China Made Mauricio Macri a Deal He Couldn’t Refuse

BUENOS AIRES, Argentina — One of the most noticeable features of China’s engagement in Argentina over the past two decades has been the rapid growth of small Chinese-run supermarkets across the large South American country. In the wake of a devastating financial crisis at the turn of the century, many Argentines have come to rely on low-cost supermarkets manned by Chinese immigrants to buy their everyday stables.

But in Palermo Hollywood, a leafy neighborhood in Buenos Aires populated by hipster cafes and boutique hotels, a new side of China’s presence in Argentina can be found. The neon lights of a redbrick building marked Restaurante Beijing, a fine-dining establishment catering largely to the city’s affluent Asian residents and, increasingly, to satisfying the appetites of a growing Chinese business community.

Moving beyond the ubiquitous Chinese-run supermarket, China’s economic partnership with Argentina has soared to new heights. In recent years, China Inc. has been busy buying up large stakes in Argentina’s energy, mining, and banking sectors. Taking its engagement a great leap forward in 2014, China agreed to provide Argentina with over $20 billion in loans to finance numerous infrastructure projects, including new railway lines and hydropower dams.

But the rush of Chinese investment and finance into Argentina has produced new tensions in the relationship. Sitting down to dinner with a Chinese diplomat at Restaurante Beijing early last year, I had hoped to hear more about the latest wave of Chinese money flowing into the country, and how Beijing was coping with the potential destabilizing impact of the recent national election.

Just months earlier, Mauricio Macri, the former mayor of Buenos Aires, had won a runoff election to become Argentina’s new president. Macri promised to take the country in a new direction: away from the populist policies and fiery anti-American rhetoric of his long-serving predecessor, Cristina Fernández de Kirchner, and toward a center-right agenda of liberalizing the economy and restoring relations with the United States and Europe.

The changing of the political guard threatened to upset Argentina’s budding relations with China. During the final 18 months of her presidency, Kirchner agreed to take on huge new debt from China. Now Macri, questioning the lack of transparency in the agreements, which were not released publicly, and the possible negative environmental footprint of the planned construction projects, vowed to review and potentially cancel China’s mega-deals.

At Restaurante Beijing, the Chinese diplomat brushed aside the incoming government’s concerns over transparency: “I say to our new Argentine friends, ‘Go take a look at the agreements, we’ll wait.’ And if they find nothing wrong, they should respect the contracts.”

He maintained an air of certainty that Macri would not overturn the deals. China’s offer of billions in loans was too large to turn down, a simple rule of thumb that helps explain China’s quietly growing power in Argentina and beyond. “Let me put it this way,” he said blankly, “nobody hates money.”

Mauricio Macri was trying to do something few world leaders had dared: Say no to China.

Macri’s agenda was an affront to the role of China in underpinning Argentina’s economic revival over the past decade. China had not only become a new and large trading partner, buying the majority of Argentina’s soybean exports, but also a critical financial backer when the country was unable to borrow from international markets due to its massive debt default in 2001.

With Argentina’s economy floundering after the 2014 commodity bust, spurning the world’s eminent global economic power hardly seemed a wise move. Beijing’s reaction to the threat from Argentina’s new president offered a microcosm of how China, a one-party state, is reacting to democratic political change endangering its interests overseas.

Saying no to China was also an antithetical position for Macri. The son of a prominent business tycoon, and a former boss of the Boca Juniors, one of Argentina’s most successful football clubs, Macri was staunchly pro-business. After he was elected president, he promoted banking and energy executives to key cabinet roles and moved forward with pro-market reforms.

But Macri’s personality is more nuanced than his stiff businessman-turned-politician background portrays. He is not a man fearful of change or taking risks. A 12-day kidnapping ordeal at the hands of rogue police officers in 1991 compelled Macri to start his political career. Changing course on relations with China was another bold move.

Under Kirchner, Argentina fostered close ties with Beijing, while maintaining an acrimonious relationship with the United States and Europe. Kirchner blamed Washington for how Manhattan-based hedge funds, which she commonly referred to as “vulture banks,” profited from buying Argentine debt at distressed prices, and flatly refused to negotiate with many of the debt holders. 

But Macri wanted to make amends and rekindle ties with the West. “If everything comes from China, this will be an imbalance,” Macri told a reporter at a 2015 investment conference in California. “We are mainly descendants of Europeans,” he said, “so it’s easier to deal with Europe than Asia.”

