.'' And indeed, with global reserves of cheaply
recoverable oil and gas being depleted China is already competing with
the United States over the same oil reserves in some of the world's
most unstable areas.
Former Secretary of State, Henry Kissinger, warned recently that
the global battle for control of energy resources could become the
modern equivalent of the colonial disputes of the 19th century.
CHINA'S ACTIVITIES IN THE WESTERN HEMISPHERE
Of all the regions of the world where China competes with the
United States over access to oil, the Westem Hemisphere is perhaps the
one where the direct impact on U.S. energy security is likely to be
felt most in the long run. At the moment most of China's oil imports
come from the Middle East. In 2004 the Western Hemisphere supplied only
2 percent of the 2.9 million barrels per day China imported. But just
like the United States, China seeks to diversify its supply sources and
reduce its dependence on the Middle East. Latin America is, therefore,
one of the most sought after domains. China's oil thirst has already
resulted in a series of deals stretching from the southern tip of South
America to the Caribbean, areas which constitute America's backyard.
In January 2005, China and Peru signed a memorandum of
understanding allowing China to promote investments and
technical cooperation in the exploration and export of oil and
gas.
In the same month China Petroleum & Chemical Corporation, or
Sinopec signed a production contract with Cuba.
While U.S. energy companies have grown increasingly
disenchanted with the corruption and volatile politics of
Ecuador and its energy company Petroecuador, the Chinese seem
to be undeterred from investing in drilling and exploration
work there. This month EnCana, Canadian Natural Gas Company,
agreed to sell oil and pipeline holdings in Ecuador to a
Chinese venture for $1.42 billion to fund debt reduction and
stock buybacks.
In Bolivia, Shengli International Petroleum Development has
opened an office in the gas-rich eastern region and announced
plans to invest up to $1.5 billion.
Argentina and China signed cooperation deals that could lead
to up to $5 billion in investments over the next decade in oil
and gas exploration.
In Brazil, the Chinese President signed 11 bilateral
agreements, including planned investment of $10 billion in
energy and transportation in the next 2 years. Brazil's state-
owned Petrobras and China National Offshore Oil have been
studying the viability of joint operations in refining,
pipelines and exploration in their two countries and in other
parts of the world. This comes after a $1 billion Brazilian
agreement with another Chinese company, Sinopec, to build a gas
pipeline that will run across Brazil.
Last, but not least, is Venezuela, United States' fourth
largest oil supplier. Since April 2002, U.S. relations with
Venezuela have become increasingly acrimonious. Venezuela's
President Hugo Chavez warned the United States against any
interference with Venezuela's internal affairs threatening that
Venezuela ``has enough allies on this continent to start a 100-
year war,'' and that ``U.S. citizens could forget about ever
getting Venezuelan oil.'' This threat is not being ignored.
Secretary of State Condoleezza Rice remarked in her
confirmation hearing that two of her chief worries with regards
to Venezuela are U.S. dependence on Venezuelan oil and whether
Chavez will continue to supply it. The fissure in the relations
enables China to step in and reduce Venezuela's dependence on
selling oil to the United States, which currently buys 60
percent of Venezuela's crude. A series of oil agreements signed
in early 2005 allow Chinese companies to explore for oil and
gas and set up refineries in Venezuela. Venezuela's state-run
oil company PDVSA opened a marketing office in Beijing and has
a target of selling to China 300,000 barrels per day by 2012.
But for now Venezuela's oil exports to China are much more
limited. The majority of Venezuela's exports to China as of now
consist of Orimulsion, a boiler fuel alternative which is
burned by powerplants to generate electricity. China's
refineries are not equipped to refine Venezuela's crude.
Geography is also a constraint. Venezuela has no access to the
Pacific shore and the Panama Canal cannot accommodate the
biggest tankers. A tanker trip from Venezuela to China takes 45
days. But China and Venezuela are trying to resolve these
problems. In July 2004 Venezuela signed a contract with
Colombia to build a crude oil pipeline connecting its oil
fields with a port on Colombia's Pacific coast sparing Chinese
tankers the need to traverse the Panama Canal. This could
reduce the travel time by half.
Though this hearing focuses on Latin America it is important to
note that China has also set its sights on North American oil. In
January 2005 the Wall Street Journal reported that trade officials in
Mexico said they see China as a potential growth market for their oil
exports.
Chinese state-owned oil companies pursue ambitious deals in Canada,
the top petroleum supplier to the United States. Canada has emerged as
the second largest oil reserve in the world due to the drop in price in
the recovery of crude from the vast reserve of Alberta's tar sands.
Chinese companies are negotiating the acquisition of Canadian tar sands
companies and have already bought stakes in a few of them. The Chinese
PetroChina International signed an agreement with Canada's giant
pipeline company, Enbridge, to build a $2.5 billion pipeline from
Alberta to the Pacific coast from where 200,000 barrels of crude a day
will be shipped to China. The two countries signed the Canada-China
Statement on Energy Cooperation in the 21st century, promising to work
closely in the areas of oil, gas, oil sands, energy efficiency,
environment, and related ventures. Analysis conducted by Institute for
the Analysis of Global Security shows that if China succeeds in
acquiring portions of Canada's energy industry up to a third of
Canada's potential exports to the United States could eventually be
lost to China.
IMPLICATIONS OF CHINA'S PURSUIT OF WESTERN HEMISPHERIC OIL
The single most important thing to remember about China's energy
acquisitions in the Western Hemisphere is that they will eventually
make the United States more dependent on the Middle East and other
volatile areas.
The Western Hemisphere is estimated to hold 13.5 percent of the
world's proven conventional oil reserves. This amounts to 162 billion
barrels of which 101 billion barrels are concentrated in Central and
Latin America particularly in Venezuela, Brazil, Colombia, Ecuador,
Argentina, and Peru. These countries accounted for 8 percent of total
world output in 2004. Of the region's largest producers only Brazil and
Ecuador still experience production growth. Conventional oil production
in the rest--Peru, Colombia, Argentina, and Venezuela--has been
declining. According to a study by the Washington-based energy
consulting firm PFC Energy, non-OPEC Latin America will peak around
2007 at 4 million barrels per day and will decline steeply thereafter.
