China courts Costa Rica; expands its presence in Washington’s backyard

Council on Hermispheric Affairs | 9 March 2009

China Courts Costa Rica; Expands its Presence in Washington’s Backyard

- Costa Rica severs ties with Taiwan, but will Beijing get its money’s worth?
- Beijing inundates Latin America with its diplomatic presence.
- Talks in early phases over a bilateral free trade agreement between Costa Rica and China.
- China’s signing bonus results in the start of construction of Costa Rica’s new National Stadium.

Costa Rica and China may seem to be an unlikely pairing; however, both governments have moved to deepen their ties and cement regional integration based on the pursuit of a free trade agreement, which was brought a step closer by the completion of the first round of negotiations on January 19. Costa Rica, one of few nations lacking an army, is a unique example of a Central American country that over the years has displayed a respect for democracy and human rights amidst a region ridden with political turmoil and unremitting violence. It is known for its strong agricultural and technological sectors, and it has benefitted enormously from tourism, as well as from a vibrant industrial sector for which it receives a considerable amount of foreign investment due to a relatively stable political atmosphere.

China, on the other hand, has one of the world’s fastest growing armies. In recent years, Beijing successfully has sought the position of being a leading player in the global political economy by focusing its efforts on acquiring resources and pursuing commercial opportunities which has made it the envy of its neighbors. At the same time, Costa Rica has mastered the art of ‘soft corruption,’ capped by the bizarre phenomenon of witnessing one president after another publicly being investigated for exacting bribes from foreign corporations and businesses. In other words, aside from all of its attractive attributes, the country should also be known for its puffery, vanity, self-absorption, and flexible ethics.

Partner, Competitor or Colonizer: Chinese Investment Good for Costa Rica?
The determination with which China has entered the Latin American markets is a point of concern and speculation among the varying schools of thought that categorize China as a ‘development partner,’ an ‘economic competitor’ or as a ‘colonizer.’ Is China’s involvement in Latin America motivated by a long-term strategic commitment to the region, based on a commitment to transmit its well articulated development process to Latin America? Or is China interested in conducting its Latin American relations with the intent to “grab resources” from the region, an approach driven by its own self-absorbed need to promote its autonomous economic growth? Are China’s new engagement rules directed at Latin America driven by Beijing’s desire to displace the historical reliance and involvement by the West in the region? These questions are difficult to answer given that China’s foreign policy is shrouded with ambiguity and is still in a formative stage.

Establishment of Costa Rica - China Bilateral Relations
According to La Prensa Libre, on June 1, 2007, Costa Rica became the first Central American country to establish diplomatic relations with China. Shortly thereafter, Chinese Vice Minister of Foreign Affairs He Yafei, inaugurated China’s embassy in Costa Rica. At the ceremony, in addition to hailing the newly established Chinese-Costa Rican relations, He solemnly stated that he believed the establishment of an embassy would further enhance relations between the two nations. This was followed up several months later, on November 16, 2008, when Chinese President Hu Jintao made his first official visit to Costa Rica, accompanied by his minister of foreign affairs and about 100 businessmen. This trip, during which the countries’ leaders launched talks regarding a free trade agreement, proved to be a turning point for China - Costa Rica bilateral relations.

In order to establish ties with China, Costa Rican President Oscar Arias had to sever his country’s 60 year-long diplomatic relations with Taiwan, because China adamantly refuses to maintain diplomatic ties with nations that recognize its breakaway island. In cutting such links, Arias has stated, “we are looking to strengthen the commercial ties and attract investment.” He emphasized, “China is the most successful emerging economy in the world and soon it will be the second strongest economy in the world after the United States.” Arias added, “For Costa Rica this is an act of foreign policy realism which promotes our links to Asia. It is my responsibility to recognize a global player as important as the People’s Republic of China. With this decision we join 178 nations in the United Nations that have recognized the People’s Republic of China.”