Months after coming to power, Macri welcomed a line of Western leaders to Buenos Aires, capped off with the arrival of U.S. President Barack Obama in March 2016. The U.S. president’s high-profile visit was a testament to Macri’s skill in steering Argentina’s new foreign policy forward. “No one thought he would move so fast,” a senior Western diplomat told me. “Who else can get Obama after only a few months in office?”

Pictures of Obama meeting cordially with Macri, and later locking arms with renowned Argentine tango dancer Mora Godoy in a short strut at a state dinner, stood in contrast to the more formal proceedings between China’s President Xi Jinping and Kirchner in previous years.

“China is still a very important partner to Argentina, and I expect it to be very active in the future,” Diego Guelar, Argentina’s ambassador to China, told me. “But the relationship was based on Argentina’s isolation. There is a new environment now. China is not going to be alone.”

And Macri’s new outreach to the West was paying dividends. A few months after being elected, he was able to settle Argentina’s long-standing debt problems by offering a repayment deal to hedge fund holdouts. The conciliatory move warmed relations with the United States and ushered Argentina back into global financial markets with a $16.5 billion bond sale, a record amount for an emerging market.

Macri also quickly gathered pledges for new foreign investment worth over $30 billion. Although not entering the country as quickly as hoped, it was a vast improvement from the previous year. And American blue chips, including General Motors and Dow Chemical, were at the front of the queue. “I’m optimistic about the changes that have happened in Argentina with the new government,” said Rex Tillerson, outgoing ExxonMobil CEO and U.S. President-elect Donald Trump’s nominee for secretary of state.

It is still the early days, but by forging closer ties with the United States and Europe, and implementing market-friendly policies, Macri was introducing competition to Chinese companies, which had been reaping the rewards of favorable treatment offered by his predecessor. “Macri hasn’t cut off China, but he wants to lower Argentina’s dependency on it,” a senior Western diplomat told me in Buenos Aires. “Now the Chinese need to get in line like everyone else.”

While so many world leaders were looking to China for new trade and investment opportunities, Argentina’s new president was succeeding in drawing interest from the West’s stagnating economies.

It was in the ornate reception hall of Casa Rosada, the presidential palace in Buenos Aires, that Kirchner christened billions in new loan-for-infrastructure agreements with China’s President Xi Jinping. The move locked Argentina into a generation of debt payments, but in return, among other projects, China agreed to bankroll and build a major upgrade to Argentina’s ailing railway network as well as two large hydropower dams in the far south of the country.

But when Macri swept into power in late 2015, he immediately put the projects on hold and placed a microscope on their financial and environmental consequences.

In hopes of finding out whether China’s mega-deals were really in jeopardy, I spoke with Juan Uriburu Quintana at the offices of Electroingenieria, an Argentine construction company and one of China’s main domestic partners in the country.

Quintana was responsible for the company’s legal and institutional affairs with China. It was easy to see why he was a well-suited interlocutor. For nearly a decade, Quintana had lived and worked in China and Taiwan and could switch almost effortlessly among Spanish, English, and Mandarin.

Quintana also had experience with the Argentine national railways company, the key domestic partner in a $2.4 billion project financed by China to rehabilitate a fleet of trains and 930 miles of railway line in the Belgrano network, a main artery in Argentina’s railway system.

“We call it ‘Train to the Clouds,’” Quintana told me. Ascending into the towering Andes, the popular passenger train was one of the highest railways in the world. In passing through Argentina’s agricultural heartland and onward to Chile’s Pacific coastline, the Belgrano network had the potential to be much more than a tourist attraction. In particular, by linking the Argentine heartland with the Pacific coast of South America, the train line offers agricultural goods a quicker route to China.

China’s loan to improve the railway network promised to substantially increase freight cargo size and double speeds, enhancing the competitiveness of Argentina’s agriculture industry. But Beijing was not offering billions of dollars in loans for altruistic reasons. “China is interested in the railway because it gives faster and cheaper access to our raw materials,” Quintana said.

With benefits ironed out for both sides in the railway project, Macri’s critique fell squarely on his predecessor’s agreement to borrow $4.7 billion from Chinese banks to build two hydropower dams on the Santa Cruz River.

Some 1,550 miles south of Buenos Aires, Santa Cruz province is part of the larger Patagonia region, known for its breathtaking natural beauty and iconic glaciers. Preparatory work had already begun on the hydropower dams when Macri suspended construction in late 2015.

