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Chávez death exposes flaws in China’s foreign policy

Ian Bremmer

“[Hugo] Chávez was an outstanding leader of Venezuela, and a good friend of the Chinese people,” noted China’s foreign ministry on Wednesday. Whatever personal sorrow might be felt in Beijing this week, China’s regret at the strongman’s passing is founded largely on worries over the future of economic relations with his government.

Those relations have grown considerably in recent years. According to Matt Ferchen, a scholar at the Carnegie-Tsinghua Center for Global Policy, the China Development Bank has cut loans-for-oil deals in Venezuela over the past five years that account for some 60 per cent of all China’s exposure in Latin America. In 2012, Venezuela made payments on the $42bn loan by sending China an average of about 300,000 barrels of crude oil a day.

There is a broader concern. Chávez’s death caught no one by surprise; it has been expected for many months. But the news from Caracas reminds Chinese officials that their government continues to depend on commercial relations with relatively unpredictable countries that they don’t understand as well as they should.

During a visit to Beijing this week, state officials have told me that they fear the demise of Chávez means the end of his movement — and that the opposition leader Henrique Capriles, once elected president, will undermine China’s considerable interests in the country. Mr Capriles has fed this worry by publicly questioning the legality of the loans-for-oil deal and by arguing that Venezuela should repay the loans in cash rather than oil.

In reality, Chinese concerns about Mr Capriles should remind us how poorly Beijing understands Venezuela. The opposition is unlikely to defeat vice-president Nicolas Maduro, Chávez’s handpicked successor, in the upcoming election and even if Mr Capriles wins, he is highly unlikely to violate the terms of a pre-existing contract. Venezuela’sdire economic circumstances will make it hard for any new president to antagonise deep-pocketed potential friends.

But the larger issue for Beijing has less to do with Venezuela’s fortunes than with the future of China and its foreign policy. In recent years, China’s “go out” foreign investment strategy — a plan designed in part to lock down the long-term supplies of oil, gas, metals, and minerals that China needs to stoke growth, create jobs, and keep the peace—has taken Chinese companies and state officials into some politically unpredictable developing countries. Just in the past two years, a civil war that consumed a friend in Libya, the surprising political opening engineered by allies in Burma, North Korea’s latest nuclear antics and the death of Chávez have reminded China’s leadershipthat their foreign ministry is relatively new to the game of managing political risk. Cutting energy deals in Canada and Brazil are one thing; accepting significant risk exposure in Sudan, Democratic Republic of Congo and Zimbabwe are quite another.

In fact, the single clearest message I have received in Beijing is that while China would always prefer to make deals with predictable partners in predictable countries, China’s leaders know that even after years of efforts to improve political risk assessment, they still must develop a deeper and more refined understanding of all the markets in which China now has commercial interests. That means that this traditionally insular, risk-averse government will become more active on the international stage — not to play a more ambitious global leadership role, but simply to better understand other countries, their political systems and political cultures.

It also means that to protect their own interests, China’s leaders are now more likely to intervene in the political lives of others — and the debate is on in Beijing as to what form “intervention” might take in each case.

In the process of becoming more deeply involved in the politics of foreign countries, they are likely to discover that they have traded one form of risk and uncertainty for another.

The writer is the president of Eurasia Group, a political risk consultancy, and author of ‘Every Nation for Itself: Winners and Losers in a G-Zero World’

(Financial Times)