In August 2021, China's Ganfeng Lithium acquired its affiliated company Bacanora for no more than £190 million. However, in August 2023, the Mexican government canceled nine of its lithium mining licenses, prompting Ganfeng Lithium to file for arbitration with the International Centre for Settlement of Investment Disputes. The dispute revolves around Mexico's nationalization of lithium passed in April 2022.
Similarly, in June 2024, China's Tianqi Lithium spent 27.8 billion yuan to acquire a 23.77% stake in Chilean mining company SQM but faced government nationalization measures in Chile, leading to significant cash flow and control losses.
Doing "new globalization" cannot ignore the political changes in various overseas countries, and 2024 is set to be a year of great political changes globally. Among the top ten most populous countries, besides China, Brazil, and Nigeria, the others will all hold elections in 2024. While attention is on the U.S. election, it will also affect the business progress of Chinese companies in Latin America.
In this political context, the 2024 elections in seven Latin American countries have become a global focal point. These elections will not only affect the political direction of Latin American integration but also directly relate to Chinese companies' investments and operations in these countries. Latin America has a population of approximately 633 million and a GDP of Panama Canal
Source: Canal de Panamáabout $59.511 billion, a blue ocean market that China has yet to significantly tap into. How will political changes in this region affect Chinese companies' investments?
Left-wing parties are more concerned with wealth redistribution and tend to intervene in markets, while right-wing parties support free markets and are more willing to provide incentives for businesses. However, the policy background and personal style of each president will also have different impacts on companies. A left-wing president might implement more radical wealth redistribution and market intervention policies, potentially increasing operational burdens and uncertainty for businesses. On the other hand, some left-wing leaders may take measures to maintain social stability and promote sustainable development, indirectly providing a healthier operating environment for businesses. Conversely, while right-wing presidents generally support market liberalization and reducing government intervention, their policy details and execution methods can vary. Some right-wing leaders might quickly improve the business environment and attract foreign investment through aggressive reforms, but they might also compromise on social welfare and labor protections, leading to social conflicts and instability, which could pose risks for businesses' long-term development.
Therefore, when making investment decisions in Latin American countries, Chinese companies must consider not only the party inclination but also deeply understand each candidate's specific policies and governance style to make more accurate risk assessments and strategic adjustments. Next, we will conduct an in-depth analysis of the specific situations of the seven Latin American elections this year, revealing the potential impact of these political changes on Chinese companies' investments and operations. Each country's election results will directly affect the political direction of Latin American integration, which will determine the tax policies, foreign business regulations, and transaction environment that Chinese companies will face locally. Stay tuned as we bring you the most detailed analysis and interpretation.
In-Depth Analysis by Country
El Salvador:
Nayib Bukele officially took office as president of El Salvador on June 1, 2019. Since taking office, he has implemented a series of policies to promote economic liberalization, infrastructure development, and enhanced security measures, which have had a profound impact on Chinese companies operating in El Salvador. Bukele's policies, centered on security and economic liberalization, aim to create a stable business environment and attract more foreign investment, including from Chinese companies. By improving the security environment, operational risks for businesses are reduced, and the attractiveness to foreign investment is enhanced. Meanwhile, policies promoting infrastructure development and economic growth may drive increased demand in the labor market. However, Bukele's tough security policies and human rights crackdowns may negatively affect other groups. Therefore, Chinese companies must pay special attention to compliance and transparency when hiring local employees to avoid potential legal and social issues.
Bukele's government has a positive attitude toward foreign investment, particularly by attracting foreign capital through tax cuts and regulatory simplifications (reducing the income tax for foreign businesses operating locally from 30% to 0%), which is highly favorable for Chinese companies operating in El Salvador. The government's supportive stance significantly enhances the profitability of Chinese companies in the region. One point to note is that Bukele's government has actively promoted Bitcoin as legal tender. Although this move carries risks, it provides opportunities for Chinese fintech companies to innovate and grow. Moreover, Bukele's high approval rating and policy stability help boost the credibility and market position of Chinese companies in El Salvador.
