China has set its sights on Venezuela’s rich mining possibilities.
A recent agreement between the Venezuelan government and Citic Group (a Chinese state-owned company) has come under scrutiny by opposing parties and experts who are concerned that the operation would leave natural resources vulnerable, as Inter Press Service reports.
The prospecting agreement would, over the next five years, see China explore, map, and catalog Venezuelan natural resources, and some 400 Venezuelan engineers would receive training related to the data discovered.
The Venezuelan government, reports IPS, has not made any statements as to how the Chinese operation might influence Venezuela’s future mining operations. Nor has it disclosed what Citic Group stands to gain.
However, Citic Group has won the licenses to operate the Las Cristinas gold mines, which has around 20 million ounces in confirmed and potential reserves. Its total value is estimated at around $32 billion.
But Venezuela’s opposing Radical Cause party has already made its views clear. From IPS:
“Parliament should oversee this operation — which it was not consulted about — because of the magnitude of what it involves and because it poses a threat to our sovereign rights over underground resources that are protected under the constitution,” said [Legislator Américo] de Grazia, who represents mining districts bordering with Brazil and Guyana in southeast Venezuela.
Meanwhile, the country continues to export some 600,000 barrels of crude each day to China, while Beijing has awarded the country more than $38 billion in credits.
It seems extremely plausible that there is a distinctly ulterior motive in this close relationship between the two nations, and this resource mapping operation could lead the way to much more comprehensive mining operations in the future. After all, Venezuela is expected to have enough iron reserves to supply China (which just happens to be the largest consumer of iron in the world).
Venezuela also has extensive reserves of bauxite, phosphates, gold, diamonds, copper, uranium… It’s a long and rather attractive list.
However, it remains unclear what Venezuela itself stands to gain from this cooperation with China. As Chilean expert Chihon Ley told IPS, Venezuela would benefit it the agreement included clauses mandating all mining data uncovered to be turned over to and kept with the Venezuelan government, and also stating that there would be no obligation for the state to grant discovered resources to a specific Chinese company. But that still seems quite tenuous.
Meanwhile, China has demonstrated a seemingly limitless level of support for Venezuela over the years, and this has certainly shored up the Venezuelan social infrastructure.
Fox News reports:
“The Chinese play by other rules,” said Kevin Gallagher, a Boston University international relations professor who has studied Chinese lending to Latin America. “We’ll give you financing with no conditions, and we’ll finance things the International Monetary Fund won’t fund, things others won’t fund anymore, like big infrastructure projects. It allows countries to shop around, which has good and bad sides.”
In fact, China is now the largest lender of developmental loans to Venezuela, Ecuador, and Argentina. Coincidentally, all three countries have junk bond ratings, as Fox News reports.
It is noteworthy that nearly all of these deals involve oil and gas, and other natural resources. Clearly, China’s playing a long game wherein it is embarking on long-term deals that lock in valuable resources and commodities that will nourish the nation as it grows rapidly.
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It contains full details on how things are not looking good for China’s economic future.
When possible, China has also sought to lock in development rights or preferences as part of these deals (as in Argentina).
While Venezuelan trade with the U.S. has fallen steeply—from 26 percent of GDP (2006) to just 18 percent (2011), according to Fox News—trade with China has risen from barely anything in 2001 to about 6 percent today. And nearly all of it involves the use of oil to repay China’s generous loans.
However, even though China is making its bets, it remains to be seen whether these countries can really pay off. Argentina, after all, infamously defaulted on nearly $100 billion in loans back in 2001.
From Fox News:
“It’s extremely concerning,” said Margaret Meyers, a China expert at the U.S. think tank the Inter-American Dialogue. “Chinese financing won’t be able to sustain these economies unless they go through substantial macroeconomic reforms. For Argentina, that means open markets, reforming institutions, reforming the banking system, fiscal accountability, ending lots of misspending.”
In the meantime, as the U.S. and Europe shrink back from bold investments and the economy continues to reel, China is pushing ahead with its investments.
