Argentina-China: new courses for an old dependency


Argentina-China: new courses for an old dependency
Rubén Laufer

 

ABSTRACT

Economic and political relations between Argentina and China have experienced a fast expansion for a decade and a half, especially since 2004, when the government of President Néstor Kirchner defined the course of "strategic partnership" with the Eastern power. This had its counterpart in the formation and development of important landowners and business groups associated with State public or private interests of China. This process also occurred in the energy sector: in recent years, individually or in partnership with local companies, Chinese corporations advanced in the acquisition or control of some of the major oil and mining National or foreign companies of Argentina.

Historically, the subordinate association of powerful sectors of the Argentine ruling classes —with a usually direct presence in, or strong ties with, the State apparatus— with the financial capital of great powers, has been at the base of the Argentine dependency. This was also the case in the late nineteenth century and during the first third of the twentieth century, when powerful Argentine exporting-landowners and business sectors held a so-called “special” or “privileged” relation with British capitalism.

Today, as then, representatives of governmental and economic spheres of China and Argentina, both public and private, emphasize the complementary nature of Argentina's economy – as well as other countries’ in the region-- in relation to the industrial economy of the Asian power. Commercial ties and direct investment or association of Chinese capital within local economies are described as an opportunity that would allow Latin American countries to develop their production, diversify their International Relations and reduce their external debts. With these considerations, in the Argentine case, government and business sectors —some of them directly related to Chinese interests, promote the adaptation of strategic areas of the local economy to the complementarity with the Chinese economy.

During the last decade, bilateral trade structures and public and private Chinese investments in Argentina further consolidated the historic division of labor among the great powers and Latin American countries, strengthening the primary-export profile of National production reflected, among other aspects, in the marked process of specialization in soy production and exports and concentration that characterizes agricultural production and exports in Argentina.

While some sectors of the ruling classes promote this renewed insertion of Argentina into the world economy —now in relation to China, some others warn against the reconstitution of an export model similar to that of the XIXth century” —and they even point the outlining of a “new neo-colonial connection with China as a metropolis”; instead, they intend to complement the specialization of Argentina in exportable primary products with some industrial diversification, attracting Chinese investment into industrial or infrastructural branches, complementary or merely subsidiary to the strategic needs of Beijing. This strategy converges with neo-developmentalist approaches rooted today in many governments of Latin America.

So, the growing importance of bilateral trade and of Chinese capital in Argentina and its competition with American and European interests with historic roots in the country, require us to rethink the “classic” debate about Argentina and most Latin American countries’ dependency upon great powers.

 

RESUMEN

Las relaciones económicas y políticas entre la Argentina y China experimentaron una rápida expansión desde hace una década y media, y especialmente a partir de 2004 cuando el gobierno del entonces presidente Néstor Kirchner definió el rumbo de “asociación estratégica” con la potencia oriental. Ello tuvo su correlato en la conformación y desarrollo de importantes grupos terratenientes y empresariales asociados a intereses estatales o privados de China. Este proceso tuvo lugar también en el rubro energético: en los últimos años, en forma individual o en asociación con empresas locales, corporaciones chinas avanzaron en la adquisición o control de algunas de las más importantes empresas petroleras y mineras nacionales o extranjeras de la Argentina.

Históricamente, la asociación subordinada de poderosos sectores de las clases dirigentes argentinas —habitualmente con presencia directa o fuertes vínculos con el aparato estatal— al capital financiero de las grandes potencias, estuvo y está en la base de la dependencia argentina. Así ocurrió a fines del siglo XIX y durante el primer tercio del siglo XX, cuando los terratenientes exportadores y poderosos sectores empresariales argentinos sostuvieron una así llamada “relación especial” o “privilegiada” con el capitalismo británico.

En la actualidad, al igual que entonces, representantes de ámbitos gubernamentales y económicos chinos y argentinos, tanto públicos como privados, destacan el carácter complementario de la economía argentina —y de otros países de la región— con la economía industrial de la potencia asiática. Los lazos comerciales y la radicación o asociación de capitales de China en las economías locales son descriptos como una oportunidad que permitiría a nuestros países desarrollar sus producciones, diversificar sus relaciones internacionales y disminuir su endeudamiento externo. Con estas consideraciones, en el caso de la Argentina, sectores gubernamentales y empresariales —algunos de ellos directamente asociados a intereses chinos— promueven la adaptación de áreas estratégicas de la economía local a la complementación con China.

Durante la última década, las estructuras del intercambio bilateral y de las inversiones oficiales y privadas de China en la Argentina consolidaron la histórica división internacional del trabajo entre las grandes potencias y los países latinoamericanos, reforzando el perfil primario-exportador de la producción nacional reflejado, entre otras cosas, en el pronunciado proceso de “sojización” y concentración que caracteriza a la producción agraria y las exportaciones argentinas.

Mientras algunos sectores de las clases dirigentes promueven esta reedición de la antigua inserción argentina en la economía mundial —ahora en relación con China—, otros denuncian la reconstitución de un “modelo exportador similar al del siglo XIX” —e incluso el esbozo de “una nueva relación neocolonial con China como metrópolis”—, y en su lugar proponen complementar la especialización argentina en productos primarios exportables con alguna diversificación industrial, atrayendo inversiones chinas hacia ramas industriales y de infraestructura complementarias —o simplemente subsidiarias— de las necesidades estratégicas de Beijing. Esta estrategia converge con los enfoques neodesarrollistas hoy arraigados en muchos gobiernos de América Latina.

El creciente peso del comercio bilateral y del capital chino en la Argentina y su competencia con intereses estadounidenses y europeos de antiguo arraigo en el país replantean, así, el “clásico” debate acerca de la dependencia argentina —y de la mayor parte de los países latinoamericanos— respecto de las grandes potencias.

 

 

For several years China has been one of Argentina’s main trade partners. Sales of soybeans and soybean products to the eastern power are the backbone of exports, foreign exchange earnings and fiscal resources of the country. At the same time, just as in other Latin American countries, the Argentine domestic market has seen a veritable flood of goods of Chinese industry. In correspondence with the intensification of trade, a strong flow of Chinese investment was originated, oriented to extractive industries (oil and mining), infrastructure linked to exports to the Asian country (railways, harbors), finance (banking, financing of projects associated with Chinese capital) and domestic trade (Chinese supermarkets). Moreover, recently investments have developed aimed at controlling —not necessarily by buying—large peaces of public land for food production, entirely for sale to China.

