Railway Rapprochement: China Invests in Argentina

Argentine President Cristina Fernández de Kirchner led a delegation to China on July 10 for talks with her Chinese counterpart, Hu Jintao and China’s Premier Wen Jiabao. Fernández de Kirchner, who scheduled the five-day trip after canceling a trip there earlier this year, also signed 18 accords that allow for more than $12 billion in Chinese investment. “Assuming that diplomacy can only be carried out by ambassadors or foreign ministers means not knowing how the world works,” she said after meeting with Beijing officials. However, China did not overturn its April 1 ban on Argentine soybean oil as Fernández de Kirchner had hoped, but said it was confident the matter would be resolved through continued dialogue.

The majority of investment pledged by Beijing was codified in six agreements, signed Wednesday by Fernández de Kirchner and Chinese Vice-Premier Hui Liangyu, and focused on Chinese assistance for railway and subway projects throughout Argentina totaling more than $11 billion. Under the accords, China will fund 85 percent of repair costs for existing lines. Most of the funds appropriated will be distributed in three stages, the first of which will see China spending more than $2 billion over the next four years to repair two railway lines that connect Argentina’s agricultural heartlands and areas of mineral deposits to Buenos Aires. China’s record of delivering on investment in the Americas has been spotty, however its history in building infrastructure for developing countries to gain access to much-needed resources is extensive. Beijing's interest in Argentina is also well-known, with Argentina recieving almost half of China's investment in South America over the past two years.

A modernized railway system in South America’s second-largest economy would boost Beijing’s access to agricultural goods, as well as Argentina’s lithium deposits, which in recent years has spawned a burgeoning and lucrative industry. $10 billion will go to the refurbishment of more than 4,500 miles of the Belgrano Cargas railway line, including $1.85 billion for upgrades to the Ferrocarril Belgrano Norte y Sur railway lines. The Belgrano lines connect the capital Buenos Aires to 13 of the country’s 23 provinces as well as neighboring Bolivia and Chile, and remain critical to Argentina’s ability to export soybean oil, its largest agricultural export and its main commodity sold to Beijing.

Those exports of soybean oil to China came to an abrupt halt in April after Beijing imposed a ban on the product in apparent retaliation for Buenos Aires’ decision to impose anti-dumping measures against a broad range of goods manufactured in China. Those measures restricted the amount of goods China could export to Argentine markets. China has consistently denied any reports that its April 1 ban on Argentine soybean oil was retribution for Argentina’s curbs on Chinese goods, instead insisting that it banned the product due to contamination. While Argentina denies exporting contaminated soybean oil, Fernández de Kirchner sought to make amends while in Beijing. Argentina, the world's largest producer of soybean oil and China's largest supplier, had planned to export roughly $1.7 billion-worth of its prized agricultural commodity to Beijing this year before the trade dispute began.

Despite the spat, observers expect Beijing to normalize trade relations soon as China is now purchasing soy from the United States, which could use the issue as a diplomatic lever. China’s Agricultural Minister Sun Zhengcai promised his Argentine counterpart that the issue would be resolved before his trip to Buenos Aires in September.

In addition to trade and the transportation sector, the agreements signed also centered on increasing cooperation between China’s petrochemical firm Sinopec and Argentina’s state-owned energy company, Enrasa. Beijing and Buenos Aires, which established diplomatic ties in 1972, also signaled closer financial ties during Fernández de Kirchner’s visit with the announcement that the China Development Bank signed an agreement with the National Bank of Argentina to provide a $150 million credit line.

Learn more:

• “Is China Good for the Americas?” Eric Farnsworth, The Los Angeles Times, July 2, 2010
• The Government of Argentina provides a history of the country’s railway system
• The Government of the People’s Republic of China provides a history of its relationship with Argentina
• Forbes tracks Chinese investments worldwide