Is Chinese Investment Good for the Caribbean?

January 27, 2014///by Sara Ghebremusse

Over the past few months, commentators have examined China’s increasing role in the Caribbean. The visit of Chinese President Xi Jinping in May 2013 most certainly turned many people’s attention to China’s encroachment and raised many eyebrows (see this CaribNation video for example).     

China’s presence in developing countries has gradually increased over the last fifteen years, primarily driven by the need to sustain its economic growth. Fossil fuels and minerals have become the new currency of China’s relations with developing countries. In exchange, China invests in various sectors and infrastructure projects, undertaking the construction of ports, schools, hospitals, roads and railways.[1]

China has done much of the same in the Caribbean, although its involvement is fragmented due to continued tensions with Taiwan. Some Caribbean states – specifically Belize, Haiti, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines – formally recognize Taiwan,[2] resulting in little to no economic relations with China. Of the countries that do recognize China instead of Taiwan, relations have ranged from investment in extractive industries to finance through the provision of loans and grants from state-owned banks.[3] During his 2013 visit to the region, President Xi offered approximately $3 billion in soft loans alone.[4] China’s recent investment includes, among other projects: building a commercial port in Jamaica;[5] investing in Trinidad and Tobago’s off-shore oil industry;[6] purchasing a 70% stake in the Guyanese Omai Bauxite Mining, Inc.;[7] acquiring three sugar factories and leasing 30 000 hectares of cane fields in Jamaica;[8] investing in palm oil production in Suriname;[9] and financing the construction of the $3 billion Baha Mar resort in Nassau, Bahamas.[10]

Some describe China’s role in the developing world as “contemporary colonialism.”[11] Although its current involvement in the Caribbean cannot compare to the centuries spent under colonial rule, the relationship is similar in some respects. Like colonial powers, China’s engagement is not altruistic – it is gaining more from the Caribbean than it is offering. However, this is not to say that Caribbean recipients of Chinese investment are not gaining some benefit. Chinese investment is contributing to the construction of much needed infrastructure. It is also enhancing production capacity in certain industries, particularly agriculture and resource extraction. But there are major drawbacks.      

First, Chinese investment is not positively contributing to employment or technology spillovers. A key component of Chinese investment in construction and infrastructure is the requirement that the labourers be employees of the Chinese firms undertaking the construction, and are generally flown in from China to complete the work.[12] While construction capacity may be lacking in the states receiving Chinese investment, contracts for infrastructure projects are not requiring some element of technology or knowledge transfer so that local capacity can develop. Neither are contracts stipulating a minimum requirement for hiring local skilled labourers, similar to what Chinese firms are demanding.[13] And with Chinese firms completing the construction projects with little reliance on Caribbean firms, there is little opportunity for technology transfer to local businesses.[14]

Second, the Caribbean’s preferential access to Canada, the United States and the European Union through its trade agreements may also prove beneficial to the Chinese but harmful to Caribbean businesses. If Chinese investors move to establish manufacturing operations to take advantage of the preferential access, the competition can potentially squeeze out local production if Chinese firms are more efficient.[15]           

In addition, China’s growing presence in the Caribbean may hinder regionalization as state-to-state engagement with China may weaken economic integration within CARICOM.[16] The Community is not acting cohesively and engaging with the Chinese as a single bloc. States maintaining relations with Taiwan potentially limit this possibility, since China may refuse to engage with them. But CARICOM acts as a single bloc when dealing with Canada, the United States, and the European Union,[17] which helps promote regionalism and also ensures a more equitable distribution of benefits across the region. Bilateral engagement with China limits these possibilities.

So before Caribbean leaders eagerly accept Chinese investment with open arms, they should consider the impact it will have on economic development in the region and do more to alleviate the harmful affects.

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[1] M.W., “Sun, sand and Xi” (4 June 2013) The Economist, online: The Economist Newspaper Limited <http://www.economist.com/blogs/americasview/2013/06/china-and-caribbean>.

[2] W Alex Sanchex & Lynn Tu, “China vs. Taiwan: Battle for Influence in the Caribbean” (13 March 2012), online: Council on Hemispheric Affairs <http://www.coha.org/china-vs-taiwan-battle-for-influence-in-the-caribbean/>.

[3] Richard Bernal, “China’s Rising Investment Profile in the Caribbean” (October 2013), online: Inter-American Dialogue <http://thedialogue.org/PublicationFiles/IAD9325_Bernal_China_10142.pdf>.

[4] M.W., supra note 1.

[5] Rush Doshi & David Walter, “China’s Rising Tide in the Caribbean” (30 September 2013) The Wall Street Journal, online: Dow Jones & Company Inc. <http://online.wsj.com/news/articles/SB10001424127887324576304579072750474072912>.

[6] Bernal, supra note 3.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Mark Klaver & Michael Trebilcock, “Chinese Investment in Africa” (2011) 4:1 The Law and Development Review 168.

[12] Bernal, supra note 3.

[13] Ibid.

[14] Richard Bernal, “The Dragon in the Caribbean: China-CARICOM Economic Relations” (2010) 99:408 The Round Table 281 at 290.

[15] Bernal, supra note 3.

[16] Bernal, supra note 14 at 283.

[17] See the Caribbean-Canada Trade Agreement, as well as the ongoing Canada-CARICOM Free Trade Agreement negotiations, the US-CARICOM Trade and Investment Framework Agreement, and the EU-CARIFORUM Economic Partnership Agreement (CARIFORUM consists of CARICOM Member States and the Dominican Republic).