China Renews Embrace of Maduro’s Venezuela as the US Looks On

Venezuela and China are re-establishing connections after years of cooling ties, with government contacts resuming and joint projects floated in what amounts to a challenge to Washington.

(Bloomberg) — Venezuela and China are re-establishing connections after years of cooling ties, with government contacts resuming and joint projects floated in what amounts to a challenge to Washington.

High-ranking officials from China, Venezuela’s biggest creditor, met with close aides to President Nicolas Maduro in Caracas as recently as last month to discuss the restructuring of the nation’s long-standing line of credit, according to people with knowledge of the matter. The two sides also talked about potential areas to renew collaboration, including telecommunications and oil, said the people, asking not to be named discussing internal strategy.

A thaw in China relations would offer Maduro a powerful ally as well as the chance of a renewed conduit for oil sales, while potentially handing him more leverage with the US as Washington looks to bring more crude to market to lower prices at the pump for American voters. Venezuela has the largest known reserves in the world, but is subject to international sanctions that have crippled its ability to sell oil. 

“Today, the relationship between China and Venezuela has reached its highest level of mutual trust, collaboration and work,” Maduro said March 27 in a live broadcast bidding farewell to Chinese Ambassador to Venezuela, Li Baorong. “We will continue to deepen our strategic relations with China even more.”

The outreach is taking place against a backdrop of intensifying US-China rivalry and amid tentative signs that Latin America is again becoming a destination for Chinese loans, increasing Beijing’s sway across the region. Brazilian President Luiz Inacio Lula da Silva’s meeting with President Xi Jinping last month underscored the mutual interest between China and Latin America’s biggest economy.   

The rapprochement also coincides with Venezuela’s economy normalizing after years of recession when China ties went on hold, a hiatus compounded by the Covid-19 pandemic.

China became a key lender to Venezuela in 2007, when it first provided funds for infrastructure and oil projects under late President Hugo Chávez. Public data supports estimates that Beijing lent upwards of $60 billion in oil-backed loans through state-run banks until 2015, reaching a level of diplomatic and financial investment unmatched elsewhere in Latin America and perhaps the world.

Hit Bottom

China’s support filled an investment and security vacuum caused by Washington’s decades-long estrangement from Caracas, and became crucial to the continuation of Chavez’s brand of socialism through the transition to Maduro. Collaboration included highways, bridges, power plants and food processing factories, yet many were never finished or are no longer in use. 

“The relationship between China and Venezuela seriously deteriorated during the last decade due to the failure and endemic corruption around Chinese projects in the country,” said Parsifal D’Sola, director of the China Latin America Research Center in Bogota. “Nowadays the Chinese government perceives that the Venezuelan crisis has hit bottom and sees Maduro in a more stable position and less isolated in the region.”

Although there’s little public data, D’Sola, who is director of the Andres Bello Foundation, estimates the outstanding debt to be around $11-12 billion, meaning Venezuela has paid nearly 80% of the total it owed to China, which receives oil as repayments of debt. Venezuela hasn’t been able to send enough crude to meet its obligations in recent years as its production cratered and crude prices tumbled, leading to one of the steepest economic contractions in modern history. A string of US sanctions further hindered the nation’s ability to export oil, its biggest source of revenue.

State-run Petroleos de Venezuela SA is currently carrying out a thorough review of contracts after finding billions of dollars in missing oil revenue. Between 5% to 10% of those exports would go toward paying down debt, the people said.

“The Venezuelan government has come a long way in paying off the debt with crude oil,” said Rodolfo Sanz, a Maduro government lawmaker and former industry minister who is vice president of the Venezuela-China Parliamentary Friendship Group. It’s time for Venezuela “to elevate the status of economic and political relations with China,” he said.

China National Petroleum Corp., a key producer in Venezuela’s Orinoco belt, saw output from its Sinovensa joint venture nearly double to 90,000 barrels a day in early April, according to PDVSA data seen by Bloomberg. Production is still about 40% below historic levels of 160,000 barrels a day in 2015.

In a further sign of warming ties, senior Chinese diplomat and former adviser to the Chinese embassy in Venezuela, Lan Hu, has just returned to Caracas as ambassador after four years in the Foreign Ministry in Beijing and a stint as ambassador in neighboring Colombia.

“China and Venezuela are comprehensive strategic partners and the two countries have always followed the principle of equality and mutual benefit,” China’s Ministry of Foreign Affairs said in reply to questions about a reset with Caracas. “Practical cooperation based on the principle of win-win cooperation and commercialization bring tangible benefits to the two peoples,” it said, declining to comment on specific aspects of the relationship.  

The US State Department didn’t respond in time for publication after several requests for comment.  

Huawei Staffing

The renewed relationship with China has not gone unremarked on Venezuelan state TV, with frequent segments highlighting bilateral projects during the past month or so, including a recent invitation from Beijing to help build a lunar base in approximately five years. Venezuela has no record of space exploration. 

Chinese company Huawei Technologies Co., which has been present in Venezuela for two decades, has meanwhile hired more than 100 people in Caracas in the past year, according to two of the people. 

In 2019, Maduro asked Huawei to help build out 4G across the nation just days after former President Donald Trump signed an executive order restricting Chinese telecoms firms from selling their equipment in the US. Press representatives for Huawei in Venezuela did not respond to multiple requests for comment. 

“It was never going to be the case that China would pick up and leave” Venezuela, said Margaret Myers, a director at the Inter-American Dialogue and fellow at the Wilson Center. “It was always going to be that it would bide its time.”

For Venezuelan ruling party lawmaker Sanz, China is “a strategic ally of the first order.” 

“Despite the fact that volumes of commercial exchange are lower than in the past, China continues to see Venezuela as an important country,” he said. “And we will continue to be an important country for China because we have things to offer.”

–With assistance from Colum Murphy.

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