Of all the countries that Venezuela has approached for help to kickstart its struggling economy, China unquestionably has the biggest potential to provide any meaningful assistance. Accordingly, President Nicolás Maduro spent nearly a week visiting the Asian giant in mid-September, wooing top officials as he seeks fresh investments. The length of visits to other major allies pale in comparison; Maduro spent less than 48 hours in Tehran, Ankara, and Brasília on his most recent state visits there and hasn’t been to Moscow in five years.
After pouring some US$60bn into Venezuela through 2015, China put bilateral ties on ice as the Caribbean nation fell behind on its payments amid prolonged economic and political instability and US-led sanctions. Now with Venezuela out of economic freefall and with Maduro having consolidated his grip on power, he was welcomed to Beijing’s Great Hall of the People for the first time since 2018.
All-weather partnership
Judging by the red-carpet treatment Maduro received during his meeting with President Xi Jinping on 12 September, Beijing has warmed to the idea of a rapprochement with Caracas. Chinese state media reported that Xi upgraded the relationship to an “all-weather strategic partnership”, a distinction only a few select nations enjoy. “We’re organising an agenda for a new period in Chinese-Venezuelan relations,” Maduro said of the more than 30 agreements that were signed during the meeting – the details of which were not made public. “We’re beginning to write a new chapter in history – I feel it, I know it.”
Meanwhile, Vice President Delcy Rodríguez and Oil Minister Pedro Tellechea discussed potential joint ventures between China and Venezuela’s state-run oil company Petróleos de Venezuela (Pdvsa), according to Bloomberg News.
Special Economic Zones
One of Maduro’s main objectives was to secure Beijing’s support for Venezuela’s growing list of special economic zones (SEZs). Maduro had announced the creation of five of these in July 2022 to provide tax benefits and other financial incentives to businesses working in manufacturing, tourism, and trade, and announced a further SEZ for agriculture in August this year. On this front, Maduro’s visit looks to have paid off.
Xi said China was willing to provide support for the SEZs and Maduro walked home with development agreements for three of them. The first was between Shanghai and Puerto Cabello, the port in Venezuela’s northern state of Carabobo that accounts for roughly a third of the country’s imports.
Also, La Guaira state, which is hoping to expand its fish and food processing industries, is working on a development plan with Shenzhen, which became China’s first SEZ in 1980 and today is one of the world’s foremost centres for technological manufacturing.
And Maduro’s third stop outside of Beijing was in Shandong, which signed a cooperation agreement with Venezuela’s recently created agricultural SEZ. Venezuela hopes that this will enable it to tap into the knowhow and potential capital investments from companies in Shandong. The idea is to help rebuild Venezuela’s capacity to produce cereals, cash crops, and animal protein and thereby reduce its reliance on imported foods to feed the population. The new SEZ for agriculture, which Maduro announced on 23 August this year, will cover 5.45m hectares of land in the states of Guárico, Anzoátegui, Monagas, Sucre, and Bolívar.
Runaway inflation
A series of market-friendly reforms and the unofficial dollarisation of commerce have helped alleviate the worst of the food shortages but the Caribbean nation’s economy is still dysfunctional in many ways. Annual inflation in September stood at 396%, according to the Observatorio Venezolano de Finanzas (OVF), an independent economic think tank.
Roughly half of the population lives in poverty, which helps explain why Venezuela has become the main source of migrants making the perilous journey across the Darién Gap separating between Colombia and Panama en route to the US border. Since 2014 more than 7m Venezuelans, or roughly a quarter of the population, have fled the country, according to the United Nations-supported Inter-Agency Coordination Platform for Refugees and Migrants from Venezuela (R4V).
Power outages, petrol and water shortages, and the dilapidated state of the Caracas rail network are only the most visible signs of a decrepit infrastructure that requires massive investments. US-led sanctions certainly added to Venezuela’s economic woes, but the downfall of what was once one of Latin America’s wealthiest nations began long before that, mostly at the hand of mismanagement and corruption.
Chinese interests
The apparent reconciliation with China comes amid little signs of progress on easing US-led economic sanctions and could represent a boost for Maduro ahead of presidential elections that are due to be held next year.
So what does Venezuela, a small, broke Caribbean nation, have to offer the world’s second-largest economy? At a time when trade and geopolitical tensions with the West, and in particular with Washington, have flared up again, China is keen to strengthen its foothold in the western hemisphere, both as part of its long-term strategy to secure raw materials and as a broader projection of power.
