Peru has long had close economic ties with China, a relationship which the Chinese authorities have sought to develop over the last five months in relation to the Covid-19 pandemic. A recent article in the Financial Times seeks to analyse the way in which China has ‘used’ Covid to reinforce its strong economic ties with Latin America as a whole, but without mentioning Peru specifically. This coincides with new pressures being brought to bear by Washington on Latin America to curtail ties with China, especially in the field of 5G technology.
Here we seek to look a little more closely at how China has treated Peru over the last five months, with the help of research conducted at the Universidad del Pacífico in Lima.
The first point to be made is that, for several years, China has been Peru’s principal source of investment (particularly in mining) and by far its most important trading partner. It displaced the United States as the key investor and source of imports/exports several years back. In this Peru is no different from several other South American countries including Argentina, Brazil, Chile and Ecuador.
For Peru, economic ties with China have helped diversify away from the previous economic dependence on the United States. However, even with these new ties Peru has sought to avoid sacrificing economic relations with other parts of the world, notably with North America and the countries of the European Union.
Unsurprisingly, much of what Peru exports to China consists of minerals, especially copper. This is what Chinas primarily needs, although it needs other things too. But it has given rise to an asymmetry in economic relations which Peru would like to correct by means of renegotiating the free trade agreement between the two countries.
The slowdown in Chinese growth, made clear well in advance of Covid-19, had already taken its toll on exports as both the volume of shipments declined and (particularly important) the price of base metals dropped.
Some major mining operations in Peru are run by Chinese-controlled companies, notably Las Bambas in Apurímac region (MMG/China Minmetals), Toromocho in Junín (Chinalco) and Marcona in Ica (Shougang). Such investments have been targeted for criticism on environmental and social grounds, though China’s record in Peru is probably not much different than that of companies from other parts of the world, and reflects (at least in part) ways in which successive Peruvian governments have lowered regulatory standards in order to attract investment from wherever.
On 2 August, Chinese steelmaker HBIS signed an initial deal to develop the Pampa de Pongo iron ore project in Arequipa alongside the current license holder Zhongrong Xinda.
Recent years have seen an attempt to diversify exports, especially in commercial agriculture. Shipments of grapes, avocados, lemons, blueberries and asparagus have seen sharp increases. Many of these products come from irrigated land on Peru’s coastal deserts. They have provided lucrative opportunities to local businesses as well as employment opportunities to low skilled workers, something which mining largely fails to do.
The FT article frames the Chinese response to Covid-19 as a strategy to mop up in an area of traditional US influence. Such economic exclusiveness is something of the distant past and countries like Peru are able to defend their interests without necessarily seeking to cause offence in Washington. Peru has been at pains to accommodate US desires in other ways, especially with respect to Venezuela, without prejudice to its economic interests.
China has been a major supplier of medical equipment to Peru as to much of the world since the beginning of the pandemic. This includes masks, protective equipment (PPE), test kits, ventilators and inputs for plants to produce oxygen. China is the world’s major producer of such items, and it is hardly surprising that it seeks to make some political capital from its ability to supply Peru and other countries in Latin America at such a time of need.
The US has found itself unable or incapable of rivalling China in this respect.
There have been some cases of such supplies going awry, especially since the health ministry in Peru tends to buy through local intermediaries. On occasions, it seems that such supplies have been sourced through US companies with these being diverted at the last minute for US consumption rather than Peruvian needs.
Such problems have also appeared in other sectors. The government contracted a local company to buy tablet computers made in China for use in distance education, only to discover that the intermediary was not a legitimate representative of the producer and the deal fell through.
Buying direct from China appears to avoid such problems. Some Peruvian firms and non-profit organisations including Lima’s Catholic University (PUCP) have purchased inputs from China in order to manufacture medical equipment locally such as ventilators and oxygen plant (see PSG article).
In the short-to-medium term what will be more important than supplies of medical equipment and rhetorical messages of support will be a help in developing local capacity in countering and living with the virus. Peru is betting on that in its relations with China, but also with the rest of the world. It is also important for Peru to secure a place in the queue to access supplies of successful vaccine from one or more suppliers. This may not be just a trade issue but one with political implications. It should help that Peru is involved in the Phase 3 trials of both the Oxford and Moderna vaccines.
In the longer term, building up local capacity to increase domestic supply of medical products will be important.
But it is to be expected that Washington will be pushing Peru to further limit its commercial contacts with China, especially in respect to the activities of technological firms like Huawei. The extent to which Peru heeds such pressures will show its willingness and ability to defend sovereignty, 200 years after breaking its original colonial ties.