China and Venezuela: South-South Cooperation or Rearticulated Dependency?

Overview

The Sino-Venezuelan diplomatic relationship was established on June 28, 1974, during the first presidency of Carlos Andrés Pérez (1974–1979)—a period characterized by an outward-oriented Venezuelan foreign policy that sought stronger ties with countries from the Global South. This period was also marked by very high oil prices, which contributed to high fiscal spending but also to heavy indebtedness through the mortgaging of future oil profits. Between 1974 and the electoral victory of President Hugo Chávez in 1999, the key event in Sino-Venezuelan relations was the signing of a bilateral agreement for joint oil exploitation in 1996 during the “opening” of the Venezuelan state oil company Petroleos de Venezuela S.A. (PDVSA).

In 1999 Sino-Venezuelan trade was worth only US$200 million, but nine years later, during the Chávez era (1999–2013), it had increased fiftyfold, to US$10 billion (Paz, 2013: 223). By 2014 trade between Venezuela and China had reportedly reached US$169.8 billion (Xinhua, 2015). Between 2004 and 2011, Venezuelan oil exports to China increased from 14,000 to more than 400,000 barrels per day (Crooks and Cancel, 2012), with Venezuela becoming one of China’s top 10 sources of oil imports by 2011 (Sun, 2015: 223). Between 2008 and 2012, the China Development Bank (CDB) lent over US$40 billion to Venezuela’s Banco de Desarrollo Económico y Social (Economic and Social Development Bank —BANDES) (Liu Kegu, cited in Sanderson and Forsythe, 2012: 123, 127). By 2016 loans had reportedly expanded to more than US$65 billion (BBC Mundo, 2016), the most that the CDB had ever lent to a Latin American country. China continues to be a significant trade partner under President Nicolás Maduro (2013–present), with Venezuela reportedly exporting approximately 700,000 barrels per day to China in 2015 (Petroleum Economist, 2015). China has reportedly invested US$62 billion in developmental projects in Venezuela since 2007 (Latin American Herald Tribune, February 14, 2017). In July 2014 the Sino-Venezuelan relationship was elevated by the Chinese government to a “comprehensive strategic partnership” (Ministry of Foreign Affairs of the People’s Republic of China, 2014).

The Sino-Venezuelan relationship is ostensibly based on two complementary characteristics: China’s pursuit of energy security and Venezuela’s need to “sow the oil” out of oil-dependency. ¹ Since the economic reforms of 1978, the Chinese economy has been transformed into the world’s manufacturing workshop and has increased demand for raw materials, particularly energy. Despite some oil production by the China National Petroleum Corporation (CNPC) in China, it is highly dependent on external sources for energy. This demand led it first to resource-rich East Asian neighbors but then to South America, Africa, and Australia.

During the 2000s, high mineral prices and increased demand from China and elsewhere saw many resource-rich countries worldwide escape many of the recessionary effects of the 2008 global financial crisis. Since the early 2010s, factors such as excess industrial capacity in China and increased production of nonconventional energy in North America and elsewhere has produced a glut on the world market with the consequence of reduced mineral prices. For many resource-rich countries, this has meant that a significant increase in extractive activity has been accompanied by the undercutting of labor-intensive sectors such as manufacturing (Goodman and Whitworth, 2008: 205). This takes place through the inflationary effects accompanying high resource prices that economists call the “Dutch Disease” (Corden, 1984)—a boom in the resource sector that causes incomes to rise in that sector and draws labor from lagging nonresource export and other nontradable sectors. China’s increased participation in the world market through its demand for energy has contributed to exacerbating the vulnerability of many externally oriented resource-rich countries.