Bukele's government communicates directly with the public via social media, offering more opportunities for Chinese cross-border e-commerce to establish itself locally, as the government uses new media as one of its primary communication tools. Bukele's interaction with the public through social media platforms increases government transparency and credibility, creating a favorable environment for cross-border e-commerce companies to promote and sell products through social media platforms. Companies like Alibaba have also begun expanding their market operations locally. In December 2019, Bukele visited Beijing, further demonstrating that El Salvador is a China-friendly country. His personal visit to China and his display of friendliness via social media provided more opportunities for Chinese companies to enter the Salvadoran market, especially in the cross-border e-commerce and internet sectors.
Crowley Logistics in El Salvador.
Source: Rodian Logistics
Chinese companies investing in El Salvador, particularly in infrastructure and telecommunications equipment, have also created many local jobs.
Projects such as the Salvadoran National Stadium, the Salvadoran National Library, and the Salvadoran Water Treatment Plant were all built with assistance from Chinese companies. Meanwhile, Huawei participated in the construction of El Salvador's 5G network project, driving local digital transformation. Chinese companies have also invested in several solar and wind energy projects, while also contributing to the upgrading of the Salvadoran power grid and the construction of new power stations, improving local electricity supply stability and efficiency. By collaborating with the Salvadoran government, Chinese companies can establish production bases locally, leverage El Salvador's market and labor resources, reduce production costs, and increase their influence. Meanwhile, the government's market liberalization policies will facilitate Chinese companies' production and sales activities in El Salvador, making it easier to enter and expand the local market.
Bukele's policies, overall, provide a favorable environment and opportunities for Chinese companies investing and operating in El Salvador, but attention must also be paid to adapting to the local legal and social environment to ensure sustainable business development.
Panama
Panama's Political and Economic Overview
José Raúl Mulino took office as President of Panama on May 5, 2024. His pro-business policies and welcoming attitude towards foreign investment will enhance the profitability of Chinese companies. Mulino's support for large infrastructure projects, such as the Panama Canal expansion and water resource management projects, offers substantial collaboration opportunities for Chinese companies, which are expected to significantly increase their market share and profits in Panama. At the same time, his focus on attracting foreign investment through partnerships with the Panamanian government provides Chinese companies with opportunities to establish production bases locally and reduce production costs.
Mulino's policies are also expected to improve the labor market, reduce the impact of illegal immigration on local employment, and ensure that the hiring process becomes more regulated and transparent. This will make it easier for Chinese companies to localize recruitment efforts. However, attention needs to be given to the fact that many Chinese expatriates do not operate under work visas, so this issue will need careful consideration. Training local employees and improving their skill levels will not only aid project implementation but also enhance the company's image and influence locally.
Chinese companies' involvement in these projects will further boost local employment and improve their reputation in the region. Mulino's administration places a high emphasis on infrastructure development and plans to implement several major projects, such as water resource management and railroad construction in Panama. This opens many opportunities for Chinese construction and engineering companies to participate in these projects and help improve infrastructure levels. The government's liberalization policies and infrastructure investments will improve the business environment, attracting more Chinese companies to the Panamanian market. Chinese companies can use these policies to expand their market share in Panama and, through cooperative projects, increase their influence in the Latin American market.
Panama Canal. Source: Canal de Panamá
China Communications Construction Company (CCCC) and China Harbour Engineering Company (CHEC) collaborated on the construction of the fourth Panama Canal bridge, with a total investment of over $1.3 billion. The bridge will connect Panama City's western province and serve more than 70,000 vehicles daily, benefiting about 1.7 million people. This project not only improves transportation but also supports local economic development (Diálogo Américas). Additionally, a consortium led by China's Landbridge Group invested around $900 million to construct new container port facilities in the Colón Free Trade Zone. This port project aims to significantly enhance the transshipment capacity of the Caribbean side of the Panama Canal, further solidifying Panama's position as a major global logistics hub. Chinese companies have also participated in building new piers at La Libertad, a key tourism and commercial development project designed to attract more visitors and boost commercial activities. These port projects have increased Chinese companies' market share while boosting Panama's international trade capabilities.
