“The water collection zone will only require a very small dam. It is just a question of accumulating enough water to channel it through the new route, a 9-meter-wide tunnel that will cross 25 kilometers of bare rock,” one of the technicians explains. Several kilometers away, three diggers are opening up a new path that will stretch for 34 kilometers through the heart of the jungle, providing access to the installation. One of the machines is sweeping away vegetation and knocking down trees, pulling them up at the roots and leaving a trail of overturned earth, rocks and craters behind it. The other two diggers are attempting to flatten and level out the path, making it possible to move through the quagmire so that other machines can arrive to asphalt the road. Luo Chun Hua, an engineer at Sinohydro, is one of the three Chinese employees working in the middle of the jungle, alongside a handful of Ecuadorians. He is carrying a machete in one hand, which he uses to cut a path through the vegetation, and a distance-measuring tool in the other. As he gives out instructions, he complains about the mosquitoes and the constant rain, and warns us to watch our step: “There are snakes everywhere.”
Luciano Cepeda, Coca Codo Sinclair’s technical manager, looks back anxiously over the six months spent negotiating the specialist technical details of the project with Sinohydro. From the quality of the cement to the excavation technique and the process of manufacturing the materials, the Chinese refused to be controlled by their client, Cepeda tells us. “They said: ‘You sign the contract and after sixty-six months [the agreed period for undertaking the work] I’ll hand you the key to the project.’ In terms of quality and the effect on the environment, it’s an outrage. No other country in the world would put up with this,” explains the man responsible for evaluating and supervising the whole construction project. Cepeda recognizes Sinohydro’s track record as the world’s biggest dam construction company. However, he argues that “undoubtedly” the deciding factor in the selection of the Chinese company for this contract was the fact that “it could provide the funding”—85 percent of the $1.982 billion needed for the project, to be precise.
The financial negotiation was also a tortuous process. A year after negotiations began it all came crashing down as a result of what the Ecuadorian president, Rafael Correa, considered the “ill-treatment” of the Ecuadorian negotiators at the hands of the Chinese delegation. This effectively put an end to negotiations. “Suddenly negotiating with China is worse than negotiating with the International Monetary Fund. They’re asking us for ridiculous guarantees,” Correa declared, angrily, referring to Beijing’s demand that Ecuador’s Central Bank should “use its national assets as a guarantee.” Correa described this as an “outrage” and threatened to amend his policy towards China, which was acting like a precocious student of the IMF during the negotiation process. These strong words struck a painful blow to a Chinese regime which greatly values discretion and which was not best pleased by this public outburst of squabbling. However, Correa’s diatribe was effective: not long afterwards the Chinese delegation signed the agreement, giving the green light to the loan and, therefore, to the Coca Codo Sinclair dam.18
What was not mentioned in the press, according to our contacts in Quito, was the fact that the Ecuadorian president played a wildcard which threatened to hit a very raw nerve for China: none other than Taiwan. “The key point was that Correa said: ‘If China forces those conditions on us, we’ll go to Taiwan, as they’re prepared to treat us better.’ The following day the Chinese ambassador in Ecuador reacted to this news and two days later negotiations started up again,” said Diego Vega, director of international relations at the National Planning and Development Office, when we met him at his office in the Ecuadorian capital. Vega formed part of the first delegation involved in negotiating the Chinese loan. Thanks to the president’s warning, China not only agreed to fund Ecuador’s biggest single infrastructure project, but has since then become practically the only viable option for other ambitious infrastructure projects which Quito hopes to set in motion in order to boost its development: a plan that will play a key role in the country’s future.19
For Ecuador, China’s “complete package”—or, in other words, its low costs and financial muscle—is as attractive as it is unavoidable in the midst of Correa’s current confrontation with the “United States empire” and its “like-minded” financial institutions,20 as well as the legal risk that Ecuador poses in terms of foreign investment. However, while China represents Ecuador’s only way of securing funding, Beijing’s bottomless pockets allow its state-owned companies not only to make money but also to consolidate the country’s strategic priorities. “China’s strategy of undertaking infrastructure projects in return for preferential access to natural resources, a strategy it has employed effectively in other regions, notably Africa, is on the increase in Latin America; namely in Ecuador, Venezuela and Argentina,” according to a recent report.21
As well as oil, China’s main interest in the small Latin American country is its mining sector, where enormous reserves of copper, gold and silver remain relatively intact. Alongside its construction work, China granted another $2 billion to the Ecuadorian state in June 2011,22 thereby confirming that, despite the bumpy start in relations between the two countries, things are now cruising along nicely.
STADIUM DIPLOMACY, OR TROJAN HORSES?
The cases of Sudan and Ecuador—two radically different countries many thousands of kilometers apart—show just how well China’s financial package fits the needs of developing countries, particularly in this era of empty coffers and dwindling cash flows. From the point of view of the receiving countries, the new “world’s banker” offers an irresistible short-term alternative to help them build new infrastructure. It is a highly tempting cash offer: soft loans, low costs and high speed. Furthermore, if the country in question is not keen to submit to the requirements of international social or environmental standards or best practices, or if for some reason it finds itself at loggerheads with the West, China is willing to come to the rescue under the pretext of “no interference” in the affairs of other countries. This is in stark contrast to the behavior of other international actors, who consider it unacceptable not to observe these standards.
