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ARGENTINA-CHINA: Agreements Raise more Questions than Answers, for Now

Marcela Valente

BUENOS AIRES, Nov 18 2004 (IPS) - After the euphoria over announcements of a possible flood of Chinese investment over the next 10 years, one question that analysts are asking is whether that capital will help boost Argentina’s development or will merely serve to feed the Asian giant’s voracious appetite for raw materials.

And now that Argentina has recognised China as a market economy and presidents Néstor Kirchner and Hu Jintao signed a letter of intent that could bring in nearly 20 billion dollars in Chinese investment over the next decade, observers are also wondering whether the necessary mechanisms will be in place to ensure the transparency of the new business deals.

For now, no one claims to have any answers, not even the staunchest critics of the Kirchner administration, which signed the memorandum of understanding with President Hu on his two-day visit to this South American country, which ended Thursday.

Senator Rodolfo Terragno of the Radical Civic Union (UCR) opposition party recommended that lawmakers keep their eyes open and closely monitor each future investment project.

Hu’s visit formed part of a tour that took him – and a large government and business delegation – to Brazil for six days. From Argentina, he headed to Chile Thursday morning, where he will take part in the Asia Pacific Economic Cooperation (APEC) summit over the weekend.

Brazilian President Luiz Inácio Lula da Silva accepted China as a market economy last Friday, and Argentina did so on Wednesday, thus joining more than 20 countries that have taken the step so far. Hu will also seek such recognition from Chile.

China was admitted to the World Trade Organisation (WTO) in 2001, but as a non-market economy, which gives other countries the right to raise anti-dumping (the export of products at prices that undercut production costs) barriers against Chinese goods.

Cabinet chief Alberto Fernández said Buenos Aires and Beijing had also signed an agreement under which Argentina’s exports to China will expand by four billion dollars – from the current 2.7 billion to 6.7 billion – over the next five years.

He added that Argentina had "assumed no commitments" in terms of increasing imports from China.

Before the agreements were signed, Fernández met with representatives of business and industrial chambers, exporters and the textile industry to ensure them that sectors sensitive to Chinese imports would be protected.

In addition, the official told them that the government would do "everything necessary" to prevent a repeat of the indiscriminate opening of the market that was undertaken in the 1990s, which drove local businesses under and led to an increase in unemployment.

Addressing the Argentine Congress Wednesday, Hu said he and Kirchner had established a "strategic partnership" aimed at "mutual development".

But for some analysts and opposition politicians, the results of the Chinese leader’s visit are positive at first glance, although it will be necessary to keep a close eye on such an ambitious future investment programme.

Parliamentary Deputy Claudio Lozano, who belongs to the Central de Trabajadores Argentinos (CTA) trade union confederation, told IPS that the impact of foreign investment can vary. "If instead of developing its domestic market, Argentina adopts a strategy aimed at placing its natural resources on the world market, the investments will aim in that direction," he said.

Elisa Carrió, the leader of the Alternative for a Republic of Equals (ARI) opposition party, expressed concern, not only because the documents signed with China "involve our natural resources," but because they pave the way for no-bid contracts, which she said could give rise to "shady deals".

Prior to Hu’s visit, the government spurred rumours in the press that huge Chinese investments were in the pipeline, which inflated expectations in a country that is pulling out of its worst economic crisis in history.

After the financial and political collapse of late 2001, when Argentina defaulted on its foreign debt, more than half of the population of 37 million slid below the poverty line.

One of the results of the closer ties with China is an agreement for Beijing to make Argentina a preferred tourism destination, which will bolster the influx of Chinese visitors. The Secretariat of Tourism has been working to gain that status for Argentina over the last 14 months.

Another accord, which was signed Thursday, will expand Argentine exports of beef, chicken and fruit to China, while putting in place mechanisms to help overcome Chinese health barriers.

Argentine Transport Secretary Ricardo Jaime said the letter of intent for future investment includes eight billion dollars to go towards the electrification of trains, the purchase of new train cars, and the construction of a tunnel that will cross the Andes mountains, connecting Aguas Negras in the western Argentine province of San Juan with Chile.

In addition, the projects would entail six billion dollars for building 300,000 low-cost housing units, in order to help ease the shortage of housing in Argentina, estimated at two million units.

The plans would also involve five billion dollars for exploration and exploitation of oil and gas in a joint venture with the recently created ENARSA (Energía de Argentina Sociedad Anónima), an energy company in which the Argentine state holds a majority share.