broad, since its presence extends from large infrastructure projects all the way down to the millions of low-priced smuggled goods sold in marketplaces and street
kiosks. China is now Latin America’s third largest trade
partner—and set to become its second by 2014, according to the Economic Commission for Latin America and
the Caribbean. As China deepens its presence in Latin
America, it is likely that businesses operating on “
backdoor” practices will continue to find fertile ground and
reinforce the weak institutional capacity of many Latin
A NOTE OF OPTIMISM
Corruption and lack of transparency erode the health of societies in many ways. Taxpayers are hurt because major infrastructure projects uffer from inflated costs and graft. Safety and
environmental standards are compromised. Smuggling
and other illegal market practices expand the informal
sector, exacerbating the state’s already weak capacity
to collect taxes and undermining human rights. Governance is compromised and the rule of law is weakened.
In spite of these damaging consequences, there is
some room for optimism.
Compared to its conduct in Africa, China has complied
with some domestic provisions in Latin America—
including practicing greater accountability and observing
stricter labor and environmental standards, such as those
established in the framework of the free-trade agreement
with Chile in 2005. Researchers from the Peterson Institute for International Economics showed in the Fall
2011 Americas Quarterly that such factors as the time of
a Chinese company’s initial investment, the firm’s adherence to central government directives, and China’s
gradual adjustment to international norms explain why
some Chinese companies behave better than others.
According to research that will appear in a forthcoming volume of The China Quarterly, Chinese mining investment in Latin America shows a preference for
political stability, liberal mining investment regimes,
preexisting business relations, and the presence of a significant Chinese community in the host country. Chinese companies do not seek out governments that depart
from proper standards of transparency and accountability. A sound legal environment and efficient control
mechanisms can actually play an important role in attracting and holding Chinese firms to high standards.
Some Chinese firms themselves are starting to demand clearer rules of the game from Latin American
ARIEL ARMONY Exporting Corruption
governments. Last year, two Chinese oil companies operating in Ecuador presented a demand to the attorney
general’s office denouncing “lack of transparency and
intense government pressure” in the negotiation over
renewal of existing contracts stipulated by new national
legislation. They were willing to resort to international
arbitration if the issue could not be solved in a proper
negotiation with the Ecuadorian government.
The need for companies to adjust their practices when
operating abroad—whether due to international pressure or merely the conditions in the host country—has
pushed China’s congress to amend the country’s penal
code, incorporating an extraterritorial component previously absent in Chinese criminal law. The amendment introduces specific anti-corruption language that
defines the act of bribing foreign government officials
as a criminal offense and mandates incarceration and
a concurrent fine for violators. Criminal detention can
vary from 3 to 10 years, depending on the monetary
value involved in the illegal transaction.
Still, as the Latin American experience has clearly
demonstrated, it is not easy to surmount the gap between the letter of the law and its implementation.
While the penal code amendment is an important step
on the part of the Chinese government, it will be critical to support this decision with resources, consistent
enforcement and cooperation with local and international authorities.
Greater integration of China in Latin America may
lead to positive economic outcomes and synergies. But
China’s expansion in Latin America may also deepen
corruption. It would be a sad irony if China’s growing
presence in Latin America were to strengthen the region’s economies but weaken its democracies.
Ariel C. Armony, a political scientist, is a professor of
international studies and director of the Center for Latin
American Studies at the University of Miami in Florida.
107 Americas Quarterly WINTER 2012