China’s Policy Towards a Venezuela in Crisis

Introduction

Amid the ongoing crisis in Venezuela—in which the country faces not only economic meltdown, but also a division between two rival presidents, in the persons of incumbent President Nicolas Maduro and opposition leader Juan Guaido—the People’s Republic of China (PRC) remains one of the most prominent and influential nations continuing to recognize the legitimacy of the embattled Maduro government. The PRC has refused to offer any support to the opposition, and has maintained its friendly relations with the sitting government; however, Venezuela’s increasing international isolation and free-falling economy carry with them increasing anxieties that Maduro can remain a useful partner. The erosion of Venezuela’s economic situation—including its ability to continue oil production—has left China scrambling for ways to respond to the worsening situation of its ally in Caracas.

The Chinese government has been a vocal opponent of any potential outside intervention in Venezuelan affairs, and has offered diplomatic cover for the Maduro government: in late February, Beijing joined Russia in vetoing a U.S.-drafted United Nations Security Council resolution calling for a new presidential election in Venezuela (United Nations, February 28). Amidst the crisis, PRC state media has offered sympathetic coverage to the Maduro regime, praising it for “remain[ing] calm and exercis[ing] restraint” in the face of “provocations” from the United States and other countries supportive of Guiado (Xinhua, February 22). Beijing’s Foreign Ministry has depicted itself as a voice of moderation in the conflict—encouraging all parties to stay rational and calm, and to seek a political solution through dialogue. One Chinese analysis of the situation has compared the unfolding conflict in Venezuela to the Cuban Missile Crisis of 1962, and lauded President John F. Kennedy for his sober-mindedness and restraint during that tense period (China Academy of Social Science, February 12).

On its surface, the PRC’s stance on Venezuela is consistent with its long-standing policy of non-interference in the domestic affairs of foreign countries—one of the core tenets of the PRC’s foundational “Five Principles of Peaceful Co-Existence.” [1] However, for China, maintaining its principle of non-interference is more than simply hollow rhetoric: rather, it is a strategy intended to demonstrate that it is a different sort of superpower, in a region where memories of past American interventions still resonate. If America were to pursue a regime change in Venezuela, it might prove to be be a Pyrrhic victory, showing that Beijing’s accusations about America exporting poverty and instability in its backyard ring true (Foreign Policy, January 12 2011).

However, there is more to the story than simply adherence to abstract principles, or of competing ideological narratives. China has a particular stake in the stability of Venezuela—which, by some accounts, still owes at least $20 billion in loan payments to Beijing (Argus Media, October 19 2018; National Interest, February 10). With no immediate solution in view, Beijing’s willingness to keep its checkbook open to Maduro (or perhaps, to recognize the opposition at some point in the future) will have an important impact on how events unfold in Venezuela.

The Background of Relations Between Venezuela and the PRC

Venezuela’s official diplomatic relations with the PRC were first established in 1974. At that time, Venezuela was part of a cascade of diplomatic losses that the Republic of China (Taiwan) faced in the region of Latin America and the Caribbean (LAC) in the early 1970s: Venezuela’s switch came in the wake of other LAC states recognizing the PRC, to include Chile, Mexico, Guyana, and Jamaica. Ties between Venezuela and the PRC remained modest for many years, as the PRC possessed limited influence overseas, and successive Venezuelan governments sought to maintain friendly ties with the United States.

However, in the 2000s the relationship began to blossom under the self-styled “Bolivarian Revolution” of Venezuelan President Hugo Chavez, who proclaimed himself an admirer of Mao Zedong and sought to cultivate close ties with the PRC (Reuters, September 23 2008). Whatever leaders in Beijing may have thought of Chavez and his colorful antics, the new Venezuelan leader provided the PRC with an avenue of entry into a region otherwise filled by largely pro-Western governments. The burgeoning relationship in the early 2000s met the pragmatic needs of each country. For Chavez, an over-dependence on the American market was part of a neocolonial burden for his nation to overcome, and he increasingly looked to diversify his trade toward Asia and non-Western powers. For its part, the PRC had a growing appetite for LAC commodities such as copper, iron ore, and bauxite—and in the case of Venezuela, oil. Venezuela provided China, one of the world’s largest importers of oil, a new source of supply and huge untapped reserves for future exploration.

The Sino-Venezuelan Economic Relationship

While most conversations about China and Venezuela center on oil, the relationship is much more diverse, including cultural and educational exchanges, technical transfers, and infrastructure projects (including many in the oil industry). In 2001, Venezuela became the first Spanish speaking nation to enter into a “strategic development partnership” with China; this was later upgraded to a “comprehensive strategic partnership” in 2014. This relationship grew to encompass nearly 800 investment projects in Venezuela, ranging across a broad range of sectors to include infrastructure construction, petroleum, mining, and light industry. However, over the course of the past decade many of these projects have been canceled or stalled due to debt defaults or crippling corruption (SupChina, January 28).

The PRC has also been a major development lender for Venezuela. In 2007, the two countries created a joint development fund worth $6 billion dollars; Beijing chipped in $4 billion of its own money, with additional contributions expanding by 2009 to $12 billion. Until 2014, Venezuela accounted for 64% of China’s new credit lines to the LAC region—and still today, even amidst rocky times, China stands as Venezuela’s second largest trading partner, trailing only the United States (OEC, 2017).

The PRC has also facilitated technology development for Venezuela, in terms of both showcase projects and investments in new industrial sectors. The first Venezuelan satellite was developed by China and launched from Chinese soil in 2008: the Simon Bolivar, named for Venezuela’s national hero, was intended to facilitate land surveys, and to provide rural areas with increased levels of telecommunications connectivity. In 2012 and 2017, China followed up by building and launching two remote sensing satellites for Venezuela, the VRSS-1 and VRSS-2 (Xinhua, October 9 2017). China built Venezuela’s first two cell phone factories– promising to make an affordable option available for common Venezuelans–while also building a $912-million Haier appliance factory to make washing machines and refrigerators (Venezuelanalysis, May 7 2012).