The “Dutch Disease” is often thought of as a purely economic problem in which government intervention can ameliorate the so-called distortions created by a booming resource sector relative to lagging nonresource domestic sectors in a given national economy (Sachs, 2007). Despite the existence of resources and particularly oil both in advanced industrial Northern countries and in postcolonial Southern countries, the “Dutch Disease” appears to be an affliction more of the latter than of the former, and this is why it cannot be viewed ahistorically and relegated to a mere technical problem. Oil-exporting countries have historically been the target of very high levels of external intervention, whether from foreign private interests or from foreign national states acting on behalf of those interests (Karl, 2007: 256). In Venezuela this external intervention has shaped the very establishment of Venezuelan state institutions and local cultural attitudes toward oil (Coronil, 1997: 91, 94; Tinker Salas, 2009).

For the better part of the twentieth century, successive Venezuelan governments have attempted to ameliorate the effects of the “Dutch Disease” by increasing oil income and reinvesting it in nonresource sectors. Despite government investment in agricultural and industrial sectors during boom times, these sectors have continued to lag, causing heavy reliance on imports for basic consumption goods. In 1999 the focus of the newly elected antiestablishment Chávez government was to reconstitute Venezuela’s political institutions after a period of economic recession and the demise of the previous two-party ruling establishment. ² The reasoning behind this reconstitution involved ameliorating the booms and busts associated with extreme economic dependence on external demand for oil in a highly unpredictable market. To what extent are the bilateral agreements between Caracas and Beijing aiding Venezuela’s progress toward a more diversified economy and to what extent are they a mere continuation of previous agreements with foreign capitals?

South-South Cooperation or “Boomerang Aid”?

Sino-Venezuelan cooperation in nonresource activities such as infrastructure, technology, and agriculture is facilitated by three institutions—the China-Venezuela High-Level Mixed Joint Committee (MJC), the China-Venezuela Joint Fund (JF), and the PDVSA (Sun, 2015: 170–171). The MJC facilitates bilateral negotiations. The JF provides liquidity through Chinese financial institutions and is the mechanism through which Venezuelan agencies repay Chinese companies. PDVSA underpins the relationship between China and Venezuela, since it is Venezuelan crude oil exports that repay Chinese loans. The agreements established by the MJC have opened up the Venezuelan market to Chinese companies, financed by generous low-interest loans from the CDB, which often win Venezuelan government contracts for infrastructure projects. These projects include the Simón Bolívar satellite, worth US$406 million, five metro lines (two in Caracas and one each in Los Teques, Valencia, and Maracaibo), the train line from Cúa to Ecrucijida, and the Gran Mariscal de Ayacucho highway (Barbosa, 2008; PDVSA, 2009: 128). CITIC Construction, a subsidiary of the Chinese government majority-owned CITIC Limited, won the contract to build the Fuerte Tiuna housing project in Caracas, which is worth US$1.57 billion and consists of 116 apartment blocks and 29 public buildings and is expected to provide 13,000 residences (CITIC Limited, 2014: 41).

The telecommunications companies Alcatel Shanghai Bell, Huawei Technologies, and ZTE Corporation signed with Venezuelan state-owned CVG Telecom to develop a fiber-optic network in Venezuela (Mather, 2006). In 2009 ZTE collaborated with the VTELCA workers’ cooperative in Falcón state to produce the first Venezuelan mobile, the Vergatario (VTELCA, 2017). In August 2011 the first Chinese automotive factory was opened in Aragua state by Chery Auto, producing two cars, the Arauca and the Orinoco, named after Venezuelan rivers (Sanderson and Forsythe, 2012: 138). In February 2017 China and Venezuela signed 22 new agreements worth US$2.7 billion to expand investments in heavy machinery production, infrastructure projects, cargo transport, and imports of vehicles, computers, and other consumer goods (Koerner, 2017; Latin American Herald Tribune, 2017).

