February 21, 2019

China's Influence in Venezuela

Events in Venezuela have been fast, furious and tragically painful for the past few weeks. The U.S. and many Latin American countries have thrown their support to opposition leader Juan Guaido over Nicolas Maduro. Things are coming to a head in the next few days with some extraordinary attempts to get humanitarian aid to a starving population.

Our focus this week is on a different angle to the Venezuela crisis that bleeds into current geopolitical issues in other parts of the world. China has an arrangement with Venezuelato access oil in exchange for development loans to the tune of $50 billion, making China one of Venezuela's biggest creditors.

With the U.S. having imposed sanctions on the Maduro regime, there is yet another strain in the troubled U.S.-China relationship. Yet this seems to be almost an afterthought when compared to the rest of the geopolitical hot spots, including China-U.S. trade and China-U.S.-North Korea nuclear weapons talks.

While there is an immediate humanitarian crisis in Venezuela, once it's resolved there will be more concerns, including economic issues in Venezuela that result from its reliance on foreign debt.

There are already active discussions of how a default in that country would get resolved. The U.S. would most likely be caught up in a lot of those negotiations, and with both China and Russia involved as creditors, the tangled financial web will become even more intricate.

On a broader level, China has drawn a lot of attention and criticism about its new role as lender to the developing world. In fact, China's national development banks finance as much as the World Bank, with other Chinese bilateral and multilateral arrangements pushing those amounts even higher.

No one thinks China's goals are altruistic. Actually, this is true of more development organizations than many people may realize. Development goals are often as much related to diffusing geopolitical tensions as they are about helping people in need.

For China, access to reliable and cheap sources of energy is a driving force behind much of this funding. For the countries involved, China's offerings are attractive. They're a little more expensive than loans from the World Bank or the International Monetary Fund, but they do not come with the same conditions attached.

My View: The question that many people wonder is what kind of influence does this give China in the realms of politics, trade and finance? That is an issue that needs to be watched, in my opinion. It is one thing to make deals purely on economic grounds, but when influence bleeds into changing the geopolitical calculus then it needs to be addressed by the U.S. and the rest of the developed world.

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