Considering the projection that in the next 20 years the region's own
need for oil will nearly double, it seems that Latin America's long-
term ability to satisfy the needs of the growing U.S. market will be
increasingly compromised. China's pursuit of Latin American oil will
only make matters worse.
With half of its oil imports coming from the Western Hemisphere,
and with oil imports projected to surge 60 percent during the next two
decades due to demand growth and a decline in domestic crude
production, the United States cannot afford to lose chunks of Western
Hemispheric crude.
Venezuela stated recently that its aim is to supply 20 percent of
China's oil imports. What does this mean? According to the Energy
Information Administration China's oil demand in 2025 will stand on
15mbd with net imports of nearly 11mbd. For Venezuela to provide 20
percent of China's imports means loss to the U.S. market of 2.2mbd. In
essence, every barrel of oil China buys in the Americas means one less
barrel of Western hemispheric oil available for the U.S. market. This
means that the United States will have to look for this oil elsewhere
and become more reliant on oil from more remote and less stable
regions, primarily West Africa, the Caspian and, above all, the
tumultuous Middle East. This is contrary to President Bush's pledge to
make the United States less dependent on ``countries that don't
particularly like us.'' There is also a cost issue. Western hemispheric
oil is more attractive to the U.S. market because shipping costs are
low relative to the Middle East and other places. The less we have of
it, the more we will have to pay as a nation for our oil.
If the Western Hemisphere has any future in oil production it is in
the field of nonconventional sources of petroleum such as extra heavy
oil, tar sands, and oil shale. By 2010 only 4 percent of the world's
oil will come from nonconventional sources, but clearly the next
several decades will show an increasing role of these energy sources.
About 1.2 trillion barrels of extra heavy oil are in place in
Venezuela. At current technology and prices only 2-3 percent of this
endowment is economically recoverable but it is likely that 100-270
billion barrels will eventually be economically recoverable. In Canada,
there are close to 180 billion barrels which can be derived from
Alberta's tar sands. Of this endowment, about 20 percent are
economically recoverable at current market conditions. But shifting to
nonconventional oil requires enormous investment and a long lead time.
Furthermore, the energy required for the extraction of such
nonconventional sources of crude is so huge as to offset the amount of
energy the extracted oil ultimately yields. Also the cost of production
is high and there are severe environmental problems. Even if production
of nonconventional oil increased in proportion to the world's growing
demand, China and India will seek to buy ever-increasing shares of this
oil, hence limiting its availability to the U.S. market.
IMPLICATIONS FOR THE SPREAD OF DEMOCRACY AND THE RULE OF LAW
Latin America may not become a focus of China's diplomacy. But as
long as it can offer China's booming economy raw materials and energy
sources, China's foothold in the region will continue to grow and could
reach a stage in which it infringes on the longstanding principle in
U.S. foreign policy of nonintervention in the Western Hemisphere by
foreign powers. Furthermore, control of energy assets by a Communist
government could expose U.S. neighbors to Chinese pressure to part ways
from the United States on issues regarding China, like human rights
abuses, arms sales, and mainland's relations with Taiwan. Chinese
penetration into Latin and Central America could also strengthen the
voices of Marxism and anti-Americanism in a part of the world critical
to U.S. national security. But perhaps the biggest problem associated
with China entry into Latin America is impact on America's effort to
promote democracy and good governance in this part of the world. In
countries like Sudan, Iran, Myanmar, and Uzbekistan, China's energy
deals have already undermined U.S. efforts to promote freedom and
democracy and force improvement in these countries' human rights.
Unlike the United States, China typically does not address democracy,
human rights, and nonproliferation issues in its relations with other
countries. Its state-controlled oil companies are in a position to
offer large packages of development aid which help secure them access
to oil and gas assets in many cash-starved developing countries.
China's penetration into Latin America could create similar problems,
strengthening the region's nondemocratic regimes. Chinese energy
companies have another competitive advantage when dealing with the
Third World, where under-the-table payments can ease the way to a deal:
They do not have to contend with transparency initiatives nor comply
with a Foreign Corrupt Practices Act.
OPTIONS FOR THE UNITED STATES
To spare China the need to seek Western hemispheric oil, the United
States should encourage China to source its energy from countries that
are geographically closer to it and that are not under the U.S. sphere
of influence. Russia and Kazakhstan are two oil rich countries which
share a border with China. Russia is today the world's second largest
oil producer and supplier of 9 percent of China's oil imports. Earlier
this month Russia's President, Vladimir Putin, announced that the long
bidding war between China and Japan on the construction of a pipeline
to carry oil from eastern Siberia, had been decided in favor of China.
The pipeline, scheduled to be completed in 2008, will run from Taishet
to Daqing near the Russia-China border. Kazakhstan supplies only 1.1
percent of China's oil imports but is capable of doing much more. The
two countries are soon to be connected by an 1,800-mile pipeline. China
has acquired oil assets in Kazakhstan and will continue to invest
heavily in the country over the next two decades. Such energy deals
will create interdependence between China and its neighbors while
reducing China's need to seek for energy resources in the Western
Hemisphere.
Additionally, the United States should offer to help the Chinese to
boost their domestic energy supplies, support energy market reforms,
encourage regional energy cooperation, integrate China into the
International Energy Agency and make it a key participant in the
international dialogue on global energy policy. It should also invite
China to participate in joint research and development aimed at
displacing imported petroleum with energy sources that both China and
the United States have available domestically, via utilization of clean
coal technology, waste-to-liquid-fuels, and advanced nuclear power
stations. Such cooperation will not only help prevent future conflict
but it will also foster Sino-American collaboration with significant
economic benefits for both countries.
While there is an urgent need for a comprehensive energy strategy
to deal with China's energy needs such a strategy cannot be based on
seeking ways to block China's access to oil throughout the world
including the Western Hemisphere. As a consumer of a quarter of the
world's oil supply and holder of merely 3 percent of global reserves,
the United States cannot afford to sit on its hands and hope that the
world's energy problem resolves itself. In addition, with one of the
worst fuel efficiency standards in the industrialized world the United
States lacks the moral authority to preach to the Chinese about the
need to address their oil problem. Nor can it ask them to deny their
people the high standard of living that Americans have been enjoying
for decades. The United States should look inward and begin to
seriously address its growing addiction to oil and more broadly assign
a larger role for energy policy in its global strategy.