The intensification of bilateral relations should be framed within the Latin American context. Brazil, Mexico, Chile and Venezuela —in addition to Argentina itself— established “strategic partnerships” with the Asian power in recent years. Chile, Peru and Costa Rica signed with China widespread free trade agreements. Moreover, during Chinese Vice President Wen Jiabao’s recent tour through several Latin American countries, he proposed the creation of a "Cooperation Forum", another agricultural forum, and even a free trade area between the East and Latin America as a whole (Doudchitzky, Y., 2012, June 28; Urgente24, 2012, June 28). 

 

Argentina and Latin America in the strategic map of China


Top Chinese officials set the policy of investing Chinese trade surplus in strategic sectors of countries with abundant natural resources (De la Siega V., 2010; Malena, J., 2011). Backed by the China Investment Corporation (CIC, a sovereign fund of 300 billion dollars), Chinese corporations bought foreign companies in order to establish partnerships to ensure the provision of those resources. According to a report of the Economic Commission for Latin America (ECLAC), Chinese direct investment in the region grew exponentially in 2010, surpassing 15 billion dollars, more than double the amount invested in the two decades from 1990 to 2009; in Argentina, investments totaled 143 million in the period 1990-2009 and they grew up to 5.55 billion in 2010. Furthermore, large state and private corporations of China positioned, directly or in partnership with local groups, in key economic areas of the economies of the region: oil, gas, hydroelectric dams, communications, mining of iron, copper, gold, lithium; manufacture of cars and trucks, banks, loans to pay in oil, large infrastructure projects —roads, railways, ports—, internal and external trade, and so (CEPAL, 2010; CEPAL, June 2011). No doubt Latin America, as the South Pacific and Africa, has come to occupy a critical place in the strategies of economic expansion and political influence of China in the world.

In Argentina, together with the rapid growth of bilateral trade and Chinese investment, local business groups have been established and are expanding since the 1990s. These groups became commercial intermediaries of the Beijing government, or subordinate managers or partners of Chinese private or public corporations in large investment projects in the South American country and others in the region. Some of these local groups are of domestic origin, which had previous ties with European interests --Russian or others--, and their members tend to have direct representation or strong influence at the National or provincial levels. Many of them operate through the Argentina-China Chamber of Production, Industry and Trade, which brings together some of the largest land and business trusts of the country, local and foreign (Spadone, Werthein, Macri, Blaquier, Loeb, etc.). Other groups (Roggio, Elsztain) do not integrate the Chamber but maintain equally important links and partnerships with Chinese interests. Not only businesses expanded, diplomatic and political contacts also multiplied.

The increasing presence of China's interests in the region competes with the traditional influence of economic, political and strategic interests of the United States and European powers in Latin America (Dumbaugh K. and Sullivan M. P., 2005; Logan S. and Bain B., 2005). The struggle for obtaining businesses and privileged conditions —directly or through such partnerships—, and seeking for influence or control over basic levels of economic and State structures (a nucleus element of what is commonly known as dependency) condition the evolution of Latin American countries.

Lately, the world experienced a notorious shifting of economic growth and international political relations to the East and in particular to China. This fact, together with the global economic crisis that erupted in 2008 in the United States and Europe --which currently entered in a dramatic course with the deep financial, debt and fiscal crisis, and harsh adjustment policies and intense social mobilization in the European Union and the American superpower-- give a first-order importance to the economic, political and strategic role of China as a world power.

For these reasons, the nature of the Chinese links with Argentina —and with other countries of the Third World, is the subject of intense controversy both in academia and in spaces of political debate, strategic decision-making and foreign policy. At least three crucial, closely interlinked aspects are under discussion: 1) the nature of the social and political system of China as well as the economic and strategic interests of the Chinese state and Chinese National and private corporations 2) the nature of relations that Latin American countries and powerful sections of the ruling classes have been establishing with the Eastern power, and 3) the implications that this kind of relation has for the Latin American region and countries’ economic development and international position.

 Understanding how these relations are conceived derive different assessments of the strategic partnerships that Latin American countries with very different political regimes are establishing with China. These represent contentious, necessary and urgent issues, given the inevitable impact that the ongoing international economic crisis and heightened competition among the major world powers have and will have on the fate of Latin America in the present and immediate future.

This article examines the relations the eastern power is establishing with powerful sectors of the ruling classes in Argentina. These relations are a multifaceted phenomenon: the energy issue is important, but it is a particular part of a wide frame of aspects ranging from economic to political, cultural and military. Taken together those aspects reflect the contents of the strategic partnership between the two countries, as it has been taking shape over a decade. Although the historical background that will be mentioned below, and the allusion to political and economic, local or intermediary groups associated with Chinese interests are limited to the Argentine case, its general features and many of its implications could be drawn, omitting the specificities of each case, to dependent countries in general and to many countries of Latin America in particular.

 

Argentina-China: bilateral trade, complementarities and structural adaptation


Soybean is today the most important crop in Argentina: it occupies over 64% of the planted area in the country (Teubal, M., 2006). The growth of soybean production over the last decade and a half, both in volume and planted area, has been exponential, as shown on Table 1.

 

Table 1. Argentina—Transgenic Soybean Production (volume and area planted)
 
 
Area (hectares)
Volume (tons)
1997
6.000.000
11.000.000
2007
16.600.000
47.000.000
2010
19.000.000
56.000.000

Source. Donovan, 2011.