The PRC’s credit line to Venezuela, trickling into industries throughout Venezuelan society, has currently reached $60 billion. With a reported $20 billion still owed by Venezuela to Chinese creditors, this a substantial debt  burden. One of the striking aspects of China’s relationship with Venezuela is the conditions of repayment: namely, China accepting crude oil in place of cash. China has shored up investments in other Third World nations with similar deals—and in places like Sudan, the Congo, and Venezuela, large stores of minerals and oil are seen as a potential way to offset the risks of non-payment. According to Deborah Brautigam and Kevin P. Gallagher, from 2003 to 2011 over half of Chinese bank loans to Africa and Latin America, approximately 75 billion, were secured and backed by commodities (Global Policy, September 2014). However, with Venezuela’s petroleum production severely impacted by the country’s economic and political chaos, even this form of repayment to China is now very much in doubt.

Problems in the Sino-Venezuelan Relationship

The Venezuelan crisis has put the PRC-Maduro relationship under a microscope, but difficulties in the relationship are not new. Venezuela once stood out among the PRC’s allies, comprising 64% of China’s LAC investments from 2010-2013; however, this fell to 18% from 2014-2017. In 2016, China stopped issuing loans to Venezuela entirely (Reuters, March 20 2018). In other partner nations, China has shown a willingness to restructure debt repayments, and is not likely to ensnare Venezuela in a debt trap. However, the PRC has tightened its checkbook—a step that has less to do with recent calls for Maduro’s ouster than with a more general uneasiness that the once free flowing spigots of oil will be turned off by Venezuela’s spreading political instability.

However, it is not only failures from Venezuela to deliver on its end of the relationship that has tarnished the once promising partnership. As seen in many Belt and Road Initiative (BRI) infrastructure projects around the globe, ambitious plans sometimes run afoul of practical difficulties on the ground. In Venezuela, China once proposed building South America’s first high speed train, the Tinaco-Anaco Railway. Conceived under Chavez as a “model of socialist fraternity,” the train line was projected to be capable of traveling up to 220 kilometers per hour, and of moving five million passengers and 9.8 tons of cargo annually (SCMP, May 15 2016). Today, the project remains four years past due its original completion date, its construction sites are abandoned amid complaints of unpaid wages, and the $7.6 billion investment appears to be at a standstill.

China’s relationship with Venezuela can only be properly understood within the context of China’s relationship with the region as a whole, which has expanded since PRC representatives have invited more LAC nations to sign on to the BRI. Recently, small Caribbean nations like Barbados and Jamaica have joined China’s “Maritime Silk Road” initiative, while China has increased its relations with Venezuela’s land neighbors, including Colombia and Guyana. While the train in Venezuela was left unbuilt, thousands of Chinese workers flocked to Jamaica to build a super-highway across the island. In Argentina, China has built one of the world’s largest solar plants. Whereas even a decade ago Venezuela stood out as a unique ally for the PRC, the field today is considerably more crowded. This means that the partnership has less strategic value than it once did, and any erosion of influence in Venezuela can be countered with China’s significant inroads elsewhere in the region.

While petroleum will continue to remain central to Venezuela’s economy—and by extension, the country’s ability to repay its debts—the PRC is not dependent on Venezuelan oil. Venezuela provides roughly 4% of China’s crude oil imports—less than Angola, Iraq, Kuwait, or Russia. In the future, other Venezuelan resource products such as coltan (“blue gold”), as well as new emphases on renewable energy, are likely to rise in importance (Venezuelanalysis, October 22 2018). Furthermore, the PRC is already looking elsewhere: Venezuela’s neighbor Guyana is poised to be South America’s next mega producer of oil, and the China National Offshore Oil Corporation already has a vested stake in this potential bounty (The National, October 8 2018).

Conclusions

PRC leaders face a quandary in Venezuela: on the one hand, the Chavez/Maduro regime has offered China inroads into a region of geopolitical significance, and Beijing has consistently maintained opposition to “color revolutions” that have toppled authoritarian regimes in other countries (China Brief, February 10 2011; China Brief, February 20). On the other hand, Chinese leaders are concerned for the future of their investments and loans in the country—and by some accounts, have even made back-channel outreach to the Venezuelan opposition in order to be prepared in the event that Maduro is forced from office (Reuters, February 13).

For now, PRC leaders seem intent on hedging their bets on Venezuela: speaking loudly in the diplomatic arena, but carrying a small stick. If the Maduro regime manages to weather the current storm and keep its grip on power, China can count on a traditional ally in Caracas—and one, perhaps, more dependent on Chinese backing than ever before. However, if opposition leader Juan Guaido succeeds in obtaining power, it is unlikely that he would risk hurting his new regime’s legitimacy by defaulting on Chinese loans, or otherwise alienating himself from one of the world’s largest economies. Much like the rest of the world, Beijing appears to be biding its time on Venezuela–and seeking to ensure that its interests are protected, whatever the outcome.

Jared Ward is a Ph.D. Candidate and Associate Lecturer at the University of Akron in the Department of History. His dissertation and research focuses on China’s foreign relations with the Caribbean during the Cold War. Follow him on Twitter at: @JA_Ward.

Notes

[1] The “Five Principles of Peaceful Coexistence,” first articulated and advocated by PRC leaders in the 1950s, are: mutual respect for sovereignty and territorial integrity; mutual non-aggression; non-interference in one another’s internal affairs; equality and mutual benefit, and peaceful coexistence (PRC Foreign Ministry, undated).