Nicolás Maduro’s seizure by the armed forces of the United States has forced a recalculation of strategies across the globe. Government and business leaders in Europe, the Middle East, Asia, and, certainly, Latin America have had to rethink their military, diplomatic, economic, and financial plans.
Beijing has especially seen its former plans upset, economically and especially in Chinese Communist Party (CCP) leader Xi Jinping’s ambition for the yuan’s global dominance. It will take a while before the proverbial dust settles, but some aspects of China’s problems are already becoming clear.
Given the flood of ink and pixels already spent on the military operation and the criminal charges leveled at Maduro, it makes little sense to recount them here. Speculation on Beijing’s next military and diplomatic moves is better left to those with special expertise. There is plenty to say, however, about how recent events have upset Beijing’s economic, financial, and monetary plans.
Three major aspects of Beijing’s situation stand out. First, Venezuela is deeply in debt to the Chinese regime, to its state-owned enterprises, and to several private companies. At this juncture, it is unclear whether that debt will be repaid and how it will be serviced. Second, Maduro had met some of these debt obligations by shipping oil to China, something that may continue but is now in Washington’s hands. Third, Maduro’s Venezuela had furthered Xi’s ambition to make the yuan a global currency. That help is at an end.
Much of the loan exposure lies with the China Development Bank and is tied to Venezuelan energy, port, and telecommunications projects. The China National Petroleum Corporation (CNPC) has taken the lead in energy ventures, often in joint ventures with Venezuela’s state-owned Petróleos de Venezuela (PDVSA).
Much of the infrastructure investment, especially the port facilities, comes through the CCP’s Belt and Road Initiative, while Huawei Technologies operates the country’s 4G networks. China’s ZTE is developing Venezuela’s “Homeland Card,” a national ID for citizens to gain access to public services, and doubtless a source of surveillance, an area where the CCP has considerable expertise.
For all the debt involved, Venezuela’s oil is a relatively insignificant matter—for China and globally. Because of years of neglect under Maduro and his predecessor, Hugo Chávez, the nation pumps little despite sitting on the world’s largest reservoir of proven oil reserves. Whereas in its heyday, Venezuela pumped some 3 million barrels of oil a day to sell on global markets, today, according to the Organization of Petroleum Exporting Countries (OPEC), it pumps a mere 934,000 barrels a day.
Though contracts committed Venezuela to sending 1 million barrels per day to China, it has, of late, sent only 470,000 bpd under a barter agreement to service the country’s large debt load. That might make China Venezuela’s largest oil customer, but for China, the flow of oil is a small 4.5 percent of the country’s seaborne imports. If Washington were to cut off this supply, and that is by no means certain, China could easily make up the loss with Russian supplies, but that would thwart Beijing’s efforts to diversify its supply chain.
More troubling to Beijing than the oil, certainly, and even the debt is the loss of a partner in the internationalization of the yuan. Venezuela priced its oil in yuan, not dollars, as most oil producers do, and did all its international trade in yuan. These practices furthered Xi’s ambition to challenge the U.S. dollar as the premier medium of international exchange and, eventually, to displace the dollar as the world’s primary store of wealth, what bankers and economists call the “global reserve.”
Whatever Washington decides for Venezuelan oil, the pricing will return to dollars, enhancing the dollar’s role as the main global means of exchange and significantly reducing the status of China’s yuan.
On a broader level, these recent events raise questions about the future of China’s push into Latin America. Some have suggested that Latin American governments, unnerved by Washington’s aggressiveness, will turn to China as something of a bulwark against U.S. power.
Others, more convincingly, have suggested that Washington’s actions in Venezuela will make Chinese investors reluctant to go into Latin America and make Latin American governments reluctant to make Chinese connections. Beijing has announced that despite Washington’s actions, it will not give an inch in its Latin American efforts.
How far China gets in Latin America will, however, depend less on Beijing’s determination than on Latin American reactions, and these remain highly uncertain. Indeed, in these early days, the entire situation remains highly uncertain.
