How Venezuela Became China’s Money Pit

Beijing is throwing good money after bad to the Latin American producer, but it has its reasons.
By Spencer Jakab

Oil facilities on Lake Maracaibo in Lagunillas, Venezuela in May. 

The world oil market is notoriously quick to react to headlines, but a seemingly significant one last week from the owner of the world’s largest reserves didn’t cause so much as a blip.
According to reports, all from Venezuelan authorities, the China Development Bank earlier this month pledged either $250 million or $5 billion “in favor of the increasing and strengthening of the country’s oil production.”
That Venezuela’s major industry needs “increasing and strengthening” is beyond question. 

Oil output crashed below a three-decade low to 1.34 million barrels a day last month. 

That is a million less than just three years ago and 2 million below the level when Hugo Chávez took power in 1999.
Chávismo clearly has been very bad for Venezuela’s oil production. 

Until recently it was very good for China, however, and its twin goals of expanding its influence and satisfying its need for oil. 

A report from the Center for Strategic and International Studies stated earlier this year that “China’s influence in Latin America is neither transparent nor market-oriented.”
But China clearly miscalculated in Venezuela, where it is now throwing good money after bad. 

The CSIS tallies $55 billion in energy-related loans alone that it has extended. 

Unable to come up with hard currency to service them, Venezuela has been paying in discounted barrels of oil but struggled even to do that after prices collapsed in 2014. 

China offered a “grace period” on some loans.
At one point when prices were higher and its oil industry less decrepit, Venezuela was sending China 600,000 barrels a day, according to Russ Dallen, the chief executive of Caracas Capital Markets, who has done extensive work untangling Venezuela’s opaque finances. 

He estimated that has brought the balance down to about $20 to $23 billion, plus another $3 billion to $4 billion owed to Russian oil company Rosneft.
The cash drain from these enormous debts may have exacerbated the decline in output, and there is scant chance that China’s latest infusion will do much to arrest the fall. 

Hence the market’s shrug at the news. 

But why does cash keep flowing in?
Part of it is the potential equity value of that bad debt. 

Chinese and Russian companies have been given valuable hydrocarbon concessions—in some cases including properties expropriated from Western firms such as Exxon Mobil . 

While past loans are a disaster, China and Russia now have investments to protect. 

Disbursing more modest, targeted sums makes sense.
Venezuela needs that cash. 

Right now it only can sell about 500,000 barrels a day for hard currency.
For those interested in the short-term impact on the oil market, new loans should be viewed as a way to protect the status quo. 

They make an outright collapse in output through internal unrest less likely, but they probably won’t arrest the decline either.

Axis of Evil

Venezuela’s 2,349pc inflation is a painful lesson for China

By He Huifeng and Laura Zhou
For Chinese residents of Venezuela who fled that country’s chaos, a new International Monetary Fund inflation outlook dampens their hopes of returning to retrieve assets. 

The International Monetary Fund’s forecast of 2,349 per cent inflation for Venezuela in 2018, up from an estimated 2,069 per cent this year, is a rude reminder for China – the Latin American country’s key foreign creditor – about the risks of overseas investment, analysts said.
China has showered the oil-dependent nation of 30 million people with more than US$60 billion in loans, backed by oil supply deals and other contracts and investments. 

China Development Bank (CDB), a state lender, alone has poured at least US$37 billion into the country in the last decade.
But China has little leverage to protect its interests as economic and social conditions in Venezuela worsen.
China has little leverage to protect its interests as economic and social conditions in Venezuela worsen, sparking demonstrations against the government of Venezuelan President Nicolas Maduro. 

Huo Jianguo, a vice-chairman of the China Society for the World Trade Organisation Studies, a think-tank affiliated with the Ministry of Commerce, said the IMF’s forecast should teach China to be more careful with its outbound investment.
“It’s a reminder that China must study a country’s risks carefully and make proper plans [before investing there],” Huo said. 

“Otherwise, similar situations may happen again and again. China is still in the learning process in overseas investment.”
For Venezuela’s Chinese residents who fled the country’s chaos, the IMF’s forecasts dampen their hopes of one day returning to retrieve assets.
The four-digit inflation rate will put the country into a long period of turmoil, and China-led projects put on hold will be severely challenged to be re-started, said Mey Hou, whose small family-owned building-materials supply business in Caracas provides sand, stone and cement to Chinese state enterprises for local infrastructure and property projects.
Hou, now living in Guangdong province’s Enping county, said most Chinese investors and workers in Venezuela had left the country.
Mingli Zhong, who lived in Venezuela for two decades before returning to Enping earlier this year, said he was not shocked by the IMF’s prediction.
“A three-digit annual inflation rate is not much different from four-digit one … they both mean Venezuelan bolívars are just waste paper,” he said.
The Dirty Two: Nicolas Maduro (left) has looked to relations with Xi Jinping for investment to halt the Latin American country’s economic turmoil.

