China said to be exploiting Western timidity to boost interests in Chile

The last few weeks have been busy ones for Chinese investors in Chile, as firms from the Asian country take advantage of the more cautious attitude of Western investors, whose confidence and spending power has been undermined by the COVID-19 pandemic.

On November 13 State Grid closed the US$3bn acquisition of Chilean power distributor CGE, which would give the Chinese firm control of two of Chile’s four biggest electricity distribution companies, serving 57% of regulated consumers, or some 3.74mn clients.

Later last month, China Railway Construction Corporation (CRCC) also made the lowest bid for the new concession of the Talca-Chillán stretch of the key Ruta 5 north-south highway, putting it in pole position to be awarded the US$804mn highway contract.

And this week a consortium compromising CRCC and Sifang was awarded a US$70mn contract to provide six new trains for the Santiago Alameda-Chillán rail service – the second rolling stock contract awarded to the consortium in the country.

During the first half of this year, Chinese investments in active projects in Chile totaled US$4.6bn, according to investment promotion agency InvestChile, a figure already very close to the US$4.9bn reported during the whole of 2019.

Of that US$4.6bn, five energy projects accounted for US$2.8bn, while three projects in the food sector involved another US$1bn.

The Asian country is also looking forward to taking part in Chile’s US$14bn infrastructure concessions program, the head of the Chile-Chinese chamber of commerce, industry and tourism (CHICIT), Juan Esteban Musalem, told BNamericas.

This interest was formalized a couple of months ago when China Construction Bank’s agency in Chile sent a letter to local authorities signed by representatives of various Chinese firms with arms in the South American country to express their intention to participate in future tenders, Musalem added.

Besides infrastructure, Chinese firms are also looking at the energy sector, as shown with the CGE purchase. “We can also mention the agricultural sector, where Chinese companies are already exploring projects related to potable water, irrigation and reservoirs,” Musalém pointed out.

It should be noted that the first infrastructure concession awarded to a Chinese firm in Chile was the US$151mn Las Palmas water reservoir in 2018.

CURRENT TRENDS

The willingness of China to invest in Chile during a pandemic is not surprising, since the COVID-19 crisis has “functioned to deliver new trends in the organization of global industry that were being formulated a long time ago,” Samuel Ortiz, economics professor at Mexico’s Universidad Nacional Autónoma (UNAM) told BNamericas.

China’s investments in Chile have already been on the rise since 2017, something that Andrés Bórquez, coordinator of the Chinese studies program at Universidad de Chile, attributes to the fact that the country started receiving attention a little later than the rest of the region.

“Chile didn’t participate in the first Chinese investment boom in the region [2005-2016],” Bórquez said, explaining that, at the time, Chinese investors were more focused on natural resources sectors that, in the case of Chile, had already received major investments from North America, Europe and Japan.

“In other words, China arrived at a different time,” he says, adding that the current investment wave is more focused on infrastructure, energy, agriculture and telecommunications.

InvestChile’s figures show that in 2016 China only invested US$310mn in its project portfolio, a number that jumped to US$4.8bn last year, making the Asian country the biggest overall foreign investor. 

The current investments can also be explained by the fact that some Western investors are pulling out of assets thought to be riskier during the pandemic and Chinese investors are taking the opportunity to move in and acquire them, according to Boston University Senior Academic Researcher Rebecca Ray.

This situation was also seen after the 2008-9 financial crisis, as “China’s economic cycles don’t necessarily align with Western cycles,” Ray told BNamericas.

However, she also noted that “we don’t see them taking risks on brand new projects,” as most of their investments in Latin America have been focused on acquisitions.

“This tells us that it’s not necessarily that China is intentionally expanding its presence in Latin America, but rather acting opportunistically, like any business would when they have money to buy assets when other companies are trying to sell theirs off,” Ray added.

However, Bórquez points out that this could change in the long term, giving way to the creation of new businesses in Chile with Chinese financing.

Another aspect Ray noted was the fact that 80% of Chinese investments in the region come from state-owned firms that are not traded on stock markets and which are therefore are not subject to profit requirements, giving them more financial leeway in times when other firms would prefer to protect their bottom lines.

She even ruled out the likelihood of recent socio-political changes in Chile, which are leading to the creation of a new constitution, altering China’s plans in the country. “They know that their assets will still be there,” regardless of how the constitution ends up, Ray said.

On a similar note, CHICIT’s Musalém noted that “perspectives  [for Chile] are extraordinarily positive,” highlighting its macroeconomic stability and position as a potential gateway for investors in Latin America.

The head of InvestChile, Juan Araya Allende, agreed. He said that the agency has also been working with Chinese investors during the pandemic. “What we see is a lot of confidence in the country on the part of Chinese companies,” he told BNamericas.

CONCERNS

Samuel Ortiz considers that the heavy presence of Chinse state-owned companies is not necessarily positive, as “in the short term, that investment doesn’t contribute to increase capital stock or create new jobs in the region.”

Another concern for him is the continued focus on commodities, which seems more prevalent in places like Chile, Peru, Brazil and Argentina.

Given that most of these investments are made by state-owned firms, he says, “you can argue that behind Chinese investments there’s a development strategy on the part of the Chinese government that sees Latin America and the Caribbean as a raw material provider,” he said.