What a legendary cynic like Arias did not particularly stress was that China had won out over Taiwan in a crass bidding frenzy, in which it was able to swamp Taipei’s commercial clout. Costa Rica’s engagement with China illustrates the strong influence and purchasing power that Beijing is willing to use when conducting its international relations. The attention China is affording Latin America must be seen in the context of its single-minded push to successfully gain recognition and support for its one-China policy. A sovereign Taiwan remains an issue for China, although links between Beijing and Taipei are noticeably warming. Additionally, it overtly shows that China is willing to use its version of “checkbook diplomacy” to foster trade and investment in Latin America in order to stolidly advance its goals of wilting Taiwan’s international standing. In establishing ties with Costa Rica, China has increased the likelihood that other Latin America countries will follow suit.

Actions taken by China represent moves towards the objectives it publicly released that were contained in the country’s first Latin American Policy Paper, (November 2008), stressing bilateral trade, economic relationships, the abundance of resources with which Latin America supplies China, and the government’s desire to “view its relations with Latin America and the Caribbean from a strategic plane.” Given that Latin America and the Caribbean constitute approximately half of the countries that diplomatically recognize Taiwan, the island’s concern is justified, as it appears as though China is in the midst of systematically snatching away Taipei’s allies, while continually marginalizing it in the international community.

Poignant Elements of Costa Rica - China Relations
As reported by LatinNews and The TicoTimes, the first of eight rounds of negotiations between China and Costa Rica regarding a bilateral free trade agreement took place from January 17-19, 2009, in San Jose, Costa Rica. The Costa Rican president and Hu hope to complete the agreement before Arias’ term ends in 2010. During the first round, leaders discussed preliminary goals, and decided upon the structure, methodology and the schedule for the forthcoming rounds. Fernando Ocampo, a Costa Rican negotiator, asserted that Costa Rica seeks to “improve the conditions of access to the Chinese market, discover new potentials and establish some rules for investment.” Likewise, Costa Rican officials have claimed they hope to export agricultural goods such as fruit, coffee, plants and meat to China. Beijing’s exports to Costa Rica include shoes, textiles and electronics. Costa Rican officials are also optimistic that their commercial activity with China will facilitate the country’s acceptance into the Asia-Pacific Economic Cooperation (APEC), with the support of China.

APEC’s website spells out that it is the only existing inter governmental group in the world that operates via non-binding commitments, without requiring treaty obligations of its members, and fosters open dialogue with respect for all of its participants’ views. Decisions are reached by consensus only, with commitments solely made on a voluntary basis. Costa Rica’s integration into APEC would allow it to join fellow Latin American members Chile, Mexico and Peru, help solidify its position as a rising economic player in Latin America and allow it to also reap the benefits of the Asian market. From a strategic standpoint, Costa Rica is a valuable partner. It provides access to North and South American markets, as well as ocean access to Europe and Asia. Illustrative of this is a statement issued by the Chinese Ambassador to Costa Rica, Wang Xiaoyuan, who said, “the free trade agreement is very important for China, considering the strategic importance of Costa Rica for both the Caribbean and Central America.”

Eleven cooperation deals were among a series of agreements that were executed during Hu’s visit. One of the agreements signed, according to Limon Roots, included an accord which will allow the China National Petroleum Corporation (CNPC) to construct a regional oil refinery in Limon. It will be used to meet the needs of both the Caribbean and Central America. Additionally, the Chinese have donated money and manpower to build a new national stadium in Costa Rica, which will replace the old stadium in Parque Metropolitana La Sabana. The stadium, whose construction commenced in January 2009, is set to seat 35,000 spectators and may not be completed until after May 2010. Pursuant to the speculations of the Costa Rican Institute of Sports and Recreation, the new stadium will contain the latest technology and security as well as housing for 350 athletes, and it will have the potential to serve as an emergency center to cope with natural disasters and public events. Both Costa Rica and China are already engaged in dialogue with respect to tourism, having agreed that negotiations will be held regarding the establishment of travel agencies, catering specifically to the needs of Chinese tourists.

Skepticism Amidst Optimism
The Tico Times reported that, in exchange for the establishment of diplomatic recognition with Costa Rica, China has pledged to buy $300 million worth of bonds related to Costa Rica’s internal debt. These are to be repaid over 12 years at 2% interest. La Nación and Inside Costa Rica collectively confirmed that the debt bonds purchased were part of an incentive package serving to initiate diplomatic ties with Costa Rica. “The deal shows that China is using its $1.8 trillion in foreign exchange reserves, the world’s largest such cache of foreign currency, to further its political goals, despite promises that it would not do so,” wrote The New York Times. While the terms of the agreement were not meant to be divulged, La Nación reported that the Costa Rican government was obliged by the constitutional court to publish the memorandum of understanding that was signed by both countries. Moreover, the document also mentions that China has agreed to give Costa Rica $130 million in aid, along with other incentives, including 20 scholarships a year for Costa Ricans to study in China.

