The U.S.’s dramatic actions in Venezuela last weekend have exposed China’s enormous investments into the country’s infrastructure to further stress, adding to issues created by Venezuela’s long-running economic crisis. 

Beijing has for years buttressed its support for the left-wing regimes of Nicolas Maduro, and his predecessor Hugo Chavez, by plowing billions of dollars’ worth of loans and investments via state-owned banks and oil companies into Venezuela — a country it describes as an “all-weather strategic partner.” China’s foreign affairs ministry has said it “strongly condemns” the U.S.’s actions, and has called upon the U.S. to “stop toppling” Venezuela. 

But behind the rhetoric, the Sino-Venezuelan relationship has been cooling somewhat in recent times, as Beijing’s investments have fallen victim to the country’s economic mismanagement

“For the past two decades, China has been a primary financier and a staunch ally for Venezuela in a political sense,” says Margaret Myers, senior advisor of the Asia & Latin America Program at the Inter-American Dialogue. 

“At the same time, Venezuela has seen an erosion of this relationship as China grows frustrated with the way Venezuela has managed its financial affairs, especially the oil industry,” she adds.

OILING THE TRADE WHEELS

Oil has long been key to Venezuela’s side of the bilateral trade relationship: 85 percent of the oil Venezuela produces is exported to China, according to Belgian think tank Beyond the Horizon. Heavy Venezuelan crude is primarily used in China for road surfacing and developing other construction materials. 

Still, overall trade between the two countries has been in decline — a reflection of the malaise within Venezuela’s energy industry which has been producing less oil each year, despite its vast proven reserves.

China’s top shipments to Venezuela are finished products such as air conditioners and motorcycles, while it has also provided technological know-how. In 2017, for example, Venezuela credited Chinese telecoms firm ZTE for its help in developing national ID cards, known as “fatherland cards”, that enabled the state to collect reams of personal data into a central database. 

Though China occupies a crucial position for the Venezuelan oil industry, it relies far more heavily on Russia and the Middle East for its energy requirements, according to data from Kpler, a global real-time data and analytics provider. 

Most of the oil China imports from Venezuela is refined by so-called “teapot refineries” — small, independent operators mostly based in Shandong province that have proven adept in importing discounted oil from countries subject to international sanctions, such as Iran and Venezuela. 

“Oil demand growth in China is slowing, peaking even,” says Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies. “If China were to lose all flows of Venezuelan crude, it could replace them with other sources.”

Even so, Chinese banks and firms are still tied to Venezuela through loans, investments, and joint ventures — primarily in oil but also in sectors such as telecoms, railways, and ports. 

“The worst case scenario for them is a pro-U.S. regime that cancels their existing upstream contracts, reneges on the debt that is still owed, and cuts out Chinese companies from their operations [in the country],” says Meidan.

CAPITAL CONSTRAINED

Chinese companies and banks currently have around $18 billion invested in Venezuela, according to data from the American Enterprise Institute, mainly in energy and mining projects across the country. In addition, the country’s banks have made loans totaling around $60 billion since 2007, mainly to the same sectors, according to data from Inter-American Dialogue — although Venezuela has cleared around $51 billion of those debts, according to Beyond the Horizon.

China has turned off the investment taps in recent years, largely because corruption and economic mismanagement under Maduro’s leadership has meant that much of its money didn’t go towards its intended goal of building up Venezuela’s infrastructure and oil production capacity, says Leland Lazarus, founder and chief executive of Lazarus Consulting and a specialist on China’s role in Latin America. 

This is a really important region for China as it looks to internationalize its presence across industries. It’s a great test case for different types of investments and financial integration.

Margaret Myers, senior advisor of the Asia & Latin America Program at the Inter-American Dialogue

“Venezuela is a case in point of what China has learned — ultimately you do want the countries to pay that money back,” he says. “You have started to see the Chinese side playing harder and harder ball with the Venezuelan side.”

Figures from the Inter-American Dialogue and AEI show that China’s development finance to Venezuela ceased in 2015, and its investments similarly dropped off after 2018.

LATIN AMERICA COMPETITION

President Trump’s plan for Venezuela now seems to center around cajoling American resources companies to invest in its energy and mining sectors. Secretary of State Marco Rubio has referred to the administration’s desire in turn to restrict the influence of rivals such as China in the country, part of a region the U.S. has long described as its ‘backyard’.

The U.S.’s direct action in seizing Maduro stands in contrast to China’s approach in Latin America. It has hoped to find ready markets in the region for goods where it has excess production, such as electric vehicles, without interfering too heavily in individual nations’ politics. In return, China has sought investments and deals that help secure its own supply of key resources such as agricultural products, minerals and metals, and oil.

“This is a really important region for China as it looks to internationalize its presence across industries,” says Myers. “It’s a great test case for different types of investments and financial integration.” 

In turn, Myers says, Latin America’s proximity to the United States offers China an opportunity for it to pointedly advance its own vision for international relations in contrast to that of its chief geopolitical rival. “[China] emphasizes collaboration, cooperation, and Global South engagement,” says Myers.

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