China’s inroads into Latin America have Japan take notice

China’s growing presence in Latin America and the Carribean (LAC) is having other Asia-Pacific economic powers take notice and, amongst those, Japan seems to be gearing for a tug-of-war over who will dominate the LAC-APAC connection.

While Japan’s involvement in the region is nothing new, with major industrial investments dating back to the establishment of NAFTA, there seems to be a realization in Tokyo that this time around is at stake much more than capitalizing on free-trade agreements and searching for export competitiveness to enter the US market. All-round economic influence in LAC is the coveted prize and China’s recent inroads deep into the economic and political fabric of certain countries (Venezuela obviously, but also Ecuador, Brazil and Argentina) at a time when Donald Trump’s very personal take on the Monroe Doctrine (no-carrot, all-stick) sends a signal that the rush for “El Dorado” may have started.

While China’s Ex-Im Bank and China Development Bank lending in LAC has dropped three-fold over the past three years (from $21.5bn in 2015 to $7.7bn in 2018, down from a 2010 high of $35.6bn), under the pressure from Beijing to rationalize investments and contribute to limiting systemic risk, Japan is re-asserting itself through a dynamic combination of multi-lateral and bi-lateral approach to the region.

The revival of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“TPP11”) and its ratification in 2018 by, amongst others, Japan, Mexico and Chile (with Colombia expressing interest), together with Tokyo’s increased activity as an observer within the Pacific Alliance (made up so far of Chile, Colombia, Mexico and Peru), is combined with the signing of bilateral agreements of economic partnership with Chile, Mexico and Peru.

Results have so far been mixed. In 2018, Japan’s external trade with LAC amounted to little under $60bn (about 4% of Japan’s total external trade) and loans for project financing extended to the region by the Japan Bank for International Cooperation (JBIC) totaled $1.3bn, about half of what China has been lending over the same period (when excluding the $5bn in loans to Venezuela destined to purchase oil). On the cooperation front, Japan International Cooperation Agency (JICA) reported programs worth $325mn in fiscal 2017, with about 60% concentrated in Central America and the Carribean.

On the front of investments in innovation and new technologies, Japan has been faring better, with intense venture capital activity in Latin American start-ups and scale-ups. Softbank in particular has been very busy investing in local ventures, chipping in for Brazil’s Loggi ($150mn) and Mexico’s Clip ($100mn), while making lead investments in Colombia’s Rappi ($1bn) and Brazil’s Creditas ($231mn). The firm also announced a $5bn fund dedicated to Latin American startups (“Softbank Innovation Fund”).

Finally, Japan’s Nippon Export and Investment Insurance (NEXI) has inaugurated a new form of presence in LAC by underwriting reinsurance ceded from the World Bank’s Multilateral Investment Guarantee Agency (MIGA) to support a Mitsui & Co-invested wind-power generation project in Argentina. NEXI’s reinsurance activity in LAC aims at promoting and supporting Japanese investments in the region by reinsuring MIGA’s policies covering political risk (including expropriation, war, civil disturbance and breach of contract), a risk that most Chinese investors have been mitigating by imposing aggressive (and controversial) cross-default clauses…

While still lagging behind China in LAC, Japan seems to have risen to the challenge by offering a softer, more consensual approach to investment (and influence) in the region. The timing is certainly right, with many Latin American governments trying to rebalance their relationship with China, at a time when the US have been clumsily attempting to re-assert their influence over the region with a revival of Theodore Roosevelt’s “big stick” policy.

https://www.abc.es/internacional/abci-presencia-china-latinoamerica-fuerza-mayor-actividad-japon-201907151223_noticia.html

Picture credits: semancha.com