This can only be done through multinational cooperation on energy
and a joint commitment by the United States, China, and the other
consuming countries to work toward reducing global oil dependence
through efficiency and development of alternative energy sources.
Both the United States and China are not rich in oil but they are
both well endowed with a wealth of other energy sources that can be
used to displace petroleum in the transportation sector, which accounts
for two-thirds of U.S. oil consumption and the bulk of the growth in
oil consumption in the developing world. Both China and the United
States are rich in coal; both have large cities that generate huge
amounts of garbage and both have massive agricultural sectors that
generate billions of tons of biomass. Technology can convert all of
these resources into transportation fuel. Next generation hybrid
electric vehicles that can be optionally plugged in, can utilize
electricity from the grid as a transportation fuel. Just as in the
United States, less than 3 percent of grid electricity in China is
generated from oil, so using electricity as a transportation fuel would
dramatically displace petroleum consumption with coal, natural gas,
nuclear power, and renewables.
Were the United States and China to collaborate on advancing such
technologies and improving efficiency they could gradually curb their
demand for oil and hence reduce the likelihood of conflict.
SEEKING LATIN AMERICA'S SUGAR ALCOHOL
The Chinese understand what we unfortunately haven't. The answer to
the energy predicament is manifestly not increased reliance on the
Saudis and other members of the Organization of Petroleum Exporting
Countries. Rather, it is to diversify of sources of transportation
fuels. China's interests in Latin America are, therefore, not
restricted to petroleum but also to the region's alternative fuel
market. In response to its growing need for fuel China has decided to
dive into the alcohol market and its main focus is sugar-based ethanol
coming from Brazil and the Caribbean. Brazil is the world's leading
ethanol producer and exporter, distilling nearly 4 billion gallons in
2004. The country exported half a billion gallons last year but has
indicated its ability to ramp up ethanol production to meet the
market's need. China is already the world's third largest ethanol
producer and is now in the process of developing a fleet of flexible-
fuel vehicles that can run on any combination of gasoline and alcohols.
El Salvador, Guatemala, Paraguay, Honduras, Colombia, Peru,
Nicaragua, and Costa Rica have all increased the cultivation of
sugarcane for ethanol production. China has shown strong interest in
these markets. The Brazilian energy company Petrobras has already
started negotiations with the Chinese Government to promote trade in
fuel alcohol.
Should oil prices continue to soar, the United States will have no
other option but to create a fuel choice economy, as Brazil did, in
which automobiles can run on fuels other than petroleum; ethanol would
probably be among the most readily available of all alternative fuels.
Ramping up ethanol supply requires incentives for domestic producers
but more importantly it entails opening the biofuels market to imports
from our neighbors in the Western Hemisphere. Today such imports are
prevented due to a protectionist policy enacted by Congress which
imposes stiff tariffs on ethanol imports. Oddly, we are willing to
import petroleum from Saudi Arabia but not ethanol from Brazil.
Blocking ethanol imports to the United States to protect corn growers
not only undermines U.S. energy security but also has geopolitical
consequences. While the United States could encourage sugar growers in
Latin and Central America to increase their output and become fuel
suppliers, creating economic interdependence with its neighbors, it is
China that is doing just that.
This is likely to make our neighbors in the Western Hemisphere
increasingly dependent on China hence strengthening China's foothold in
America's backyard.
As anti-Americanism spreads across the world it is critical that
the United States maintain its strategic posture and popular support in
the Western Hemisphere. This can only be done through increased effort
to promote democracy, economic reforms, and good governance and, not
less importantly, by enriching our neighbors and promoting economic
interconnectedness with them. Energy is one of the areas in which such
mutually beneficial relations can be easily established.
Senator Coleman. Thank you. Thank you, Dr. Luft.
I am going to just touch a little bit on the renewables.
Representing the largest sugargrowing region in the country, I
just want to raise that issue. Then I want to get into a range
of others.
When I was in Brazil recently, 60 percent of the new cars
in Brazil are now flex-fuel engines, which means they can run
on pure ethanol or pure petroleum. I think there are sensors in
the gas lines that allow them to measure the oxygen content,
which then changes the compression ratio in the engine, so you
can run either way. As I understand it, Brazil is not going to
be importing any foreign oil at the end of 2006.
Here in the United States, we have doubled the production
of ethanol in this country in the last energy bill, as you made
reference to, from 3.87 billion gallons to 7.5. But that is
still just a drop in the bucket. We have not yet gotten sugar
into the energy business, and I think the future is there.
Brazil is using its ethanol domestically. I have not done
an in-depth study of Brazil, but is Brazil in a situation to
export ethanol to China and also then to be competitive in the
United States?
Dr. Luft. First of all, let me say that there is no reason,
Mr. Chairman, why every new car sold in the United States
should not be a flexible-fuel car. This is a very, very cheap
feature. It costs about $150 a car. There are 4 million cars
like this already on the road, including Ford Taurus, Mercedes
C320's, Chevrolet Silverado, Dodge Caravan. People do not even
know that they have flexible-fuel cars.
Since it is a very cheap feature and it is very easily
produced by auto manufacturers, we ought to have a situation
that all our new cars are capable of running on alternative
fuels. That includes ethanol and also methanol, that can be
made also from agricultural products through gasification. This
is exactly what the Brazilians are doing and their fleet will
be almost--all their fleet will be running on, or capable of
running on, ethanol in the next several years.
Today they already run on 25 percent ethanol in the blend,
which is great and that really puts them in a situation that
they are very, very well insulated against shocks.
Significantly, only 20 percent of Brazil's arable land is
cultivated. They have said that they can--are in a position to
produce--and I quote their Minister of Agriculture--``rivers of
ethanol.''
The Chinese have set their sights on this. They are already
building the largest ethanol plants in the world and they are
building, as I mentioned before, a large fleet of flexible-fuel
cars. And if we will not preempt them in being in this market,
they will be there and most of the ethanol will be diverted to
Asia.
