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Power to the People: Reconciling Chinese Investments with Sustainable Development in Latin America

Members of the mapuche community protesting against a Chinese-backed mining project in Neuquén, Argentina. Source

China is currently Latin America’s second largest trading partner, only after the United States. Whilst this partnership has brought significant short-term benefits to the continent, Chinese investments have been linked to the region’s environmental degradation and mounting social conflicts. Community engagement and active dialogue amongst stakeholders is vital to make Sino-Latin American trade relationships sustainable in every meaning of the word.

China’s ‘Multi-bet’: commodities, energy, infrastructure, and more

China has been on a global quest for raw materials to fuel its export-driven economy, with Latin America being a principal provider since the mid-2000s –in 2019, China accounted for a record 29% of Latin America and the Caribbean’s extractive commodities. In turn, despite the 7% fall in the region’s gross domestic product (GDP) due to the COVID-19 pandemic, China’s exports to Latin America accounted for 3.8% of its GDP in 2020, the highest share since 2000.

China also invests in the infrastructure, energy and mining sectors in Latin America. Between 2000 and 2019, China invested $58.4 billion in the energy sector in Latin America, of which more than 15% went to renewables. Namely, China has recently invested in electric vehicles in Chile, Argentina, and Colombia, and has financed solar and wind power projects in Argentina and Colombia.

Currently, nineteen Latin American nations have signed Memorandums of Understanding to be part of China’s most ambitious infrastructure development project, the Belt and Road Initiative (BRI). This strategy seeks to promote the economic connectivity and partnership of Asia, Europe, and Africa and their adjacent seas along six economic corridors, through five priorities: policy coordination, facility connectivity, unimpeded trade, financial integration and people-to-people linkages. The BRI is expected to support participating countries’ sustainable transition, poverty reduction, environmental sustainability, and inclusive social development, in alignment with the United Nations’ 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals.

An Asymmetric Relationship

Even though China’s presence in the region has arguably benefited Latin American countries that export primary goods and has prompted the diversification of the energy matrix, increased pressure on the commodity sector has exacerbated environmental degradation and caused social upheaval.

Trade between China and Latin America has generated more social and environmental erosion than the region’s domestic economic activity and its partnerships with other countries. Greenhouse gas emissions from Latin American exports to China rose more than six-fold from 2000 to 2012, reaching 650 tonnes of CO2 equivalent at the end of the period. In contrast, emissions from the region’s overall economic activity increased by 50% during the same period.

Chinese investments also pose a major threat to biodiverse areas and indigenous territories, since these have been penetrated by much of the infrastructure built to get the exports to ports, entailing deforestation, forest fragmentation AND alteration of animal migration patterns. An example of this is the Canutillos Mine, located 48 kilometers northeast of Potosí City, in Tacobamba Municipality, Bolivia. Potosí has the highest rate of the indigenous population in Bolivia, and around 61% of Tacobamba’s population is living on the margins of poverty. In 2010, the local mining cooperative Alto Canutillo signed a joint venture agreement with Jungie Mining Industry SRL, a Chinese-owned mining company, for the exploration and exploitation of the Canutillos mine without an environmental license. In 2014, community members lodged several complaints regarding a leakage of acidic water from Jungie’s tailings into the Jayaj Mayu River, an essential source for farming, ranching and other activities that provide livelihood for locals.

As for deforestation, a recent report revealed that Chinese banks and investors provided more than $22.5 billion USD into major companies producing and trading commodities linked to deforestation -such as palm oil, soy and beef- between 2013 and 2020. The report signals China as the sixth-largest funder of deforestation. Stephanie Jensen-Cormier, Head of Research at The China Latin America Sustainable Investments Initiative (CLASII)*, also draws attention to the impacts of illegal, unreported and unregulated fishing of Chinese fleets. “China is one of the biggest spenders on harmful fishing subsidies and of the estimated 570 fishing vessels in Latin America and the Caribbean waters, 399 are Chinese”, she reveals.

Turning a Blind Eye

The deficiencies of the environmental stewardship of Latin American governments are also a contributing factor in this asymmetric relationship. The issue is not just the lack of social and environmental standards, but the enforcement of domestic legislation. Returning to the case of the Canutillos Mine, if the Bolivian government had forced Jungie Mining Industry SRL to comply with Environmental Law 1333 which states that "in each of its operations or mining concessions, dealers or mine operators must have an environmental license for their mining activities”, the company would not have been allowed to operate. “Sometimes Environmental Impact Assessments (EIAs) are implemented, but it is more of an exercise to tick the box for that requirement rather than a thorough process” comments Jenser-Cormier, “sometimes the EIAs are conducted after the construction has begun and most of the time they are not comprehensive and very few consider the cumulative impacts of other things already built on that particular river or region’.

