Yesterday, an op-ed piece titled “Exit the Dragon: Why China Should Stop Supporting Venezuela” was published in the New York Times, in which the Venezulean political columnist Daniel Lansberg-Rodríguez makes a case for why China should desert President Maduro’s regime. An unconvincing one, as the author substitutes reason and facts for emotion and politics. This post will instead argue why it is in China’s interest to not stop supporting Caracas, for now at least.
Venezuela currently has the world’s highest inflation rate and suffers the world’s deepest recession, as its economy is being rocked by a major currency crisis. Plummeting oil prices in the past years and mismanagement of the economy have hurt the petrol nation to its core. The revenue obtained from oil, which accounts for virtually all of the country’s exports, had been used since Hugo Chavéz’s assumption of power in 1999 to finance (overly) generous social programs and foster widespread public support for ‘Chavism’. But after the huge drop in revenue, those programs have been heavily curtailed, undermining the legitimacy of the Venezuelan government and generating instability.
Support for the regime has significantly eroded as a result of the spiraling inflation, food shortages, lack of medical supplies, regular power cuts, and a constitutional dispute between the opposition and the Maduro government. With the government still pushing a clearly failing course of action, printing more bills in response to paying off its debts rather than implementing monetary and economic reforms, approval ratings for President Nicolás Maduro dipped below the 20% at the end of last year. Beijing is currently the sole power keeping the Latin American distraught economy from completely failing and Caracas’s main friend in the international community.
China has been a consistent presence in this Latin-American tragedy. Venezuela’s long-standing appeal to policymakers in Beijing is not surprising given that the country holds the world’s largest proven oil reserves. In search for fossil resources and diplomatic support (Latin America used to be Taipei’s last stronghold), China actively courted the Chavéz government from the start. The authoritarian, socialist character of the regime made it a perfect ideological ally and its charismatic and regionally popular leader an excellent interlocutor for China in the rest of Latin America.
In 2001, Venezuela entered into a strategic partnership with China, the first Hispanic country to do so. Trade boomed since, as China secured preferential access to oil in return for loans and infrastructure investment projects. Though Chavéz himself died in 2013 after a long battle against cancer and signs of the country’s weak economic foundations were already apparent, relations between the two countries got upgraded to a comprehensive strategic partnership in 2014.
Fast forward to the present. Though estimates vary on the extent and nature of outstanding oil-for-cash loans and debts, Venezuela probably owes China at least about $20 billion. Last year, Caracas reached a deal with its main creditor for much-needed oxygen, easing loan repayments and receiving another $5 billion loan. But the situation since has far from improved. Less than a week ago, a Reuters report revealed Venezuela has been falling behind by several months on shipments of crude and refined oil with no sign Petróleos de Venezuela, S.A., the Venezuelan state oil company, will be able to catch up anytime soon. Oil production in the country has been at a almost 14-year low.
Given the current situation, Lansberg-Rodríguez puts forward three arguments in his NYT article to make his case why Beijing should cease its support to Caracas. For, according to him, “as long as he [Maduro] enjoys the mandate of China he can persist, prolonging Venezuelans’ agony.”
I. The odious debt scenario. Some opposition leaders “resent China as a regime enabler,” threatening to declare China’s credit arrangements with the Maduro regime null and void once power has transferred, since the terms of most of those arrangements have not been made public or been approved by the National Assembly.
It is somewhat unclear, though, how this situation can be construed as an argument in support of the notion Beijing should sever its ties with the Venezuelan government. As the author readily admits, attempts made by the Chinese government to (unofficially) engage with the opposition have been heavily complicated by its “discordant, hydra-like nature.” No-one can predict with great certainty which opposition politicians would take the helm position during a transition of power.
Moreover, so far no attempt at dialogue seems to have bore any fruit, leaving Chinese policymakers with no incentive for now to desert President Maduro. Beijing will likely continue pursuing dialogue with opposition parties to rule out the prospect of an odious debt scenario, but only as part of a broader strategy to cover its bases in case Maduro is ousted before the next election round. It would be a foolish bet to drop Maduro now and hope an opposition government decides not to default on Venezuela’s debts to China.