By the way, Japan is doing the same thing. So I think we
are missing the boat here and that is very unfortunate because
every gallon of ethanol can replace a gallon of fuel that we
are importing from the Middle East.
Senator Coleman. But one of the things that Brazil did is
they began this transformation 30 years ago. They developed an
infrastructure for the delivery of ethanol. I represent a State
in which I go to my neighborhood gas station. I have a standard
lease 2005 Ford Explorer that is a flex-fuel engine. They did
not advertise that. I just looked through the book and there it
was. I can buy E-85 at the neighborhood gas station at the
corner of Grand Avenue and Milton in St. Paul, MN. But that is
pretty unusual.
Does China have the infrastructure for the delivery of
ethanol into its auto market?
Dr. Luft. Well, they are building now. As we are talking,
there are a number of representatives now from the Republic of
China here addressing this. They are building refueling
stations that are capable of handling alcohol fuels. They have
developed a large fleet of buses that run on methanol, that can
be made, by the way, also from coal as well as biomass.
So they are investing in domestic production as well as
exploring opportunities to import alcohols into their country,
because we need to remember that China itself is the Saudi
Arabia of biomass. They have a tremendous endowment of
agricultural waste that can be converted into fuel.
Senator Coleman. Let me shift--Dr. Lampton.
Dr. Lampton. I just wanted to say, this suggests an area
for cooperation with China that would seem to be in our mutual
interest. That is energy cooperation, alternative fuels. I have
looked at what has been said about ethanol and China's interest
in that to be a very positive thing. If we are competing over
oil, the more diversified energy sources we can get the better.
I also should point out that China has just raised its fuel
efficiency standards for its cars quite substantially. Now, car
ownership and economic growth are growing so fast that it is
still generating a huge demand for crude and refined product,
but China is moving in that way. This is another area of
cooperation, if we want. Rather than fighting over a finite
pie, we ought to all be trying to make this pie bigger.
Senator Coleman. Dr. Lampton, to shift gears a little bit,
you indicated in your testimony you did not see any Sino-
American military competition in Latin America. Does everyone
else on the panel agree with that? Mr. Johnson.
Mr. Johnson. I am not sure that I do not see any
competition. I think that there is some, that there is an
effort to establish some ties with Latin American countries,
and it is what any rising power would want to do around the
world, because military-to-military relations are a component
of normal diplomatic ties. They also imply some arms sales and
the possibility for sales of heavy equipment, such as transport
aircraft and jet fighters.
Now, whether or not China is particularly competitive in
that way is another question altogether. Up until Europe's
Airbus consortium came on the scene, the United States was the
preeminent nation on Earth in terms of developing and marketing
military and commercial aircraft, and, in many ways, it still
is. I think China is behind the times, but there may be some
areas in which Chinese arms may be appealing to countries that
do not have particularly big budgets.
Senator Coleman. Dr. Lampton.
Dr. Lampton. Just to add a little, I do not particularly
disagree with what was just said. What I meant is that China is
trying to use, particularly in Southeast Asia, South Asia, and
in Latin America, its military less as a military instrument
than a diplomatic instrument. I think it is trying to use it to
reassure. Not only is China increasing its military exchanges
with Latin American countries, it has just had joint exchanges
with Britain and France. So I think this is more to be looked
at almost as diplomacy.
That gets to the repetitive question that you raised about
IMET. I think that is where we ought to be competing.
Senator Coleman. That was my next question to you,
actually. I wanted to get back to the IMET question. Again, I
fully understand the intent of the American Service Members
Protection Act. My concern is that it has had a
disproportionate effect on Latin America. Anyone on the panel
want to respond as to why they believe Congress should exempt
Latin American countries from IMET sanctions? Is the negative
impact of losing relations exceeding whatever the benefits have
been?
Dr. Lampton.
Dr. Lampton. I am certainly not an expert on that, but it
seems that we have 30-some countries in Latin America and the
Caribbean and there might be something other than just a
blanket policy. I am prepared to believe there are some
governments we would want to do that with--IMET relations--and
others we might not wish to. But my general predisposition is
in the general direction of doing so.
Senator Coleman. Mr. Johnson.
Mr. Johnson. Mr. Chairman, I would just like to relate a
conversation that I had with, I believe, the chief national
security advisor for Costa Rica's Police and Public Security
Forces, who told me that because Costa Rica is not a signatory
of the article 98 letter that it could not receive any IMET
training, nor could it receive any particularly specialized
equipment from the United States that would help scan
containers coming into their ports.
A lot of arms, drugs, and even people are being found in
these containers, some of the ones that are being opened. And
ironically enough, a lot of the people coming out of them are
Chinese. So this is one of the areas in which it would be in
our best interest to wield a scalpel instead of a bludgeon.
Senator Coleman. Let me turn to Venezuela, about which my
colleague, Senator Nelson, raised some concerns, and I will
address a question to everybody on the panel. First, if I can,
a technical question to you, Dr. Luft. You talked about
Venezuela having a heavy crude. It is my understanding, though,
that the technical capacity to turn that heavy crude into
lighter crude is now a lot better than it ever was. Can you
explain the implications of your comments about heavy crude? Is
that a limitation on Venezuelans actually strengthening their
relationship with China?
Dr. Luft. In the Western Hemisphere there are two large
reservoirs of heavy crude. One is in Canada in Alberta in the
form of tar sands. The other one is in Venezuela in the form of
extra-heavy crude. There is also quite a large endowment of oil
shale in the United States.
Now, all of these nonconventional sources of crude will
amount, by the end of the decade, to about 4 percent of the
world's oil output. So this is not a lot, and most of it will
actually come from Canada, the reason being that these are
very, very expensive and energy-intensive processes.
If we stay with oil, Mr. Chairman, if the world remains
with oil as a primary energy currency, we will have to tap into
these reserves and invest a lot of money, a lot of money in
infrastructure and conversion processes and refining. The
refining process is completely different. We have no choice
because we are running out of conventional crude.
China is aware of this. They are looking into this market.