Moreover, China has invested in multiple infrastructure projects in Panama, including the development of logistics parks and commercial ports. These projects have improved local infrastructure while providing more business opportunities and market entry channels for Chinese companies. Jiangxi Copper invested in a copper mining project in Panama, holding an 18.5% stake in the mining company. This investment has not only facilitated the development of Panama's mineral resources but also strengthened China's influence in the global copper mining market.
Mulino's economic policies are aimed at promoting economic growth and increasing residents' incomes, which will shift consumption trends and habits. As the middle class expands, demand for high-quality consumer and technology products will rise, providing more market opportunities for Chinese companies. Specific policy proposals include attracting foreign investment through tax cuts and regulatory simplifications, improving the country's infrastructure, closing the Darién Gap to reduce illegal immigration and transnational crime, and strengthening efforts to combat drug trafficking. These measures will have a positive impact on Chinese companies' investments and operations in Panama.
Dominican farmlands. Source: Xinhua News Agency
Mexico
Mexico's Political and Economic Overview
Claudia Sheinbaum was elected President of Mexico on June 2, 2024. Her policies will have a significant impact on Chinese companies operating in Mexico. Sheinbaum's policies focus on economic growth, energy transition, social welfare, and infrastructure development.
As the first female president of Mexico with a background in environmental protection, Sheinbaum plans to invest $13.57 billion in renewable energy, promoting solar, wind, hydro, and geothermal energy development, with the goal of adding 13.66 GW of renewable energy capacity during her six-year term. This move not only marks a departure from her predecessor AMLO's fossil fuel policies but also creates opportunities for Chinese investments in renewable energy. She also supports the installation of solar panels in homes and businesses, providing a market for Chinese solar technology companies.
In economic policy, Sheinbaum promises continued support for Mexico's state-owned oil company Pemex, despite its heavy debt. She plans to sustain Pemex's operations through tax reductions and cash injections while pushing forward natural gas power plant projects under construction. This could provide cooperation opportunities for Chinese energy companies. In terms of infrastructure development, Sheinbaum proposed a large-scale infrastructure construction plan, including building seven long-distance railways, constructing one million affordable housing units, and continuing to raise the minimum wage. These projects will create significant local employment opportunities and offer cooperation opportunities for Chinese construction and engineering companies.
On trade and investment, Sheinbaum's government will continue to support the USMCA (United States-Mexico-Canada Agreement) and is committed to attracting more foreign investment, particularly from China, through a "nearshoring" strategy. Her policy emphasizes promoting economic growth through foreign investment, which is a positive signal for Chinese companies looking to expand their business in Mexico. Additionally, Sheinbaum promises to maintain fiscal discipline and seeks to reduce the budget deficit to 3.5% of GDP. This means her government will aim to sustain stable economic growth without cutting social welfare spending. Sheinbaum's policies provide a favorable environment and opportunities for Chinese companies' investments and operations in Mexico, but companies should closely monitor policy changes and flexibly adjust strategies to adapt to the evolving market environment.
North America Huafu Mountain Industrial Park in Mexico. Source: Huafu Mountain Industrial Park Official Website
In terms of cooperation between Mexico and Chinese companies, China has consistently ranked as Mexico's second-largest global trading partner for many years. Mexico is also a key country for Chinese companies' investments in Latin America. According to statistics, by 2023, bilateral trade between China and Mexico had grown over 7,000 times compared to when diplomatic relations were first established. Chinese investments in Mexico are primarily concentrated in mining, energy, telecommunications, manufacturing, finance, and industrial parks. According to the World Bank, manufacturing companies accounted for about 18% of all enterprises in Mexico in 2023, and 87% of Mexico's exports come from the manufacturing sector, with automobiles and electronics being the highest contributors.
It is worth noting, however, that with Sheinbaum in office, Mexico's new government and legislative institutions are controlled by left-wing parties, raising concerns that the separation of powers may be weakened. Therefore, attention should be paid to the upcoming parliamentary elections in September 2024. Additionally, if Donald Trump is re-elected as U.S. president in 2024, there may be further pressure to renegotiate or reconsider the USMCA in 2026, which could impact Mexico's foreign investment environment.