This is the 103rd article in the series The China Chronicles.
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The recent
UN report of September 2020 which urged the Venezuelan state to hold to account those responsible for crimes against humanity highlights the extent to which the man-made humanitarian crisis in Venezuela has worsened from the initial
UN report of July 2019 which had recorded several internal rights violations. Underlining this socio-political catastrophe is the near complete decimation of its economic system, with
projections indicating that by the end of 2020 the Venezuelan per capita income would have shrunk to a third of what it was in 2013. This has been compounded by crippling hyperinflation since 2017 with
speculations that the government may introduce banknotes worth a 100,000 bolivars, equivalent to just US$0.23. It is
estimated that 90 per cent of the Venezuelan population lives in poverty, which is partly the cause of one of the largest ongoing migration crises which has seen an exodus of nearly one-sixth of its population – more than
5 million people.
Consequently, worsening the situation has been the creation of two political camps with the incumbent President Nicolás Maduro, the successor and protégé of Hugo Chávez, and is backed by China and Russia on the one side, and on the other Juan Guaidó, the opposition leader and controller of the National Assembly who in
January 2019 swore himself in as the President and is backed by the USA and
57 other countries. These dire circumstances make it difficult to imagine that not long ago, Venezuela under Chávez was at the vanguard of the rapidly developing Latin American nations with its US$285 billion economy making the country the
fourth largest in the region in 2010. Although analysts have maintained that the gross economic
mismanagement coupled with weak political institutions is at the core of this continuing nationwide paralysis, considering the extraordinarily intimate Sino-Venezuelan relationship over the last two decades, Beijing’s role in the rise and fall of Caracas does indeed appear questionable.
In answering a key question of analysis: who benefits? It appears that the economic and political deterioration of Venezuela is undoubtably a highly undesirable outcome for all its stakeholders to say the least, especially for China with its extensive and continuing patronage since the turn of this century. Although the responsibility for the collapse of Venezuela economy and its current predicament cannot be directly traced back to Beijing, what can be laid at Beijing’s doorstep is the short-lived rise of Venezuela, and what can be questioned is that
who really benefitted from it.
The Sino-Venezuelan relationship began towards end of the twentieth century which coincided with both the widespread Latin American rejection of the so-called ‘
Washington Consensus’ and the coincidental meteoric economic rise of China. The rejection of the Washington consensus was built on the shoulders of Latin American thinkers like Raúl Prebisch who argued against it’s a priori which broadly proposed that
economic growth could only transpire if the power of the markets were harnessed through the pursuit of macroeconomic stability and an outward oriented development strategy.
This new generation of thinkers instead espoused the theory of dependency in which they argued that this lopsided relationship was cultivated by the Washington Consensus, through the core-periphery relationship in which the Global South (periphery) was systematically exploited by the Global North (core) which imported raw material from the Global South and exported back its value-added finished goods. Leaders throughout Latin America, including Chávez, in the late twentieth century were products of this thought and actively advocated socialist policies in an attempt to break the cycle of this dependent relationship. At this opportune moment, the leaders of this ‘
pink tide’ found an ideological ally and an alternative source of development finance in rising China.
In addition, the unrelenting
expansion of the Chinese middleclass and its correspondingly increasing need for
energy and new geographies to cater for its supply overflows of consumer goods made its outward interaction crucial for its sustained growth. In this direction, Beijing began to actively court nations across the Global South presenting itself as an alternative to the rigid Washington Consensus based finance, with its model of ‘no strings attached’ development finance based on the Chinese
Five Principles of Coexistence, which promised a “win-win strategy of opening up”. This brand of a ‘
south-south’ cooperation, which has since been classified as the ‘
Beijing’ or ‘
Asian’ Consensus has gradually strengthened China’s influence and access to markets throughout the Global South, bolstered by the more recent strategy of its Belt and Road Initiative (BRI).
The Chávez regime was the archetype of China’s south-south cooperation, at least for the Latin American region, with its decade long economic boost powered by Chinese loans worth an incredible
US$62.2 billion, receiving about
64 percent of all Chinese loans issued to the Latin American region between 2010 and 2013. Although the spirit of south-south cooperation may have been present, the cash-strapped Latin American economies could offer little else as security other than their extensive oil reserves as
commodified raw materials.
Unfortunately, with little positive change in economic policy, Chávez proceeded to establish outdated price, exchange and regulatory controls
designed to increase the control of the state over its private sector. Exacerbating the state’s external debt and balance of payments was its heightened public expenditure on social schemes which were prioritised over the productive investment of its oil sales. While much has been said about the mismanagement by Chávez of both the economy and the state’s oil production capabilities, the structural circumstances around the rise of a nation in the Global South on the export of its raw materials are indeed significant.
These structural constraints are commonly referred to as the ‘
Dutch Disease’ which refers to a condition in which a boost in the primary resources sector of a developing economy, amongst other things, causes a dramatic surge in the value of domestic currency which largely deindustrialises the rest of the economy and renders the other sectors increasingly unproductive. Consequently, this fundamental fault-line of the Venezuelan economy was only aggravated by the lack of Chinese investments suggesting a course correction of its economic policy, and instead strictly sticking to their principle of non-interference. More concerningly for primary resource dependent economies like those of Venezuela, carry an asymmetrically higher
burden of risk right from the beginning, since they are directly affected by even the slightest of price variations.
In such a scenario, the costs incurred in the long run by Caracas were necessarily going to outweigh the benefits it reaped in the short run. Beijing, on the other hand, at least theoretically, seemed to have had successfully
securitised its energy supply through financial instruments such as futures and options and had also created a captive consumer market, both of which would benefit it in the short and long run. It appears that Beijing’s professed ‘win-win’ through this alleged south-south relationship is nothing more than lip service.
Past experience has indicated that China’s overarching strategy has used its economic expansion to not only expand its consumer market but also secure key military-strategic assets and essential primary resources. The former has been achieved through strategic bilateral diplomacy and has often resulted in
debt-trap diplomacy, which has already secure key assets such as the Hambantota port in Sri Lanka, a military base in
Djibouti. Several other states like
Angola are dangerously close to slipping into China’s debt-trap. The latter has been attained by what is now described as the ‘
primarisation’ of a developing economy through a refashioned core-periphery relationship.
Essentially China’s engagement with the Global South has been correctly classified as a ‘
rentier’ model of development which through its interaction extracts either military-strategic assets or primary resources from exceedingly dependent economies. This form of ‘unscrupulous pragmatism’ can accurately describe Beijing’s relationship with the Global South. Unfortunately, in the case of Venezuela, China seems to have slipped into a ‘
creditor trap’, since it is estimated that Venezuela is unlikely to supply China with oil shipments equal to the value of its investments over the last two decades.
By eroding Venezuela’s ‘
geo-economic resilience’, China has fundamentally unravelled the political and economic institutional fabric of Venezuela which indeed led to its eventual collapse and current denouement. If not already, the Venezuelan example should truly ring major alarm bells in other similarly placed nations across the Global South.
Anant Singh Mann is presently pursuing a Masters in International Political Economy
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