They want to be there as it happens. They want to make sure
that they are on top of this because they realize that--and by
the way, their projection for the future of the oil industry
are pretty dire. Unlike our oil companies that tend to project
oil to be back at the $27 a barrel, they are talking about much
higher figures, and that affects their long-term planning.
That is why they are willing to invest in places and areas
that we are not willing to invest. Maybe they are right, maybe
they are wrong. We do not know. But if they are right and we
are wrong, then we are going to pay a very heavy price.
Senator Coleman. Continuing on the Venezuelan discussion, I
get a feeling, as I listened to the earlier panel and some of
the testimony that has been presented here, that Venezuela does
not have the capacity to simply cut off its flow to Citgo.
Economically, it would suffer great consequences.
And I am wondering if discussions of Venezuela diverting
oil to China is simply a way of needling the United States. Is
it one of those ways of taking advantage of competing
influences in the region? Is there a sense that China's
interest in the region can be exploited by those who wish to
confront the United States? I am trying to understand the
nature of the danger. Is it a verbal thing or is there a real
threat here that those who wish to hurt United States interests
in Latin America will use China's interest as a way to further
their own objectives?
Dr. Lampton. Let me take an initial stab at your question.
Senator Coleman. Dr. Lampton, then Mr. Johnson.
Dr. Lampton. Not so much on the technical side, but I said
that Latin America----
Senator Coleman. Is your microphone on?
Dr. Lampton. I said that this is not so much a comment on
the technical side as the political side, and I said in my
testimony that I did not think Latin America was the most
important foreign policy focus for China. If I had been asked
what is the most important foreign policy focus for China, it
is the United States and then China's own region.
Quite frankly, I think the Chinese are probably somewhat
embarrassed by some of the anti-American bombast from Mr.
Chavez. They are trying to make relations with the United
States smoother. In the earlier panel the secretary pointed out
that indeed the Chinese had said their purpose was not to
divert oil from Venezuela to China, and I think that is just
one reflection of this effort.
So my reading of it would be that we are listening to
rhetoric designed for a domestic political audience in
Venezuela and not designed for action, and the people that they
are proposing to act with--China--do not want to act with them.
Senator Coleman. Mr. Johnson.
Mr. Johnson. My sense goes kind of along those lines. I
would agree that I think the United States is China's priority.
But in looking at the patterns of Chinese commerce with Latin
America, I would have to say that the Chinese seem to be equal
opportunity consumers. They will buy from whomever they can get
their product from, and it does not matter if it is somebody
who may be disagreeable or somebody who may not be necessarily
a friend of the United States. We have two countries in Latin
America, Cuba, and Venezuela, that are openly hostile, that are
openly adversaries of the United States. That does not stop
China from dealing with them and obviously trying to have
relations that work to their advantage. They see things
differently.
Another thing I would keep my eye on is whether or not
there may ever be a Chinese role, not in Venezuela but in
Bolivia, in the future. Right now the interests there seem to
be more Brazilian and Spanish and European, and of course the
United States is interested in what happens to the gas fields
in Tarika. But at the same time, if you look at the declining
interest that socialist leaders in Latin America have in terms
of commerce with Western nations, China might be a more
acceptable foreign buyer for Bolivian gas, to say, a future
(socialist) President Morales.
Those are things that are difficult to predict. But,
obviously, there is an ideological component that may not be
present necessarily with China, but is certainly there with
potential adversaries that we have in our own backyard.
Senator Coleman. Dr. Luft.
Dr. Luft. I just want to focus on, not on the statement by
Hugo Chavez, but on the work plan of Venezuela's oil industry,
Minister of Energy, et cetera. They are talking about sending
300,000 barrels to China by 2012. More importantly, they are
talking very, very openly, and have said so in numerous
occasions, that they would like to see, by the end of the day,
Venezuela being the source of 20 percent of China's imported
oil.
Now, let's look what it means. If we look at the trajectory
of China's demand for oil, we see that by 2025 they will need
15 million barrels a day, out of which about 11 million barrels
a day will be imported. Twenty percent, Mr. Chairman, of 11
million barrels a day, that is 2.2 million barrels; 2.2 million
barrels a day that Venezuela is telling us that they would like
to see them sending to China.
Now, question number one: Can our economy afford to,
considering our growth rate, considering our growing demand for
it, can we afford to lose 2.2 million barrels a day? I do not
think so.
Another question is: Can those extra-heavy processes, all
those things, meet the rising demand? Can they fill in the gap?
That is the issue here. That is the question. I am not so sure
that we can do it on time.
Senator Coleman. Dr. Lampton.
Dr. Lampton. Several times you have said that oil is zero-
sum, and if Venezuelan oil was the only oil in the world, I
would agree. But, in fact, there are many suppliers and they
are going to have to move that Venezuelan oil at a pretty heavy
transportation cost, and that was explained in terms of days of
transport, and that is going to cost the Chinese more. They can
buy oil out of Burma, which presents its own problems to our
foreign policy; they can buy from Indonesia. They are going to
liquefied natural gas.
So, I just do not see it as zero-sum. In the end, we want
to keep the prices as low as possible and certainly we do not
want it higher cost. But the United States has plenty of
choices about where to buy oil and everybody else does. So, I
do not see it as zero-sum. I think that is a misconception.
Dr. Luft. Well, our policy is that we want to reduce our
dependence on countries that do not like us. If that is the
purpose, then we have a problem here. If we do not care who we
buy our oil from, then it is a different debate. But I believe
that this administration's policy is to reduce our dependence
on the Middle East.
Senator Coleman. I would be remiss if we concluded this
hearing and did not talk about IPR. China is ground zero when
it comes to the piracy of intellectual property. I believe two-
thirds of Brazil's counterfeit goods apparently come from
China. There is concern that a lot of that is transited over
the lawless triborder region between Brazil and Paraguay and
Argentina.
When I was in Brazil not too long ago, I attended a
conference on IPR, and after years of looking the other way it
seems that Brazil is making an effort to turn the corner with
regard to IPR protections.
So my question is, how does the growing Chinese
relationship and influence, particularly in Brazil but in Latin
America, how does that impact the IPR issue? Do we have any
leverage in dealing with China regarding IPR issues in our
neighborhood? I will open it up. Dr. Lampton.
