China adds pressure to region’s resources


Isabella Vitali thinks back with nostalgia to her childhood in the Cerrado, the vast woodland savannah that spans 10 Brazilian states. She recalls hiking across grassland punctuated by short, twisted trees bursting with brilliant flowers and by dense gallery forests where waterfalls spilled into deep pools.

But when Vitali returns to the Cerrado today, she encounters a starkly different scene. Her once-boundless playground, home to 11,000 plant species, 800 species of birds, and animals including the maned wolf (Chrysocyon brachyurus) and the giant anteater (Myrmecophaga tridactyla), has yielded in many locations to a vast green carpet of soy.

Long ignored because of its seemingly infertile soil, the Cerrado has lost roughly half of its 2-million-square-kilometer (770,000-sq-mile) area to agriculture and continues to be converted at a rate of 14,000 square kilometers (5,400 sq miles) annually. That’s faster than the pace of land clearing in the Amazon.

Vitali, now a senior policy officer on livestock and soy for the environmental group WWF in England, says the trend is driven in no small part by China’s burgeoning demand for soy.

“The Chinese are now a huge factor in the soy market as they turn to South American soy to supply their rapidly expanding pig production,” she says. “Chinese demand for soy has exploded and its impact, combined with demand from Europe, is devastating.”

China is now the world’s No.1 importer of soybeans and soy products. Brazil and Argentina, which supply 39% and 14%, respectively, of China’s soy imports, have seen pressure on their biodiversity increase as a result of the soy trade with the Asian giant. China’s hunger for soy has been a significant factor behind the rapid destruction of the Chaco forests in northern Argentina, currently falling at a rate of more than 150,000 hectares (370,000 acres) per year. It also has played a role in the disappearance of large portions of Argentina’s Yungas cloud forest and the Atlantic Forest in Brazil and Argentina.

It is not just soy. As China’s economy grows at double-digit rates and its population becomes more prosperous, its demand for other commodities, including oil, iron-ore and copper, have similarly contributed to deforestation, biodiversity loss and pollution in Latin America. This has raised concerns about the wisdom of an export model based on natural-resource extraction.

“China’s emergence as a player in Latin America is the biggest challenge for the region both economically and environmentally,” says Kevin Gallagher, an expert on Latin American development at Boston University. “It could be of huge benefit to Latin America. But it also could be destructive if not managed sustainably.”

China and Latin America are well-suited trade partners. With the world’s largest population and its fastest growing economy but only 7% of its arable land, China needs agricultural imports to feed an increasingly prosperous, urbanized population and minerals to feed its booming industries. Latin America, one of the world’s most resource-rich regions, is eager to act as supplier and has the added attraction of 560 million consumers for Chinese manufacturers.

That dynamic did not bear fruit until 2001, when China joined the World Trade Organization and become fully integrated into the global economic system. After that, Sino-Latin American trade took off. From virtually non-existence 10 years ago, Latin America’s exports to China soared to $41 billion in 2009 and overall trade rose more than 1,200%, to $130 billion.

China is now Latin America’s third leading trading partner after the United States and the European Union. Many economists expect it to overtake the European Union for the No. 2 spot by the middle of the decade.

The benefits of that relationship for Latin America are undeniable. Brazil, Chile, Argentina and Peru, which supply around 90% of the exports to China, were able to withstand the worst of the global financial crisis and grow at rates ranging from 5% to 9%, in part because of their trade with the Asian giant. Millions of people may have been lifted from poverty as a result.

But there are drawbacks, too. In 1984, Companhia Vale do Rio Doce, the world’s biggest iron ore miner, built the 4,000-megawatt Tucuruí dam to power a massive increase in iron ore extraction at its Carajás mining complex in northern Brazil. Huge areas of Amazon rainforest were flooded and 35,000 people were displaced. Today, with Brazil supplying over half of China’s iron ore imports, the company is planning to boost iron-ore production by another 44% at Carajás, placing still more demands on the largely hydroelectric Brazilian power system.

Green advocates argue that by significantly boosting demand for hydroelectricity, transportation and other services, mining looms particularly large in the expansion of environmentally damaging infrastructure projects.

“The trade in iron ore with China and the growing dependence on commodity exports is going to result in the construction of dams and an increase in roads, railroads and waterways to get those products to the sea,” says Zachary Hurwitz, an analyst at International Rivers, a nonprofit in Berkeley, California. “There will be deforestation and a host of other environmental impacts.”

In some cases the impacts stem not from export purchases but, rather, from direct investment projects.

In Peru, where Chinese investment represents US$11 billion, or 27% of total investment in the mining and energy sector, an iron-ore mine owned by the Shougang Corporation of Beijing in San Juan de Marcona has been wracked by strikes, clashes between workers and police, and allegations that the company is dumping chemicals into the ocean. “In the natural fishing areas, there are no fish. Around the Shougang mine, there is no life,” Santiago Rubio, president of the local fishermen’s association, told the press earlier this year.

