Congress

Caribbean Islands becoming hot spots for Chinese investment

Marco Rubio, says he is ‘very concerned’ about China’s efforts to extend influence into Latin American and the Caribbean

The Freeport Container Port on Grand Bahama Island. (iStock)

On Grand Bahama Island, some 55 miles off the continental United States, a Hong Kong-based company has spent approximately $3 billion developing and expanding a deep-water container port.

The Freeport Container Port’s Chinese and Bahamian backers expect to benefit from increased shipping through the region as a result of the expansion of the Panama Canal, not to mention an overall boost in trade between China and Latin America and the Caribbean.

But China’s financial ties to the site, which go back two decades, are receiving new scrutiny from U.S. analysts, particularly given what happened to Sri Lanka in 2017. When the South Asian nation lagged in debt payments for an ambitious Chinese-financed port project at Hambantota that fell woefully short of economic expectations, the Sri Lankan government signed-over the port in a 99-year lease. That allowed China to gain control of a vital piece of real estate that sits along a major shipping and naval sea-lane in the Indian Ocean, and a strategic spot to potentially project military power.

While the White House is focused on a trade war, Beijing has hardly skipped a beat with its global ambitions. Its investments and leadership in the Caribbean bring the Chinese presence to the U.S. doorstep in what could be another turf war in the growing rivalry between Beijing and Washington.

Florida Republican Sen. Marco Rubio, a well-known China hawk who also leads the Senate Foreign Relations subcommittee on the Western Hemisphere, says he is “very concerned” about China’s efforts to extend its influence into Latin American and the Caribbean, particularly as it concerns gaining access to strategic assets such as ports. The United States must do more to warn off its regional partners from doing business with Beijing, he says.

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“We keep an eye on it all the time,” Rubio tells CQ of China’s Caribbean port presence. “It’s a big problem. We’re focused on it.”

 

The Caribbean — sometimes described by experts as “too democratic and not poor enough” to merit sustained U.S. government attention — has been an afterthought for consecutive U.S. administrations, which have focused their attentions variously on security crises in the Middle East, East Asia and Europe.

Meanwhile, China, largely unnoticed, has increased its economic, diplomatic, cultural, and security presence in the region.

On March 22 at his Mar-a-Lago Florida resort, President Donald Trump held a rare meeting with the leaders of five Caribbean nations — Bahamas, the Dominican Republic, Haiti, Jamaica and St. Lucia — to discuss trade, energy investment and security issues. It remains to be seen whether the high-profile summit will mark a period of sustained regional engagement or be a one-off for the administration.

Ahead of the meeting the White House said one of its aims was to “counter China’s predatory economic practices.”

“They discussed the importance of supporting a peaceful democratic transition in Venezuela, disaster resilience, opportunities for investment, and ongoing security cooperation,” said a White House spokesman, Hogan Gidley, after the meeting concluded, adding that a high-level delegation would be sent to the region in the next three months.

[Trump warns Venezuela with new sanctions, won’t rule out military action]

Beijing’s direct foreign investment, government-backed loans and grants for infrastructure projects in the region are mostly benign. Still, there’s a worry among some Caribbean politicians and U.S. analysts that China is getting preferential access. And in a worst case scenario of confrontation with the United States, there is also fear of China taking possession of the regional infrastructure it has financed to pose a threat in America’s own backyard.

The Grand Bahama port project is a prime example of Beijing’s economic and diplomatic push into the Caribbean. After the 2008 global financial crisis, as Western governments like the United States and the United Kingdom adopted austerity measures and cut back development aid, China took the opposite course, searching out new areas for investment.

Chinese President Xi Jinping’s Belt and Road Initiative and accompanying soft power programs expanded China’s presence in the Caribbean, in areas including infrastructure funding, climate change preparations, security assistance, cultural exchanges and news consumption.

Five Caribbean countries have signed up for Belt and Road funding: Trinidad and Tobago, Grenada, Dominica, Antigua and Barbuda, and the Dominican Republic, which in November received a $600 million loan to expand the country’s electricity grid.

