Chinese investment in Latin America--no longer business as usual.

Author:Price, John

An era of lavishly priced acquisitions of resource assets in Latin America by Chinese state-owned enterprises (SOEs) appears to have ended. China's engagement with the region will now chart a new course, one that is more diverse and transparent.

President Xi Jinping's corruption purge, that has toppled several high-ranking officials in Beijing, is also wreaking havoc on Chinese SOE overseas investments. With far less oversight than domestic investment projects, overseas oil and gas and mining rights became preferred channels for corruption in recent years. As investigations delve into projects around the globe, senior managers are being quietly recalled to Beijing to face tough questioning. Experts believe the purge will continue for another three years, casting a pall over natural resource investments by Chinese SOEs.

The end of the Chinese investment honeymoon is also triggered by a growing sense of disappointment in Beijing with Latin America's business climate. The Mexican high-speed rail procurement disaster illustrated to the Chinese an inability on behalf of Latin American presidents to follow up on promises made. Risking billions, Chinese SOE investors expect a high degree of certainty, something that Latin America's evolving democracy and weak rule of law cannot readily deliver. Maduro's homage to Beijing in May 2015, in search of a credit lifeline, yielded a blank stare from the Chinese.

Beijing is also wary of antagonizing the U.S. The American military's pivot to Asia and TPP negotiations that exclude China both point to a Sino containment policy. China cannot afford to jeopardize its most strategic and profitable bilateral relationship. Coupled with the fact that China has warmed to Russia for the first time in decades by extending a lifeline via a 10-year natural gas contract, it is no coincidence that President Xi Jinping announced a "silk road" policy. Chinese overseas investment and lending is to pay much closer attention to the former "Stan" republics and SE Asia. Some SOEs might prefer the commercial opportunities in Latin America to those found in China's orbit, but they still take their marching orders from politicians, not shareholders.

But in spite of these challenging trends of late, China is destined to invest in Latin America. The two economies complement one another nearly perfectly. Which is why Chinese leadership devised a new Latin American engagement called the "1+3+6 cooperation framework." "1" means one plan...

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