China’s Investment in Honduras

The most innovative or ambitious investments in Central America, from satellites to inter-oceanic canals, are coming from China – even though six of the seven countries in this sub-region do not have diplomatic ties with the Asian giant.

china investment honduras

Honduras benefits from Chinese investments

But Central America is failing to convert China’s major expansion in trade and industry here into increased exports to the Asian superpower.

“China’s interests have grown, and like any world power, what it has to sell is more than it wants to buy,” Jesus Garza told IPS. The cooperative he belongs to forms part of the Association of Non-Governmental Organizations of Honduras, which promotes sustainable business development.

In eastern Honduras, the Chinese state-owned dam builder Sinohydro is building the Patuca III hydropower plant at a cost of US$350 million. Honduran President Porfirio Lobo met in September with executives of the China Development Bank to explore further investment in energy and communications.

China’s presence is much more ambitious in Nicaragua, where President Daniel Ortega signed a memorandum of understanding in September with the recently created Hong Kong-based HK Nicaragua Canal Development Investment Co to finance and build a canal linking the Caribbean Sea and the Pacific Ocean – a dream long cherished by Managua.

According to Nicaragua’s estimates, the canal will cost $30 billion and take 10 years to build. HK Nicaragua, headed by Chinese telecom mogul Wang Jing who is chairman of the Xinwei Telecom Enterprise Group, is to build a waterway that will serve larger ships than the Panama Canal, as well as a “dry canal” railroad for freight.

It will also construct a deep-water port at Monkey Point, on the Caribbean, and upgrade Corinto, the country’s main Pacific Ocean port.

Managua is also negotiating with the China Great Wall Industry Corporation (CGWIC) for the development and purchase of Nicasat-1, a $300 million third-generation satellite that will offer modern telecom, Internet and digital TV services to Nicaragua and other countries in the sub-region as of 2016.

An agreement for that could be reached before the end of the year in Beijing between the Instituto Nicaraguense de Telecomunicaciones and the CGWIC, which has manufactured satellites for several countries in Latin America, Africa and Asia.

In El Salvador, Costa Rica and Guatemala, China has invested in different industries, including solar energy, oil and telecoms, through companies such as Huawei, Suzhou Guoxin Group and the China National Petroleum Corporation.

Garza said that despite the positive economic effects of this investment flow, it was necessary to monitor “what conditions it takes place in – whether labor rights and environmental standards are respected, because that is the area where negative impacts could be seen.”

In Honduras, the non-governmental Patuca Association denounced irregularities in the environmental permit granted to the Patuca III dam construction project by the Secretariat of Natural Resources and the Environment in 2011.

Central America does not have competitive conditions to sell its products to China. The enormous difference in population size – 42 million people in this entire sub-region against 1.3 billion in China – is just the most obvious aspect.

Most of what Central America produces is in agriculture. “But it is not cost-effective for China to buy beans or fruit here because of the distances and costs involved,” given that volumes are relatively small, Garza said.

Nor has Central America managed to establish a customs union, which would bring a single tariff and common trade, customs and sanitary regulations and laws, facilitating foreign trade and competitiveness, according to the Secretariat for Central American Economic Integration (SIECA).

Although Central America’s sales to China have increased, the trade balance is still heavily skewed in favor of China. Five of the sub-region’s seven countries – Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua – sold goods worth $196 million to China in 2004. The total went up to $220 million from January to May 2012, according to SIECA figures.

Imports from China by those five countries amounted to nearly $1.44 billion in that same period.

“In the area of trade, China cannot be denied,” economist Paulo De Leon, with the Guatemala-based consultancy Central American Business Intelligence, told IPS.

But the benefits to the region “are not as obvious as the benefits seen by Chile, which is the world’s largest producer of copper, with China its biggest buyer.”

Because of the distance and cost of transport, it is not convenient for China to buy commodities from Central America because “the cost would be too high,” De Leon said. In his view, the region should focus on the much closer US market.

“We have to look more towards the United States,” he said. “We have a big market one-and-a-half hours away by plane; we also have Mexico and Colombia, with which we have free-trade agreements.”

On the other hand, China can benefit the region with investment, because of Central America’s “big needs for energy, for which Guatemala, for example, does not have the necessary capital,” he said.

Central America is also constrained because it has chosen diplomatic relations with Taiwan over mainland China. But in Costa Rica, the only country in Central America that has official ties with Beijing, things don’t look much different.

In agribusiness, “we’re talking about coffee, sugar and one or two other agricultural products,” Gilbert Ramํrez, a member of a farming cooperative, told IPS. In Costa Rica, the establishment of formal relations with China in 2007 “has not had a big impact on trade.”

Nor has the free-trade agreement signed by San Jose and Beijing in 2010.

“We have talked to Chinese companies about selling coffee and sugar, and about microcredit or credit, to consolidate our business model through Costa Rica’s export promotion agency. But even though some time has passed, we haven’t reached an agreement on any specific project,” Ramํrez said.

The US market is still the most attractive because “it is closer, and it understands us better,” he said, referring to cultural barriers between Central America and China.

Central America continues to seek trade opportunities in China. Pedro Barnoya, a businessman with the China-Guatemala Chamber of Cooperation and Trade, told IPS that on October 19 a trade office opened in Shanghai, China’s financial and commercial hub and the world’s largest cargo port, “to look for buyers for our products.”

He also said “we are working with the China Council for the Promotion of International Trade and with private institutions, to create a permanent committee for negotiations with this region.”

In addition, a Guatemalan delegation was at the sixth China-Latin America and Caribbean Business Summit, held October 17-18 in Hangzhou, 180 kilometers from Shanghai in eastern China.

Barnoya said “the most important thing is to make headway in Asia, because that is where the purchasing power is”.

By Danilo Valladares
Inter Press Service

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