Western financial analysts, using the measures applied by U.S. credit-rating agencies, have questioned the wisdom of China’s unprecedented number of loans to Venezuela. From independence until the 1990s, foreign investors have viewed sovereign defaults and hyperinflation as the main reasons they have not seen stable returns in Venezuela (Sanderson and Forsythe, 2012: 126). Is this really a worthwhile risk for China? Following the logic of China’s long-term need to secure its oil supply, the oil-for-loans arrangement can be considered a means to reduce risk, since it essentially provides China a hedge against future fluctuations in the price of oil (Sanderson and Forsythe, 2012: 132–133). Although supply contracts between China and Venezuela have varied over time, after the peak in oil prices in 2008 ³ agreements were switched to call-options contracts in which a maximum and a minimum price were set. China had the right but not the obligation to buy an agreed-upon quantity of oil from Venezuela within a given time frame at a particular price, ⁴ which reduced the risk of its having to pay an upward-spiraling price for oil.

The three-year supply contract associated with the CDB’s initial US$4 billion loan stipulated that PDVSA would ship 100,000 barrels per day to a subsidiary of the CNPC, the China United National Oil Corporation (PDVSA, 2009: 128). The second such contract, tied to the CDB’s second US$4 billion loan in 2009, required PDVSA to ship from 107,000 barrels per day when the price was above US$60 per barrel to 153,000 barrels per day when the price was below US$42. Thus the agreements between China and Venezuela can be characterized as hedges against fluctuations in world oil prices through the use of financial instruments such as futures and options rather than purely as accumulated external debt.

The CDB’s loan conditions differ vastly from the conditions tied to loans from the World Bank or the International Monetary Fund (IMF). One of these conditions is sitting down with the CDB to analyze the country’s development needs (Sanderson and Forsythe, 2012: 131, 136). In Venezuela’s case, the strategic plan covering the period from 2010 to 2030 is outlined in a 600-page book written by the CDB that is full of proposals focused on infrastructure projects such as dams, ports, highways, and railroads. In comparison with the neoliberal prescriptions that triggered so much discontent in Latin America, advice on infrastructure needs is difficult to call an imposition. At the same time, it is no coincidence that this advice for long-term strategic planning requires substantial Chinese financing, a third of which is in renminbi. In turn, the money borrowed by the Venezuelan government through the BANDES from the CDB is often fed back to Chinese companies in the form of Venezuelan government contracts. This is essentially “boomerang aid,” since profits are repatriated back to China, a historically common practice in aid-donor countries. Between 2008 and 2012, six Chinese companies won a total of US$11.6 billion in government-tied contracts, nearly a quarter of a total of some US$50 billion borrowed from the CDB by the BANDES (Sanderson and Forsythe, 2012: 137–138). The CDB is an active participant in pushing Chinese companies into new markets through generous lines of credit; in Venezuela these have totaled US$96.5 billion, and Chinese companies have made substantial profits. The 2011 annual report of China CAMC Engineering Company showed that two-thirds of its revenue of RMB 5 billion (US$794 million) stemmed from agriculture and energy projects in Venezuela.

Despite the favorable balance of trade between the two countries, the terms of trade are unfavorable to Venezuela. In quantitative terms, Venezuela has a trade surplus with China in spite of the declining price of oil in recent years. ⁵ Venezuela exported goods and services worth US$11.32 billion to China in 2014 and US$6.88 billion in 2015, while China exported goods and services worth only US$5.66 billion to Venezuela in 2014 and US$5.31 billion in 2015 (AVEX, 2016). However, the terms of trade are not favorable for Venezuela when the particular goods and services that the two countries export to and import from each other are examined. The overwhelming export from Venezuela to China is oil (95–97 percent), a primary good with wide price fluctuations. The value of Venezuela’s exports to China dropped by almost half between 2014 and 2015 because of a dramatic decline in the price of oil (AVEX, 2016), from US$130 per barrel in 2014 to US$30 per barrel in 2015 (Hellinger, 2017: 69). In contrast, the value of Chinese exports to Venezuela, which are almost all industrial goods, decreased only slightly, from US$5.66 billion in 2014 to US$5.31 billion in 2015. The risk burden here is more on Venezuela than on China because the price of oil is highly unpredictable.