                       

Argentina has become the leading exporter of soybean meal and soybean oil. Argentine exports of soybean meal basically for livestock consumption represent, in value, 45% of the world production, and those of soybean oil 60%. In addition, production and export of biodiesel produced from soybean oil, increase year to year. The area planted with this oilseed in the campaign 2011/2012 amounts to nearly 19 million hectares[1], similar to the cycle 2010/11, with an estimated production of 50 million tons. Considering relatively lower yields due to the current drought, the export of soybeans would reach about 9 million tons, and soybeans processed into flour, oil and biodiesel, about 38.5 million tons. In Argentina, exports of soybeans and soybean products are charged 35% of their value in the form of export duties; these revenues represent more than half the export duty and 5% of total revenue of the national state (Donovan, 2011 September 4). In value, and at prices prevailing as of January 2012, this would mean an income of 23,000 million just for the exports of the soybean complex, and delivering 8,000 million dollars in deductions to the Treasury (Alvarado Ledesma, M. (2011, November 21) [2]. These figures are useful in order to illustrate the heavy reliance of the trade balance and fiscal revenues of Argentina on this item.

In 2010 Argentina was the fourth largest trading partner of China in Latin America bilateral trade (imports plus exports) was around 13,000 million dollars. At the same time, China became the second largest trading partner of Argentina in both imports and exports, in both cases after Brazil and before the United States. The value of Argentine exports to China was 5,796 million dollars, while imports totaled 7,649 million dollars. The bilateral trade balance, until 2008, showed a surplus for Argentina as a result of the new global cycle boom of commodity exports, denoted a trade deficit for that year, and in 2010 showed a deficit of 1,853 million dollars (Agricultural Department of the Embassy of Argentina in the PRC, 2011, May 10), and in the first half of 2011 the deficit had already exceeded the entire previous year (Premici, S., 2011, July 21) mainly for industrial imports, as the agricultural balance remains strongly positive (MercadoContinuo.com, 2011, February 28) (see Table 2).

As for the composition of bilateral trade, it continues to show a marked asymmetry: manufactured goods and agricultural commodities are over 80% of Argentine exports to China, while 98.8% of the Chinese goods imported by Argentina are industrial manufactures (machinery, textiles, plastics, footwear). In 2010 the main items of imports of Argentina from China were computers and radio and television parts, video monitors and video projectors, glyphosate (herbicide), motorcycles, cell phones, machine parts, etc. Table 2 and Figures 1 and 2 show the enormous weight of the agribusiness products in Argentine exports to China.

 

TABLE  2: Argentina–China, Bilateral Trade 2005–2010: Total Trade and Agro-industrial Trade
 
 
Período
Total Trade
Agro-industrial Trade
Agro/Total
Agro/Total
(million dollars)
(million dollars)
(%)
(%)
 
Year
 
Export.
 
Import.
Total Trade
 
Export.
 
Import.
Agro Bal.Com.
 
% Export.
 
% Import.
Balance
Ba. Com.
2005
3.192,65
2.236,83
955,82
2.661,44
12,63
2.648,80
83,36%
0,56%
2006
3.475,85
3.121,70
354,15
2.376,01
19,39
2.356,62
68,36%
0,62%
2007
5.169,82
5.092,95
76,87
4.576,09
31,46
4.544,63
88,52%
0,62%
2008
6.354,96
7.103,89
-748,93
5.474,14
42,02
5.432,11
86,14%
0,59%
2009
3.668,28
4.822,60
-1.154,31
3.193,28
32,53
3.160,75
87,05%
0,67%
2010
5.794,49
7.648,85
-1.854,36
4.965,29
51,25
4.914,04
85,69%
0,67%

Source. Based on data from Argentina. Presidencia de la Nación. Ministerio de Agricultura, Ganadería y Pesca, based on data of the Instituto Nacional de Estadísticas y Censos (INDEC) (2011).

 

Figure 1                                                                             Figure 2

Argentina-China, bilateral trade 2005-2010                              Argentina-China, bilateral trade 2005-2010

(total trade)                                                                                 (agro-industrial trade)


Source: Own elaboration based on data from: Argentina. Presidencia de la Nación. Ministerio de Agricultura, Ganadería y Pesca,; based on data of the Instituto Nacional de Estadísticas y Censos (INDEC) (2011, March).

Brazil exports over 30% of soy complex products to China, whereas Argentina exports toward this kind of products is much more pronounced (73%), which constitutes a dependence on soybean exports and even a Chinese dependence, provoked basically by landowners and export companies, and the Argentine ruling class in general. the Inter-American Development Bank estimated “in 2002, soybean accounted for 25% of Argentine exports, mainly to China and other countries in Asia. Argentina has become highly dependent on the Chinese soybean market, which is not exactly stable”(Cornejo, R., 2005, October 12-13).

In fact, exportation of soybeans and soybean products has become a symbol of both the potential and the external vulnerability of Argentina: in December 2011, the demand and prices of these products were not so dependent on domestic needs as of the evolution of the economic crisis in Europe, the reduction in planted area and United States exports, and the potential impact that the brake of the two economies could have on China's development (Colombres, M., 2011, December 9).

Néstor Kirchner as president of Argentina travelled to Beijing in November 2004, where he signed a Memorandum of Understanding on cooperation in trade and investment between Argentina and the PRC. According to the document, in five years the annual value of Argentine exports would increase by 4 billion dollars over the current level. But, as the volumes exported to the PRC are concentrated in the soybean complex, this clause would only reaffirm the primary-export profile of Argentina (Oviedo E., 2006). The so-called “production model” in place since 2003, based on a high exchange rate, while allowed some recovery in industrial local activity —not necessarily national, also strengthened the great agrarian business, making it strategic as main provider of foreign exchange; at the same time, the large devaluation operated in 2002 and the accelerated inflation depreciated business costs.

The process of “selective deindustrialization” and re-primarization of the economy —as at the time ECLAC called the Latin America return to the agro-mining specialization for export, feature of colonial and post-colonial period, now stimulated by the “strategic partnership” with China, is not unique to Argentina. The same sliding into “agrarianization” and “mineralization” of production affects many other “Third World” countries like Mexico and the China's allies of the BRICS group as Brazil and South Africa (Dussel Peters, E., 2009).

Specifying the above, in 2010 some soy complex products (beans and soybean oil) accounted for 89.6% of Argentine agricultural exports to China, as shown on Table 3. Argentina already is, in addition, the second largest producer of biodiesel, made from soybean oil (Genoud, D., 2011, September 29).