Similarly, Peruvian law states that the approval of a project should be obtained from two thirds of the citizens of the area. However, Rio Blanco Copper S.A. -owned by Chinese SOE Zijin Mining Group Ltd.- started operations in the Rio Blanco mine without a social license. The company never presented the environmental impact assessment either, and in February 2008 was fined 100 tax units -equivalent to nearly €75,000- by the Peruvian government’s Supervisory Board for Investment in the Energy Sector. In this case, presumably, the lack of law enforcement was due to the Peruvian government being caught in a conflict of interest, since the legislation-enforcing body is also in charge of attracting Chinese investment.

Steps in the Right Direction?

Many Chinese companies have faced major criticism and opposition from Latin American civil society, occasionally facing legal proceedings and suspension of activities. Accordingly, sustainability considerations have been progressively integrated into China’s investment agenda, and Chinese companies seem to be making efforts to improve their performance and address the social and environmental impacts of their operations.

Such efforts often take the form of investments in the renewable energy sector, namely the construction of what is said to be Latin America’s largest solar plant, the Caucharí project in Jujuy, Argentina. The Chinese government has also introduced social and environmental safeguards in investment guidelines for overseas projects. These include the Guidelines on Environmental Protection for China's Outbound Investment and Cooperation, developed by China’s Ministry of Commerce and Ministry of Environmental Protection, and the 'Green Credit' guidelines issued by the China Banking Regulatory Commission.

Despite the good intentions behind these instruments, nevertheless, none of them are legally binding, making their effectiveness questionable. Realistically speaking, a near end of China’s historic demand for natural resources from Latin America seems unlikely. Given this context, what needs to change for China to not truncate sustainable development in Latin America?

Towards Environmental Governance

The Sino-Latin America strategic partnership is doomed unless local governmental and non-governmental stakeholder engagement is enhanced. As Jensen-Cormier outlines, ‘the biggest issue is that Chinese projects in Latin America do not have a good track record of conducting proper due diligence processes, especially when it comes to community consultations and obtaining the Free, Prior and Informed Consent (FPIC) from Indigenous Peoples’. This involves efforts from Chinese companies to guarantee civil society participation throughout the project lifecycle, but also a commitment from Latin American governments to end systematic marginalization of indigenous communities from decision-making.

Full, regular, and active participation of indigenous peoples ensures that all interests are equally represented and provides the opportunity to use their traditional knowledge and expertise for better governance outcomes. Accordingly, Jensen-Cormier adds that “the voices of communities and indigenous peoples are crucial, both from a social justice standpoint and also because these demographics are the most important stewards of the environment”.

The role of the civil society needs to be bolstered for better sustainability outcomes as it has proven to play a crucial role in holding both Chinese companies and local governments accountable, denouncing bad practices, and demanding oversight mechanisms. The case of the Rio Negro Project in Argentina represents the ideal example. In 2010, social unrest was fueled by an agreement between the government of the Rio Negro province and the Chinese state-owned enterprise Heilongjiang Beidahuang, consisting of the concession of some 320,000 hectares of land that were the historic homeland of the mapuche indigenous community, for the export of soy, wheat, and rapeseed. The project was largely rejected by the mapuches, environmentalists, and local NGOs who advocated for national sovereignty and cultural heritage. In November 2011, the provincial court suspended the project on environmental grounds, leading to its definitive cancellation.

Latin American governments also need to improve their law enforcement and hold foreign enterprises accountable for poor corporate behaviour. “Latin American governments have an obligation to ensure that any extractive projects in their own countries –whether Chinese or not– abide by their own laws and by sustainability best practices,” Jensen-Cormier emphasizes. This includes demanding that Chinese companies conduct social and environmental impact assessments of both current and proposed investment projects, without skipping the consultation process, and making sure they are operating according to the principles of the Escazú Agreement. The Escazú Agreement is a regional treaty on Access to Information, Public Participation and Justice in Environmental Matters in Latin America and the Caribbean. It demands every party to encourage public and private companies to prepare sustainability reports that reflect their social and environmental performance, as well as to implement open and inclusive participation in environmental decision-making processes based on domestic and international normative frameworks. It also is important to note that most Latin American countries have ratified the Indigenous and Tribal Peoples Convention of 1989 (ILO 169), an International Labour Organization Convention that requires governments to acquire the FPIC of indigenous communities before decisions that could affect them are made.

In order to prevent sustainability considerations from remaining only on paper, bottom-up civic engagement, domestic law enforcement and indigenous representation need to be strengthened. This poses a great challenge for both China and Latin America, who will have to work collaboratively to develop investment projects that address local grievances, generate long-term financial returns, and preserve biodiversity. A two-way commitment needs to be made to ensure the Sino-Latin America strategic partnership serves the relevant local communities and the environment.

*CLASII was founded in 2014 to ensure that Chinese investments in Latin America comply with sound environmental and social regulations and that any project considered in the region includes robust discussions with civil society.



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