Dr. Lampton. This is really one of the core issues. This is
a global issue with China. We have got a problem with IPR
violation as it pertains to the sale of products in China. But
what is even more distressing is the production of counterfeit
items in China and then the contamination in third markets that
we would otherwise have.
So I think this is really a key. The United States as I
would understand the State Department's policy and the Special
Trade Representative and so on, have placed this very high on
our priority list, and I think this is really one of the major
issues. We ought to not only target China itself, but those
criminal syndicates and governments that are cooperating or
turning a blind eye to this.
This strikes me as the key to the United States moving up
the value-added chain--our intellectual property. That is what
is going to make us competitive. We are not going to compete
with the Chinese on low labor costs. I sure hope we are not. So
the key is intellectual property. I think that ought to be
right up there in the number one category of our concerns, both
with China directly and its operation in third countries.
Senator Coleman. What kind of leverage so we have? I would
like to hear from everyone and then I will do a followup
question. Mr. Johnson.
Mr. Johnson. Just on top of that, I would just like to
commend the Senate and the House of Representatives and the
administration for the work it has done in its relations with
Paraguay in helping make our relationship with that country
more comprehensive, because that has helped in some measure to
try and close down some of the contraband activities in the
triborder area. If we did not have that kind of a comprehensive
relationship with them, recent progress would not have
happened.
Senator Coleman. Let us just get back to one more approach
to this question. Maybe it is not a Latin America problem, it
is simply a problem. It is a problem all over. But in regard to
Latin America, is there anything that we can do vis-a-vis
piracy in Brazil that is being fed by Chinese product, any
steps America can take to deal with that issue?
Dr. Lampton. Well, your question probably calls for a level
of expertise I do not have. But I know what we are doing with
respect to China itself and maybe this has applicability. Many
of the customs services around the world lack, and immigration
and border control and so on, lack a lot of tools; training,
legal advice, and so forth. So once again, we end up in the
realm of exchange. But our government has very active exchanges
in intellectual property with many countries around the world,
and I would look for those particular offenders in South
America and Latin America that are particular problems where we
can cooperate with their law enforcement and border control and
so forth.
So to the degree that knowledge is the problem, as opposed
to something else, I would like to see us cooperate more there.
Senator Coleman. Thank you.
Mr. Johnson, and I will end on this note, I appreciate your
comment about the more comprehensive relationship with
Paraguay. The government there is trying to make a difference.
You keep coming back to this phrase, ``comprehensive.'' Maybe
that is a good note to end on, that in our relationships with
Latin America it is about comprehensive relationships. In
Colombia, it is about drugs, but it is not just about drugs. We
have a direct interest in the economic vitality of Colombia and
business coming back. Obviously, that is dependent upon
security, and so, in what we have done with Plan Colombia and
now Plan Colombia II, we have to keep in mind this
comprehensive approach.
I would suspect that with our other neighbors in Latin
America it is the same concept. To us, Latin America is not
just a market for resources. I wonder with the Chinese whether
that resource market is at the core. But for a whole range of
other reasons--the first panel talked about the longstanding
relationships, the shared culture, the heritage--we have some
tremendous opportunities and advantages in Latin America if we
work on them and we develop them. We should not worry about
China as our ``competitor''; we should keep an eye on what is
going on, and realize that there are aspects to the
relationship that we need to develop.
Is that a fair summation of what you mentioned when you
talked about comprehensive relationships?
Mr. Johnson. Yes; that is exactly it. And we went through a
period in the 1990s where we shrank back, and understandably
so, because, looking at the other priorities that we had in the
world, we had the collapse of the Soviet Union, we had problems
at the end of the 1990s that were beginning to happen in the
Middle East.
So it is hard to say that one region should be more
important than the other. But in Central and South America, we
pulled a lot of our programs that were of a comprehensive
nature when it was important to try and go beyond the
inactivity that we had for decades and try to encourage
democracy and open markets and better relations with these
countries.
So in doing so, in turning--in reducing the programs that
we had, we tended to concentrate solely on counternarcotics.
That was a big issue. That was sellable at home. American
constituents understood it a lot better than such concepts as
why rule of law is something that is in our interest in
Ecuador, for interest.
But now I think that the model that we have in Colombia--
perhaps we cannot do it on that scale in other countries,
investing that amount of money, but certainly we can try to
replicate the extent to which we engage different areas of
society and government and institutions to be a kind of a
helping hand, because to the extent that we repeat that
elsewhere, then the rising tide may lift more boats.
Senator Coleman. And in many ways the concern about China
in the hemisphere is actually fostering that more comprehensive
discussion. If you look at the debate about CAFTA, I think
there were some people who say that if we did not pass CAFTA it
would benefit China, that we would be giving away market
opportunities.
As we look to the possibility of an Andean trade agreement
and an agreement with Panama, I think the same discussion comes
into play: Do we want to just give away market opportunities or
do we want to develop them? Yet, to develop them, we, in
addition, have to see things like commitment to rule of law. We
have to see respect for intellectual property rights, we have
to see issues dealing with labor agreements and other things
that need to be part of our treaty arrangements. So in many
ways the Chinese relationship is actually spurring perhaps a
greater unity.
This has been a very, very informative hearing, very
helpful to me. I will share this with other members of the
committee. The testimony has been much more optimistic than I,
perhaps, would have anticipated. Prior to coming into this, the
sense I had was that those involved in the business community
see China and its development and the role it is playing in
Latin America as presenting opportunity. For those focused on
foreign policy and defense issues, I think there is some
question of fear and concern. My take on this hearing is that
the opportunity is there. It is always good to be concerned,
but on the other hand, hopefully, if done right, the
opportunity can trump the fear.
So with that, I will leave the record open for 7 days, so
if there are any additional questions my colleagues have,
gentlemen, I will make sure they contact you. But if not, this
hearing is now adjourned.
[Whereupon, at 4:37 p.m., the subcommittee was adjourned.]
