Peru to join China’s Belt and Road Initiative
By Jimena Galindo / May 1, 2019
On April 24, Chinese Ambassador to Peru, Jia Guide, announced that Peru was set to sign a memorandum of understanding to join China’s Belt and Road infrastructure initiative (BRI). The announcement was made to guests at a private party in Lima, as China kicked off a three day Belt and Road Summit in Beijing.
Peru’s decision to join the initiative comes two weeks after a visit by United States Secretary of State Mike Pompeo, who during his trip to South America repeatedly warned about China’s intentions in Latin America. And yet, Peru has been a long time trade partner to China.
Here is an overview of Sino-Peruvian economic relations:
Peru is a member of the Asia-Pacific Economic Cooperation (APEC) and a prospective member of the Asian Infrastructure Investment Bank (AIIB). In 2009, the two countries signed a bilateral free trade agreement, making Peru the second Latin American country to sign an FTA after Chile with the PRC. According to Peru’s Ministry of Foreign Trade and Tourism, after the FTA went into effect in March of 2010, the value of Peruvian exports to China grew at an annual average of 9.6 percent. Since then, China has replaced the U.S. to become Peru’s top trading partner.
According to 2017 data from the Observatory of Economic Complexity at MIT, China is Peru’s top export destination, with a total value of $11.7 billion in exports; in Latin America, China only imports more from Brazil and Chile. China is also Peru’s top importer with a value of $8.75 billion. And Peru is China’s fourth greatest export destination in Latin America, behind Brazil, Chile and Argentina.
Peru’s top imports from China are broadcasting equipment, making up 13 percent of all imports from China, computers representing another 4.7 percent, and video displays constituting another 2.2 percent. As for top exports, out of total exports, 62 percent of what Peru ships to China is copper ore, 10 percent animal meal and pellets, and 9.1 percent refined copper.
Financing and investments
Through its development banks, China Development Bank and China Ex-Im Bank, Beijing finances numerous countries across the Americas. To date it has offered 89 loans in the region totaling approximately $1.39 trillion. According to The Dialogue’s China-Latin America Finance Database, Peru has been the recipient of one $50 million loan in 2009, provided by the China Development bank. The loan was to be used for infrastructure, transportation, environment, and energy projects.
Peru also receives a significant amount of investment from Chinese enterprises. There are more than 170 Chinese companies operating in Peru, bringing in approximately $18 billion to the country. So far, a majority of investment projects in Peru have been related to the country’s mining sector. These projects include: Chinalco’s $1.36 billion expansion of its copper mine in Toromocho; Zhongrong Xinda Group’s proposed $2.5 billion iron ore mine Pampa de Pongo; and steelmaker Shougang Group’s $1.3 billion expansion of its Marcona iron ore mine.
And if China keeps its word, that is likely to increase. At a ceremony with Peruvian President Martín Vizcarra, Ambassador Guide announced that within the next three years, “a wave of Chinese investment worth $10 billion is expected, in energy and mines, telecommunications, construction and financing.” Guide also announcedthat China’s COSCO Shipping Holdings Co Ltd would build and operate a $3 billion port on Peru’s Pacific coast as part of the incoming investment boom. But if history is any guide, some of these projects may never come to life. Increasingly, China’s much ballyhooed One Belt One Road (OBOR) initiative has been long on words and memoranda of understanding and short on delivery. According to one source, the recent April 26-27 BRI summit in Beijing failed to announce one-concrete China-state financed project.
While the government of Peru has welcomed the existing and promised, some communities haven’t been as welcoming. In February, indigenous groups from the Fuerabamba community of Cusco set up a road blockade to prevent Chinese mining company Mineral and Metals Group (MMG) from using a local road through their farmland, demanding compensation from the company. MMG controls Peru’s Las Bambas mine, one of the country’s largest copper producers. On April 12, two months after the blockade began, the Fuerabamba community and MMG reached an agreement, in which the company will pay the community for transiting through its farmland.
Even with this pushback from indigenous and environmental communities, Ambassador Guide’s announcement that Peru will sign on to the BRI shows