The disparity between the balance of trade and the terms of trade is partly explained by the oligopolistic ⁶ market structure of firms in the industrial sector compared with primary sectors such as agriculture and mining, where competitive conditions prevail. In the long run, the terms of trade tend to favor industrial sectors such as the cars, telecommunications, computers, and construction materials that Venezuela imports from China over primary sectors. Because of the oligopolistic market structure of industrial firms, increases in productive capacity often lead to increased profit margins and higher wages (Halevi, 2016: 197; Sylos-Labini, 1962: 119, 152, 168). Consequently, prices in the industrial sector do not fall in the same manner as prices in the primary sector. This simply confirms the wisdom of Latin American structuralists such as Prebisch (1951) and Singer (1950), who identified the deteriorating terms of trade between countries producing primary goods and industrial goods.

Chinese “Outward-Looking” Capitalism, PDVSA, and External Debt

The contradiction between the behavior of Chinese private companies in Venezuela and the state-state agreements based on cooperation can be better understood by recognizing that China’s government and its private companies are two different actors. Despite their significant overlap through CDB loans and ownership structures (Yu, 2013: 76), Chinese boomerang aid is part of the wider pattern of an outward-looking Chinese government pushing its top companies to become internationally competitive multinationals. Sino-Venezuelan oil cooperation is ostensibly a state-state agreement premised on China’s pursuit of energy security and on South-South cooperation, but Chinese oil companies clearly reflect behavior typical of profit-maximizing firms seeking to increase their market share.

An example of this contradiction is the disparity between the quantity of oil that Venezuela exports to China and the number of barrels China actually receives. In the first three months of 2011, of 37.7 million barrels shipped, only 21.1 million barrels reached China. Some 44 percent—16.6 million barrels—were sold to the United States by Chinese oil companies (Crooks and Cancel, 2012; Sanderson and Forsythe, 2012: 135). Moreover, the CNPC and Sinopec joint ventures in exploration and development of Venezuelan heavy crude do not correspond to China’s supposed energy security premise, since Chinese refineries cannot refine Venezuelan crude but U.S. refineries can. In addition, a tanker from Venezuela takes 5 days to reach the United States and 40 days to reach China, so it makes more sense for Chinese companies to take crude oil deliveries closer to home. The oil-for-loans supply contract arrangement has not been as “win-win” as it appears. Although the bilateral agreements are established in the MJC and financed through the JF, it is ultimately the PDVSA that has to repay the loans. The “option”-based supply agreements between China and Venezuela should also be viewed as hedges against uncertainty only for China. Venezuela still ultimately bears the burden of any downward price movements.

Between 2001 and 2011, PDVSA’s financial contributions to social programs increased from US$34 million to US$ 39.6 billion—an astronomical increase of 1,165 percent (PDVSA, 2011: 158). Total expenditure on social programs in this period represented US$123.7 billion in education, health, food, vocational training, housing, infrastructure, agriculture, etc. Between 2007 and 2011 alone, PDVSA (2011: 219) contributed US$69.45 billion to social spending while it spent only US$1 billion on exploration. ⁷ A key reason PDVSA has directed so much funding to social programs has been to repay the “social debt” incurred during the 1980s and 1990s, when poverty dramatically increased (Riutort, 1999: 4). However, the political move to finance social programs does not appear to have been clearly thought out in relation to sustaining PDVSA’s long-term reinvestment and its heavy debt to the CDB. In the first quarter of 2011, one-sixth of PDVSA’s production—419,000 barrels per day—was going to service its debt to the CDB. An internal memo from the Venezuelan oil minister and PDVSA president Rafael Ramirez to President Chávez stated that this meant that PDVSA was not getting any revenue from its exports to China (Tovar, 2011a). In November 2011 Ramirez announced a new repayment structure that allowed PDVSA to receive more than US$7 billion from China for the year (Tovar, 2011b).