----------
Additional Statement Submitted for the Record
Prepared Statement of David Hale, Hale Advisers, LLC, Chicago, IL
There is now growing concern in Washington about the rise of China
as an economic power in Latin America. China has been announcing major
investments in the region's natural resource industries. The Chinese
Government has promised to spend billions helping to upgrade the
region's infrastructure in order to facilitate trade. China has applied
for membership in the Inter-American Development Bank. China has been
lobbying countries in the Caribbean to end their traditional
relationship with Taiwan and recognize the Beijing government instead.
China's new focus on Latin America is the result of the
transformation which has occurred in her economic status during the
past few years. China has displaced the United States as the world's
largest consumer of most industrial raw materials, including copper,
aluminum, nickel, platinum, and iron ore. China's steel industry now
generates more output than the United States and Japan combined. The
market capitalization of China's steel industry is over $40 billion
compared to $11 billion for the U.S. steel industry. In 2003 China
produced 40 percent of the world's cement compared to 6 percent for the
United States. While China now consumes 22 percent of global copper
output and 11 percent of nickel output, its per capita consumption of
most materials is still equal to only about 20 percent of U.S. per
capita consumption. As a result, China's continuing economic
development could cause her share of global metals consumption to rise
to the 35- to 40-percent range during the next two decades. At current
growth rates, there can be little doubt that China will be the dominant
price setter for most commodities in the future, not America and
Europe.
There are several factors driving China's explosive demand for raw
materials. During the past decade, China has attracted over $500
billion of foreign direct investment. Foreign firms are turning China
into an export powerhouse. The country now generates 6 percent of
global exports and could become the world's largest exporter within 3
years. Foreign firms produce over 55 percent of China's exports. China
is also going through a process of urbanization which will generate
huge construction activity. At present, the country is 38 percent urban
and 62 percent rural. In 30 years, this ratio could reverse. When the
United States urbanized during the first half of the 20th century, its
per capita steel consumption increased sixfold.
China's emergence as the world's largest commodity importer has
profound implications for her relationship with Latin America. The
continent still depends heavily upon raw materials for export income,
so China's demand for raw materials will have an important influence on
Latin America's terms of trade. The emergence of a country which could
rival the dominance of the American economy will also have long-term
consequences for foreign policy and other strategic concerns.
During the second quarter of 2004, both Brazilian President Lulu
and Argentine President Kirchner paid visits to China in order to
promote closer economic and political relations. These visits provide
useful insights into how the future relationship is likely to evolve.
President Lula said that he wanted to create a ``strategic
partnership'' with China as an offset to American power. Mr. Lula is
anxious to create a more multipolar world in which leading developing
countries, such as Brazil, India, and South Africa, could play a
prominent role. He views China as a successful developing country which
could bolster his proposed coalition. China, by contrast, no longer
regards itself as just a regional power or emerging market country. It
increasingly perceives itself on a fast track to great power status. As
a result, it views Brazil as less of a foreign policy partner and more
as a potential source of critical raw materials.
Trade between Brazil and China is growing rapidly. Five years ago,
China was Brazil's 15th largest trading partner. It will soon be number
two. In 2003, bilateral trade was $7.8 billion, with Brazil exporting
$4.3 billion of goods to China. China has emerged as a major market for
Brazilian soybeans and steel. China also recently announced plans for a
$2 billion investment in the Brazilian aluminum industry and $1.5
billion in the steel sector. Sinopec is looking for a partner to build
an oil refinery as well. During the recent visit, President Lula asked
China to consider large investments in the development of Brazil's
infrastructure, including rail links to the Pacific and new highways.
As a result of the need for raw materials. Chinese firms are now making
investments in countries as diverse as Angola, Algeria, Papua New
Guinea, Australia, and Indonesia. Brazil's great endowment of mineral
resources and agricultural land make her a natural partner for Chinese
foreign investment.
President Kirchner visited Brazil 6 weeks after President Lula. He
focused less on foreign policy themes and more on economic cooperation.
In 2003, Argentine exports to China grew 143 percent to $2.5 billion.
The dominant export was soybeans and soya oil ($2.1 billion) followed
by metallurgy products. President Kirchner proposed new forms of
bilateral cooperation in agriculture, civil aviation, investment,
culture, and health. As an immediate result, Aerolinas Argentinas
announced that it will begin operating flights between Beijing and
Buenos Aires. At the same time Argentine Planning Minister Julio De
Vido announced that China had committed to $275 million of
infrastructure investment, including $25 million for a grain port in
Sante Fe and $250 million to construct a road from San Juan Province
through Chile, facilitating exports from Chile's Pacific Port of
Comquimbo.
President Hu Jintao used his visit to Latin America during November
to announce several new initiatives. He told the Brazilians China would
be willing to invest $8.5 billion in their railways, ports, and
highways. He announced a major infrastructure investment program for
Argentina, including $8 billion for railways, $6 billion for low-cost
housing, $5 billion for hydrocarbons, $450 billion for communications,
and $260 million for satellite technology. Mr. Hu also announced plans
to open China's market to exports of Brazilian beef, chicken, and pork,
and Argentine beef and fruit. Mr. Hu announced as well that China would
recognize Brazil and Argentina as official tourist destinations,
opening up both countries to China's 20 million international tourists.
Argentina offered to open 140 tourist offices in China to facilitate
the growth of tourism. Brazil and Argentina responded to the Chinese
initiatives by agreeing to recognize China as a market economy. This
was a major development for China because it is striving to get
recognition as a market economy in order to lessen the risk of
protectionist trade policies against its exports. At present fewer than
10 countries recognize China as a market economy. Brazilian and
Argentine manufacturers were concerned about this decision because they
fear it could open their domestic markets to a flood of cheap imports
in sectors such as textiles and consumer electronics. There are
currently 15 antidumping measures in place against Chinese goods in
Argentina; under the terms of the new agreement, only barriers on
sensitive products such as toys and textiles will be permitted. The
Brazilians are also concerned about the fact that China invoked
concerns about fungicide contamination to block imports of Brazilian
soybeans at a time when market prices were falling rapidly. The
Brazilians perceive that China used this excuse to block imports in
order to get a lower price.
