China’s new form of ‘corruption’ in Latin America

Beijing has used this strategy to gain a foothold in the region as Washington’s influence has waned

Corruption has long been a scourge in parts of Latin America.

Traditionally, it has funneled down domestic routes, with local politicians, business interests, and drug lords benefiting from graft and dodgy dealings.

Indeed, a 2022 report from Transparency International found that 27 out of 30 countries in Latin America and the Caribbean have shown stagnant corruption levels with no improvement in recent years.

But during the last two decades, a new form of graft has taken hold in the region, a phenomenon we call “geostrategic corruption.”

It is characterized by external countries using corrupt methods – no-bid contracts, insider financial deals, special relations with those in power – to become stakeholders in multiple facets of the politics, economy, and society of a country.

China is a master of the art. The United States is less so.

As scholars of Latin American politics, we have seen how China has used geostrategic corruption to gain a foothold in the region as US influence has waned.

Drug gangs

The policy builds on traditional pervasive patterns of clientelism and patronage.

In Latin America, the growth of drug gangs since the 1980s introduced “narco-corruption” in which police and local officials collude with organized crime to “buy protection” from prosecution.

As a result, police, local governments, and elected representatives are considered by watchdogs as among the most corrupt political entities in the region, which consistently scores low in annual global perception ratings.

This pattern of corruption has coincided with a period in which the US has turned its attention away from Latin America and toward first the Middle East and then Asia.

The vacuum has been filled by Beijing. Trade between the region and China skyrocketed from US$10 billion worth of goods in 2000 to $450 billion in 2021. China is now the top trading partner of South America, making up to 34% of total trade in Chile, Brazil, and Peru.

China has expanded its search for cobalt used in EV batteries. Image: Flickr

Beijing’s expansion is driven by the country’s search for resources such as cobalt, lithium, rare earths, hydrocarbons, and access to foodstuffs, which are abundant in Latin America.

In the past 20 years, China has also poured massive investments into infrastructure, energy, and financial sectors.

And China isn’t alone in upping its interest in the region. The last two decades have also seen an increase in investment and influence from Russia and Iran.

These countries have found Latin America a fertile ground due in no small part to the region’s culture of corruption and weak institutions, we argue.

Local criminal networks and the disregard of democratic norms on the ground have made it easier for countries that themselves are perceived to be dogged by corruption to gain a foothold in the region.

Global trends

Beijing’s presence is part of a long-term strategic objective to challenge Washington’s influence across the globe through economic, military, financial, and political means.

That process has been aided by global trends.

Countries such as Brazil and Argentina have increasingly sought to diversify bilateral relationships and become less dependent on US trade.

Meanwhile, Russian aggression in Ukraine has seemingly given China more weight on the international scene. Beijing has positioned itself as an alternative diplomatic force to Washington, especially to countries that feel nonaligned with the West.

An example was seen in March when Honduras announced it would establish diplomatic relations with Beijing and break off ties with Taiwan – a development that Taiwanese officials said followed the “bribing” of Honduran officials.

What gives China an added competitive edge as it extends its influence is that it is able to eschew constraints that bind many would-be investors in the West. They include environmental concerns or hesitation over a country’s labor rights and level of corruption.

China’s New Silk Roads snake across the world. Photo: Flickr

Chinese companies are judged by international organizations to be among the least transparent in the world, and bribery watchdogs have long noted Beijing’s reluctance to prosecute Chinese companies or individuals accused of bribery in regard to foreign contracts.

A 2021 study found that 35% of China’s “Belt and Road” projects worldwide have been marked by environmental, labor, and corruption problems.

In contrast, the US administration is more restricted by commitments to encourage democratic development as well as public pressure and international image. Washington does not have the same privilege of diplomatic pragmatism as Beijing.

American companies are, of course, not spotless when it comes to engaging in corrupt practices overseas. But unlike China, the US government is bound to an international treaty prohibiting the use of bribes to win contracts.

Moreover, the US Foreign Corrupt Practices Act strictly prohibits American companies from bribing foreign officials. China has no such equivalent.

Geostrategic corruption

Chinese investment has been easier where populist regimes govern and where the rule of law has long been undermined, such as in Argentina, Bolivia, and Venezuela.

In Bolivia during the 14-year tenure of President Evo Morales, Chinese companies achieved a major foothold in key sectors that has translated into a monopoly over the lithium industry there. Even though there is a strong anti-mining movement in the country.

Geostrategic corruption in Argentina is firmly rooted at the local level, in provinces and regions across the country.

Feudal-like governors have enabled a sophisticated corruption network that China has seemingly used to invest in everything from nuclear plants to lithium battery factories.

Other major projects include the construction of a satellite-tracking deep-space ground station, railroads, hydroelectric plants, research facilities, and maybe even fighter jets.

In Ecuador, similar programs include a dam that was built in exchange for oil contracts, the Coca Codo Sinclair hydroelectric plant that developed massive cracks soon after construction, and the Quijos hydroelectric project, which failed to generate promised volumes of power.

Relations between the US and China have rapidly deteriorated. Image: File

Similarly, the Chinese-financed Interoceanic Grand Canal in Nicaragua was estimated by opponents to irreversibly impact the ecosystem and displace about 120,000 people. Local activists also faced harassment, violence, and unlawful detention.

In Venezuela, China initiated but never completed the construction of a multibillion-dollar bullet train line. There was also an iron mining deal that allowed the Asian country to buy Venezuelan ore at 75% below market value.

Throughout Latin America, Chinese firms have been cited in cases involving bribery and kickback schemes that have enriched local officials in return for contracts and access.

This use of geostrategic corruption works to the direct detriment of Washington’s interests.

Human rights

In Argentina and Bolivia, Chinese expansion means that sectors that are crucial for the success of America’s green energy goals are increasingly under Beijing’s hold. It also undermines US efforts to counter corruption and human rights abuses in the region.

And American companies are unable to compete.

The Biden administration has set high standards for US investment in the very sectors where the Chinese have a strong foothold. These include transparency and accountability, as well as commitments to environmental, labor, and human rights standards.

President Joe Biden has stated that adherence to these standards is what distinguishes US foreign investments from its competitors. But it does hamstring American companies when it comes to competing with China.

In the meantime, while the US is looking for answers and trying to figure out how to reestablish influence in Latin America, China is quietly and pragmatically increasing its presence in the region.

Eduardo Gamarra is a Professor of Politics and International Relations at Florida International University. Valeriia Popova is a Professor of Politics and International Relations at Florida International University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.