China’s interest in Chile strong despite COVID, trade war

Chile remains a highly attractive destination for Chinese investors even after the double hit from the trade war between Beijing and the US and the economic fallout from COVID-19, especially now that Washington's relationship with Santiago is lagging, experts said during a webinar held by the Chile-Pacific Foundation and think-tank The Inter-American Dialogue.

From 2018, when the trade war began in earnest, China’s foreign direct investment in South America fell from nearly US$15bn to below US$5bn by 2020, hurt also by the pandemic, according to the American Enterprise Institute’s China Global Investment Tracker (CGIT).

However, in the case of Chile, while FDI did fall in 2019, it bounced back slightly in 2020 from US$2.33bn to US$3.0bn, despite the health crisis. 

Regarding investments of over US$100mn, the focus has been mostly on energy (48% of large transactions between 2005 and 2020) and mining/metals (45.5%), but for operations below US$100mn, the sectors are more diversified, according to Ignacio Tornero, affiliate researcher at Chile’s Pontifical Catholic University's (PUC) Institute of International Studies.

However, Tornero said that China’s interest in Chile is a “relatively late phenomenon,” as annual FDI remained below US$1bn until 2018, when it jumped to US$6.4bn mainly through two operations: The purchase of 24% of lithium and non-metallic miner SQM by Chinese firm Tianqi (US$4.1bn) and the acquisition of 27% of power transmission company Transelec by China State Grid (US$1.3bn).

Tornero said countries like Brazil and Peru started earlier with their strategies to attract Chinese investment, with Brazil doing so as early as 2004 and Peru in 2013.

He expects China to become a major player in Chile alongside traditional partners such as Spain and the US, but without replacing them, while also seeking to diversify its investments to agribusiness, infrastructure and technology.

The researcher also ruled out that the ongoing discussion surrounding a new constitution will weaken Chile’s position, as “if you look at Argentina, Mexico, Brazil, Chile still looks fantastic.”

When it comes to current interest, infrastructure and transport are starting to outpace energy and mining, according to Ernst & Young’s office in Chile.

Of the firm’s Chinese clients, 68% have experience investing in Latin America, and of those 95% consider Chile an attractive market, the highest of any country in the region.

Of those that haven’t invested in Latin America, 27% are “very interested” in doing so in Chile in the next three years.

“Chile is seen as an administration hub that allows [investors] to have an overall view of the Latin American market,” the business director of EY Chile’s Asia desk, Longyan Shen, told the webinar.

The main attraction, she said, is Chile’s institutional stability as “Chinese investors are always looking for security, for safety, order, and not to have any problems with local compliance.” 

During the same event, former president Eduardo Frei pointed out that the US is now running behind China when it comes not only to investments, but overall cooperation with Chile, as Washington hasn’t designated an ambassador to Santiago in three years. 

This is reflected in Chile’s vaccination campaign, with the country securing millions of doses through agreements with Beijing, which Frei credited to China’s “disposition.”

However, he said he hopes the Biden administration will try to regain ground in its relationship with Chile.