Now that China is the world's largest oil consumer, she is striving
to obtain new oil supplies all over the world. As a result of the Hu
Jintao visit, China will make new investments in the Brazilian and
Argentine energy sectors. China's National Petroleum Company will
develop a gas pipeline linking the northeast of Brazil to Rio with
Petrobas and the National Development Bank. In Argentina, China's oil
companies will engage in exploration and development activities with
Enarsa, Argentina's new state oil company.
In January, President Hugo Chavez of Venezuela visited Beijing to
promote more Chinese investment in his country. Chavez has a bad
relationship with the United States and is anxious to diversify his
country's trade. In August, China National Petroleum Corporation
announced plans to develop Venezuela Zumano oilfields. The field has
large reserves of both oil and natural gas. The Venezuelan Government
says that it hopes to supply 15-20 percent of China's petroleum needs
in 10 years. As Venezuela produces primarily heavy oil, it is not clear
that China will be an easy market for the Venezuelan output but Hugo
Chavez will take every step necessary to promote trade with China.
Chile is also anxious to promote new trade and investment links
with China. The two countries announced plans to create a joint
commission to promote more investment and trade in the mining sector.
At the APEC summit, Chile and China formally announced they would
launch negotiations to create a free trade area during the next 2
years. China currently produces 4.9 million tonnes of copper and
exports 850,000 tonnes to China. If the two countries could sign an
FTA, it would help to bolster exports of noncommodity products such as
Chilean wine to China. In 2003, China exported $1.28 billion of goods
to Chile and imported commodities worth $2.24 billion. It is widely
estimated that two-way trade could reach $10 billion in 5 years if the
two countries had an FTA.
The recent interaction between China and Latin America is a natural
outgrowth of China's need for imports of soybeans, steel, copper, and
other raw materials. What remains to be seen is how China will adjust
its long-term foreign policy agenda to reflect its new status as the
world's leading consumer of commodities.
China is now pursuing potential free trade agreements with several
countries to enhance its access to raw materials, including Australia,
New Zealand, South Africa, and the Persian Gulf countries, as well as
Chile. In the 1990s, the U.S. Government lobbied hard to prevent China
from selling nuclear weapons to Iran and other Middle Eastern countries
in return for oil and natural gas. China recently signed a
nonproliferation treaty which will prevent her from selling nuclear
weapons to all countries, but she could still use her military power to
promote improved access to raw materials. China, for example, now has
4,000 troops in the Sudan to protect an oil pipeline which her
companies built there 5 years ago. Sudan has been in the midst of a
civil war for several years, so China wants to use its own troops to
guarantee the safety of the pipeline. As China promotes new investment
in other developing countries, such as Zambia, Zimbabwe, Papua New
Guinea, and Angola, it is not difficult to imagine some governments
seeking military alliances in order to enhance their domestic political
positions.
The United States and other major industrial countries have not
recognized the potential consequences of China's new status in the
commodity markets. Japan is aware of it because she has been competing
with China for the right to control a pipeline carrying Russian oil to
the Pacific coast. The Chinese made the mistake of signing a joint
venture agreement with Yukos while Japan focused on the government
controlled pipeline monopoly, so Japan is likely to control this new
$10 billion project. But President Putin has suggested that he will
build an auxiliary pipeline to northern China as well. The Chinese
recently beat the Americans in obtaining new oil exploration rights in
Saudi Arabia but the relationship between the United States and the
Saudis is under pressure because of other concerns, such as the war
against terrorism. The issue of oil reserves is less dominant than it
might have been during the 1990s.
At the start of the decade, some Asian countries were alarmed about
China's rise because they perceived that China would gobble up all the
foreign direct investment in the region. While they are still concerned
about China's FDI boom, they have enjoyed such robust export growth to
China that they now regard China as a partner rather than a threat.
Latin America is going through the same evolution.
The Latin American country which is most alarmed about the rise of
China is Mexico. The Mexicans fear that China's FDI boom is drawing
both capital and jobs from their country. During the past 4 years, the
Maquiladoras zone has lost about 250,000 jobs in part because of firms
moving to Asia. In 2003, China displaced Mexico as the number two
trading partner of the United States. In 2005, Mexico will probably
account for 11-12 percent of U.S. imports while China could be
exceeding 13 percent. Mexico was the last country to sign the treaty
for China's membership of the WTO because of concerns about the
competitive challenge which China poses. Mexico's problem is that it
does not have a natural resource endowment conducive to the kind of
export boom which Brazil and Argentina are now enjoying. It is not a
major exporter of soybeans, copper, or steel. It instead competes with
China in sectors such as textiles, furniture, and auto parts.
Some Mexican textile companies have moved factories to China. What
remains to be seen is whether Mexican companies will be able to form
joint ventures with Chinese companies to penetrate both the domestic
market of China as well as to re-export goods back to North America. At
present, about 60 percent of China's imports are goods used for
developing products which are re-exported. Most of these imports come
from other Asian countries. Mexican firms should also strive to get
into the global supply chain which now runs through China.
China has recently applied to join the Inter-American Development
Bank. If she joins the group, her construction companies will be
eligible to participate in projects funded by the bank. Membership
would also provide China with a new channel for playing a role in the
region. The United States is cautious about allowing China to join but
other Latin American countries are supporting the Chinese bid because
of their rapidly growing trade with China.
In the 16th, 17th, and 18th centuries, China emerged as a major
market for Latin America silver. During that era, the countries of
Europe were anxious to import Chinese silk, porcelain, and tea but had
few products to sell in return. The result was that they exported
silver from the mines of Mexico, Peru, and Bolivia. At the end of the
18th century, China had over one-third of the world's silver reserves.
When the supply of silver declined, the British substituted opium and
fought a war to guarantee their access to the Chinese market.
At the dawn of the 21st century, there are no constraints on trade
between China and other countries. China has an insatiable appetite for
commodities as well as many industrial capital goods for developing her
economy. Latin America is rapidly emerging as an important source of
raw materials for China's booming economy. The challenge for Latin
America will be developing opportunities for broadening its trade to
include more exports of manufactured goods as well as to promote
services such as tourism. The governments of Latin America have taken
initial steps to capitalize on the China opportunity. But they, along
with other countries, are still at only the early stages of coming to
terms with a historic transformation.