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US Comments on Chinese Engagement in Latin America

U.S. Official Comments on Chinese Engagement in Latin America

State's Shapiro notes China's growing economic and political exchanges

China increasingly is engaged economically and politically in Latin America, and this engagement should enhance -- not impair -- U.S. ties to the region, says Charles Shapiro, principal deputy assistant secretary of state for Western Hemisphere affairs.

In September 20 testimony before the U.S. Senate Subcommittee on the Western Hemisphere, Shapiro outlined the role of China in Latin America and the likely diplomatic, political and economic consequences.

The United States sees two major trends in China's engagement with Latin America, Shapiro said. These trends are increased trade and investment in the region to fuel China's domestic development, and efforts to match this growing economic engagement with political influence.

CHINA’S ECONOMIC ENGAGEMENT

Shapiro pointed out that China increasingly has engaged the rest of the world, including Latin America, to fuel its rapid economic development. As part of its efforts to secure inputs and markets, Chinese imports from Latin America reached $22 billion in 2004 and are up 16 percent in the first half of 2005. Similarly, China's exports to the region reached $18 billion in 2004 and are up 32 percent in the first half of 2005.

Another important element of China's economic engagement in the region is China's efforts to secure reliable access to petroleum products, Shapiro told legislators.

However, even though China has expanded commercial ties with Latin America and is an important new investor in the region, U.S. trade and investment in the Americas continues to dwarf that of China.

U.S. trade with the region exceeded $445 billion in 2004, 10 times China's level, Shapiro said. He noted that Latin America's exports to the United States are up 10 percent and imports from the U.S. are up 15 percent in the first half of 2005 compared to 2004 levels. And whereas Chinese investment in the region is approximately $8.3 billion, U.S. investment in Latin America is more than $300 billion, the State Department official said.

Apart from the significant difference in scale, Shapiro explained, the United States' economic engagement in Latin America fundamentally differs from that of China. Chinese exports, particularly in the areas of textiles and apparel, provide stiff competition for some Latin American and Caribbean producers but the United States provides high-tech and knowledge-based goods and services, he said.

"The region needs and values our market and our expertise for its continued development," Shapiro said.

CHINA’S POLITICAL ENGAGEMENT IN LATIN AMERICA

Along with its increased economic engagement in Latin America, China is trying to enhance its political influence, according to Shapiro.

"China is also interested in matching its economic power with political influence in the region," he said. "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."

Apart from its efforts to isolate Taiwan, China has employed "visit diplomacy," with many Chinese officials making numerous visits to the region, said Shapiro.

As China's engagement in the region expands, the United States hopes this will produce positive benefits and not detract from the U.S. hemispheric agenda.

"We support China's engagement in the region in ways that create prosperity and promote transparency, good governance, and respect for human rights," Shapiro said. "We need to work with China and with our friends and allies to ensure that every effort is taken to promote polices that converge with our interests."

He said the United States will continue to monitor China's presence in the Latin America to ensure that it does not detract from the U.S. goals of prosperity, democracy and respect for human right in the region.

Shapiro concluded that China's increased engagement in Latin America should lead to increased cooperation between the United States, China and Latin American and Caribbean governments, while not diminishing U.S. capabilities and influence in the region.

"Our allies throughout Latin America believe good U.S.-China relations are important to global peace, prosperity and stability," he said. "Our efforts to work with China should enhance, not impair, our regional alliances."

Following is the text of Shapiro's prepared statement before the Senate Foreign Relations Committee's Subcommittee on the Western Hemisphere:

(begin text)

U.S. Department of State
[Washington, D.C.]

"The Role of China in Latin America: Diplomatic, Political, and Economic Consequences"

Statement by Charles S. Shapiro,
Principal Deputy Assistant Secretary of State for Western Hemisphere Affairs,
Before the Senate Subcommittee on the Western Hemisphere, Peace Corps, and Narcotic Affairs

September 20, 2005

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 U.N. 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 business owners. And we have already seen results. For example, in the 22 Western Hemisphere countries (excluding the U.S. 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 we are pleased to note that 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 U.S. private sector. An estimated 30% of foreign direct investment flows into the region are from the U.S., and the U.S. accounts for more than 50% 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 but one has a democratically elected 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 seventh-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% per year for the past twenty-five 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% 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% 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 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 2004, ten times China's level; Latin America's exports to the U.S. are up 10 percent and imports from the U.S. 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 twelve 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 Co-operation Forum 2005 in Kingston.

In 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 U.S. "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 UN Security Council, is a WTO member, is active in the World Bank and IMF, interacts with the G7 and G8, 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 polices 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 U.S., 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 U.S. 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 record keeping 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.

U.S. 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 one percent of heroin seized in the U.S. 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, non-proliferation, 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 U.S.-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 U.S.-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.

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