 

“Chinese money became available and these countries were very happy to be able to borrow this money because they used it to build hospitals, build roads,” says Richard Bernal, former ambassador to the United States and a longtime trade negotiator for the Caribbean. “It has generally developed a lot of good will.” Bernal is now the pro-vice chancellor of global affairs at the University of the West Indies.

China is well known for pursuing simultaneous, long-term objectives in its foreign policy, most notably through the Belt and Road Initiative. The global development campaign has provided hundreds of billions of dollars in state financing for infrastructure projects across Asia, Africa, Europe and Latin America to increase trade and diplomatic links between China and developing countries.

Western inattention

Aside from Cuba and a few high-profile natural disasters like the 2010 Haiti earthquake, Washington has generally ignored the roughly two-dozen island nations and foreign territories that make up the Caribbean — sometimes referred to as America’s “soft underbelly” and its “third border” — and has treated the region over the years with a sort of benign neglect, according to former diplomats, economists, academics and security experts.

But that ought to change, and China is a prime reason why, they say. While Western, English-speaking countries view the Caribbean as a major tourist destination, they have done relatively little to develop the islands’ infrastructure.

When compared to larger Latin American countries, Chinese financial support to the Caribbean through government loans, grants and direct foreign investments are “miniscule,” though they have “risen dramatically from a small base,” according to a July 2016 report by the Inter-American Development Bank.

During a June 2013 visit to the region, Xi announced China would provide $3 billion in state-financed development loans for infrastructure projects to the Caribbean countries that recognize Beijing.

Chinese President Xi Jinping  (Andrea Verdelli/Getty Images)
Chinese President Xi Jinping (Andrea Verdelli/Getty Images)

“In each of these different countries, they have come in and gotten a real political foothold through these investments,” says R. Evan Ellis, a research professor of Latin American Studies at the U.S. Army War College’s Strategic Studies Institute.

There is nothing ostensibly belligerent toward the United States in what China is doing.

If based on fair partnership with the local communities, China’s financing of roads, ports, industrial parks and hospitals can be an unalloyed good for the Caribbean and for the United States, says Pepe Zhang, associate director for China in Latin America research at the Atlantic Council.

Getting a foothold in a geopolitically strategic area like the Freeport Container Port, which potentially could be used to project military power, is likely not Beijing’s first or even second objective, according to multiple China watchers.

Still, it cannot be discounted as a factor in Beijing’s long-term thinking, they say.

“In the event of some sort of conflict with the U.S., it would make sense for China to have established a presence in the Caribbean and to have some relationship and ideally a positive one with a number of these islands,” says Margaret Myers, director of the Asia and Latin America Program at the Inter-American Dialogue, a Washington-based think tank.

Besides the Freeport Container site, China has invested billions building up the Bahamas’ tourism sector. The state-owned China Export-Import Bank provided $2.5 billion to build the Baha Mar resort and casino — the largest such complex in the Caribbean.

China has more equity capital invested in the Caribbean on a per capita basis than it has in the rest of Latin America, according to Ellis. That is somewhat curious as the island nations have significantly fewer natural resources to export and a much smaller population to sell Chinese products to.

“It really isn’t about the market or the materials if you look at the amount that they are investing,” he says.

While Chinese banks and companies have invested billions in the Bahamas in the last 20 years, over a shorter-span of time Beijing has greatly ratcheted up its engagement with Jamaica “a lot more than we see in other places,” says Myers.

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For example, a Chinese company spent $700 million building a badly needed highway connecting Jamaica’s north and south coasts. To pay for it, the Jamaican government granted China Harbour Engineering Company a 50-year lease on roughly 1,200 acres of prime real estate alongside the highway, according to a 2017 article in the Jamaica Observer, a local newspaper.

“Once they built the road and it became a tourist place, the value of the land skyrocketed so the Chinese found themselves with this incredibly valuable land given to them by the Jamaicans,” Ellis says.

Seizing opportunities

In addition to filling an investment and financing vacuum left largely empty by the West, China in many ways is pushing on an open door when it comes to finding areas for increasing foreign policy alignment with Caribbean nations.

