China's Oil Investment and Financing in Latin America: Evidence from Three Different Countries


Student thesis: Doctoral Thesis

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Awarding Institution
Award date11 Sep 2020


As part of China's Party-State's (CPS) aim to increase the competitiveness of crucial State-Owned Enterprises (SOEs), the 'Going Out Policy' has been actively promoted to encourage National Oil Companies (NOCs) to expand towards new markets. Chinese NOCs' growing presence in Latin America from almost two decades to now has produced a proliferation of political and economic analysis about the possible outcomes. However, they continuously overlook the variety of actors and motivations in the process. This research seeks to advance this discussion by showing that Chinese NOCs' internationalization process in Latin America is not unidirectional, as state's motivations and business opportunities drive their investments in Latin America. What are the CPS's and Chinese NOCs' interests behind their overseas direct investments (ODI) in Latin America? I argue that NOCs' investment motivations are far from homogeneous, oscillating not only in time and space but also in the modes of incorporation. CPS also leads them in the global business arena. Rather than argue that Chinese NOCs are or not able to employ tools in pursuit of CPS’s objectives in Latin America, I ask what political, economic, and legal conditions in the region make their strategies more or less successful. By giving support to this argument, I tracked the distinctive elements of the corporate expansion and linked them with the state's initiatives and policies.

Being the empirical puzzle of this study, the peculiarity of NOCs' internationalization process in Latin America, it is crucial to analyze the role of Chinese Policy Banks' (CPBs). In answering this dilemma, this thesis links China’s political economy and the firm-level behavior with the domestic elements within three countries in Latin America. This thesis might also help to understand better how states use economics to pursue their strategic objectives. An innovative part of this topic is to link domestic political economy conditions and behaviors to broader questions of international political economy.

However, the idea that CPBs and NOCs are attracting countries to borrow for insolvent projects is at the center of the debate about discussions of China's investments and finance in infrastructure and energy. 'Debt-trap diplomacy' establishes that China uses unwarranted lending to Latin America, knowing full well that these countries will not be able to repay the loans; analysts use Venezuela as a negative example of this financial scheme. While China does not try to promote a particular political system, it has indirectly reinforced the negative consequences for Venezuela's political and economic national development. Consequently, the "debt trap" seems more of a "creditor trap" for China than for Venezuela. With no conditionality, China has little choice but to work with its debtors, some of which have drawn China into a creditor trap (Wise 2020). I argue that Chinese NOCs' and CPBs' approach instead empower states to create policies whose outcome is largely dependent on national governments' capacities and leadership, as well as their ability and willingness to draw up long-term development plans. Therefore, Chinese state capital is not a transformative force, but a reinforcer of positive and negative internal trends. This research shows that although Chinese investment entails some risks, it is impossible to generalize its effects, so it must be studied case by case.

Drawing from Ching Kwan Lee's and Stephen Kaplan's studies on how Chinese state capital 'goes out,' the concepts of patient capital and encompassing accumulation will help us to understand the dynamics between NOCs and the CPS, and their implications in Latin America. With its peculiar logic of accumulation, production, and organization, Chinese state capital gives more space for bargaining, and it does not replace the existing institutional structure; it is an alternative to Western investment and financial regimes. Chinese SOEs' and CPBs' disposition to face more uncertainty in the Latin American oil market gives them a more substantial return later. Profit Optimization opens the door for creating long-term profit and market-share opportunities for its firms, expanding political and diplomatic influence, and gaining access to natural resources.

While there is Chinese NOCs investment in almost all of Latin America, no single country is representative. The diversity in political-economic conditions and natural endowments challenge continent-wide generalizations. Thus, Venezuela, Brazil, and Mexico cases share many features, and despite the similarities, the outcomes are different. The cases examined in this thesis provide fundamental cross-variation along the dimension of the essential statutory relationship between the CPS and the Chinese NOCs in Latin America. Although all three of the empirical contexts offer fertile ground for economic statecraft, the cases demonstrate that the CPS’s support is not a predetermined result. Through semi-structured interviews conducted during my fieldwork in those places and China, I found that the case selection provides significant variation along with the relationship between the CPS and the Chinese NOCs, and how the domestic elements in each case determine the outcomes.