Thanks to the enduring ties emerging from these relations, China has gained a much greater economic and diplomatic influence than it had probably ever expected to achieve in so short a time. However, while the crisis has clearly only accelerated a phenomenon—the emergence of China—that was bound to take place sooner or later, the fact is that its form and events have fitted perfectly with the official strategy masterminded by the Communist leaders. On the one hand, China is now able to guarantee its future supply of raw materials, and, on the other hand, their state-owned companies are able to “go out,”23 become more international and take on new markets. While decades ago China’s foreign infrastructure projects all had an undeniable ideological component, as we will see in the case of the famous TAZARA railway in Africa, the motivation behind its present-day projects is clearly strategic.
Paving the way for the new China’s future also contributes to the development of other countries, as we were able to see for ourselves over the course of our journey. Examples can be seen throughout the three continents: from rebuilding a war-torn country in the case of Angola, where Beijing is constructing thousands of homes and building a transport network practically from scratch, to constructing new roads in the Democratic Republic of Congo or developing oil pipelines in Sudan, Turkmenistan and Burma. The same can be seen in the ambitious railway projects planned for Venezuela and Argentina, or the impossible roads being built in Iran and Mozambique, or the construction of a strategic route connecting Xinjiang with the Indian Ocean via Pakistan-administered Kashmir; not to mention the quantum leap achieved by installing and launching satellites in Nigeria and Venezuela. There is no doubt that infrastructure construction plays a highly strategic role in China’s silent world conquest, mainly because of the sheer scale and visibility of these projects.
Their role is so important that Beijing even uses them as instruments for exercising its soft power, regularly including them in its hotchpotch of foreign aid and intergovernmental co-operation.
The first and only report on Chinese foreign aid, published by the Chinese State Council in April 2011, states that China had built and financed a total of 2,025 projects in foreign countries by the end of 2009.24 While infrastructure projects are used as a means of furthering China’s own interests—for all the reasons explained above—they are also undoubtedly used in order to reward loyalty and to seduce the less enthusiastic countries of strategic interest to China. However, many believe that this strategic method of persuasion also has a darker side, which involves placing a Trojan horse in a country as a means to facilitate China’s expansion into that market.
In order to see one of these “gifts” for ourselves, we decided to fly to San José in Costa Rica, where we arrived one rainy, tropical afternoon in October 2010. As we will see in more detail in Chapter 8, the most important country in Central America was also the second to last to move over to Communist China’s camp after a lifetime of loyalty to Taiwan. Costa Rica therefore clearly deserved a prize.
Seen from close quarters, China’s gift to Costa Rica certainly looks spectacular. The delightful National Stadium, a present from Beijing at the very reasonable price of $89 million, is located at the heart of the country’s capital. When we visit, the building work is almost finished. Outside the premises, groups of Costa Rican workers and Honduran immigrants are paving the last of the walkways, carrying heavy sacks and breaking up stones. However, the real action is happening inside the building. Rosi, one of the few Chinese women working on the project, welcomes us in as soon as she is satisfied that we are not locals. “The design and the construction work are all completely Chinese. The stadium has a capacity for 35,000 spectators,” she explains. Meanwhile, we watch a handful of machines laying asphalt on the athletics track while several employees of Anhui Wai Jing, the Chinese state-owned company in charge of constructing the stadium, fit seats into the stands. “There were 800 Chinese people working here at one point, but now there are just 134 of us left,” Rosi explains, confirming that China’s donations come with their own Chinese workforce and construction materials, which can enter the country tax-free.
The gift is clearly motivated by politics, as is the case with the dozens of similar stadiums that China’s “stadium diplomacy” has established in Africa. Many of these stadiums are presented as gifts, while others are tied to some form of co-operation between the two countries.25 However, in Costa Rica the Chinese company took advantage of the construction of the “stadium of friendship” to create a subsidiary company which was able to compete in tenders for public and even private projects from a distinct advantage because of its on-site workforce and ability to bring its materials into the country tax-free.26 Antonio Burgués, a former minister in the ex-president Óscar Arias’s government, Costa Rica’s first ambassador to Beijing and a great conversationalist, has no doubt that the stadium is really a Trojan horse aimed at entering, penetrating and conquering the Costa Rican market.27
“A gift?” he says, when we meet him in a fashionable café in San José. “China doesn’t hand out gifts. If China gives you a stadium, it’s taking away a hospital from their people, because China is still a developing country. So, how is it supposed to give you a present?” he argues about China’s various donations. The case of the Chinese subsidiary company caused quite an uproar in the midst of a honeymoon period between the two countries. It was not only that San José refused the visa applications of a hundred Chinese workers who were supposed to be building a housing complex. The argument really took off when it emerged that the commercial attaché to the Chinese embassy in San José and executives of the Chinese state-owned company were working together to pressure and bribe Costa Rican embassy staff in Beijing into giving the green light to the work permits. The outcry among politicians and the media, the complaints about unfair competition on behalf of the local construction companies and the refusal to grant the visas caused the Chinese company to abandon the private project altogether.28 However, the scandal did not stop China from honoring its promise and completing work on the National Stadium as planned.
