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China’s Financial Footprint Deepens In Latin America

China’s financial footprint in Latin America is deepening, according to data published Friday by Janes IntelTrak’s Belt & Road Monitor.

With one crisis after the next in South America, coupled with Washington largely ostracizing it as a solution to its Asia-centric supply chain woes, Chinese capital and corporate brands are making inroads like never before. If the post-World War II era in Latin America was the era of U.S. corporate power in countries like Brazil (GM and Coca-Cola), the post-2000 era is set to be won by the Chinese (Polestars and TikTok).

Earlier this year, Great Wall Motors took over a Daimler plant in Sao Paulo. It had been a Mercedes Benz assembly line. Now it’s a GWM assembly line. Mercedes Benz is out. Ford is out. China’s GWM and BYD are in.

Citibank partially left Brazil in 2016, selling its consumer lending division to Itau. The Industrial and Commercial Bank of China, which dwarfs Citi, moved into Brazil three years prior.

Those were the early days of China encroachment. They have been sniffing out Brazil and Argentina since the heady days of the commodity super cycle in the early 2000s.

The two sides have developed much closer ties. The election of Luiz Inacio Lula da Silva likely means even closer ties to China as Lula will look to drum up business and investment to get production up quickly, and inflation and interest rates down.

China All Over Mexico

In the last two weeks ending October 31, Latin America saw the highest number of Belt and Road Initiative (BRI) projects. These are largely Chinese state-funded development projects in infrastructure. Over that two-week period, China dished out around $5.3 billion in fresh capital, and Mexico got almost half of it — a $2.16 billion railroad project in Guadalajara.

On October 19, a 30-year operating license was given by Mexico’s Federal Telecommunications Institute to China Unicom — a state-owned telecommunications company that was banned from doing business in the U.S. over spying concerns in January 2022. The license gives China Unicom permission to provide services in the fixed and mobile telephone markets in Mexico.

From a corporate branding perspective, American owned Apple and Motorola have a combined 37% of the mobile phone market. China brands led by Xiaomi are in second place with 26%. South Korean Samsung leads. European phones simply do not exist.

On October 24, China Railway Construction Corporation (CRCC) announced that a consortium including Mota-Engil Mexico and CRRC Hong Kong won a $2.16 billion contract for the construction on Light Rail Line 4 for Guadalajara’s urban rail transit system. They won a similar concession in 2015. Construction of Line 4 will take place over a two-year period and will operate as a public-private partnership with China and its Mexican partner jointly owning that line for 38 years.

Jiangsu Lixing General Steel Ball Company, an automotive parts manufacturer, said on October 24 that it would partner with American Industries Group (AIG), a privately-owned Mexican company, to establish a precision steel ball manufacturing plant in the country.

And Shanghai Carthane Company announced on October 27 that it would establish a manufacturing plant in Mexico to produce automotive polyurethane shock-absorbing components.

Seeing how Mexico has no automotive brands to speak of, and Ford and General Motors are manufacturing there (the new Ford Mustang Mach-E is made in Mexico), it is likely that Chinese corporations in Mexico will be an increasing part of the U.S. automotive supply chain.

Smart move, China, Inc.

China will have to make some tough decisions, though. The bigger role it plays, the more it will be forced to use its currency. That will strengthen the renminbi and make China’s export-driven economy less attractive to importers.

However, suppose China feels that a “decoupling” with the West is happening and that it faces the real risk of dollar sanctions like Russia is facing. In that case, the world’s second-largest economy might need to flex its muscles where it hasn’t yet — and that is on the currency side.

“While infrastructure investment gets most of the attention, the BRI goes far beyond that. It includes central bank currency swaps, access to China’s satellite and submarine cable networks, student exchanges and free trade agreements,” says Diana Choyleva, chief economist, and Dinny McMahon, financial market analyst at Enodo Economics, as quoted by Janes.

“Bringing other countries into China’s economic orbit will require financial integration. That is only possible once the countries start using the yuan more widely,” they wrote.

“Germany: We Like You, Too.”

It’s okay, Germany. China still likes you guys.

On October 27, local news first announced a potential sale of a German semiconductor factory owned by Elmos Semiconductor in Dortmund, to a Chinese-owned company called Silex, based in Sweden. The transaction is under review by the German government with a final decision expected soon.

German Chancellor Olaf Scholz was in China today, looking to strengthen business ties. All roads point to this semiconductor deal being approved by Germany. The chips made by Elmos are mostly used by the automotive industry.

Lastly, on October 26, the German government approved China Cosco’s purchase of a 24.9% stake in a port terminal owned by logistics firm HHLA out of Germany’s Port of Hamburg, the country’s largest port.