As Chile Grows Wary of Chinese Engagement, An Opportunity Looms

Chile and China – that has been a love story ever since the establishment of diplomatic relations in 1970. Chinese investments have benefited from Augusto Pinochet’s social restructuring as much as from Mao’s. But the related change in China’s geopolitical position has created hitherto unseen unease in its regional beachhead – with a potential silver lining.

China has stepped up a shopping spree across Latin America. In Chile, it made a bold move to acquire electricity distributor CGE for US$3 billion. The deal represents a new stage in bilateral engagement, with potential consequences for Chile’s political economy. After the competition watchdog approves, China will control 57% of Chile’s electricity supply.

This is not comparable to previous investments in shopping malls, mining and infrastructure projects where China was one among many.

Honeymoon’s Over

In 2019 signs had emerged that China is growing uneasy with Chilean parliamentary sovereignty. When government spokesperson Jamie Bellolio was a lawmaker, he met with Hong Kong democracy activist Joshua Wong. As a first, conservative newspaper El Mercurio then allowed China’s ambassador to Chile, Xu Bu, to savage Wong in its opinion pages.

While initially accusing Xu of lying, Bellolio, who didn’t receive any backup during the fallout, has not mentioned his brush with courage again.

The CGE deal, however, elicited a broad and unprecedented response. Left- and right-wing lawmakers presented a bill to restrict foreign investment in assets deemed crucial. And equally unprecedented, Foreign Minister Andrés Allamand and Economy Minister Lucas Palacios had to defend China – before the Lower House’s economy committee.

They tip-toed around the issue by emphasizing the importance of foreign investment. Allamand said according to daily La Tercera that China’s rising share in Chile’s economy is natural, as the Asian country keeps growing. The share’s still lower than the US’ or Canada’s. Yet, 42.5 percent of exports in October went to China, underlining just how much Chile depends on that market.

To assuage any worries, the ministers alluded to the myth of sound legal foundations, so the competition watchdog will ensure a level playing field.

And China booster Jorge Heine made a rather leftist argument. La Tercera reported him as saying that everybody cheered when the electricity system was privatized during the dictatorship and then sold on for massive private profits. Only now that China gets involved, criticism arises.

He and the ministers, however, know the problem isn’t economic. It’s geoeconomic as one state would control a vital sector of another, forcing a streamlining of economies, albeit not necessarily coercively. Several nominally independent private players can be subjected easier to regulations than one dominant player, even less if that player is a powerful state.

The problem is also geopolitical. Decision-makers will have to take China’s interests more into account than hitherto when weighing infrastructure or diplomatic relations with Taiwan, or when deliberating a position on the atrocities in Xinjiang. The CGE deal will allow China some, if implicit, influence in local politics and the regulation of territory and resources.

With reason, the deal’s promoters didn’t mention that the competition watchdog is not allowed to consider such issues. It has to approve any economically sound deal, even if it’s politically precarious.

Another sign of unease relates to the massive Chinese fishing fleet that’s prowling Latin American coasts. While China maintains it won’t allow illegal fishing, it also doesn’t seem interested in helping stop the fleet. And given the commercial and political interests involved – food supply is crucial for the CCP’s legitimacy – it’s unclear how far Chile’s navy could go if it registered incursions into sovereign waters.

When the fleet approached in October, the navy was careful not to tap into politics. But if the very need for monitoring wasn’t already alarming enough, the navy’s reports showed more assertive diplomacy is justified.

Yet Teatinos 180 and government palace La Moneda have remained mum. The CGE deal will consolidate that attitude.

Storm Ahead: Chinese Fishing Vessels in Chilean Waters

Tensions Provide Opportunity

As mentioned on this blog before, Chile can’t dodge difficult matters forever. So far, its foreign policy establishment could afford to cultivate a delusion of handling supposedly complex affairs. This delusion is just another expression of the disconnect local elites suffer from reality more generally.

Pompeo’s China Criticism In Chile Leads To Diplomatic Row

But Chile’s foreign policy is simple, really: Take the money and run. Foreign policy has historically been the prerogative of a tiny circle, many members of which have economic interests or equate them with the national interest. This view consolidated during independence and is nowadays summarized under the banner of “insertion into the global economy.”

Given that morals aren’t a factor in international politics, this approach would even be justifiable if it led to greater wealth for the population. And that’s the positive aspect of the rising tensions with China: They offer an opportunity to overhaul the foreign policy framework, to come clean on at least implicit support for egregious governments in exchange for job creating investments. This development also provides an opportunity to do away with the sovereignty fetish. Any trade deal – and Chile has hundreds – weakens sovereignty.

The matter should be a topic for the constitutional convention that’s hammering out a new Constitution. Foreign policy should become a sexy topic because it affects everyone. The current framework based on five pillars, including democracy and human rights, is just a zombie. A new Constitution should define a new, hopefully more professional and less economistic, foreign policy framework.

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