In June 2013, within the first year of his administration, Xi visited the Caribbean, suggesting the Chinese Communist Party likely had heightened the region’s strategic importance, according to a May 2014 report by the U.S.-China Economic and Security Review Commission.

For years, China’s main regional foreign policy engagement was its on-again-off-again checkbook diplomacy efforts to woo Caribbean nations into switching their diplomatic recognition away from Taiwan in favor of Beijing. Those efforts got a boost in recent years as both Panama and the Dominican Republic formally established diplomatic ties with China.

Trump’s election created additional opportunities for China to make friends in the Caribbean.

The Trump administration’s withdrawal from the Paris climate agreement was highly unpopular in the Caribbean, where the developing island nations are among the world’s most vulnerable to the effects of climate change. Many of their communities and businesses are below sea level and their governments lack funds to pay for adaptations to make them more resilient. In recent years, the region has been battered by historically severe tropical storms and hurricanes, which climate scientists say are more likely with global warming.

China has stepped into the funding gap, according to a January report by the Jamestown Foundation, a right-leaning think tank. While Beijing’s climate change funding does not match overall aid under President Barack Obama, it is more than the Trump administration has made available.

For example, China agreed to cooperate with the Bahamas on the construction of “housing that is resistant to climate change.” And in Jamaica, it agreed to train 140 local workers on the installation and maintenance of solar panels China donated, according to the Jamestown brief.

“Washington’s growing rigidity in denying the need for action on climate change — rhetorically and financially — threatens America’s ability to wage influence and keep rival powers from strategic spaces so geographically near,” concludes University of Akron history lecturer Jared Ward, who authored the Jamestown brief.

In some ways, Caribbean islands’ foreign policy postures mesh better with China than with the United States, particularly on the principle of non-intervention and respect for national sovereignty.

Both Beijing and the 15-nation Caribbean Community, which supports regional economic cooperation, oppose U.S.-led regional efforts to recognize opposition leader Juan Guaido as Venezuela’s interim president and to push President Nicolás Maduro from power. Similarly, China and CARICOM have remained silent about Nicaraguan President Daniel Ortega’s bloody tactics against democracy protesters, which in the past year have left hundreds of people dead.

China convenes semi-regular foreign minister-level meetings with the Caribbean countries it has diplomatic relations with: Antigua and Barbuda, the Bahamas, Barbados, Dominica, Grenada, Guyana, Jamaica, Suriname, and Trinidad and Tobago. February marked the seventh round of such consultations and produced a joint communiqué outlining areas of planned expanded cooperation through the Belt and Road Initiative, more cultural exchanges, and improving the Caribbean’s hurricane preparations.

“It’s a great space for China to exert influence . . . without U.S. or Canadian participation,” notes Victoria Gaytan, program manager of Global Americans, a nonprofit research organization providing geopolitical analysis of Latin America and the Caribbean. She says Washington should pay more attention to what is discussed at these types of diplomatic forums.

Beijing is also using its propaganda outlets to subtly push its economic and foreign policy views in English and in Spanish on a local news audience hungry for cheap global news, according Gaytan, whose organization regularly tracks examples of misleading articles by the Xinhua News Agency and People’s Daily. A common theme documented by Global Americans is Chinese state-backed articles that paint Chinese economic involvement in the region in a wholly positive light.

And the Chinese Education Ministry is rapidly expanding its Caribbean network of Confucius Institutes, which provide Mandarin language instruction and cultural programming, which many view as channels for propaganda. Already the island nations, with a population of just 41 million, have nine Confucius Institutes at colleges and K-12 schools spread across Cuba, Jamaica, the Bahamas, Trinidad and Tobago, Barbados, Grenada, Suriname, the Dominican Republic, and Antigua and Barbuda.

Bernal, whose University of the West Indies campus hosts a Confucius Institute, cautioned against reading too much into the influence the institutes are having in the Caribbean, despite their rapid spread.

