- By Juan Cristóbal NagelJuan Cristóbal Nagel is a professor of economics at the Universidad de los Andes in Santiago, Chile, editor of Caracas Chronicles, and co-author of the book Blogging the Revolution.
Much has been written lately about China’s growing influence in the developing world, particularly in resource-rich Latin America. While China holds significant sway over many countries, rarely has this influence been as pivotal as in cash-strapped, oil-rich, revolutionary Venezuela.
This became clear last week as Venezuelan President Nicolás Maduro embarked on a state visit to China. While there, Maduro signed a dozen agreements, but the real reason for his visit was to beg for an injection of cash to save his ailing government.
It is still not clear whether he got one.
Venezuela is suffering an acute shortage of foreign currency, and while the country is not yet in a balance-of-payments-crisis, there are plenty of warning signs of impending trouble. Importers complain that access to official dollars through the government’s byzantine foreign exchange controls has all but dried up. This has impacted all sorts of businesses, from manufacturers who say they do not have access to spare parts for their machinery, to newspapers complaining of a lack of paper.
In theory, Venezuela should not be going through this given how oil is at near-record prices. However, with black market rates at seven times the official rate, the incentive for arbitrage is simply too great. Anyone who manages to get access to official dollars finds it profitable to save them abroad or sell them in the black market instead of using them to import the basic staples the country needs.
Faced with dwindling foreign reserves and growing demands for hard currency, Maduro went to China to, essentially, ask for a rescue package.
Instead of winning cash, Maduro appears to have signed many deals — deals involving oil, mostly, but also loans earmarked for infrastructure projects such as a new port. China also got first dibs at Las Cristinas, a promising gold mine in southeastern Bolívar state.
Maduro also signed a financing agreement for $5 billion, but the terms of the agreement have not been made public. However, based on unnamed sources inside the government, Caracas’ daily newspaper El Nacional is reporting that Venezuela wanted the $5 billion to be handed over in cash, but that China refused.
Instead, China insisted on terms similar to the ones they have been operating under, through which China gives Venezuela money that it has to spend on infrastructure projects that use Chinese technology or consumer goods made in China. El Nacional said that, in their search for cash with no strings attached, Venezuelan officials had prepared a pitch, but the Chinese officials did not even let them make it.
The lack of cash is critical for Maduro. He needs hard currency to ease up shortages. Faced with a steady drop in opinion polls, and with mayoral elections looming (they will take place on Dec. 8), the last thing the government needs are disgruntled voters waiting in line for hours to buy a couple of rolls of toilet paper.
It is not surprising that Maduro turned to China for financing. China has become the only source of funding the chavista government has left, and China knows it. The Chinese play their influence on the country masterfully. Bilateral trade between the two countries is now close to $10 billion per year, and China is now Venezuela’s second-closest trading partner. Venezuela has a trade surplus with China, mostly due to the oil that is flowing East as payment for past loans.
China views the deals with Venezuela as a way of stimulating its domestic economy. With Chinese funds, Venezuela purchases Chinese infrastructure and consumer goods. In return, Venezuela ships oil to China, so in the end the Chinese keep their cash and the oil. The political environment in which these deals are signed — with no oversight, no accountability, and nobody knowing the exact terms of the deals — is tailor-made for Beijing.
With the Chinese essentially dictating the terms of their financing, one thing became clear with Maduro’s trip: the Chinese — along with the Cubans — are in charge in Venezuela. This is a surprising turn of events for a government that touts itself as "the defender of the fatherland."