“Many ethnic Chinese living in Venezuela bought properties there,” he said. 

“The buildings once priced at a few hundred thousands in US dollars or even more. But now they worth nothing.”
Venezuela’s central bank stopped publishing inflation data in December 2015 after prices spiralled out of control.
The IMF’s Venezuela inflation forecasts are widely reported by Chinese online media, attracting far greater interest among Chinese readers, for instance, than the IMF’s raising China’s 2017 growth forecast to 6.8 per cent from 6.7 per cent. 

On popular news portal NetEase, the report about Venezuela’s inflation rate attracted more than 10,000 comments; in contrast, the report on the IMF’s revised China GDP forecast generated just one comment.
China has showered Venezuela with loans backed by myriad deals. Xi Jinping (centre) is shown at the signing ceremony for an agreement that tied energy-hungry China to oil-rich Venezuela.

“How can one expect Venezuela to repay its debt [with such a high inflation]?” one comment read.
Chu Yin, an associate professor at the University of International Relations in Beijing, said it was too early to call China’s financial support to Venezuela a failure because Venezuela could still repay China’s loans with oil.
“Venezuela is on brink of collapse, but it has not collapsed – the army is still listening to the government,” Chu said. 

Rogue Nation

China Is Worst Human Trafficking Offender
By GARDINER HARRIS

Secretary of State Rex W. Tillerson at the White House on Monday. The State Department dropped China to the lowest tier of its ranking this year in its annual assessment of global efforts to end forms of modern slavery. 

WASHINGTON — China is among the world’s worst offenders for allowing modern slavery to thrive within its borders, according to a strongly worded State Department report released Tuesday.
In its annual assessment of global efforts to end human trafficking — with an estimated 20 million people remaining in bondage around the world — the State Department dropped China to the lowest tier of its ranking this year, as it did with the Democratic Republic of Congo and the Republic of Congo.
Those three nations joined 20 others already in that lowest designation, including Iran, North Korea, Russia and Venezuela.
The report found that prosecutions for various forms of human trafficking — which include sex trafficking, including of children; forced and bonded labor; domestic servitude; and the unlawful use of child soldiers — dropped by nearly a quarter between 2015 and 2016, the first time the world had seen such a significant drop in recent years.

“Ending human trafficking is among the top priorities of the Trump administration,” Ivanka Trump, the president’s daughter and a key adviser, said in an event held Tuesday morning at the State Department to formally release the 17th annual report on the issue.
Ms. Trump singled out child sex trafficking. 

“On a personal level, as a mother, this is much more than a policy priority,” she said.
She joined Secretary of State Rex W. Tillerson to release the report, and he spoke with a passion rarely displayed during his early tenure in public office.
“It is our hope that the 21st century will be the last century of human trafficking,” he said.
Mr. Tillerson had previously cautioned that values cannot be an obstacle to national security or economic interests. 

But, on Tuesday, he linked the problem of human trafficking to his top priority, ending North Korea’s nuclear and ballistic missile program.
Between 50,000 and 80,000 North Koreans are forced to work overseas, mostly in China and Russia, he said, and their wages are used by the North Korean government to fund its illicit weapons programs.
“Supply chains creating many products that Americans enjoy may be utilizing forced labor,” Mr. Tillerson said while Ms. Trump sat nearby. 

Ms. Trump’s shoe brand has come under criticism for its use of Chinese labor as well as the disappearance of three labor activists investigating conditions at the plants making her shoes.
Mr. Tillerson was criticized in March for failing to attend the release of the department’s annual human rights report, in what was considered a rare breach of a longstanding tradition by secretaries of state.
The report released Tuesday noted significant improvements in efforts to combat trafficking in 26 countries, including Afghanistan, Malaysia, Sri Lanka and Ukraine.
Mr. Tillerson noted that Afghanistan was upgraded in part for its efforts to crack down on powerful male leaders sexually abusing boys. 

