China and Argentina have recently implemented a string of agreements that are sure to prove beneficial for both countries. We can expect relations to stay warm and active in the future, despite the fragile economic environment in the South American country.
During an official trade visit to China this February, the Argentinian President Cristina Fernández de Kirchner published some unsavvy tweets that poked fun at the Chinese pronunciation of Spanish words. These may have soured Sino-Argentine relations in the eyes of the press, but the fact is that bilateral ties have never been better.
Since Chinese President Xi Jinping’s visit to Argentina last July and Ms. Kirchner’s trip to Beijing this February, the two nations have signed over 20 agreements that will boost trade, investment, and technological development. This ambitious framework – entitled “a strategic alliance” – spans several industries, including military manufacturing, energy, and transport.
On all fronts
For starters, the two countries announced the beginning of a naval cooperation that will involve Argentina purchasing an icebreaker, offshore patrol vessels, and tugboats from China. The Argentinian Air Force is also considering replacing its aging French-made Mirage aircraft with Chinese models such as the J-10, the C-1 Xiaolong multirole fighters, or the JF-17 Thunder jet.
From Beijing’s side, China has pledged to heavily support Argentine infrastructure projects, including investing over US$4 billion to build hydroelectric dams on the Santa Cruz river, and over US$2 billion into Argentina’s Belgrano Cargas railways. More significantly, China is also backing up Argentina’s tender for a fourth nuclear power plant, the Atucha III.
These projects will go a long way to improve Argentina’s exporting capabilities (especially of agricultural products), as well as achieving much-desired energy autonomy. Another two agreements – a US$11 billion currency swap deal from last year as well as a fresh agreement on patents and trademarks – will further facilitate trade between the two nations.
However, the most intriguing project is the decision to construct a Chinese satellite space station in southern Argentina. Due to open in 2016, the station will track Chinese missions to Mars and the moon, and China will lease the surrounding 200 hectares for the next 50 years.
This is China’s first space installment outside its national borders, and Argentine researchers will also benefit from access to the facilities.
A two-way street
The reasons for cooperation are simple. China is a rising power, and is trying to expand its presence in the global value production chain. Gaining a stronger foothold in Latin America – especially at a time when the U.S. is less preoccupied with defending its traditional sphere of influence – is a necessary step.
Establishing a strong presence in Argentina will greatly help China achieve its regional goals.
On the other hand, Argentina is in desperate need of foreign investment, infrastructure development, and foreign capital. According to the Central Bank, Argentina’s foreign reserves fell 40% between 2008 and 2015, and Argentina has been stuck in a sovereign-debt battle with US hedge funds for most of the 21st Century.
In this situation, China makes an ideal partner in the global market, and the long-term benefits of receiving Chinese investment can be game-changing.
However, all is not straightforward. Argentina’s economic problems also incur a risk for Chinese investment. Slowing growth projections, a sovereign debt roller-coaster, and fiery inflation make for a very unstable economic environment. If the situation does not improve, Argentina may find it hard to pay for its end of the bargain, which would become a big obstacle for future deals.
Furthermore, some members of Argentina’s Congress oppose the seemingly asymmetric advantages to China, citing a large trade deficit and concerns that the agreements would negatively affect local labor.
In addition, members of the opposition have also raised fears that the space station could eventually be used for military purposes that would be out of their control.
Toward the future
However, the benefits of these agreements are only beginning to emerge for both China and Argentina. If Argentina starts to see any gains in the near future, domestic opposition will quickly quiet down. In any case, Argentina does not have much wiggle room to choose its trade partners.
Likewise, it is hard to believe that Chinese officials have not taken into account Argentina’s highly visible economic struggles when pursuing the current long-term agreements. In fact, China has already hinted at future currency swaps deals, and there are even talks of a free trade agreement on the horizon.
Unless Argentina’s economy takes a significant nosedive or elects a strongly anti-China replacement for Ms. Kirchner in December, we can expect an expanding Chinese involvement in Argentina, and indeed in the region as a whole.
