China’s financial presence in Latin America is growing, according to the latest data.

Chinese capital and corporate brands are pouring into South America more than ever. It happened after a series of crises in South America, along with the U.S. refusing to accept it as an alternative to the problematic Asia-centric supply chain. 

The three largest countries in South America, i.e., Brazil, Argentina, and Mexico, are typical of this trend. And China’s black hand could be seen across various sectors, from automobile, railroad, telecom to banking.

Earlier this year, China’s Great Wall Motors bought a Daimler plant in the city of Sao Paulo, Brazil. It used to be an assembly line for Mercedes Benz, and now after the transaction, it turned into the Great Wall Motors’ assembly line. 

German’s Mercedes Benz and America’s Ford exit, and China’s Great Wall Motors and BYD get in.

In 2016, America’s Citibank partially left Brazil after selling back its business to a local bank. But three years previous, in 2013, the Industrial and Commercial Bank of China, the biggest bank in China, had already set foot in the country. 

​With Luiz Inacio Lula da Silva becoming the next Brazilian president, China might get a bigger piece of cake in the country’s market as Silva would likely push up business and investment.

In fact, China has kept an eye on Brazil and Argentina since early 2000.

In the two weeks ending in October, the highest number of Belt and Road Initiative (BRI) projects took place in Latin America. Belt and Road Initiative (BRI) projects are development projects in infrastructure funded by the Chinese government. During that period, within China’s extra investment worth $5.3 billion, more than half of that, or $2.16 billion, went into a railroad project in Guadalajara, Mexico.

Also in October, China’s state-owned telecommunications company China Unicom secured a 30-year operating license from Mexico’s Federal Telecoms Institute. With this license, China Unicom can offer services in Mexico’s fixed and mobile telephone markets.

On the other hand, China Unicom was banned from doing business in the U.S. early this year due to fears of surveillance. 

In terms of market share, China brands, led by Xiaomi, took up 26% of South America’s mobile phone market within one year. It comes only after the U.S., with 37% of the market share, with Apple and Motorola leading the way. South Korean Samsung is also in the lead, and European phones cannot compete.

By the end of October, state-run China Railway Construction Corporation announced that a group made up of its branch in Hong Kong and a local Brazilian Mota-Engil Mexico had won a $2 billion light rail contract for the urban rail transit system in Guadalajara, Mexico.

The rail line will be built over two years as a public-private partnership. China and its Mexican partner will share ownership of the line for almost 40 years.

However, China will not be free of obstacles. The more it invests in the region, the more it would have to use its currency, the yuan. This, in turn, will make its currency stronger, thus making its iconic export-based economy less attractive to importers.

That’s one point. Secondly, the Belt and Road Initiative (BRI) projects are much more than just spending money on infrastructure. According to Diana Choyleva, chief economist, and Dinny McMahon, financial market analyst at Enodo Economics, it includes “central bank currency swaps, access to China’s satellite and submarine cable networks, student exchanges and free trade agreement.”

There needs to be financial integration to bring more countries into China’s economic orbit, and this could only happen if more countries used the yuan. 

It becomes even more so in the case of a “decoupling” scenario between China from the West. As the decoupling becomes clear, more countries need to use the yuan as the primary transaction currency. And this, as said above, makes China’s iconic export-based economy less attractive to importers, hurting its economy.

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