Americas Quarterly - Winter 2012

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 American countries.

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

AMERICASQUARTERLY.ORG

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

MEDIA OUTLETS HAVE EXPOSED

MANY EXAMPLES OF BRIBERY.

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.