From oil to infrastructure, why China has plenty to lose from political turmoil in Venezuela
Venezuela’s political crisis appears to be reaching boiling point, with opposition leader Juan Guaido and President Nicolas Maduro each backed by different world powers.
Maduro, who has been in power for six years, claimed victory in a presidential election last May that was called invalid by his rivals after he barred opponents from running and drew a 46.7 per cent turnout, the lowest in the country’s democratic era.
Guaido, the president of the legislature, declared himself interim president on January 23 and has promised to call elections. Following US President Donald Trump, European countries have recognised him as de facto head of state, heightening international pressure on the troubled country.
But despite overseeing an economic collapse and the exodus of millions of Venezuelans, Maduro retains the critical support of the military and the powerful backing of Russia, China and Turkey.
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As Venezuela’s biggest creditor, China is bound to be affected by the outcome.
Here are some of the Chinese investments that have already hit trouble in Venezuela:
The last loan Maduro got from China was one of US$5 billion in September 2017. This was in addition to US$65 billion loaned by China to Caracas over the past decade, which the South American nation has been repaying in oil shipments.
China, as the biggest oil importer in the world, is receiving 240,000 barrels of oil a day – mostly as debt repayment – from Venezuela, which has the world’s biggest oil reserves.
According to Inter-American Dialogue, a US think tank, China has provided more than US$100 billion in loan commitments to Latin American countries and firms since 2005. This would mean China’s loans to Venezuela accounted for well over half of its loans to South America.
With dropping oil prices and a struggling economy, Venezuela has also not been able to meet the production volume it was supposed to ship to China, and asked Beijing for loans to prop up its oil sector again. The International Monetary Fund has estimated its inflation rate last year hit 1,000,000 per cent.
Several state-owned Chinese oil corporations have bought stakes in or entered joint ventures with Venezuelan counterparts.
But after the escalating political chaos, it was reported last week by Reuters that PetroChina planned to drop Petroleos de Venezuela as a partner in a planned US$10 billion oil refinery and petrochemical project in southern China.
Even before the current chaos over the presidential race, Venezuela’s economy had long been hampered by its political instability. This led to the abandonment in 2016 of a Chinese-backed high-speed rail project that had cost US$7.5 billion.
The 462km Tinaco-Anaco line was intended to become part of South America’s first high-speed rail route and carry 5 million passengers and 9.8 million tonnes of cargo a year.
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Beijing-backed China Railway Engineering Corporation had a stake of 40 per cent in the project, with Venezuela holding the rest, and construction began in 2009.
But it fell behind schedule and was abandoned by the Chinese state company in 2015, according to an Associated Press report. By 2016, the construction sites and factories had been ransacked for power generators, computers, metals, ceramics and other materials.
In 2017, China agreed to help diversify Venezuela’s oil-dependent economy by developing its mining sector. A US$400 million joint venture was established between the Corporacion Venezolana de Mineria, Chinese firms CAMCE and Yankuang Group, and Colombia’s Inter-American Coal to boost Venezuela’s coal mining and port operations.
CAMCE, a construction engineering affiliate of state-owned China National Machinery Industry Corporation, and Yankuang, a Shandong-based coal company, have also promised to invest US$180 million to develop the country’s nickel industry.
No progress has been reported from the project so far, but other mining projects in the country have been hindered.
Baoji Oilfield Machinery Company suspended its activities in Venezuela in 2015 following a series of political protests. In March 2016, a gang gunned down 17 miners in an area of the Orinoco Mining Arc site that was licensed to Yankuang.
Source: South China Morning Post