China’s Aggressive Expansion in Latin America
In November 2004, in the course of his visit to Argentina, Brazil, Chile and Cuba, President Hu established a goal for his country to invest $100 billion in Latin America by 2010, a figure that was surpassed in 2007. From an international standpoint, the development of China - Costa Rica links was a definite strategic move for both countries. China clearly has its eyes set on breaking into the Latin American market on a grand scale: Costa Rica is the third Latin American country, behind Chile and Peru, to institutionalize free trade relations with the Asian giant. In November 2008, Costa Rica’s Congress passed all 14 laws necessary to enact the Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) with the United States, which already had been adopted and implemented by the Dominican Republic, Guatemala, Honduras, Nicaragua and El Salvador. China is now able to indirectly tap into all participating markets of the agreement.

The implications of China’s actions are vast. For one, many analysts agree that China’s interest in Latin America rests upon its desire to obtain the power, influence and resources that are necessary to fuel Chinese industries and sustain economic vitality and growth. Moreover, trade relations, along with investment mechanisms, make acquiring these resources possible for China. Beijing stimulates its expansion to a certain extent, as is evident in the Costa Rican context, by promoting, funding and building infrastructure projects on a giveaway basis. Moreover, and perhaps most significantly from Washington’s perspective, China’s multifaceted involvement in Latin America means that it is expanding its economic and political presence in a region that the United States concretely has long regarded as its preeminent sphere of influence.

Comparative Perspective: China in Africa
In order to better ascertain the nature of China’s obviously intense present interest in Latin America, one can observe its relations during the modern period with Africa as a point of reference. Over the years, the Chinese have made their interests known and increased their ties with a number of key African countries. Beijing is one of Africa’s major trading partners, attesting to the fact that the Chinese government is fully focused on supporting ventures that promote economic growth, namely by securing supply lines to finite resources. It is important to note that China - Africa relations have not been unidirectional. While Africa has become a fairly active market for China’s manufactured goods, Beijing has assisted African nations with a generally available source of foreign development aid and loans. China’s Exim Bank, the national export-import bank, has funded numerous development projects such as power plants, oil refineries, roads and railways in any number of African countries. David Dollar, the World Bank’s Country Director for China and Mongolia, and Callisto Madavo, a former World Bank economist specializing in Africa and East Asia and currently a visiting professor of African Studies at Georgetown University, observe that China’s demand for Africa’s natural resources has pushed up the prices of primary commodities significantly, which in turn has proved to be a boom for many African economies. Dollar and Madavo recognize China’s aid is uniquely offered “with no strings attached policy,” which signifies that China has rejected the practices of western financial donors - such as the International Monetary Fund and the World Bank - which have provided aid only if the receiving country meets certain minimum criteria. Thus, many African nations increasingly have looked to China for development assistance.

Learning Lessons from Africa
While China’s interest in the region undoubtedly has brought about benefits for African nations, development experts determine that China’s involvement with Africa also has had its negative side. The Council on Foreign Relations reports that in the span of 3 years, from 2003 to 2006, China’s arms sales to Africa made up 15.4% ($500 million) of all conventional arms transfers to the continent, with weapons deals conducted with Sudan, Equatorial Guinea, Ethiopia, Eritrea, Burundi, Tanzania, and Zimbabwe. The Congressional Report Service finds that China is “enhancing its status as an international political power, and increasing its ability to obtain access to significant natural resources, especially oil.”