 

Table 3. Chinese Imports of Agricultural Products from Argentina, 2008–2010 (million dollars and percent of total)
Rank 2010
Description
2008
2009
2010
 
 
Value
Share %
Value
Share %
Value
Share %
 
Total Chinese agricultural
imports from Argentina
8.425
 
3.487,9
 
5.705,6
 
1
Soybean
5.803,5
68,9
1.650,3
47,3
4.977,8
87,2
2
2 Frozen chicken claw
204,6
2,4
73,7
2,1
170,0
3,0
3
3 Crude soybean oil
2.205,0
26,2
1.408,3
40,4
136,2
2,4
4
4 Crude sunflower oil
4,3
--
111,7
3,2
98,0
1,7

Source. Based on Agricultural Department of the Embassy of Argentina in the PRC (2011).

 

The expansion of Genetically Modified (GM) soy stressed also the landowner nature of land tenure and use. “Sowing pools” in the hands of powerful National and International consortia increased their effective control of large fertile areas, with the consequent expulsion of farmers from direct production and increasing depopulation of the countryside. The steep increase in land prices due to demand for land for oilseed (the value of a hectare in the Pampas almost quadrupled in the last decade) contributed to the process of expulsion-concentration. Furthermore, also in part under the influence of soybean expansion, 17 million hectares across the country were in foreign hands already in 2001 (INDEC, Censo Nacional Agropecuario, 2001).

At the concentration of land ownership and agricultural production adds that of the merchandising of the production of soy and its derivatives, which is controlled by a small core of companies. And as happened a century ago with Argentine meat exports, foreign sales are concentrated in a handful of large foreign corporations. In 1998-2010 the share of the top five export consortia leapt from 33% to 84 % of total sales. In the case of grain exports, in the same period the share of business controlled by the five major exporters increased from 51% to 70%. And the foreign ownership also deepened: while in 1988 there were cooperative entities and national owned firms (Federación Argentina de Cooperativas Agrarias, Agricultores Federados Argentinos), in 2010 the dome was composed entirely of exporting foreign monopolies (Cargill, Toepfer, Bunge, Argentina ADM and Dreyfus) (Ortiz, R. and Pérez, P., 2011, May).

 

Chinese investment in strategic economic areas

 
The strong flow of investment from State and private companies from China to Argentina, which took place in less than a decade, is the correlation, as we have seen, of an equally strong intensification of the exchange. Chinese investment in Argentina has been directed, as in most countries of the region, to areas of production and services directly related to exports to China, including railways, oil, iron and soybeans.

The Chinese capital inflow in Argentina shows similar characteristics to those originating in other major powers over the country's contemporary history. The representatives of private or state capital of the Asian power systematically used the tremendous importance of the Chinese market to establish permanent links with sectors of local landowners and capitalists and government officials at National, provincial and municipal levels and to get —through these links, conditions of privilege (tax breaks, land grants, government investments in complementary works necessary for foreign undertaking, etc.). Under these benefits, a significant portion of the funds that are nominally shown as foreign investment, are in fact financed with internal resources.

Similar to other countries in Latin America, Africa and Asia, the Chinese investor interest in Argentina is directly linked to the needs of its industrial and commercial rapid expansion, and is primarily intended to extractive branches (oil and mining), infrastructure linked to exports toward the Asian country (railways, harbors), the financial area (banking, financing of projects related to Chinese capitals), domestic trade and other areas. In recent years, large Chinese corporations also directed their investments to control—not necessarily by buying—of large tracts of public lands leased to private producers for the production of foods directed totally to exportation to China. Key sectors of Argentina's economy began thus to be adapted to the strategic interests of State and private corporations of the Asian power.

In late 2010, public or private consortia of China had already gained a foothold in the 23 provinces of Argentina (Eleisegui, P., 2010, December 2). Their interests are focused on obtaining iron, lithium, wood, and food products like rice and snuff in the north-northwest of the country, soy and derivatives –such as soybean oil--, biodiesel and cattle in the Pampas region, mining in the area Cuyo (west), wood and food on the coast (east), and petroleum, iron, gas and land for soybean in Patagonia (south). Chinese supermarkets were installed in 21 of the 23 provinces.

A brief and partial summary of the progress of China's financial capital in key areas of Argentina's economy —energy, mining and transport— in recent years provides a measure of the rapid pace of the deepening “strategic partnership” of significant groups of the Argentine ruling classes with the Chinese monopoly bourgeoisie, as well as of the traits that is acquiring this association.

 

China's strong interest in energy resources of Argentina became even more intense since the government of Néstor Kirchner established a "strategic partnership" with the Asian power in 2004. In April 2012 the Argentine government announced the nationalization of 51 % of the shares of the major oil company in the country, the formerly state-owned Yacimientos Petrolíferos Fiscales (YPF), which were in hands of the Spanish Repsol since former President Menem privatized it in the nineties. This is not a nationalization of the oil industry: all other companies in this business remain in hands of foreign interests or associated with them (Olivera, F., 2012, July 12). Repsol itself holds 6% of its shares in YPF, and the Eskenazi family group initially retained 25% of the company. In 2007 and 2011 the Eskenazi Group had acquired the above-mentioned important shares portion with the backing of the Kirchner administration, and with loans from Crédit Suisse Bank and from Repsol itself, in exchange for official approval so that it could take100% of profits and to allow shareholders to distribute the benefits without making investments in Argentina. That way the South American country in a few years transformed from being an exporter to becoming an importer of energy, and by 2011 the import of fuels ended the country's trade surplus.

Despite the proclamation of an alleged recovery of the "energy sovereignty" for Argentina, the government operation seemed to point rather to a reconfiguration of alliances and of interests of foreign corporations in the oil business in Argentina: in fact, in June 2012 the Mexican group of Carlos Slim acquired 8.4% of the shares corresponding to the Eskenazi family, unable to pay its debt. But well before this, Chinese state corporations had shown their interest in advancing this field.