Despite seemingly generous loan conditions from the CDB, the repayment structure has been such a heavy burden that PDVSA has resorted to borrowing from U.S. creditors at extremely high interest because of Venezuela’s poor credit ratings (Crooks and Cancel, 2012). Between 2006 and 2012 its borrowing from non-Chinese sources increased from US$2.6 billion to US$34.9 billion. This included the 2007 sale of a record US$7.5 billion of dollar-denominated bonds. Essentially PDVSA has been compensating for its low cash flow by issuing debt, running arrears with suppliers, and postponing dividend payments to private partners (J. Jacobs, 2014a). In March 2014 it had arrears of US$577 million with Halliburton, an estimated US$584 million with Schlumberger, and more than US$200 million with Weatherford—a total of US$1.36 billion.

Notwithstanding some optimism back in 2014 around PDVSA’s increased infrastructure investments and restructuring of debt repayments with U.S. creditors and China (J. Jacobs, 2014a; 2014b), the Venezuelan oil-dependent economy is threatened with declines in oil production and possible default (J. Jacobs, 2017). PDVSA financial statements (2014: 2; 2016) show that its net income was US$15.8 billion in 2013, US$9.07 billion in 2014, and a mere US$828 million in 2016. The course of 2017 saw a steep decline in oil production output to 1.7 million barrels per day (J. Jacobs, 2018a; 2018b). This is a level not seen since the late 1980s and below the current OPEC quota of 1.9 million barrels per day. At its peak 10 years earlier, oil production was 3.3 million barrels per day, and until 2016 it had been steady at 2.6–2.8 million barrels per day. PDVSA’s heavy financing of social programs has come at the expense of its own investment. Its dependence on debt, particularly from Chinese investors, to finance exploration and development sets off alarm bells in that it is borrowing against future oil revenue (Hellinger, 2017: 71–72). A similar course was taken by the first Pérez government (1974–1978), which mortgaged its future rents and arguably catalyzed the debt crises of the 1980s and its period of neoliberal adjustment in the 1990s (Ellner, 2010: 79).

Resource Sovereignty and Oil Dependency

A key characteristic identified by the neoextractivism critique has been more state control over resource profits, particularly in minerals, for left-wing Latin American governments such as Venezuela’s. Previous so-called liberal models of extractivism that encouraged privatization of mineral sectors were characterized by an ostensibly dominant role for private actors and a secondary one for so-called small states. Why has Venezuela been unable to move beyond its historical dependence on oil despite greater government control over the distribution of oil profits and seemingly more equitable bilateral agreements with China—to move beyond the “Commodities Consensus”?

As discussed previously, oil revenue redistribution in Venezuela has extended beyond social programs to investments in nonresource sectors of the economy. Significant attempts had been made to reorganize the domestic economy through small-to-medium-sized enterprises in agriculture and other nonresource sectors (see Piñeiro Harnecker, 2009). Bilateral agreements between Caracas and Beijing are qualitatively different from agreements with U.S. and European governments in that they are state-to-state rather than private-sector-to-private-sector. They have also involved technology transfer in satellite engineering, military technology, mobile phones, household appliances, and transport. In the development of the Simón Bolívar satellite, 90 Venezuelan specialists worked closely with Chinese developers (Barbosa, 2008). The government’s joint venture with Yutong Bus has established an assembly plant in Yaracuy state aimed at producing 3,500 buses per year (Xinhua, 2015). Although the terms of trade are unfavorable and there are many barriers to Venezuela’s entry into the oligopolistic world industrial market, China is supporting Venezuela with its infant industries and helping it diversify its nonresource export portfolio. In addition, the Sino-Venezuelan relationship differs diplomatically from Venezuela’s relationship with the U.S. and European governments. In 2006, when PDVSA stopped producing Ormulsion, a specialty fuel for which China had specifically designed two power plants, the response was strongly worded but private criticism (Ellis, 2014: 199). China respects Venezuelan sovereignty as the United States and Europe rarely have. Why does Venezuela’s dependence on oil persist?

