China and the Economic Collapse of Venezuela: The Untold Story

Venezuela is a fine example of the abject failure of China's R4I or Resources for Infrastructure Investment program.

This guest article was written by William Laraque who is the Managing Director of US-International Trade Services

The reasons for Venezuela’s economic collapse and the parallel demise of its social order are well publicized. The tale of decline of one of the wealthiest countries in South America to its present desultory state has been explained time and again. So why bring it up again?

Join the iFX EXPO Asia and discover your gateway to the Asian Markets

Trade in Tagalog now!

Venezuela and China affect oil prices, discover how to trade it!

Because the commentators, including those featured in the World Economic Forum, have not discussed the Chinese role in Venezuela’s fall from grace. As Chinese economic and foreign policy focuses on its One Road, One Belt program, it is important to consider the results of its precedent, the R4I or Resources for Infrastructure Investment program.

Venezuela is a fine example of the abject failure of China’s R4I or Resources for Infrastructure Investment program. In exchange for large quantities of Venezuela’s heavy oil, the National Bank of China and the Export-Import Bank of China have concluded contracts whereby Chinese companies were to build Venezuela’s infrastructure and provide its economy with the collateral workers in its industrial and retail sectors. Chinese workers are prominently featured in Venezuela’s food and produce sector.

The Chinese are certainly not to blame for the lack of diversification in an economy whose export dependency on oil grew from 70% in 1998 to 98% in 2013. The story is symptomatic, however of how ‘borrowing’ a lot of money in exchange for Chinese infrastructure projects has not sustainably transformed Venezuela.

China and Venezuela

(Reuters) – Venezuela has reached a deal with its main financier China to improve the conditions of an oil-for-loans deal, giving the OPEC member’s crisis-hit economy ‘oxygen’ ahead of heavy debt payments, its top economic official said on Monday.

Venezuelan Economy Vice-President Miguel Perez told Reuters that all conditions, including loan time frames, investment amounts and non-financial aspects, had been improved.

China has lent some $50 billion to Venezuela in that arrangement over the last decade, and markets are watching to see if Beijing will help President Nicolas Maduro’s socialist government as it struggles with recession, shortages and reduced oil revenue.

The Legacy of Alexandre Petion

During the oil-fed interregnum, a succession of Venezuelan caudillos have used the US as scapegoat and China as savior. The death of Chavez resulted in the assumption by Maduro of the state mantle. Maduro’s economic program has totally focused almost exclusively on the use of Venezuela’s oil resources in exchange for Chinese loans.

The resulting economic disaster is evident to all but a highly propaganda-influenced Venezuelan people. Alongside the rampant inflation, persistent shortages of everything from food to toilet paper and diapers, the homicide rate of 10 per 100,000 in Caracas is among the world’s highest.

Venezuela’s government has used to maximum effect the art of political distraction.

Suggested articles

What’s Holding Back Blockchain Adoption? The Answer is Simple - ConnectivityGo to article >>

From Wikipedia:

Simón José Antonio de la Santísima Trinidad Bolívar y Palacios (July 24, 1783 Caracas, Venezuela – December 17, 1830 Santa Marta, Colombia) South American liberator. Bolívar traveled on December 24, 1815 to Haiti, arriving in the coastal town of Les Cayes on his way from Jamaica where he was expelled.

Simón Bolívar received help from the Haitian goverment under Alexandre Pétion for his military campaigns. Pétion secretly supplied Bolívar with 4,000 muskets, 15,000 pounds of powder, flints, lead and a printing press and asked in return for South America’s slaves to be freed. (Heinl p. 158 – See also footnote 430 of The Struggle for the Recognition of Haiti…).

Bolívar left Haiti on April 10, 1816 for Venezuela, but returned in mid September of that year to Les Cayes after lost battles in South America. Resupplied by Pétion he sailed again from Haiti on December 28, 1816, this time to successfully conclude his struggle for South American liberation from colonialism. The Haitian help was given because he promised to free slaves, Bolívar landed in Venezuela and captured Angostura.

Despite the crucial logistical support from Haiti, Bolívar never recognized the independence of the former French colony Saint-Domingue.

One of Bolívar’s predecessors in the liberation struggle from colonialism in Spanish ruled South America, Francisco de Miranda, created the first Venezuelan flag near Jacmel in the South of Haiti. Anchored in the Bay of Jacmel, he first raised the flag on March 12, 1806 on the Corvette Leander. This day is celebrated still as Venezuelan Flag Day.

Importance of Bolivar to Latin America:

Simón Bolívar (July 24, 1783 – December 17, 1830), was one of the most important leaders of Spanish America’s successful struggle for independence from Spain, along with Argentinian general José de San Martín.

After the triumph over the Spanish monarchy, Bolívar participated in the foundation of Gran Colombia, a nation formed from the liberated Spanish colonies. Bolívar became President of Gran Colombia from 1821 to 1830, President of Peru from 1824 to 1826 and President of Bolivia from 1825 to 1826. His legacy contributed decisively to the independence of present-day Bolivia, Colombia, Ecuador, Panamá, Perú and Venezuela.

The Economic Influence of Venezuela Update; 2011:

Venezuela has been critical for the maintenance of the economic health of many countries through its subsidization of oil and gasoline. Cuba is one such example. The poor, located in such disparate areas as the Caribbean to the US, have benefited from cheaper fuel oil and gasoline prices thanks to Venezuela’s subsidization.

From mic.com:

Many poor Americans in colder climes will doubtless be dismayed to hear that shortly after ringing in the New Year, Congress and the president have decided to cut 25% from the Low Income Home Energy Assistance Program, (LIHEAP) showing once again their preference to default on the needy and vulnerable rather than asking the most powerful and wealthy to make even the smallest sacrifices.

Far more welcome news came from Citgo Petroleum Corporation, a subsidiary of Venezuela’s state-owned oil company, which announced that it would be continuing its six-year-old program of providing heating oil to poor Americans free of charge. The contrast between the values displayed by the American and Venezuelan governments – the “good guys” and “bad guys,” respectively, of the American political consensus – could not be more striking.

Final Remarks

Realizing that it can no longer count on cheap oil or gasoline at the largess of Venezuela, Cuba is making other arrangements. During the intervening decades, Cuba has had to make other economic arrangements as Soviet and then Russian subsidies and financial support after the collapse of the Soviet Union and the travails of an oil-dependent Russian economy, after the oil price collapse.

Venezuela’s failed state is as much a reflection of the failure of China’s R4I program as it is of the failure of social order in Venezuela. As China sallies forth into its One Road, One Belt program, it will be humbling and useful perhaps to note the dismal failure of its economic development antecedent.

Got a news tip? Let Us Know