In 2009, two Chinese companies, China National Offshore Oil Corporation (CNOOC), China's largest producer of offshore oil, and China Petrochemical Corporation (SINOPEC), offered 17 billion dollars for the entire stake of Repsol-YPF (La Nación, 2009, August 11). In 2011, CNOOC tried to purchase in 7 billion dollars the British Petroleum's assets in Argentina, but the operation was not completed, as it will be referred below.

On April 10, 2012, just days before the official announcement of the partial "nationalization" of Repsol Argentina, CNOOC made a new offer for YPF, but now, due to the lower price caused by the Argentine government's announcement, the offer was 12 billion dollars (20% lower than a year earlier) (elconfidencial.com, 2012, April 10). In 2011, CNOOC earnings were 30 billion dollars, 2.5 times the amount offered for the purchase of YPF and 70% of Argentina's international reserves. If CNOOC had bought YPF, the Chinese capital would control 60% of the country's oil business. Analysts say the rapid removal of concessions to Repsol by several Argentine provinces could be a gateway to signing agreements between these provinces and CNOOC, which would provide financing and technology to put them back into production, with the Chinese corporation gradually occupying space Repsol left empty (Doudchitzky, Y., 2012, April 16). Although SINOPEC has also expressed its interest in YPF, CNOOC has an advantage because the company is a partner in the Bridas company of the Bulgheroni group, which is very close to the Kirchner government.

In November 2011, the sale of 60% stake that British Petroleum (BP) had in the multinational Pan American Energy (PAE), agreed several months in advance at about 7,000 million dollars to the company Bridas, was frustrated (La Nación, 2011, November 7). The remaining 40% of PAE has been for more than a decade in the hands of Bridas, a holding owned 50% by brothers Carlos and Alejandro Bulgheroni of Argentina --associated for many years with Russian interests in Argentina and in Turkmenistan and Uzbekistan, former Soviet countries of Central Asia--. The remaining 50% is owned by CNOOC, since March 2010. The operation would have been the largest deal in Argentina's oil industry in recent years.

The granting of Cerro Dragón field, the most productive in the country, originally owned by YPF, has been awarded to PAE (BP-Bridas) for a period of 20 years by former President Carlos Menem in 1997. By then, the British-Argentine company started to control 18% of local production of gas and oil. At that time the National government negotiated with some provincial governments --especially those of Salta, Neuquén, and Santa Cruz (then ruled by Néstor Kirchner)-- the privatization of large public companies and the granting of shares of oil company YPF (then state-owned), in exchange for the support of those governments to a second reelection of the president, and for the promise of giving the exploitation of underground resources to provincial governments. The concession of Cerro Dragón to PAE, maturing in 2017, was extended with a striking anticipation of 10 years to maturity and without public bidding, through an agree of provincial governments of Chubut and Santa Cruz (led by Mario Das Neves and Daniel Peralta respectively) and the National government of Néstor Kirchner in May 2007: the original contract was extended to 40 years (until 2047, when the estimated reserve of Cerro Dragón would be virtually extinct). CNOOC, associated with PAE through the Bridas group, then benefited from that extension (Solari Yrigoyen, 2010, October).

The frustration of the agreement with CNOOC to acquire the shares of BP in PAE, whose causes were not sufficiently clarified, may be only a temporary suspension, as both parties recognized the continuity of the negotiations.

The agreement was sealed in November 2010 and its completion was delayed several times. The reasons given were varied. According to media reports, BP would have finally abandoned the transaction because the fine imposed by the United States as a result of the oil spill in the Gulf of Mexico –supposed reason of the sale, was lower than expected. Moreover, the government of Cristina Fernández Kirchner did not authorize the Bulgheroni's, partners of the Chinese CNOOC, to effectuate the purchase; in fact the operation was not approved by the National Antitrust Commission (Clarín, 2011, November 6). May be this were other kinds of measures and countermeasures taken by the two governments, from the anti-dumping restrictions adopted by Argentina in 2010 against imports from China). The failure of the agreement was also associated with a recent decision by the Argentine government, which, in order to prevent further falls in dollar reserves, forced oil companies to liquidate at the country 100% of the foreign exchange generated by exports (América Economía, 2011, November, 6). It was also suggested the existence of internal resistance in the Argentine government in front of the growth of the Chinese company in the local oil business.

The interruption of the operation surprised analysts since the Chinese Xinhua had announced, a month before, the investment of one billion dollars in exploration, drilling, facilities and the like, considering the acquisition materialized (Xinhua, 2011, October 13). Given the Argentine government's prolific relationship with British interests in such fields as finance, mining and oil, it should also be noted the potential impact of the report that the United Kingdom National Defense Association (UKNDA) issued a few weeks before the collapse of the agreement in late September 2011, under the sponsorship of five retired members of the Military Naval and Air Forces of Great Britain. The document considered that the peaceful attitude that Argentina maintained in recent years on the Malvinas (Falkland) Islands issue "may change from night to morning" that these territories are "a ripe plum waiting to be taken" by Argentina with the aid from China, "his ally", and that the newly found oil in the area makes the Malvinas (Falkland) Islands even more attractive, especially for China (China.org, 2011, September 28). The declaration could be an answer to China's support for Argentina's claim of sovereignty over those territories, following statements by the British Defense Minister, Liam Fox, who warned that his country could use naval power to secure the occupation of the islands (La Nación, 2011, June 27). Argentine-British relations became turbid in those days in respect to the historic colonial question of the Malvinas (Falkland) Islands: Argentina received the explicit support of the member countries of the "Group of 77" and of China.

PAE, the second oil company in Argentina, is still a society participated by 60% British share capital (British Petroleum), 20% Russian-Argentine share capital (Bulgheroni), and the remaining 20% Chinese share capitals (CNOOC), managed by the Bulgheroni brothers (Bridas).

Moreover, despite repeated friction between the government and oil companies on oil production, price and supply of fuels, the Chinese-Argentine company Bridas assured the acquisition of the local subsidiary of Exxon Mobil, for 800 million dollars. The agreement includes the transfer of a refinery in the town of Campana (Buenos Aires province), a lubricants plant, three fuel distribution terminals and a network of over 500 stations. With the purchase of Esso Argentina, the Chinese-Argentine Bridas took control of 13.7% of the market for fuels and diesel, plus 17% it has in the production of oil and natural gas by participating in PAE. So, Bridas occupies the second place as an integrated oil group in Argentina, behind Repsol-YPF.