II. An aggrieved opposition government. “China risks finding itself denied market access or locked out of lucrative infrastructure and development projects under an aggrieved opposition government.”
While concerns with regard to what an “aggrieved” opposition government might do are valid, China is stuck in a position in which it has no direct incentive to put the bulk of its diplomatic weight behind the opposition. Moreover, while it is not entirely inconceivable China might be locked out of Venezuela due to feelings of resentment from a future government, the country will inevitably need someone to bankroll and kickstart its flailing economy. Given the current isolationist tendencies of the U.S. and the poor economic performance of major Latin American countries like Brazil and Argentina, refusing China’s money would be a counterproductive and blatantly irresponsible move by a new government.
III. Wrong way of dealing with authoritarian, pariah states. “Earlier this decade when, late to halt engagement with Muammar el-Qaddafi before eventually bowing to international pressure, it [China] found itself investor non grata in post-revolutionary Libya. […] In continuing to support the Chavista regime indefinitely, China is drawing precisely the wrong lessons from Libya.”
Further building on the second argument, the author draws on the example of Libya to argue how China’s decision to continue supporting a pariah state and its authoritarian government eventually backfired, as it found itself “investor non grata in post-revolutionary Libya.” While true to an extent, with Chinese economic interests in Libya having sharply decreased after the fall of Qadaffi, the case of Libya is in many ways incomparable with Venezuela and any lessons drawn from it (currently the “wrong” ones, according to the author) are not necessarily applicable to how China should deal with Maduro. Libya was an international pariah for entirely different reasons, and refusing to bow to international pressure to halt engagement with the Qadaffi regime was a decision made on completely different grounds.
Moreover, part of the reason why China’s economic engagement in Libya has eroded after the removal of the authoritarian regime is due to the lack of successful governance and overall political instability in the country, rather than the result of an aggrieved newly elected government.
Lansberg-Rodríguez is clearly clutching at straws, as well, when saying the looting in December in response to the elimination of the 100 bolivar note, which “seemingly” targeted Chinese business owners, was “eerily reminiscent of the last days of the Qaddafi era, when 35,000 Chinese citizens had to be evacuated from Libya.” The ‘seeming’ targeting of Chinese businesses, according to witnesses, is more likely the result of the fact many foreign-owned businesses in the country are Chinese, rather than a display of public outrage aimed at anything China-related. There are an estimated 400,000 Chinese Venezuelans, with many of them owning small businesses. Moreover, the comparison between the mass-evacuation of Chinese citizens (most of them short-time laborers) from an incipient civil war and the alleged targeting of Chinese businesses by Venezuelan looters falls completely flat for obvious reasons.
As much as the author of the op-ed piece would like to see otherwise, China currently has no obvious incentive to drop its support for the Maduro government. Although Beijing has in the past year signaled a growing unwillingness to keep throwing lifelines to its Latin American partner, there are no immediate developments to suggest it will soon sever all ties with the regime. As a report by the Oxford Institute for Energy Studies details, the China Development Bank (CDB), through which most of the loans to Venezuela pass through, “will sit tight and hope that repayment volumes will increase.” It can afford to “play the long game,” given the state-owned nature of the bank, and given that Venezuelan crude oil is “not a key feedstock for China’s refineries” (because of its extra-heavy composite, which most Chinese refineries cannot handle).
Moreover, the relationship has, as Lansberg-Rodríguez himself admits, paid diplomatic dividends, and “today’s fraying Sino-American relationship may represent a compelling reason for further China engagement regionally.” Also, leaving Venezuela out in the cold, with no certainty such a move would not completely cripple the Venezuelan economy, could hurt China’s image in the region when it turns into the villain, and sow worry among other heavily indebted nations.
While a critical investigation of the ‘success’ of China’s dealings with pariah states is merited, especially in light of its increasing leadership role in the world, Beijing has no choice for now but to keep supporting Nicolás Maduro publicly. Not doing so would hurt Beijing both economically and politically. This is not to detract from the perilous socio-economic situation in the country and the erosion of its democratic system. But emotional calls on China to “let go of the corrupt, incompetent devil they know lest they become irredeemable to those who will follow him” are most likely to fall on deaf ears of Chinese policymakers.