China’s US$6.5-billion loan to Argentina last month was a potential lifeline for presidential hopeful Sergio Massa. It was also a big bet on its future in Latin America, a key battleground in its geopolitical competition with the US.
That’s because Argentina’s run-off vote this month has stakes far beyond this hard-fought local election: Massa, from the ruling leftist Peronist coalition that is seeking stronger links with China, against the libertarian outsider Javier Milei, who has referred to the Asian nation as an “assassin.”
So for China, a Massa win would put it in prime position to reap the benefits of being one of the only sources of financing for the cash-strapped South American nation, where triple-digit inflation is raging and the economy is expected to contract again this year. A Milei victory, however, would likely slash China’s influence in Argentina for at least the next four years.
“The Central Bank agreement is a political one, but there are valid commercial and economic reasons behind,” said Yu Lingqu, vice-director of the centre for financial studies at China Development Institute, a state-backed think-tank in Shenzhen. “China wants to use it to develop trade and industrial investment with Argentina.”
The US$6.5 billion from the People’s Bank of China is an instalment of what is now a US$18-billion currency swap line, which allows Argentina to intervene in an increasingly unstable currency market, pay for imports in yuan instead of dollars, and avoid falling into arrears with the International Monetary Fund.
“The timing is intentional,” Margaret Myers, director of the Asia and Latin America Program at the Inter-American Dialogue, said of the currency swap. “It’s done in a moment when it’s very clear that this election could go in two very different directions.”
The relationship between China and Argentina has flourished in the years since former president and current Vice-President Cristina Fernández de Kirchner first struck a deal for the swap line in 2009, when the great financial crisis choked off the flow of money to Argentina. Since then, China has invested billions in the country, in everything from lithium and solar power plants in the north, to a space station in the southern Patagonia region.
The ties have become even stronger in recent years, with Argentina joining Xi Jinping’s signature Belt and Road initiative in 2022. It announced plans to join the BRICS group of emerging markets, of which China is the largest, next year. And China has helped Argentina avoid default in a US$43-billion programme with the IMF by offering the credit swap line to make debt payments in June and July.
China’s investments in Argentina only reflect a fraction of its overall influence in Latin America, where it’s chipped away at the United States’ dominance in recent decades. Through Belt and Road, China has poured billions into the construction of roads, bridges, trains, power grids and energy plants across the region. It’s also turned its attention toward governors instead of just national leaders, building relationships that have allowed it to invest in even the most remote areas, as it’s charged ahead to become South America’s number one trading partner. Still, the US provides more foreign direct investment than any other country in Argentina, totalling US$132 billion over the past decade, according to government figures.
The US-China rivalry is now affecting most of Argentina’s international relations, from the adoption of 5G technology to the possible purchase of military planes. China’s intention to cooperate in peaceful nuclear projects with Argentina and talks of setting up a port in Tierra del Fuego, the country’s southernmost province, has also added to tensions, said a person familiar with the diplomatic scene in Buenos Aires, who couldn't be named discussing private deliberations.
China’s Foreign Affairs Ministry Spokesman Wang Wenbin would not comment on Argentina’s election, but did say that, “China and Argentina are comprehensive strategic partners. China stands ready to work with Argentina to strive for new achievements in bilateral relations.”
Massa and Milei could not be more different, with the former at the helm of a gargantuan state that has been cranking the money-printing machine to increase public salaries and welfare checks before the vote. While Massa has joked about creating a republic of “Argenchina,” he has also sought close ties with the US. Still, his presidency would ensure continuity of policies that have already enabled the Asian giant to gain a foothold.
“If Massa wins the election, we will put in place a pragmatic foreign policy centred on national interests where our commercial partners aren’t chosen for ideological reasons or personal whims,” said Gustavo Martínez Pandiani, a Massa foreign affairs adviser who is currently Argentina’s Ambassador to Switzerland.
A Massa administration would seek to have an “excellent” relationship with China as well as with the US and Europe, said Pandiani. They would continue existing projects and relationships while trying to lower the trade deficit with China by exporting more Argentine goods, like lithium and copper.
Milei, meanwhile, has vowed to take a chainsaw to public spending and blow up the Central Bank by dollarising the economy. His potential presidency would be a huge question mark for China, even as his campaign tempers his comments in the search for centrist votes.
“People are not free in China, they can’t do what they want and when they do it, they get killed,” Milei said in a Bloomberg News interview in August. “Would you trade with an assassin?” Milei clarified that he wouldn’t stand in the way of private business deals between Argentine and Chinese companies.
Diana Mondino, Milei’s pick for foreign minister designate, pared back the fiery statements in a phone interview, saying he never proposed breaking with China.
A Milei government would not stop businesses from operating as usual, but would avoid secret state-to-state arrangements with China or any other nation with unknown conditions, like the currency swap, she said. He would also scrap a web of controls designed to protect ailing reserves of hard currency, but which often succeed only in exacerbating the shortages.
“Maybe if Milei ends up liberating the exchange rate and lifting capital controls, China would be happier, but the geopolitical noise of a potential president railing against China represents a problem,” said Marcelo Elizondo, chairman of the Argentine chapter of the International Chamber of Commerce.
There’s a sense in the government that China may not activate the full swap line if Milei wins, given his hostility toward China, said a government official who wasn’t authorised to publicly discuss the swap. Mondino said Milei would pay down the debt if he is elected.
When President Alberto Fernández announced the swap last month in a radio interview from Beijing, he stressed China’s role as a “good friend” and gave a veiled warning of what could happen if Milei takes office.
“There’s a crazy guy out there who says he won’t accord or negotiate with X country when in reality, those countries help Argentina a lot,” Fernández said in reference to China and Brazil, Argentina’s biggest trade partner, which Milei also labelled as a socialist. “These are the things Argentines need to know to appreciate because otherwise, we get confused.”
It was during that same trip that President Xi Jinping told Fernández that China was ready to work with Argentina to strengthen relations, adding that China supports Argentina’s efforts in maintaining economic and financial stability.
Still, the relationship hasn’t been all that flowery. While China sees Argentina as a long-term strategic investment, the incumbent government has mostly looked to China to put out immediate fires and hamstrung longer-term opportunities because of its financial instability. Some of China’s biggest projects, like a nuclear power plant in Buenos Aires, is at a standstill over lack of local funding, while hydroelectric dams in Santa Cruz in the south have yet to materialise years after initial loans.
Massa pressed Milei on his views on China in Sunday night’s presidential debate.
“Brazil and China, are you going to maintain relations with them?” Massa asked Milei, who insisted the trade relationship would be channelled through private business. Massa shot back: “Countries establish relations.”
A Milei government would likely follow the example of other conservative leaders in the region, like former president Mauricio Macri, who had made tentative moves to distance himself from China but was faced with the harsh reality of a financial crisis that locked Argentina out of credit markets and paralyzed investment, according to Benjamin Gedan, director of the Wilson Center’s Latin America Program.
“Milei would be insane to genuinely cut commercial ties with China,” Gedan said. “Even if Argentina had a resilient, robust economy, it couldn’t survive the economic consequences.”
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by Manuela Tobias, Bloomberg
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