Malaysia was upgraded because of a significant increase in prosecutions for such offenses as employers who impound workers’ passports.
Qatar also earned an upgrade despite continuing concerns about migrant labor used to construct facilities for the 2022 World Cup.
Some human rights activists were critical of the report.
David Abramowitz, managing director of Humanity United, a nonprofit organization dedicated to ending human trafficking, described “serious concerns” about this year’s report, which he said “included unjustified upgrades to Burma, Malaysia and Qatar and a failure to downgrade Thailand.”
Among the other reasons China was dropped to the lowest tier was forced labor among drug addicts and ethnic minorities, as well as reports that the country continued to forcibly repatriate North Koreans despite threats that Pyongyang would punish such returnees with prison and forced labor.
The fierce criticism of China promises to accelerate a rapid worsening of relations with the Asian nation that had briefly benefited from good feelings generated by an April summit meeting between President Trump and Xi Jinping at Mr. Trump’s Florida resort, Mar-a-Lago.
Mr. Trump decided to brush aside his fierce campaign criticisms of China’s currency and trade practices in hopes that the country would rein in North Korea’s nuclear and missile programs. 

But Mr. Trump acknowledged last week that China had done little to pressure the government in Pyongyang, marking a failure of one of the administration’s top foreign policy priorities.
The Commerce Department is expected this week to announce that for national security reasons, the domestic steel industry must be saved from imports, beginning a process that could lead to significant tariffs being placed on imported steel. 

That action would likely infuriate the Chinese.
Thus, the designation of China as one of the world’s worst offenders in human trafficking is part of a cascade of signals from Washington that relations between the United States and China could soon slide steeply downhill, just as relations between the United States and Russia are reaching depths not seen since the Cold War.
Iceland was downgraded to the second tier of countries for failing to prosecute any suspected traffickers for the sixth consecutive year while also decreasing the number of investigations into suspected trafficking. 

The rankings of Bangladesh, Guatemala, Hungary, Iraq, Liberia and Nicaragua were also downgraded.

China’s encroachment into Latin America

The Beijing regime seeks to undercut traditional American influence in the hemisphere
By James A. Lyons and Richard D. Fisher Jr.

Linas Garsys

China’s June 14 poaching of Panama, helping it to switch diplomatic relations from Taiwan to China, belies a growing campaign by Beijing to seek greater economic and strategic influence in Latin America at the expense of the United States.
For too long the policy mandarins at the State Department have avoided ascribing hostile intent to China’s growing economic and political clout in Latin America. 

In the main, China places a priority on strengthening Latin America’s anti-democrats and is using its growing economic power in the region to expand its strategic options.
In poaching Panama, Beijing made two power plays. 

First Beijing increased the diplomatic isolation of democratic Taiwan, which it ultimately seeks to destroy to help displace American power in Asia. 

Also, having long dominated the Panama Canal via commercial control and after establishing diplomatic relations, Beijing urged Panama to join its vast $1 trillion “One Belt, One Road” infrastructure initiative from China to Europe, which would give this program a global projection.
Long-standing management of the Panama Canal by Chinese companies, and Chinese corporate purchase of one Panamanian port, is now complimented by Chinese commercial investment in 10 more Latin American waterborne or landbridge “canal” projects. 

While some of these projects may be too grandiose to succeed, what matters is that China is seeking to achieve a position of economic and then political primacy in Latin America. 

It should be a matter of deep concern that China could deny the U.S. Navy access to the Panama Canal, and then also deny access to the future canals being built by Chinese companies.
China’s anti-democratic bent in Latin America is further proven by its decisive economic support for Venezuela’s Nicolas Maduro regime. 

Hundreds of Chinese-made Norinco VN-4 armored cars protect Mr. Maduro’s police thugs killing Venezuelans protesting his socialist basket-case policies. 

China has also become the strongest ally of Cuba’s Castro family dictatorship and a growing source for its economic support.
China has sought to translate its economic-political clout into strategic gains. 

Late in the past decade, China began courting Argentina’s military, and by early 2015 was on the verge of offering the regime of Christina Fernandez the start of a rearmament program that could have enabled a second war with Britain over the Falkland Islands. 

By early 2015, China was offering Argentina modern, fourth-generation Chengdu J-10B combat aircraft, modern frigates and co-production of wheeled armored vehicles.
Since early in this decade, China has been marketing deadly short-range ballistic missiles to Latin America. 

