Chinese investment in Chile sparks opportunities, concerns

Chinese firm Sinovac’s decision to set up a COVID-19 vaccine plant in Chile is the latest example of growing trade between the two countries. Should the United States be worried?

Meng Weining, vice president of Chinese pharmaceutical firm Sinovac (left) and Chile's Health Minister Enrique Paris (right) celebrated the announcement last month that Sinovac would invest in building a COVID-19 vaccine production plant in Chile as well as an investigation centre for respiratory viruses [File: Esteban Felix/AP Photo]
An earlier version of this article incorrectly stated the purchase price China's State Grid International Development Ltd paid for electric company Chilquinta in October 2019. The copy has been updated to reflect the correct purchase price of $2.2bn.

Santiago, Chile – Two years ago, Chinese moviegoers started eating Chilean blueberries instead of popcorn at the cinema. The treat — called “Blue Pop” and served in small red-and-white-striped boxes — was the brainchild of the Chilean Blueberry Committee, which hoped to make the South American-grown fruit a must-eat in the world’s most populous country.

It worked. The Asian market has accounted for 37.8 percent of Chile’s fresh fruit exports during the 2020-21 season to date, according to the Chilean Association of Fruit Exporters (ASOEX).

The proportion of Chile’s fresh fruit exports going to Asia has grown 16.4 percent year-over-year, allowing China to surpass the United States as Chile’s top destination for fruit exports.

Blueberries are just one example of the growing ties between the two economies. Chinese companies in the country provide 5G mobile phone service, distribute electricity and operate banks, among other activities.

Now there are medical investments in the works as well.

In August, Chinese firm Sinovac announced plans to invest $60m to build a vaccine manufacturing plant in the Santiago Metropolitan Region.

Once up and running, the plant will be capable of producing 60 million doses of Sinovac’s CoronaVac vaccine, officials said, and it is targeted to start operations in the second quarter of 2022. The company will also build a research and development centre in the northern region of Antofagasta.

Chilean Health Minister Enrique Paris said the announcement marked “a happy day for Chile; but not only for Chile, because the factory will be able to produce vaccines for export to Latin American countries that have experienced difficulties in acquiring them”.

But China’s interest in Chile has also provoked unease — especially when it comes to investment in strategic sectors of the country’s economy — as well as concerns from traditional trading partners like the US and Canada that they are getting left behind.

An engine for growth

China is Chile’s largest trading partner, and trade between Chile and China has become one of the most important engines of the Chilean economy, which is beginning to show signs of recovery as the economic effects of the coronavirus pandemic fade.

Solar panels stand in the Quilapilún solar energy plant, a joint venture by Chile and China, in Colina, Chile [File: Esteban Felix/AP Photo]

“There is a long-standing economic, political and institutional relationship between the two countries,” Andres Rebolledo, an economist and former Chilean minister of energy, told Al Jazeera.

“The Chilean government has made a systematic effort for years to attract Chinese investments — it has sought them out and encouraged them,” he added.

InvestChile, a government agency that promotes foreign investment in the country, listed 30 projects from China in its portfolio at the end of the first semester of 2021 — projects worth a total of $5.64m, half a million dollars more than those from the US.

Total investments from Chinese firms add up to some $690m, and of those, energy and infrastructure represent $3.8m and $1.2m, respectively.

“Chinese investment has arrived in Chile later than other countries, and it continues to grow,” Andres Rodriguez, director of InvestChile, told Al Jazeera.

China’s Foreign Minister Wang Yi (left) and Chile’s President Sebastian Pinera (right) met at La Moneda presidential house in Santiago, Chile on July 27, 2019, for talks about free-trade negotiations, among other topics [File: Esteban Felix/AP Photo]

“That’s why it attracts attention today, but we have a very important historical portfolio of investment from the United States, Spain or Canada, which continue to be the main investors in Chile,” he added.

Despite the ongoing coronavirus pandemic, five new projects from Chinese firms have been added this year, including an ambitious public works investment portfolio with some $14bn earmarked for the 2020-2024 period, signalling a growing appetite by Chinese firms to invest in the sector.

Rodriguez added that InvestChile supports the arrival of Chinese companies and intends to continue to put “Chile on the map for Chinese investors”.

InvestChile, in turn, has created its own tracker of Chinese investments, which lays out which sectors are receiving investments and how much. The tech, mining, financial and food sectors all have prominent positions.

That is consistent with findings from a recent report by the United Nations Economic Commission for Latin America and the Caribbean, which posits that China’s goal is to acquire “strategic assets in infrastructure sectors” thereby “increasing its presence in the Chilean market”.

Opposition to investment

But not everyone is happy with China’s increased interest. Some analysts and politicians have called Chinese investments in the country’s electricity sector threats to “Chilean sovereignty”.

The purchase of electric companies Chilquinta and General Electricity Company (CGE) by Chinese firm State Grid International Development Ltd (SGIDL) left more than 60 percent of Chile’s national electricity distribution market in the hands of SGIDL, which bought Chilquinta in October 2019 for $2.2bn, and a year later reached an agreement to acquire CGE for around $5bn.

Last December, a group of Chilean congressional representatives expressed concern about these purchases, insisting on the need for stricter regulation of foreign investment.

The lawmakers also requested more information about the implications of the purchase and a report on how other countries are dealing with such acquisitions in strategic sectors.

Chinese President Xi Jinping (left) walked with his Chilean counterpart Michelle Bachelet (right) during a welcome ceremony outside the Great Hall of the People in Beijing on May 13, 2017, when Bachelet was attending the Belt and Road Forum for International Cooperation [File: Andy Wong/AP Photo]

In March this year, the National Economic Prosecutor’s Office (known as FNE, its acronym in Spanish) unconditionally cleared SGIDL’s acquisition of CGE, concluding that “the merger would not substantially lessen competition in the electricity generation, transmission and distribution markets.”

There is also a controversy about plans by Aisino Corp, a well-known Chinese consortium, to produce new Chilean identity cards, passports and personal databases for Chile’s Civil Registry and Identification Service.

Aisino bid $222m, the lowest offer of the five competing businesses, and a decision is expected to be made in October to determine which firm will start working on the identity cards in December.

But the Chilean Ministry of Foreign Affairs, which views the relationship with China favourably, stressed that it has a foreign investment strategy in place and welcomes investors from around the world so long as they abide by the rules.

That’s partly because the current situation has also been good for Chilean companies.

Chile’s exports increased 27.3 percent between January and July of this year compared to the same period of 2020, and China was the main buyer with a nearly 40 percent share of total exports, according to a foreign trade report issued by Chile’s National Customs Service. Indeed, China is the largest buyer of Chile’s minerals including copper.

Uncertain future

What role Chinese investment will play in the future in Chile remains to be seen, however.

Chile is in the midst of a period of political uncertainty and profound social change: the drafting of a new Constitution is underway, and presidential elections will be held in November.

Among the candidates are Gabriel Boric, a former student leader representing a coalition of leftist parties, and former social development minister and state bank president Sebastian Sichel, who won the primary on the right. Each is sure to present his own vision for the role of foreign investment in Chile.

Some investors are wrestling with the usual fears about what the upheaval of adopting a new constitution and embracing a new president might mean for foreign investment.

But others say these changes are part of a process that will follow its course.

“Chile is an open country with a diverse economy and several investors from different countries,” Longyan Shen, business director on the Asia desk of Ernst & Young Chile, told Al Jazeera. “The same happens with Chilean society, which has an open mind and an increasing diversity of people. This has allowed Chile’s success, and I believe that people will continue to want the best for the development and growth of their country. I am optimistic.”

Source: Al Jazeera