By Giselle Alzate | 2023-08-17

SAN JOSÉ -- The coming China-Nicaragua free-trade agreement (FTA) could be another failure like previous Chinese trade deals with countries in Latin America, warn economists and other observers.

Officials from the two countries announced the "substantive" completion of FTA talks in July, with the FTA expected to take effect in January.

At the forum "China in Latin America: Reality and Trends in Costa Rica and Central America", held in San José on August 1, analysts questioned the few achievements of trade deals with China, especially for Costa Rica.

China is the main beneficiary of trade deals with Latin America, according to foreign trade statistics and foreign direct investment (FDI) reports from various Latin American countries, according to the Expediente Público portal, said Margaret Myers, director of the Asia and Latin America Program at the Inter-American Dialogue.

Costa Rica exported $81.15 million worth of goods to China in 2011, when the FTA with China came into force. By 2022, that number had increased to $462 million, according to Costa Rican Foreign Trade Promoter (PROCOMER), an agency in the country's Ministry of Foreign Trade.

Costa Rica's imports from China have increased significantly since the FTA came into force. In the first year of the FTA, Costa Rica imported $1.95 billion worth of goods from China. By 2022, that number had increased to $3.1 billion, a more than 60% increase.

This trade imbalance shows that the FTA has not benefited Costa Rica equally, and that the country is still vulnerable to the economic power of China.

Meanwhile, Chinese investment in Costa Rica has been low. In the last decade, China has invested only $32 million in Costa Rica, which represents a mere 0.1% of all the FDI that Costa Rica has received in that period.

Nicaragua could suffer even more from an FTA with China than Costa Rica has, according to specialists at the forum.

This is because President Daniel Ortega has destroyed Nicaragua's small-business and export capacity, and his authoritarian regime lacks Costa Rica's democratic prestige.

China's economic relationship with Central America is secondary to its strategic interests in the region, said Myers. China is interested in Central American geography, which includes the Panama Canal and its proximity to the United States.

Corruption scandals

It is common for countries not to get what they expect from their negotiations with China, said María Catalina Micolta, a researcher from the Andrés Bello Foundation, at the forum.

In her research, Micolta found that most of the projects that China proposed to carry out in Venezuela between 2008 and 2022, for a value of almost $50 billion, never materialized. This glaring absence likely stems from a combination of factors, including Venezuela's economic crisis, China's changing priorities, and corruption.

"Of the 81 projects financed by China in Venezuela in 15 strategic sectors of the economy, almost… 57% were not completed," said Micolta at the forum, according to an article posted in the Nicaraguan newspaper La Prensa on August 4.

The lack of transparency in Nicaragua is one of the main attractions for Chinese companies, which have been involved in several corruption scandals in Latin America, she said. These companies have been accused of concealment of information, bribery, influence peddling, embezzlement and various other corrupt practices.

Another investigation carried out by the Andrés Bello Foundation in Colombia, Ecuador, Bolivia, Venezuela, and Peru focused on the practices of China Harbor, a subsidiary of China Communication Construction Company, said Micolta. China Harbor was involved in corruption in eight projects in these countries, including influence peddling and bribery, the investigation found.

Further enrich China

The signing in July of the FTA framework agreement between Nicaragua and China "is an event that must be deeply analyzed," Nicaraguan activist Alexa Zamora told the news site 100% Noticias. "China has a strategy in Latin America to exercise and extend its influence in commercial, economic, infrastructure, cultural, and foreign policy aspects."

China's investment model in Nicaragua will benefit only Chinese companies, the loans that Nicaragua will have to repay will not generate the expected economic benefits for Nicaragua, and the FTA will enrich only China at the expense of the Nicaraguan people, Zamora predicted. The FTA "will not represent any type of economic stimulus to the industry or the development of infrastructure in Nicaragua."

Nicaragua and China established diplomatic relations in 2021 after Managua severed ties with Taiwan and switched its recognition to Beijing.

Since then the two sides have signed various pacts to promote Chinese investment in the Central American country.