Although the dams would diversify Argentina’s energy sources and bring thousands of new jobs to Santa Cruz, they would leave a deep scar on its landscape. Over 116,000 acres were to be flooded, and altering the watercourse of the glacial river would ravage the region’s pristine ecosystem. When completed in 2020, the sparsely populated Santa Cruz would not even have the transmission capacity to handle the 1,740 megawatts of electricity produced. In a December 2015 meeting with prominent environmentalists, Macri reportedly said that he favored other viable and cleaner energy projects over the hydropower dams in Santa Cruz. “Let’s try to stop them,” he said.

There were also political reasons for Macri’s opposition to the dams. Santa Cruz is the political backyard of the Kirchner family. The larger of the two dams was to be named after Néstor Kirchner, Cristina’s late husband, who was also a former president. Although China’s mega-deals have steered clear of any allegations, the former President Cristina Kirchner is facing corruption charges for dealings with business partners in Santa Cruz.

But Juan Quintana believed the delay to the dams would be short-lived. Electroingeneria and its partners implored the Macri government to move forward in order to protect the jobs created by the project as well as Argentina’s strategic relationship with China. This reflected the broader rift of public opinion toward the dams: Argentina needed to find energy alternatives beyond oil and gas but still protect its environment. It was a fine line for Macri to walk.

“Macri inherited the situation of being very linked with China. We cannot afford to upset one of our biggest trading partners,” Quintana told me. “Otherwise, there are going to be consequences.”

In April 2016, Macri was set for his first encounter as president with China’s leader Xi Jinping. On the sidelines of a global summit in Washington, the two men met to discuss the fate of China’s mega-deals.

The meeting did not last long. After sitting with Xi for only a half hour, Macri later told the Argentine press that Beijing was “willing to revisit agreements” in order “to deepen the relationship instead of reducing it.” His tone toward China was far more conciliatory than it had been earlier.

But Macri’s hands were tied in the negotiations. Some weeks earlier, Zhang Zhijie, president of the China Development Bank, had paid a visit to Buenos Aires to give a polite warning to Argentina’s new government. As leader of the world’s largest development bank, and the main lender to Argentina’s infrastructure projects, Zhang wanted to remind Argentine officials to read the fine print of their loan agreement.

Gaining access to the official documents only after coming to power, the incoming government was told by China’s top banker that the hydropower dams agreement contained a cross-default clause: In the event it was canceled, China’s loan for the Belgrano railway project would be stopped.

The Santa Cruz hydropower dams were to be the largest ever built by a Chinese company overseas, and personally endorsed by Xi. Chinese officials were not about to let their leader lose face from a potential cancellation. They set conditions in the loan to help ensure its survival in the face of any political turbulence.

China bet correctly that Macri was not about to sacrifice the important railway project, and upend Argentina’s broader relations with China, in order to stop construction of the dams. Shortly after the meeting between Macri and Xi, Argentine officials gave the go-ahead for construction to continue.

The outcome in Argentina was not unlike others in the world where domestic political change has threatened major Chinese investments. From Zambia to the United Kingdom, China has been a political punching bag for opposition figures and incoming leaders to scrutinize the initiatives of their predecessors. Once settled in power, however, new leaders tend to roll back the tough talk, realizing the nearly irreplaceable importance of China as a trading partner and investor.

Yet despite often wielding asymmetric economic power in its foreign relations, China can be a negotiable global power. If the business bottom line is respected, and political embarrassment avoided, Beijing is not above accommodating the objectives of new leaders.

Saying no to China’s mega-deals was not possible for Argentina’s new president. But Macri did manage to bend the terms of the hydropower dams agreement to fit his objectives. To avoid going over cost, and to dampen the negative environmental impact, China agreed to lower the capacity of dams by including fewer turbines and adding another transmission line. Conservation groups were also successful in forcing a new environmental assessment through the Argentine Supreme Court. But ultimately Macri did not stop the project altogether.

It was a clear demonstration that Chinese finance is becoming a potent tool of coercion in global affairs. From thousands of Chinese-run supermarkets to multibillion-dollar infrastructure projects, Beijing managed to exploit its significant economic influence in Argentina to rebuff the agenda of its duly elected president. And while Mauricio Macri is the latest global leader to feel the political power of Chinese trade and investment, he is certain not to be the last.

Photo credit: LINTAO ZHANG/Getty Images