Beijing Pledges $20 Billion to Venezuela

Beijing and Caracas underscored their burgeoning ties over the weekend with $20 billion in Chinese financing, largely for Venezuela’s energy sector. The series of accords signed includes plans for a joint venture for exploration in the oil-rich Orinoco belt and secures Venezuelan oil for energy-hungry China. “This is a larger scope, a super heavy fund. China needs energy security and we’re here to provide them with all the oil they need,” said Venezuelan President Hugo Chávez in televised remarks. “China is going to give financing to Venezuela, to the Venezuelan people, to the Bolivarian Revolution…over the long-term and in large volume.” The funds could help salve the Andean country’s battered economy and infrastructure.

Chinese President Hu Jintao missed the signing ceremony after he cut short his Latin American tour in the wake of an earthquake back home that claimed roughly 2,000 lives. But his unforeseen absence made the financial pledge no less substantial. At the heart of the new deal is a $16.3 billion joint venture between Petróleos de Venezuela (PDVSA) and China National Petroleum Corp (CNPC) to develop the Junin-4 block of the Orinoco oil belt. (View a map.) The venture gives PDVSA 60 percent of shares compared to 40 percent for CNPC in a pact that remains valid for 25 years. A PDVSA statement forecast that the Junin-4 block’s production would reach 50,000 barrels a day by 2012 and hit 400,000 by 2015.

Chávez indicated that agreements—signed by energy and finance ministers as well as development bank officials from each country—would also draw funds for Venezuelan infrastructure projects, although details had yet to be released. Moreover, the loan comes on top of an earlier $12 billion bilateral investment fund.

The deals mark increasingly warm ties between the two countries. Chinese official statistics put bilateral trade volume at $7.15 billion in 2009, up from less than half a billion in 2002. China tripled imports of Venezuelan oil between 2005 and 2008 and launched Venezuela’s first satellite in 2008.  Last month, Beijing delivered four of 18 Chinese military planes—replete with air-to-ground missiles—purchased by Caracas. Still, The New York Times notes that the energy ties between the two countries remain blurred, given that Venezuela reports exports of 460,000 barrels of oil a day to China but Beijing places the figure closer to 132,000. Also, Venezuela has declared several oil-industry accords with foreign partners in the past decade, though few have come to fruition.

Should Beijing make good on its cash pledges to Caracas, the loans may soften blows to Venezuela’s economy. Last week, Chávez renewed for another 60 days an ongoing electricity emergency, which has led to power rationing. Venezuela’s economy shrank by 3.3 percent last year and 5.8 percent in the fourth quarter. The Central Bank reported that inflation ran at 26.2 percent last month and Venezuela devalued its currency in January.

The closer bilateral relations reflect warming ties between China and Latin America. A new report by the UN Economic Commission for Latin America and the Caribbean finds that China will likely overtake the European Union as Latin America’s second largest export market by 2015.

Learn more:

• Venezuelan government’s release on Sino-Venezuelan accords, including seven agreements covering oil and the electricity sector.
• U.S. Energy Information Administration’s page covering Venezuela’s energy sector.
• CNPC release announcing joint venture to develop Junin-4 Block in Orinoco belt.
• April 2009 report on growing Chinese-Latin American trade ties.