“They are not a powerful influence in the Caribbean,” the former ambassador says. “There are not many people who are studying Mandarin.”

How to respond?

Even as China’s presence in the Caribbean has accelerated, regional analysts agree the influence game is still the United States’ to lose — but only if it gets in the game.

In 2016, Obama signed the U.S.-Caribbean Strategic Engagement Act, a bipartisan measure from California Democratic Rep. Brad Sherman and then-Rep. Ileana Ros-Lehtinen, a Florida Republican.

The law required the State Department to develop a comprehensive engagement strategy for the Caribbean. Foggy Bottom called the strategy “Caribbean 2020,” which lays out goals for increased diplomatic and security initiatives and more economic development assistance. In the summer of 2018, Sherman called the strategy “ambitious and impressive” but said he was frustrated it had yet to be implemented.

A State Department Western Hemisphere Bureau spokesman tells CQ the agency was making headway in implementing the strategy. A roundtable discussion was held this month with U.S. and Caribbean financial regulators, bankers and technology firms to discuss Caribbean banking issues. Since 2017, $6 million has been allocated for energy diversification projects, and preparations are being made for the 2019 Atlantic hurricane season by pre-positioning emergency relief supplies throughout Latin America and the Caribbean.

Diplomacy toward the region has been hindered by a lack of confirmed ambassadors. There is still no ambassador to Cuba, the Bahamas or Jamaica.

With more ambassadors in place, Washington can offer more attention to Caribbean governments considering the pros and cons of Chinese proposals for investment and development loans.

Having more U.S. government awareness about how these contracts with Chinese banks are structured, including any fine print about what happens if the local government is unable to make loan repayments, could be critical to heading off the type of situation that occurred with Sri Lanka’s port.

“Pay attention to the conditions in how these investments are made and how these contracts are dealt with and how these transportation and infrastructure projects are financed,” Gaytan advises.

At a February House Appropriations subcommittee hearing, the head of the U.S. Agency for International Development acknowledged the U.S. government should do more to help developing countries understand what they are getting when they sign up for Chinese loans.

“It’s predatory financing,” USAID Administrator Mark Green said. “Helping countries to be able to analyze the cost/benefit of the China package is important.”

But entreaties for Caribbean countries to rethink predatory Chinese direct investment and developmental loans will only go so far if the United States has nothing to offer instead, says Myers, of the Inter-American Dialogue.

Congress and the Trump administration have recognized that the U.S. government needs to better position itself to compete against Chinese development loans.

The administration is in the process of setting up the U.S. International Development Finance Corporation (DFC), which Congress ordered last year through the consolidation of the Overseas Private Investment Corporation with several smaller U.S. government credit authorities. It will have up to $60 billion to invest in developing economies, more than double the lending power of OPIC.

But under the DFC’s current congressional authorization, it is unable to make loans to most Caribbean countries without a waiver because, with the exception of Haiti, the World Bank defines them as “upper-middle income” countries, according to a January op-ed in The Hill by international development consultants Andrea Clabough and David Goldwyn.

That’s even though almost all of the island nations have large pockets of poverty and are chronically under-developed outside of their tourism sectors.

Clabough and Goldwyn want lawmakers to amend DFC’s authorization “to include a blanket exemption for the Caribbean from additional waivers.”

“The region’s 26 small-island economies merit eligible status based on demonstrated need and the importance of the region as a whole to U.S. economic and regional security interests,” they wrote.

Sen. Chris Coons, a Delaware Democrat and a lead champion of improving U.S. development finance to better compete with China, is monitoring the administration’s establishment of the new finance institution, including as it relates to loan access for Caribbean nations.

“That’s exactly the type of implementation question that I look forward to working closely . . . with my colleagues to make sure that we have given it the range of skills and opportunities to invest in ways that both compete with China and lead to more transparent infrastructure investments around the world,” Coons says.

The White House announced on March 22 it was directing OPIC to give “priority status” to the five Caribbean countries whose leaders met with the president at Mar-a-Lago. “Our relationship with the Caribbean is strong,” Gidley said.

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