In 1998, when Chávez was first elected, oil made up 68.7 percent of exports (Lander, 2014: 2), but by 2014 it had increased to 96 percent (BCV, 2015). The value of oil increased from US$32.8 billion in 2004 to US$71.7 billion in 2014, peaking in 2012 at US$93.6 billion. This rise parallels the increase in the involvement of mixed companies and the MJC and JF. The Chávez era saw increased dependence on oil rather than diversification of nonresource exports. One explanation for Venezuela’s increased dependence on oil despite high oil prices during the Chávez era draws from the earlier discussion concerning oligopolistic competition in the industrial sector (Halevi, 2016: 197; Sylos-Labini, 1962: 119, 152, 168). Given that oil, a primary good, is a key input in industrial production, price rises increase the prices of industrial goods. Therefore, when oil prices were elevated prices for industrial products also rose, meaning that Venezuela’s terms of trade did not necessarily improve with higher oil prices. The historical overvaluation of Venezuelan currency due to oil exports has meant that the nonresource export sector has not been able to compete with cheaper imports.

Because of the monetary effect on the nonresource export sector of the “Dutch Disease,” despite the Venezuelan government’s efforts, these sectors are extremely reliant on government funds to survive (Lander, 2014: 5–6). This is reflected in the promotion of small-to-medium-sized enterprises and workers’ cooperatives in agriculture and other nonresource sectors, which often depend heavily on the government in all aspects of the economic cycle (Azzellini, 2012; Piñeiro Harnecker, 2009). This dependence is also seen in the many regional integration projects that many left-wing Latin American and Caribbean governments have engaged in (Girvan, 2008; Jácome, 2011; SELA, 2015). In theory, oil extraction transformed into capital would easily transfer from one sector to another, but this assumption rests on unclear distinctions between the short run and the long run and on a level playing field that does not necessarily take asymmetries in technical knowledge and economies of scale into account.

The notion that factors are easily transferable across sectors is based on neoclassical assumptions of a level playing field in a world of perfect competition (see Sraffa, 1926), but the world oil industry is rife with asymmetries and oligopolistic in its market structure. Of its three parts—upstream, downstream, and exchange (Palazuelos, 2012: 125)—the Venezuelan government really has control of only the first, which involves extraction and the supply of oil for export. Even this control is limited, since most of the demand for the oil is external rather than internally driven as in the United States or Canada. The downstream (transport, refining, chemical transformation) and exchange (selling and buying) stages are controlled by top transnational corporations such as the CNPC, Sinopec, Royal Dutch Shell, and Exxon Mobil. The organization of these transnationals links almost all aspects of the supply chain, and this makes the barriers to entry for new players significant and allows the transnationals to set prices.

China’s growing relationship with Venezuela reflects the increasingly dominant role of Chinese oil companies in the world market. The majority of Venezuela crude oil is still bound for the U.S. and European markets, but increased demand from Asia and particularly China has led to significant increases in oil exports in those markets. This can be observed in the decline of Venezuelan oil exports to the United States from over 1,000,000 barrels per day in the late 1990s to under 800,000 barrels per day in 2015 (EIA, 2017; Petroleum Economist, 2015). Although the United States remains the top single destination for Venezuela oil, Asia as a whole has overtaken the United States as the top destination for Venezuelan oil exports and China ranks as its second-largest national market (Buitrago, 2014).

Reaffirming the need to recognize the Chinese government and Chinese companies as two different actors, relations between Chinese capital and Venezuelan labor have also been tense. Venezuelan employees of Chinese companies tend to occupy positions of less responsibility. In September 2011 unionized Venezuelan workers on the Tinaco-Anaco railway line contracted to the China Railway Engineering Corporation (CREC) occupied a segment of the rail line to demand that better positions to be given to Venezuelans than to Chinese workers (Luces, 2011). Venezuelan workers have also accused the CREC of not respecting local labor laws (Luces, 2014a). According to the CREC, this project was to employ 600 Venezuelan workers but in Anaco only 20 of the 150 employed in 2010 remain (CCTV, 2015; Luces, 2014b). The project was due to be completed in 2012, but labor disputes have thrown it into disarray. In June 2012 the Venezuelan Workers’ Federation publicly criticized the authorization of 30,000 more Chinese workers in addition to the 3,000 already hired by CITIC Construction for the Fuerte Tiuna housing project (Ellis, 2014: 157). Further, in January 2013 it was reported that the 20,000 Chinese workers hired for the housing project worked 14 hours a day when Venezuelan labor law permitted only 4 hours beyond the usual 8 (Rodríguez, 2013).