The operations described above show the powerful impact of Chinese share capital in the Argentine oil sector. These perspectives were increased from the above-mentioned association of State-owned CNOOC with Bridas and BP in the consortium PAE. The Bulgheroni family, which owns 50% of Bridas, thereby joined the mighty sector of Argentine bourgeoisie associated to private or State capital of China.

When the alliance Bridas-CNOOC was sealed, the president of the Chinese corporation, Yang Hua, pronounced these significant words: "Bridas, with a portfolio of global assets in oil and gas, it is a very good top place for us to enter in Latin America" (La Voz de San Carlos, 2010, March 15). If it had finalized the total transfer of PAE to Bridas, China's CNOOC would have controlled 80% of one of the major oil companies in Argentina.

Precisely with the brokering of Bridas —through Carlos Bulgheroni, one of the owners of the company, new contacts took place between YPF and CNOOC in late June 2012. According to news reports, CNOOC confirmed its interest in investing in Argentine oil, but with four conditions that would notoriously limit the ability of decision-making on National resources: 1) the updating of local prices to align with international ones – for example, considering oil a commodity as any other and not a strategic good related to National sovereignty in energy--, 2) security in Argentine assets (possibly the production of the field Vaca Muerta, in the province of Neuquén), 3) absolute freedom to export oil and gas extracted in Argentina, and 4) an agreement for the transfer of profits abroad (La Nación, 2012, July 10).

In April 2011 China's SINOPEC Corporation purchased the Argentine unit of Occidental Petroleum (Oxy), participating in 23 exploration and production concessions in Santa Cruz, Mendoza and Chubut, with proven and probable reserves of 393 million barrels. According to the company, the production of these fields is over 51,000 barrels per day, 1% of Chinese oil imports. Oxy's concessions in Santa Cruz should mature in 2017, but the company had already obtained its extension. In this southern province —and territory of political origin of Presidents Néstor and Cristina Kirchner, the now Chinese-owned Oxy (Occidental Argentina Exploration and Production) is one of the largest producers of crude oil in the country (Observatorio Petrolero Sur, 2011, February 24).

With the acquisitions of local assets already made by the Chinese state oil companies CNOOC and SINOPEC, China rose from 29th to 3rd place among foreign investors in Argentina. According to analysts, from April to October 2011, China's share in the Argentine oil business rose from 5% to over 30% (Doudchitzky, Y., 2011, October, 26). So, China is firmly positioned among the powers that have strong interests and compete to expand their spheres of influence in the field of energy production in Argentina and the region.

In January 2011, the company Tierra del Fuego Energía y Química SA (TFEyQ) —name under which the Shaanxi Coal and Chemical Industry Group operates in Argentina (70% owned by the Chinese state)-- and the Ministry of Industry of the southern Province Tierra del Fuego, announced the agreement by which the former will invest one billion dollars in two years in building a plant to manufacture fertilizers, a power plant that will supply this factory, and its own harbor in the province. Local construction company Roggio runs these works. The Chinese company will benefit from tax exemptions provided by law for industrial promotion in the province, in addition to tax concessions enjoyed by Patagonian harbors, as it will be addressed below. The local government is committed to providing the company with 1.5 million cubic meters of gas, basic input for the urea plant, at a price five times lower than the market one, with the only condition that the company to pays the volume of gas involved two years in advance (La Nación, 2011, March 6).

In terms of mining exploitation, the Argentine government has actively been encouraging Chinese companies to join American, Australian and Canadian share capitals currently prevailing in that field.

The immediate background of the Chinese arrival to large mining activities in the Andean provinces is the agreement signed in January 2010 in Beijing with several Chinese companies by Argentine Secretary of the Mining —and entrepreneur in this industry, Jorge Mayoral. The signing of the agreement occurred at a meeting entitled “Argentina Mining: Investment Opportunities”, organized by the Ministry of Planning and Public Investment of Argentina and the Ministry of Natural Resources of China, to offer investment opportunities to Chinese corporations that exploit gold, uranium, potassium borate, lithium and copper mining (Ministerio de Planificación Federal, 2012, November 12).

In the province of Rio Negro (center-south), the Chinese company Metallurgical Corporation of China (MCC) operates the ferriferous mine of Sierra Grande. This is the largest iron mine in Argentina, the once historic enterprise Hipasam (Hierro Patagónico Sociedad Anónima Minera), assigned to the Chinese corporation in 2005 for reactivation, by then Governor Miguel Saiz, backed by the National government. This was the first major investment of Chinese capital in Argentina. In the town of Sierra Grande employment increased; in return, the concession contract granted to MCC the facilities and underground wealth for 99 years or until the ore runs out, in exchange for only 6 million dollars and 2% of gross production as royalties. There are proved reserves to extract iron for at least 50 years (Río Negro, 2009, January 26; Grupo de Reflexión Rural, 2011, February 4).

Along with those easy terms, MCC got the harbor Punta Colorada, whose exports benefit from tax concessions enjoyed by Patagonian harbors. At National level, mineral exports pay a paltry 3% royalty, but in Patagonian harbors only pay a fee of 1%. The Chinese company, like all foreign mining ones, benefits from the mining laws enacted by the neoliberal government of Carlos Menem, now in effect, that exempted those companies from payment of municipal and provincial taxes during the first 5 years and fix the tax burden for 30 years. The royalties paid to the State are calculated based on what the companies declare, without an audit by the State. Those companies do not pay import duties or customs duties, and they can transfer 100% of their capital and profits abroad (Laufer, R., 2012-2013).

In July 2010 the governor of the province of La Rioja (northwest), Luis Beder Herrera, was part of the entourage of President Cristina Fernández Kirchner on her trip to Beijing, and in November he visited the Shandong Province in China. In March 2011 the governor travelled to La Rioja to implement an agreement signed between the government of this province and the Chinese company Shandong Gold to explore gold mines in Famatina.

