In the past decade, Chinese involvement in Latin American infrastructure development has increased dramatically. The influx of Chinese investment along with Chinese construction workers, engineers, and equipment has led scholars and observers to question whether there a distinct model of Chinese infrastructure development. Does China take an integrated approach in Latin America — financing, designing, and executing projects — or does it operate as any other foreign country or company? We develop the concept of infrastructure dominance to answer these questions. Using data on over 400 of the most important public infrastructure projects, we find that China’s involvement in projects varies based on the existing institutional constraints of the host country. Where countries have strong institutions, Chinese companies play a role similar to that of other foreign entities involved in infrastructure development. In Latin American countries with weak infrastructure institutions, however, China plays a very different role — it tends to dominate projects. Thus, this paper highlights the adaptability of the Chinese approach and the importance of domestic institutions for shaping the nature of infrastructure development.
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Specifically, Fukuyama (2016) argues that China’s “One Belt, One Road” initiative — designed to link western China through Central Asia to Europe, the Middle East, and South Asia — is evidence of China’s plan to export its development model. The initiative seeks to industrialize and create consumer demand outside China’s borders (Ibid.).
We draw on the Fitch Solutions Infrastructure Projects Database (formerly BMI Infrastructure Key Projects Database), which is a product of BMI, a Fitch Group Company (https://www.fitchsolutions.com). The database comprises “key” projects in a given subsector of the infrastructure industry in 150 countries. It includes financing data as well as the companies and countries involved. It does not include all projects underway, but only the largest and most important ones (i.e., Power Projects over 50 MW, Water, Oil & Gas Pipelines over $30 million, Transport Projects over $30 million, Construction Projects over $30 million, Social Infrastructure over $30 million).
We recognize that the level of integration and coordination between the central government and infrastructure companies varies widely cross-nationally. Our focus falls on China, and because the government, financial lending institutions, and companies in China often work in concert, we often refer to China or Chinese companies synonymously.
A number of excellent studies have sought to characterize the financing of infrastructure projects in Latin (e.g., Bräutigam and Gallagher 2014), but still do not capture the tacit agreements between governments. Our work looks at the companies and countries involved in specific phases of infrastructure projects, which provides a more detailed understanding of China’s role in infrastructure development on the ground.
For exceptions, see Dussel Peters et al. (2018), Ellis (2009: 278–81), and Myers and Jie (2015: 15). The collected edited by Dussel Peters et al. (2018) includes excellent case studies in Latin America. In another important although brief piece, Ellis (2009: 278–81) highlights the concrete improvements in port infrastructure due to the region’s new trade relations with China and argues that such improvements will most likely continue. Additionally, Myers and Jie (2015: 15) find that the Chinese companies investing in Latin American agriculture are also involved in infrastructure development in the sector.
For example, the Mexican railway was largely constructed by US firms that garnered concessions to build the major lines (see Summerhill 2006: 309–310).
This figure also includes investments in manufacturing, which over this period shifted from infrastructure investment in public transportation to investment in private vehicles as a result of the success of US car manufacturers’ campaigns (O’Brien 1999: 144).
In some cases, foreign involvement provoked opposition, leading some countries to channel foreign capital in ways that they saw as serving their national interests (Baer 1996: 368; Bertola and Ocampo 2012: 165; Ferraz et al. 2012). As Baer notes, ISI was adopted in part because “foreign capital was viewed with suspicion. This was based to a large extent on its past behavior. It had dominated the public utilities sector, where it had often used its power to obtain favorable rates, and where in the 1940s and 1950s its services were increasingly inadequate” (Baer 1996: 368).
Evidence also suggests that private investment was not nearly enough to make up for the reduction.
At the same time, investment by the USA in Latin America declined steadily, as US companies shifted their focus to emerging economies and their own government deficit; some perceived this trend as the result of dwindling interest in Latin America (Phillips 2007: 18).
The completion of major infrastructure projects in China lowered domestic demand for Chinese workers and equipment. Thus, especially with the region’s increased trade in raw materials to China, Latin American investment provided an attractive solution for excess labor.