Burgués knows all about these pressures. He tells us that the Chinese authorities refuse to let the subject drop when it comes to the question of “flexibility” in Costa Rica’s immigration policy towards China: “It’s an issue that comes up again and again. Whenever they agree to grant you an interview they spend 30 percent of the time talking about this issue,” explains the man who put the brakes on a plan to allow huge numbers of Chinese immigrants into Costa Rica during his time as ambassador in the Chinese capital. “The Chinese have a strategy and they do whatever they have to do in order to get what they want, either with the left hand or with the right,” he says, referring to legal and illegal practices. “The [Chinese] ambassador is responsible for keeping up appearances and never gets involved in shady business dealings. However, there’s always somebody inside the embassy, the commercial attaché or someone like that, who is prepared to give it a try,” he continues. This is why he thinks that “it’s important to set the boundaries with China, because they’re not a democracy. We need strong institutions; we can’t just let the big bad wolf come here and blow our house down as if it’s made of straw,” he argues. “China wants to Africanize Latin America. They see us as poverty-stricken and corrupt.”
FEEDING 1.3 BILLION PEOPLE
Another example of China’s strategic investment in infrastructure can be seen in the $1.4 billion project currently being undertaken in Argentina by the Chinese state-owned company Beidahuang State Farms Business Trade Group. Originally from the northern province of Heilongjiang, Beidahuang is China’s leading soya producer. In 2011, the corporation signed an agreement with the local government of the Rio Negro province (close to Argentinian Patagonia) to develop 320,000 hectares of land that are currently unusable. Over the next five years, Beidahuang will invest $850 million in bringing water and energy to the area in order to irrigate the land and make it suitable for cultivation. At the same time, the company will bring an additional $500 million to the table to improve infrastructure in the province. A significant part of this money will go towards redeveloping the port at San Antonio–Este, which China will have the right to use for the next fifty years.
The dock capacity will be improved to allow the entrance of Chinese vessels weighing up to 40,000 tons—four times the size of the ships that can currently access the area. These will be used to transport Argentinian soya, corn and fruit to China. “You have the market and the money. We have the climate, the land and the environment. We’re perfect business partners: put what you have where we can use it and we will both benefit. That’s what we told the Chinese,” explains Óscar Gerardo Gómez, the representative of the Rio Negro province in Buenos Aires, when we meet him in the Argentinian capital. “Without this investment we couldn’t have carried on planting anything at all. In exchange, we assured China that we will give them all the crops produced over the next twenty years. It will all [referring to the sales of food] be carried out transparently and at the market price,” he assured us.
China has thereby guaranteed its supply of the harvest yielded by these 320,000 hectares of land for the next two decades. The most interesting feature of the agreement is the fact that most of the land, which is currently unproductive and unsuitable for farming because of a lack of water, will still belong to its original owners. China will take 30 percent of the land—around 100,000 hectares—to guarantee its investment, but the landowners will be able to recover their land after twenty years by paying “the market price at that time.” Giving away 30 percent of the land does not seem excessive considering that a hectare of unproductive land in the region currently costs $200 and the price is likely to rise to between $5,000 and $10,000 per hectare as a result of China’s investment, according to the Argentinian g
overnment. “Lots of people are going to get rich,” Gómez predicts, referring to the small and medium-sized landowners who currently own the stretches of land.
The owners’ only obligation is to farm their land. “The Argentinian owner farms the land with the help of the Chinese company, which will facilitate loans to allow the owner to buy machinery and seeds. Beidahuang will decide what needs to be planted, as it has committed to buying the produce. The role of the producer, who will benefit enormously from the Chinese investment, is to grow crops. If they don’t want to do it themselves, the owners have two options: rent or sell their lands. But whoever is in charge of the land has to produce crops, come what may, because if they don’t [the land will] be expropriated,” says Gómez, one of the architects of the agreement.
China currently has access to 3,000 hectares of land on which to carry out experiments into which types of crops adapt best to the climatic and environmental conditions of the Rio Negro area. “Beidahuang plans to establish research centers to develop their technology on Argentinian soil. They also want to see which products acclimatize most easily to local conditions. It might be soya, corn, fruit, vines or olives,” Gómez explains. The Rio Negro authorities, which enjoy a considerable amount of autonomy from the national government along with the other Argentinian provinces, are confident that the Chinese deal is “the biggest development project ever carried out in Argentina.” They fully expect that “other regions in the country will emulate this project to benefit their own economies.” The most optimistic forecasts suggest that 100,000 local jobs will be created thanks to Chinese capital. Some of these will be directly linked to the creation of a new workforce to farm the land, while other workers will be responsible for developing the various services linked to agricultural production, such as transport, storage and refrigeration.
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