La Rioja, with varied proven mineral reserves in its territory, remains one of the provinces with highest poverty rates in Argentina. Shandong Gold is a part of Shandong Group, a giant holding company with businesses and interests in different fields, including real estate. It is one of the four largest mining corporations in the world: it handles 40% of gold produced in China, and listed on the Shanghai Gold Exchange. It should be recalled that China is the largest gold producer in the world and the second largest consumer worldwide.

A year before said agreement, the residents of the towns of Chilecito, Famatina and La Rioja (capital of La Rioja province) had constituted the so-called Citizens Assemblies, and performed protests and blockades in the road to Mina El Oro, located in the Famatina mountain —about 30 km from Chilecito city, in the northern part of the province— to preventively avoid the passage of mining vehicles, as part of a long struggle in defense of the country's natural resources and against open-pit mining. Previously, the movement had led to failure the landing in the region of Barrick Gold, “of diffuse capitals and Canadian appearance”, as some analysts described (La vaca, 2010, March 25), and later the one of the Shandong Gold itself. At present it can be argued that the movement culminates a new chapter of great popular movements, getting the suspension of similar agreements that the provincial leader, Luis Beder Herrera, signed with the Canadian Osisko Mining, after passing the law, while he was governor of the province, banning the open-pit mining, which he had promoted in his campaign a few months earlier (Perfil, 2012, January 27).

Another outcome of the meeting mentioned was the mining agreement between the government of the northern province of Jujuy with the Chinese consortium Sanhe Hopefull Grain & Oil Group, associated with the group Sociedad Macri (Socma, based in Argentina, owned by Franco Macri) in the railway Belgrano Cargas. On the occasion, the Secretary of Mining, Jorge Mayoral, on behalf of the National government, also applauded an investment of the Chinese company MCC —which operates the aforementioned project of iron mining of Sierra Grande in the province of Rio Negro, for starting the running of mining exploration activities in the province of San Juan (west)[3].

In occasion of his visit to Buenos Aires in late June 2012, Chinese Premier Wen Jiabao reaffirmed the strategic partnership with Argentina, and he also granted a loan from the Industrial and Commercial Bank of China to finance the reactivation of the Belgrano Cargas railroad. The investment would reach about 2,500 million dollars in four years to rehabilitate 1,400 kilometers of track, 50 locomotives and 2,550 wagons.

In accordance with the variety of resources both the Chinese government and private corporations are intended to attract, they try to ensure logistics for their extraction and their internal and external transport. The June 2012 agreement reactivated or updated other agreements by nearly 10 billion dollars in loans and investments for the provision of rolling stock (locomotives, wagons and even rails) signed during the trip of President Cristina Fernández Kirchner to China in July 2010. As agreed then, a substantial portion of the loan would be used so that Argentina purchases equipment and technology to state-owned enterprises China Northern Railway and China Southern Railway for the Belgrano Cargas railway, including the renewal of said extension of rails (which once were manufactured by the domestic steel industry). Chinese Banks China National Machinery & Equipment Import & Export Corp. and Development Bank Corp. would be responsible for 85% of the funding (Scalabrini Ortiz, M., 2011, May)[4]. Despite the exponential growth of bilateral trade, the project was never launched, either because of difficulties of Argentina to contribute to the remaining 15% of funding, due the economic, financial and monetary crisis affecting the country by rebound from the world crisis (Castro, J., 2012, June 12), or either because the Chinese government linked the performance of the agreement with the evolution of its claims against Argentine trade restrictions on imports from China. According to the above-mentioned analyst, probably the Chinese vice president proposed to the president of Argentina a formula to include also the 15% shortfall in financing the Belgrano Cargas corresponding to the Latin American country. This would involve the corresponding increase of Argentina's debt with its partner. But also, as with other powers, the main role of Chinese banks is not to grant the loan, but to set the conditions to be met by the host country, and to make sure that equipment and technology is being provided by China.

This is a strategic railway line. In 2004 the government of Néstor Kirchner granted the company to the Macri group, partner in the consortium with the Chinese group Shima Sanhe Hopeful Grain & Oil, along with some major business groups and a selected group of union leaders. Franco Macri was the founder of one of two Argentine-Chinese chambers of commerce, then merged. In 2006 the Chinese government appointed investment adviser for all of Latin America. In that same year he had served as intermediary of the Chinese state-owned Guodian for joint projects between Socma (Sociedad Macri) and the Argentinean government and provinces in various types of energy (hydroelectric, wind, thermal and generated by natural gas and coal), as with other Chinese companies for projects in electricity and rail infrastructure and improvement of ports[5].

The agreements of 2010 also included the electrification of a railway line between the cities of La Plata and Buenos Aires. It was a total of ten projects for a period of two to five years, with purchases of equipment to China and Chinese investments in Argentina. The agreed acquisitions would be financed by Citic, a Chinese financial holding having the entrepreneur Franco Macri as “trader” on commission. It is intended for financing and payment of commission, estimated at 4% —i.e. 400 million dollars—what could have been devoted to a systematic National plan for full recovery of activity and the rail industry in state hands (Cena, J.C., 2010, July 30).

The Belgrano Cargas is a vital structure for the transport of raw materials, as it crosses several provinces of central and northern Argentina. It has stations at ports of Barranqueras, Rosario and Buenos Aires and connects through Bolivia and northern Chile with the exit to the Pacific Ocean. Ernesto Fernandez Taboada, director of the Chamber of Production, Industry and Commerce Argentine-China, said: “Beijing considers logistics and transportation of grains as a strategic issue, which is why they come to invest in Argentina.” (Eleisegui, P., and Pdeqdigital.com). Businessman Carlos Spadone chairs this Chamber, and Franco Macri, one of the grantees of that railway line, is honorary chairman.

The role of the Belgrano Cargas, which ensures the exit of Argentine agricultural production, specially soy, to the Asian country, now reinforced with the participation of China, follows the same logic of the installation of British railways in late 19th and early 20th century in Argentina. This consolidated an international division of labor in which the South American country is again specialized in the production of exportable commodities and the import of capital and of industrial goods. In this role local participation plays a key role: an intermediary role that is exercised internally, in this case through business group headed by Sociedad Macri (Socma) and its Chinese partner Sanhe Hopefull Grain & Oil.