Although structural economic factors appear to inhibit Venezuela from moving beyond oil, domestic institutional factors are also important. As discussed earlier, the formation of the Venezuelan state coincided with significant intervention from international oil companies that produced a state much more apt at negotiating contracts with transnationals than at presiding over complex tax systems and managing resources (Karl, 2007: 263). The embeddedness of oil in the formation of the Venezuelan state has also meant that oil is taken for granted in Venezuela. It is the assumption that underlies all political demands—right-wing, left-wing, or other (Coronil, 1997: 91, 94). Competing political demands aside, since the discovery of oil the emphasis has consistently been on maximizing oil income through the state rather than pursuing revenue by other means such as taxes. Increasing participation in decision making at the local institutional level (see Azzellini, 2017) has not extended to decisions about the oil industry, the core of the Venezuelan economy. More equitable distribution of oil profits is important, but the decision making for that distribution remains centralized. While the explosion in local self-organization through the misiones, communal councils, communes, and social enterprises has helped create a sense of collective capacity after the breakdown in the social fabric during the late 1980s and 1990s (Edgardo Lander, cited in Uval, 2017), it has not been matched by participation in decision making on the determining factor of the Venezuelan economy. As at previous moments when oil prices have been low or when the oil industry was sabotaged in 2002–2003, the danger of relying on imports of basic consumption goods such as food has been very much exposed.

Whether the relationship between China and Venezuela is viewed as based on South-South cooperation or a rearticulation of previous dependent geopolitical relationships depends on whether the focus is on the behavior of the Chinese state and private companies or on the bilateral agreements between the two states. From an “economic” perspective, considering Chinese companies’ selling Venezuelan oil and labor relations, Chinese economic influence in Venezuela has markedly increased despite the ongoing significant economic relationship with the United States. From a “political” perspective, considering the state-state agreements for technology transfer and investment in development, South-South cooperation seems to be key.

Conclusion

China’s economic and political influence has not replaced that of the United States in Venezuela. Dependency on oil has been reinforced in the Sino-Venezuelan relationship, but the attempt to build up infant industries in the nonresource sectors appears to be more than just lip service to the “social debt.” Despite significant problems with Venezuelan monetary policy and economic planning, Venezuela’s relationship with China on a state-state level includes important elements of cooperation. Although politically the Sino-Venezuelan relationship is based on cooperation, the economic relationship contains many of the long-term structural problems that Venezuela has faced since the discovery of oil. The relationship between PDVSA and Chinese oil companies and the manner in which Chinese companies carry out Venezuelan government contracts reflect the wider shift of Chinese participation in the global economy in which Chinese companies are now key players and their behavior in relation to Venezuela does not differ markedly from the previous behavior of U.S. or European capital.

Beyond some small-scale success stories in the communal sector, massive redistribution of oil rents to social development has not led to apparent long-term strategies in nonresource sectors such as manufacturing and agriculture. Disproportionate dependence on oil to finance consumption such as imports of basic foods persists. An institutional structure that specializes in managing oil income needs to be questioned. Nation-states with diversified economies typically extract taxes from the population and direct resources toward long-term sustainable development—something that successive Venezuelan governments have been unable to achieve. The current Venezuelan government has repeated the mistakes of previous governments by mortgaging future oil revenue. The Venezuelan economy will continue to be susceptible to the vagaries of the world oil market unless the political structure that treats oil as a given rather than a finite resource is modified.