Previously, only Asian, African, and European countries were formally integrated into the blueprint of China’s audacious Belt and Road Initiative (Zhang 2016).
In addition to the important role of banks, Yang (2015) notes that state, enterprises, and quasi-governmental organizations all play complementary roles.
China’s booming equipment manufacturing industry has already obtained positive effects in international production cooperation and has been ranked No. 1 in the world for five consecutive years, with large-sized equipment exports in 2014 reaching $110 billion USD (Wang 2015).
They also find that more than 50% of Chinese finance in Africa and Latin America take the form of commodity-backed loans (Bräutigam and Gallagher 2014: 348), and as of 2014, “all of the commodity-backed loans to LAC …[were] secured with oil” (350).
The trend extends beyond the infrastructure sector. As Myers et al. (2016) report, overall lending from China to Latin America and the Caribbean continued to increase in 2015 as well.
One explanation for why radical leftist states such as Venezuela accepted more investment is that their fights with their business communities, combined with their promises to a mass electoral base, made it harder for them to tax. We thank an anonymous reviewer for making this point.
Nicaragua is an exception here. Also, the amount Bolivia has received from China is greatly underestimated.
We coded projects as weakly dominated when the dominating foreign actor handles 0.49 or less of the project (when looking at all actors in the project, including domestic).
We coded projects at strongly dominated when the dominating foreign actor handles 0.5–0.9 of the project (when looking at all actors in the project, including domestic).
The Infrascope data includes years 2009, 2010, 2012, and 2014. For projects in 2011, we use data from 2010; for projects in 2013, we use data from 2012.
The Economist’s dataset does not include Bolivia. We consider Bolivia’s infrastructure capacity similar to that of Ecuador and Nicaragua. We code Bolivia as follows: 10 in 2009 (The Economist coded Ecuador 11.9 and Nicaragua 8.6), 11 in 2010 (Ecuador 12.4 and Nicaragua 17.1), 20 in 2012 (Ecuador 20 and Nicaragua 20.6), and 21 in 2014 (Ecuador 22.1 and Nicaragua 20.6).
Source for natural resources: The World Bank (2015) World Development Indicators, total natural resources rents as percent of GDP.
Chen et al. (2015) find that this pattern holds for overall Chinese investment in Africa.
Chen et al. (2015) suggest that the availability of natural resources trumps concerns for political stability. When it comes to dominance, one could either expect foreign actors to be more willing to dominate projects when the political situation in the host state is unstable, or to step back and take a less dominant role, given the instability. Source for political stability: The Worldwide Governance Indicator project, Political Stability and Absence of Violence/Terrorism (Kaufmann et al. 2010). The variable measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism. It ranges from − 2.5 (weak) to 2.5 (strong).
Table 2 presents logistic regression coefficients and, in parenthesis, the change in the odds of dominance for a one-standard-deviation increase in each independent variable.
Apart from the Latin American countries, the other category includes Russia, Israel, Saudi Arabia, Malaysia, Singapore, Japan, South Korea, and the Philippines.
The key findings hold when the model includes a dummy variable that distinguishes between the radical leftist governments of Evo Morales’s Bolivia, Hugo Chavez’s Venezuela, and Rafael Correa’s Ecuador. Similarly, the results do not change when year dummies are introduced.
All independent variables are set to their means.
The difference in the predicted probabilities of Chinese and Western actors is statistically significant; the p values for the difference between the actors are 0.036 for mixed projects (dominance = 2), 0.000 for weakly dominated projects (dominance = 3), 0.003 for strongly dominated projects (dominance = 4), and 0.003 for fully dominated projects (dominance = 5).
The rest of the variables are set to their means. The predicted probabilities are statistically significant at a 99% confidence level.
We thank the anonymous reviewer for highlighting this point.
In fact, the average number of foreign participants in a single project with at least one foreigner is 1.9. The maximum number of foreign participants in one project is as high as 14.
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Bersch, K., Koivumaeki, R. Making Inroads: Infrastructure, State Capacity, and Chinese Dominance in Latin American Development. St Comp Int Dev 54, 323–345 (2019). https://doi.org/10.1007/s12116-019-09282-5
- Latin America
- State capacity
- International development