China has lent more money to Venezuela than any other country–$60 billion. When the two joined in an anti-U.S. union, both expected to benefit. Now, isolated by the world community, Venezuela’s bonds are in default and its economy is crashing. China has cooled on the relationship, and the United States may have an opportunity.
China’s rapid economic rise of the early 2000s opened the door to Chinese investment in resource-rich, developing nations. As a result, Beijing set up trade partnerships with countries in Central and South America, as well as the Caribbean—countries which have historically been within the U.S. sphere of influence.
In 1998, Hugo Chávez was elected as president of Venezuela and the left-wing Bolivarian Revolution, a socialist political movement, began. Chávez’s policy goals were called Chavismo and included nationalism, a centralized economy, a strong military, as well as an increase in public projects and price controls on food and other products. The socialist policies failed miserably, steadily eroding the country’s currency and its standard of living.
In 2003, China went to Latin America in search of oil. At that time, China Development Bank (CDB) began lending money to Venezuela, with loans backed by future oil deliveries. This created an economic boom in Venezuela. Very much like the Soviet Union in Cuba, decades before, Beijing was promoting Venezuela as the showcase of the benefits that developing countries could have by allying with China.
In addition to oil, the relationship between the two countries includes medical aid given to Venezuela during the pandemic, and Venezuela’s joining the Belt and Road Initiative (BRI, also known as “One Belt, One Road”).
By 2020, China had invested a great deal of money in Latin America: $29.8 billion in Brazil, $18.4 billion in Ecuador, and $16.9 billion in Argentina. China’s investments in Venezuela, $67.2 billion, had been by far the largest and equivalent to about half of its total investments in Latin America and the Caribbean region (LAC region). While the investments in other countries have paid off, the Venezuela investments have been in the red. Venezuela has breached its contracts with Beijing on various occasions, asked for extensions, and shown no signs of development.
China Stops Lending Money
The China-Venezuela dynamic was very much focused on a direct relationship with then-President Hugo Chávez. The death of Chávez in 2013, along with a crash in the oil market the following year, weakened the relationship and sent Venezuela’s economy into a nosedive. When it became apparent that Venezuela would never be able to stabilize or grow its economy to repay its loans, China stopped lending it money, although Venezuela remained China’s fourth-largest oil exporter.
Meanwhile, Xi Jinping’s new economic strategy includes the “dual circulation” system, whereby China turns inward, attempting to grow its economy based on internal consumption, rather than exports. This means that China is no longer actively growing its relationships with its trading partners, the way it had just a few years earlier.
After the death of Chavez, the Nicolás Maduro government came to power, eventually nullifying the National Assembly and arresting opposition leaders. The United States and other international observer nations claimed that the 2018 Venezuelan election was flawed. The Organization of American States (OAS) called Maduro a dictator, saying that his presidency was not legitimate. Most democracies, including the United States and the European Union, abstained from attending his inauguration. The event was attended by representatives of only a handful of nations, including communist Cuba and China.
The United States, the European Union, and Canada have all brought sanctions against Venezuela. The Chinese regime, which ignored the humanitarian crisis or lack of meaningful democracy and human rights in the country, circumvented international boycotts and replaced the United States as the largest purchaser of Venezuelan oil.
Venezuela has the world’s largest known oil reserves, but is plagued by hyperinflation and food shortages, high unemployment, disease, excessively high crime rate, hunger, high child mortality, as well as currency devaluations. As a result of the country’s crumbling standard of living, roughly 5.6 million Venezuelans have fled the country since 2015. The country went into default on its sovereign bonds in 2017.
The world community recognizes China’s close relationship with Venezuela and has suggested that China help rein in Maduro and alleviate the suffering of the Venezuelan people. The issue is, however, that China only engages with countries to do business and only intervenes when its business interests are at risk.
The Center for Strategic International Studies (CIIS) recognized four effects of Chinese investments in Venezuela: 1) China is maintaining the Maduro regime in power; 2) Venezuela does not earn long-term benefits from Chinese investments; 3) Chinese loans lack transparency and may be illegitimate; and 4) agreements with China cause energy and security concerns. Venezuela ranks number one in Latin America for military spending, with China as Venezuela’s largest weapons supplier.
US Should Win Back Venezuela
Apart from Venezuela, China also maintains relations with the Organization of American States and the Community of Latin American and Caribbean States. The United States should seize the opportunity to win back Venezuela, slowly restoring U.S. influence in the rest of Latin America. The United States may be able to negotiate some token of relief from sanctions if Maduro is willing to make gradual improvements in human rights and political reform in his country. Sanctions could be slowly eased if Venezuela continues to improve, or they would be restored if it backtracks.
Maduro would never agree to any major changes that would challenge his presidency, and this is true with or without sanctions. But by negotiating and by a show of good faith, the United States can maintain some influence in Venezuela. If the United States does not manage to remain engaged with Venezuela, the country could become another North Korea, a puppet of the Chinese Communist Party (CCP), in the Americas.
In addition to increasing engagement with Venezuela, the United States and its allies should hold the CCP accountable for sustaining a brutal regime in Venezuela and threatening the country’s long-term economic growth through extreme debt. Other Latin American nations also dislike the Maduro regime and distrust its arms buildup. A strong stance by the United States may dissuade them from accepting Chinese loans and investments. If the United States does not act to counter Beijing’s influence, it could lose Latin America completely.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.