A copper mine now being developed by the Aluminum Corporation of China (Chinalco) with a US$2.2 billion investment in the town of Toromocho, east of Lima, has gotten a decidedly warmer reception. That is because it is building a more modern town for the 5,397 impoverished and soon-to-be-displaced residents of the existing town.

In the department of Piura, local farmers involved in organic production of coffee, mangos and bananas for the U.S. and European markets are trying to stop the Zijin Mining Group of China from developing a copper concession in the cloud forests of the Huancabamba.

The mine is expected to generate jobs, as well as income amounting to US$1 billion over 20 years. But the farmers are more worried about the company contaminating their local water supplies and jeopardizing their organic certificates. Last month, Zijin was fined $4.6 million in China. A poorly built and operated waste pond at one of its gold mines had leaked cyanide, poisoned a river, killing fish.

“China is becoming a very important actor in Peru’s mining sector, but there is concern here about its social and environmental conduct,” says José de Echave of the Lima-based nonprofit CooperAcción. “That is both because of their history in Peru and in Africa and because they are not seen as having the most rigorous environmental standards at home.”

Analysts point out that Latin American countries do have leverage, however.

“All these resources that China is after in South America are location-specific, and that gives the country, regardless of its size, a lot of bargaining power,” Gallagher says. “If a Chinese electronics plant in Mexico runs into trouble because of the toxins it produces, it can pick up and go to Mauritius or Malaysia because all it is really getting in Mexico is cheap labor. But Brazil produces more than half of the iron ore that China imports, and Brazil, Argentina and Bolivia are its most important sources for soy after the U.S.”

Working directly with individual sectors is another way of pushing for more sustainable practices. Last April, the Chinese signed a $7 billion agreement with Brazilian farmers to produce six million tons of soybeans for the Chinese market. The deal, which included credit to farmers, threatens to expand Brazilian production into ecologically sensitive areas.

It also has played into the forest-protection debate that roiled Brazil last month after the country’s lower house voted to grant a partial amnesty on illegal land clearing. The bill, awaiting Senate approval, was influenced by the ranching and farming lobby, including producers of soy for China.

Vitali is hoping the Chinese can be persuaded to push back against forest clearing, given their need to guarantee a sustainable supply of soy over the long haul. A strategy advocated by some is to get Chinese importers to sign on to the so-called Round Table on Responsible Soy (RTRS), and only buy soy certified as not originating on lands of high conservation value or on lands cleared of native forest. (See related story—this issue.)

“Since importers depend on imports to feed their people, they will hopefully see that sustainability of the supply chain is in their own interest,” Vitali says.

But analysts say the biggest challenges involve changing the basic economic model, especially as it relates to the region’s emphasis on raw material exports at the cost of more value-added and hi-tech products. South America may be thrilled with currently soaring commodity prices. It may be riding high on its export boom. But that boom also fuels an appreciation of local currencies, a loss of trade competitiveness and the starving of investment for industrial goods and more high-end services. All those things ultimately help perpetuate a raw-materials export model that can harm the environment.

One solution embraced by Chile, a major exporter of copper to China, is to create a stabilization fund that uses proceeds from commodity exports to buck the country up when prices are low, give the economy a jolt when it is performing under par and provide greater environmental protections for producers.

Another approach embarked on by Brazil is to invest a share of its gross domestic product (GDP) in research and development—not only for traditional infrastructure projects, but also for alternative energy, such as solar and wind power. According to Gallagher, Brazil is the only Latin American country investing more than 1% of its GDP on such efforts.

Carmen Gonzalez, an expert on environmental law at the Seattle University School of Law, argues China could have a lot to do with whether Latin nations diversify economically.

“Under the rules of the World Trade Organization and other multilateral agreements, Latin American countries are restricted from using the types of protectionist measures that China, India, the United States and England all used at critical stages of their development to protect their industries,” Gonzalez says. “Latin America’s current comparative advantage is in raw materials. The big question is whether China will side with Latin America in world trade negotiations so that the region has the space to develop different comparative advantages. The big question is whether China will be friend or foe to Latin America.”

- Steve Ambrus

José De Echave
Community Rights and Extractive Industries Program
Lima, Peru
Tel: +(511) 446-5385
Kevin Gallagher
Associate Professor of International Relations
Boston University
Boston, MA, United States
Tel: (617) 353-9348
Carmen Gonzalez
Law Professor
Seattle University School of Law
Seattle, WA, United States
Tel: (206) 398-4000
Zachary Hurwitz
Policy Program Coordinator
International Rivers
Berkeley, CA, United States
Tel: (510) 848-1155
Isabella Vitali
Senior Policy Officer on Livestock and Soy
Godalming, U.K.
Tel: +(44 148) 3426444
Documents & Resources
  1. Global Development and Environment Institute (GDAE) at Tufts University China and Latin America page Link