According to Africa-Asia Confidential, Beijing’s interest in Africa is founded upon the continent serving as a diplomatic ally, a market and a source of vital natural resources. A report issued by the Centre for Chinese Studies at Stellenbosch University in South Africa - ‘How China Delivers Development Assistance to Africa’ - elaborates upon this point. The authors claim that China uses aid and development assistance, such as loans and debt relief, combined with investments and trade, to facilitate their access to strategic resource assets and to build and reinforce political ties.
A recent example of this would be China Union’s involvement in Africa. In December 2008, the investment conglomerate committed itself to spend $2.6 billion on Liberia’s main iron ore mine. The Chairman of the National Investment Commission of Liberia, Richard Tolbert, confirmed to Reuters that the contract signed between China Union and the Liberian government foresees 25 years of iron ore production. He also added that the Chinese company had been granted a license to explore for ore in areas near the main mine location, which would increase the possibility of finding additional ore resources. The Chinese government also promised the Liberian government a $40 million signature fee for signing the contract to initiate the project. Also, last year, the China National Petroleum Corporation paid Niger a $300 million signing bonus for an oil deal.

According to Dr. Chris Alden, a Senior Lecturer in the Department of International Relations at the London School of Economics and an Asian-African relations specialist, China’s relations with African countries have not all been positive. He purports that “there are many negative aspects surrounding China’s involvement in the continent. China’s competitiveness across all levels threatens the African industry, and, although it may be in a changing phase, China’s disinterest in governance issues also has a negative effect. Another negative aspect of the country’s influence is the bilateral nature of its assistance, which doesn’t always conform to African regional projects.”

In his article, ‘China and India Go to Africa New Ideas in the Developing World’, Harry Broadman states that “Chinese companies in Africa sometimes displace African companies in local markets while creating few jobs there and sometimes even taking some away.” Furthermore, he notes that China’s trade in Africa is geographically concentrated, exemplified by the fact that 85% of Africa’s exports to China come predominantly from the oil-exporting nations of Angola, Equatorial Guinea, Nigeria, the Republic of Congo, and Sudan. China already engages in strategic trade deals, receiving copper from Zambia, cobalt and copper from the Democratic Republic of Congo, timber and oil from Congo-Brazzaville and iron-ore from South Africa. These sort of transactions strengthen the notion that Chinese involvement in particular African nations is motivated by the country’s own economic advancement, and has the potential to produce a skewed imbalance in development throughout the continent.

China’s interest in Latin America has already led other countries to join the bandwagon. For example, the Costa Rican Ministry of Foreign Trade recently announced that talks have commenced between Costa Rica and Singapore. April 20, 2009, will be their first meeting, taking place in Singapore, and addressing a potential free trade agreement will be the main topic of discussion. According to The Costa Rica News, this meeting with Singapore will be precursored by Costa Rica’s trade negotiating panel that will have just wrapped up a second round of negotiations on the free trade deal with China on April 14-17.

Latin American Leaders Should Err on the Side of Caution
China’s relations with Africa help mirror its interest in Latin America. Just as Beijing’s insatiable pursuit of markets and raw materials to fuel its growth led the “scramble for Africa,” the same quest stimulates its drive to “scramble for Latin America.” Undoubtedly, China’s expansion with its use of soft power in Latin America is a development that must not only be perused but studied carefully, for their calculated actions promise a higher Chinese profile in the region. China represents an economic partner, potential investor and competitor for Latin America. As such, the Latin American leaders who engage in international relations with China should heed the dynamics of that country’s engagement in Africa.

Latin American leaders must bring themselves to the point of fully comprehending the intricacies of engaging with China and ensure that any agreement is on equal footing. While China hopes to engage in the Western Hemisphere, it is up to the prospective Latin American governments, both one-by-one as well as through regional pacts, to enact proactive policies that ensure that the immediate community is incorporated within the negotiations. For example, in the case of Costa Rica, this would entail guaranteeing that Costa Rican citizens themselves are fully integrated, working alongside the Chinese for a promising future. In the long run, this is what will create jobs and help boost the economy. Characteristically, Costa Ricans themselves will be trained in and be responsible for the maintenance and administration of projects.

While Latin American leaders may be keen to promote foreign direct investment and other economic ventures within their countries, it is imperative that they do not ignore the consequences, whether they be positive or negative, that these ventures could potentially bring in their wake. The truth of the matter is that countries of Latin America will need to manage their relations with China with care, if they are to reap benefits. Since it is inevitable that China’s sphere of influence in Latin America will only expand in the years to come, the matter at hand is whether or not Costa Rica will follow the same sometimes foolish path as some African nations have taken with China.

This analysis was prepared by COHA Research Associate Maya Wilson

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source: COHA