Just last April, China marketed one of its most modern unmanned combat aerial vehicles, the Chengdu Wing Loong-2, at an airshow in Mexico City.
While the Argentine arms deals cooled off after the October 2015 election of President Mauricio Macri, China maintains control of a space tracking and control base in Argentina’s Neuquen Province. 

This deep Southern Hemisphere facility will allow China’s People’s Liberation Army to better control future military-space assets it requires to attack U.S. space systems, which could happen in the opening phase of a Chinese attack against Taiwan.
This drives home the point, America cannot ignore China’s aggression against its democratic allies and friends, including Taiwan. 

Washington can and should play a more active role in lauding Taiwan’s democratic example and encouraging Latin states to sustain a vibrant relationship with Taipei, even if it is “unofficial,” as does the United States.

Washington must also make clear to its Latin friends that allowing China to threaten freedom in Taiwan, and to sustain cruel dictatorships in Venezuela and Cuba, ultimately also threatens their freedom. 

The Trump administration should consider translating the Pentagon’s annual report on China’s military growth into many languages, including Spanish, to enable a wider public understanding of China’s threats to freedom.
Like previous administrations, the Trump administration is seeking to gain China’s decisive support in containing North Korea’s now-imminent nuclear missile threats. 

But for 25 years, Trump’s predecessors watched as China refused to reverse deep support for North Korea, even its missile programs, as it worked increasingly to undermine U.S. security interests on the Taiwan Strait, East China Sea and South China Sea.
Washington has little choice but to push back harder against Chinese belligerence in Asia if it wants to maintain its alliances and influence. 

In this hemisphere, the U.S. will have to formulate a new hard line against China’s strategic ambitions. 

This must be done now before China acquires its planned global military projection forces of aircraft carrier battle groups and large heavy-lift transport aircraft, which it could use to intimidate and to suppress Latin America’s still-fragile democracies.

Axis of Evil

Michael Flynn, a Top Trump Adviser, Ties China and North Korea to Jihadists
By EDWARD WONG

Retired Lt. Gen. Michael T. Flynn, the choice of President-elect Donald J. Trump for national security adviser, speaking at the Republican National Convention in Cleveland in July.

What if someone were to tell you that China and North Korea are allied with militant Islamists bent on imposing their religious ideology worldwide?
You might not agree. 

After all, China and North Korea are officially secular Communist states, and China has blamed religious extremists for violence in Muslim areas of its Xinjiang region.
But such an alliance is the framework through which retired Lt. Gen. Michael T. Flynn, the pick of President Donald J. Trump for national security adviser, views the two East Asian countries. 

To the list of pro-jihadist anti-Western conspirators, General Flynn adds Russia, Cuba and Venezuela, among others. (Never mind that he has recently had close financial and lobbying relationships with conservative Russian and Turkish interests.)
By appointing General Flynn, Mr. Trump has signaled that he intends to prioritize policy on the Middle East and jihadist groups, though the Obama administration seems to have stressed to Mr. Trump the urgency of dealing with North Korea’s nuclear program. 

General Flynn is an outspoken critic of political Islam and has advocated a global campaign led by the United States against “radical Islam.” 

He once posted on Twitter that “Fear of Muslims is RATIONAL.”
General Flynn is about to take on what many consider the most important foreign policy job in the United States government. 

He is expected to coordinate policy-making agencies, manage competing voices and act as Mr. Trump’s main adviser, and perhaps arbiter, on foreign policy.
General Flynn’s peers in the Army have praised him for his work gathering intelligence in Iraq and Afghanistan. 

But senior officials have criticized him for being a poor manager as director of the Pentagon’s Defense Intelligence Agency. 

After being forced from the job in 2014, he began denouncing the Obama administration in public, saying the White House refused to acknowledge important intelligence on growing jihadist threats and their ideological foundations.
He then wrote a book, with a co-author, on his military career and the need to intensify the campaign against Islamic extremists. 

The book, “The Field of Fight: How We Can Win the Global War Against Radical Islam and Its Allies,” published in July, is one of the few places where General Flynn has discussed his views on China and North Korea. 

The mentions are infrequent, but they give some clue as to how he views the Asian nations.
Here are the most relevant passages. 

In the introduction, General Flynn says one of his goals in writing the book is: “to show you the war being waged against us. 

This administration has forbidden us to describe our enemies properly and clearly: They are Radical Islamists. 

They are not alone, and are allied with countries and groups who, though not religious fanatics, share their hatred of the West, particularly the United States and Israel. 