That includes having a growing number of countries in the United Nations and other multilateral agencies voting in line with Beijing. It also includes supporting efforts to make the use of its currency more common around the globe so as to reduce the global reliance on the US dollar and western-controlled financial mechanisms such as Swift, which banned Russian banks in the wake of the invasion of Ukraine. Bolivia, for example, has increased its use of the Chinese yuan for imports and exports, saying that between May and July it conducted financial transactions worth ¥278m (US$37.8m), or 10% of its foreign trade. Among the main export items traded in yuan were bananas, zinc, and wood products [EB-23-09]. The transactions are made through the state-owned bank Banco Unión, which has also introduced trade in the Russian rouble. Venezuela has discussed similar moves with Beijing and Moscow.
And, of course, Beijing has its sights set on Venezuela’s oil industry, which may not be in top shape but still boasts the world’s largest reserves. With US oil majors forced to stand on the sidelines due to the ongoing trade sanctions, there is a particular opportunity to expand.
Chinese modernisation
Still, to curry favour with the wealthy benefactors on the other side of the globe, Maduro didn’t shy away from a good dose of diplomatic pleasantries and references of grandeur. “We came to open Venezuela’s doors to China to consolidate a new, all-weather phase of growth, looking at the example of China, the superpower of the 21st century,” Maduro said from Shandong during a broadcast of his weekly TV programme Con Maduro +.
What concretely will come out of China’s recent overture toward Venezuela is unclear. Maduro said various bilateral councils had been set up to negotiate deals between public and private companies on both sides. Back in Caracas he said that the agreement with China in the electricity sector would bring the “support of a powerful Chinese company for the modernisation of the Venezuelan electrical system”.
China National Petroleum Corporation (CNPC) currently has numerous joint ventures with Venezuela’s Pdvsa oil company, and after a pause following the US sanctions is again investing to increase output. One of the options would be for CNPC to further expand its existing projects or it could branch out into other areas. Bolstered in part by output from US oil giant Chevron and crude exports to the US under a provisional licence from Washington, Venezuela has gradually been recovering its foreign oil sales to more than 700,000 barrels per day (bpd). They had fallen from nearly 3m bpd to just over 300,000 bpd from 2002-2020.
Caution
Despite the fraternal welcome and Xi’s claim that both countries were “good friends with mutual trust”, Beijing is likely to be more cautious than in the past, insisting on more guarantees such as oil in exchange for loans. It will also eye Maduro’s progress in cracking down on corruption, as well as any geopolitical reverberations from next year’s elections.
The Maduro regime banned the main opposition candidate María Corina Machado from running in next year’s presidential race and is showing no other sign of easing its authoritarian grip on power. Washington had offered to ease economic sanctions if Caracas were to hold a free and fair election next year. While investments from the West require democratic reforms at home, there are fewer strings attached to Beijing’s benevolence. In fact, Beijing would gain more by Maduro staying in power and providing a predictable political regime to deal with. And an extension of US sanctions on Venezuela would only give it preferential access by keeping Western companies and investment out.
Seeking Brics
Still, part of that lingering caution vis-à-vis Venezuela was on display in August when the Brics bloc of developing economies (Brazil, Russia, India, China, and South Africa) invited half a dozen others, including more questionable economic powers such as Argentina and Ethiopia, to join its ranks but ignored a request from Caracas.
In May Lula had said he supported the idea of Venezuela joining the Brics bloc, but two months later he mentioned only Saudi Arabia, the United Arab Emirates, and Argentina as appropriate candidates. According to Brazilian press reports, pressure to keep Venezuela out of the club of countries wanting to upstage the economic world order came from Brazilian diplomats and not from China. The concern was that a fast and uncontrolled enlargement with lesser economic clout would dilute the influence of the group.
Regardless, on 2 August Maduro announced that this government had officially applied to join. “Brics is the driving force behind the emergence of a multipolar world, and now that the bloc is considering expanding to allow new countries to participate, Venezuela is expressing its intention to join,” said Maduro. When that didn’t happen, Maduro renewed efforts on his trip to China and visited the head of the New Development Bank, Brazil’s former president Dilma Rousseff (2011-2016). The bank was set up by the Brics and is headquartered in Shanghai. Following the meeting, Maduro tweeted that “Venezuela hopes to establish a virtuous relationship with the Brics bank, and sooner rather than later be part of this great family”.
