Bolivia is turning to China amid its first economic crisis in two decades. But China’s financial support has been modest, underscoring its dim view of Bolivia’s economic heft and legal protections. Nevertheless, a recent agreement with a Chinese consortium to develop a world-class lithium extraction project in Bolivia could raise greater interest in the country from China and other foreign investors. Bolivia has the world’s largest reserves of lithium brine deposits.
President Luis Arce recently announced that the agreement for the Chinese consortium of CATL, Brunp, and CMOC (CBC) to invest in Bolivian lithium extraction has been revised upwards, from $1 to $1.4 billion. Prior to that, Arce announced the construction of a zinc refining plant using a $250 million loan from the Export-Import Bank of China.
China is Bolivia’s main trading partner, but the balance is heavily tilted toward the Asian giant. The value of Bolivian mineral exports to China is only 20% of its imports (mostly finished goods) from the country. Chinese direct investment, especially in mining, has been insignificant compared to its investments in the neighboring countries of Peru and Chile. And although China is Bolivia’s main source of bilateral credit, it represents a small portion of total external debt. “The flows from China to Bolivia have always been small,” says expert Daniel Agramont. “I don’t believe this will change because the Chinese always prioritize self-interest over political allegiances.”
Bolivia’s economic relationship with China is a priority for the left-wing ruling party, Movimiento al Socialismo (MAS), and China’s presence in the country has unmistakably surged because of it. “Between 2005 and 2018, Bolivia’s exports to China increased by 19 times, while their imports saw 13 times more growth,” says economist Napoleón Pacheco, co-author of a book on the negative effects of foreign investment in Bolivia by undemocratic countries. Bolivia’s debt with China grew 26 times larger during the administration of Evo Morales, who served as the country’s president from 2006 to 2019.
Felicitamos a nuestro hermano Xi Jinping reelegido por unanimidad en la Asamblea Popular Nacional para un 3er mandato como presidente de la República Popular China y Presidente de la Comisión Militar. pic.twitter.com/toAjeEzlJa— Evo Morales Ayma (@evoespueblo) March 10, 2023
“Chinese companies in Bolivia are executing Beijing’s ‘go out’ policy, a strategy launched in 2001 meant to elevate China’s economic might through state support,” says Agramont. The first Chinese companies that arrived in 2011 mostly focused on building roads, bridges and industrial plants. Economist Jose Luis Evia says there are 28 Chinese firms now operating in Bolivia, including large companies like CAMC and Sinohydro.
Several Chinese companies have worked in fragile ecosystems like the Amazon, often sparking widespread condemnation from local communities. A survey conducted five years ago showed that Bolivians had a more favorable perception of China as a country than of Chinese companies. “Chinese companies have been involved in all sorts of scandals,” notes Agramont. Studies exposed labor and environmental issues, technical violations, and cultural clashes between Chinese workers and rural Bolivians. Local workers have claimed that their Chinese employers were arrogant and tried to impose “slave-labor” conditions.
In 2016, a personal relationship between then-President Evo Morales and one of CAMC’s Bolivian managers seriously eroded his reputation. The manager claimed that Morales fathered her child. Although Jin Zhengyuan, an executive at China Harbour Engineering, was recently exonerated of charges related to bribing Bolivian officials to obtain a road construction project, the ruling did little to sway public opinion because the main witness against Zhengyuan died under mysterious circumstances in the United States. Morales has been using this issue to attack the Arce administration, even though both belong to the same political party.
At the center of it all: lithium
In January, the Bolivian government announced the lithium-extraction partnership with the CBC consortium. Industry experts say CBC is a “serious” and trustworthy enterprise. One of the consortium’s members is CATL (Contemporary Amperex Technology), the biggest manufacturer of lithium-ion batteries for electric vehicles in the world. Burton Roy, CEO of CATL’s investment committee, stood next to President Arce when he announced the agreement.
Bolivia’s plan to involve other foreign companies in lithium extraction besides the Chinese has hit a snag. Critics of the CBC agreement, some of whom are from other interested companies, say the bidding and selection process wasn’t above board. Compounding the uncertainty is the still unsigned contract with CBC, which has been shrouded from public scrutiny. Considerable work remains to establish the legal and political framework needed for the project’s success, and resource-rich regions like Potosí and Oruro want to profit more from the extraction of their valuable lithium.
“Bolivian legislation regarding non-renewable natural resources is extremely strict: only the state can exploit them,” says Agramont. “That’s why there hasn’t been much mining or oil investment from China and other countries. The CBC agreement represents a window of opportunity. If the Bolivian government can make it work in a way that doesn’t just boost the consortium’s stock prices, then the country could look more attractive to foreign investors. But it won’t be easy.”
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