Those allies include North Korea, Russia, China, Cuba, and Venezuela.”
He tries to further explain that alliance through a vague mention of a common ideology:
“There are many similarities between these dangerous and vicious radicals and the totalitarian movements of the last century. 

No surprise that we are facing an alliance between Radical Islamists and regimes in Havana, Pyongyang, Moscow, and Beijing. 

Both believe that history, and/or Allah, blesses their efforts, and so both want to ensure that this glorious story is carefully told.”
Early in his career, General Flynn served with the 25th Infantry Division in the Asia-Pacific region. He writes: “This opened up my eyes to the type of enemies we saw across a wide swath of the Asia-Pacific rim. 

There were many, and still are.”
General Flynn also gives a bit more detail on how he sees this global alliance:
“The war is on. 

We face a working coalition that extends from North Korea and China to Russia, Iran, Syria, Cuba, Bolivia, Venezuela, and Nicaragua. 

We are under attack, not only from nation-states directly, but also from Al Qaeda, Hezbollah, ISIS, and countless other terrorist groups. (I will discuss later on, the close working relationships between terror groups and organized criminal organizations.) 

Suffice to say, the same sort of cooperation binds together jihadis, Communists, and garden-variety tyrants.
“This alliance surprises a lot of people. 

On the surface, it seems incoherent. 

How, they ask, can a Communist regime like North Korea embrace a radical Islamist regime like Iran?”
General Flynn goes on to discuss reports that North Korea has cooperated with Iran and Syria on nuclear programs and trade. 

He asserts that Iran is the “linchpin” of the global anti-Western network. 

He writes: “The mullahs have already established strategic alliances in our own hemisphere with Cuba and Venezuela, and are working closely with Russia and China; a victory over the ‘Great Satan’ in Iraq will compel the smaller Middle Eastern countries to come to terms with Tehran, and make the region much more inhospitable to us and our friends and allies.”
Finally, General Flynn writes that if the United States loses the global war, one result will be living under “the grim censorship we see in groups such as the Islamic State, Al Qaeda, and the Taliban or from nations like Iran, North Korea, and Cuba.”

John Delury, a scholar of Chinese history and the Koreas at Yonsei University in Seoul, South Korea, shared these thoughts after reading General Flynn’s book:
“General Flynn seems to be all about one thing — fighting ‘radical Islam’ — and that means Asia goes on the back burner. 

Obama was trying to ‘pivot’ from costly wars in the Middle East to economic opportunity in Asia, a strategy that was still in-progress and that Hillary Clinton would have stuck with. 

But Flynn has no concept of the importance of Asia. 

For him, America needs to become single-minded in the top priority — destroying radical Islam, at home and abroad.
“Flynn’s obsession with eliminating radical Islam is likely to color his view of everything else — including key strategic questions facing East Asia like the rise of China, resurgence of Japan and nuclear breakout of North Korea. 

Running the National Security Council is all about juggling priorities, keeping your eye on the ball while maintaining strategic balance. Flynn doesn’t come across as much of a juggler. 

For him, there is only one ball out there.
“If Flynn is able to press his global war on radical Islam, America’s rivals in Asia will seize the opportunity to further their interests. 

China can speed up its march to displace the U.S. as the architect of Asian security. 

North Korea can finish its drive to joining the nuclear club. 

Life will also change for America’s Asian allies, who will no longer be able to count on U.S. commitment to their development and defense. 

And America’s role as a promoter of human rights and liberal values — a contested and problematic mission, albeit a noble one — could become a thing of the past.
“Here’s an example of how Flynn’s global war on radical Islam could have unanticipated side effects on Asian security. 

In his book, Flynn links North Korea to his ‘enemy number one,’ the Islamists, by citing Pyongyang’s military and economic ties to Syria and Iran. 

Well, what if the North Koreans promised an envoy from Trump — who said he’s willing to talk to Kim Jong-un — that they would cut their links to radical Islam and even give the Americans some intel based on their years of cooperation? 

Nonproliferation guarantees, which the North Koreans put out as bait throughout the Obama years, to no effect, could serve as a starting point for resumed U.S.-D.P.R.K. negotiation under a Flynn foreign policy. 

The old dictum stands — my enemy’s enemy is my friend. 

Flynn is crystal clear who the enemy is, radical Islam. 

Anyone who shows eagerness to fight the Islamists buys a seat at Flynn’s national security table.”