 

 Conclusion

 To the rhythm of the rapid expansion of commercial interests, industrialists and financiers of China in Argentina have been consolidating their economic and political links with sections of the ruling classes of the country. The mode of international integration of Argentina is undergoing profound changes with the emergence of significant fractions of those classes that are linked to state and private economic groups of the Asian power. This refers particularly to the great landowners and the entrepreneurs linked to the foreign capital.

Chinese leaders stress that their industrial economy is complementary to the economies of the region. They describe commercial links and the establishment of capitals from the Asian power in Latin American economies as an opportunity that would enable countries in the region to develop their products, diversify exports, give autonomy to their International Relations and reduce their foreign debt. In correspondence, some leadership sectors of Argentina and other Latin American countries promote the adaptation of National and regional economies to the complementarity with China, and in this direction operate politically from within and outside governments.

China has become one of the new emerging powers that are competing for preferences and alliances of the ruling classes in Argentina. This affects economic and political developments of the country and emphasizes conflicts of interests of different powers to gain influent positions over the basic resources of the economy and state structures. The successive alliances with hegemonic or rising powers (Ciafardini H., 1990) reinforced the traits of dependency and backwardness that were in the background of gestation and burst of the deeper economic, social and political crisis of the Argentine history in 2001.

Latin American countries have developed similar modes of International insertion in the world, which recently have been shifting towards China; and Argentina is not the exception to the rule. Their heterodoxy in International Relations do not consist of prospects of autonomy but they are intended to untie American influence through a growing attachment to the rising world power: a mode of International relations, as discussed above, which perpetuates characteristic structures of a more traditional International division of labor that, according to historical experience, has not contributed to the independence of Latin American nations but, at best, to a displacement of dependencies.

The strategic partnership with China is usually presented in terms of opportunities and challenges. The growth of a middle class in the most populous country on earth is considered a great opportunity to “Argentina to integrate supply chains” centered on China. For resource-rich countries such as Argentina, the prospect of economic development would intend that the country becomes a major trading partner of the Asian power ensuring the provision of energy, industrial supplies and food. At the same time this way of developing would pose the challenge of trying to sell to China not only commodities but also processed products that add value to agricultural capacity of Argentina, and the need to face the invasion of the domestic market by products manufactured by the Asian power. However, dependence of the purchaser market, in contrast, opens the way both to the demand of opening the National market and could generate possible trade pressures through the restrictions of the Chinese buyer market. At the same time, this dependence reinforces the tendency of some sectors of the local elites to consolidate the primary-export specialization.

The modality of Chinese investments in the region, meanwhile, does not differ substantially from the ones of previous dominant powers in relation to Latin American countries: its central purpose is to serve the needs of industrial development in China by facilitating accumulation of profits and the production, transport and export of raw materials and food to the Asian country, that often requires that the substantial part of the project and the needed materials and services be performed and provided by China (Lum, T., 2009, November 25).

The promise of a comprehensive and lasting market and a significant supply of capital is the incentive that drives large sectors of local landowners and capitalists to associate with the rising power and to become their domestic intermediaries. On this basis they promote the re-orientation of the country's external relations towards the new privileged partner, sometimes in a complex web of rivalries and alliances with sectors of the ruling classes linked to other economic and political centers. This was shown in Argentina, for example, with the aforementioned struggle between British interests, Chinese and others who make up society CNOOC-Bridas-BP in the oil company PAE, and its political manifestations through the strong ties of these groups with the national government and that of the province of Chubut.

As in the rest of Latin America, currently strategic partnership with the rising Chinese capitalism seems to offer no basis for a National economic development, independent and self-sustaining. As warn in a recent publication on China-Latin American relations, two scholars of the regional reality affirm: “Despite the readiness of Chinese enterprises to invest in Latin American infrastructure, the prevailing exchange of the region’s natural resources for Chinese consumer products—the very exchange that Chinese investment seeks to deepen—is unlikely to provide a sustainable path of development” (León-Manríquez, J. L. and Hearn, A. H., 2011, p. 286). For this very reason, this way of International insertion thus carries no prospects for greater autonomy but, at most, a diversification or reorientation of economic and political dependencies and recreation of a “special connection” with a new global hegemon: a path, as proves the historical experience, divergent or opposite to the ancient and recurrent efforts in favor of a course of development and integration of Latin America based on criteria of independence and cooperation, not oriented to the benefit of the popular majorities and of the capacity of sovereign decision by the Nations of the region.

 

About the author

Rubén Laufer is a graduate in History in the Universidad de Buenos Aires (U.B.A., Argentina). He teaches at the undergraduate and graduate levels in the Faculties of Economics, of Social Sciences and of Philosophy at the U.B.A. He’s a researcher at the Institute of Historical, Economic, Social and International Studies (IDEHESI) and of the Program of Studies in History of International Relations of Latin America (PEHRIAL).

 

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[1] In Argentina, when intensive planting of soybean began —in the early1990, 5 million hectares were cultivated.
[2] The figures vary greatly from other sources. A study by the Institute for the Study of Argentina and Latin American Reality (IERAL) under the Mediterranean Foundation, estimates that the revenue from export duties would be reduced by 770 million over the previous year's level.
[3] In his book El mal: el modelo K y la Barrick Gold. Amos y servidores en el saqueo de la Argentina (2011), the investigative journalist and former government deputy Miguel Bonasso denounces the murky origins of this mining corporation and its close ties with that company, among other politicians and officials of the country, the National Mining Secretary, Jorge Mayoral, and the governor of the province of San Juan, José Luis Gioja.
[4] See also Doudchitzky, Y. (2011, November 9). “Todos los caminos conducen a China”, Zaichina.
[5] In 2008 Franco Macri, as representative of the Chinese government corporation Citic in Argentina, reached an agreement with the then Transport Secretary Ricardo Jaime for the purchase of Chinese subway cars, a situation currently under judicial investigation over the payment of over-prices with false invoices or payments to “ghost companies”. The Chinese company is also a financing bank, and it provides part of the millionaire funding for purchases of rolling stock that the Argentine government agreed during the presidential visit in July 2010.