The growing importance of Chinese investment in Latin America: an economic analysis

Chinese investment has been a fundamental pillar of infrastructure development in Latin America and the Caribbean (LAC) over the past two decades. According to a recent report by the Inter-American Dialogue, Chinese investment has reached USD 187.5 billion between 2003 and 2022.

This has focused on large-scale projects in sectors such as energy, mining and construction. Although recent years have seen a decline in the volume of investment, China’s impact on the region is significant, with new trends emerging that point toward “new infrastructure,” a concept that is reshaping the relationship between China and LAC.

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China’s “new infrastructure”

The concept of “new infrastructure” is closely related to China’s drive towards technological modernization. This term, which includes sectors such as 5G telecommunications, artificial intelligence, renewable energy and electric vehicles, is becoming the main focus of Chinese investment in LAC.

According to the report “New Infrastructure: Emerging Trends in China’s Foreign Direct Investment in Latin America and the Caribbean,” while investment in large infrastructure such as dams and highways has declined, investments in advanced technologies are booming.

A key example of this transition is the growing investment in renewable energy. China has leveraged its competitive advantage in the production of solar and wind technology, and has promoted clean energy projects in countries such as Brazil, Chile and Argentina.

These investments not only respond to Latin America’s need for energy diversification, but are also aligned with China’s global goals to reduce its dependence on fossil fuels.

In addition, the electric vehicle (EV) sector is emerging as a priority for Chinese investment in LAC. In 2022, investment in EV manufacturing accounted for 35% of the total value of Chinese FDI in the region. Companies such as BYD and Chery have established factories in Brazil and Argentina.

Traditional infrastructure investment and its transformation

Historically, large infrastructure projects have been the backbone of Chinese investment in the region. The construction of ports, railroads and power plants has enabled several LAC countries to improve their transportation and energy supply networks.

China became a key partner in the expansion of critical infrastructure, especially in Brazil, Peru and Chile, where investments in mining and energy have been predominant. These projects, many of which were framed as part of the Belt and Road Initiative (BRI), were seen as a driver of development for both the region and China’s geopolitical interests.

However, in recent years there has been a notable shift in the nature of Chinese investment. China’s involvement in large infrastructure projects has declined, as the country is redirecting its resources to sectors that favor innovation and high-quality economic growth. Investment in renewable energy, information technology and electric vehicles is gaining prominence, marking a new phase in China-Latin America economic relations.

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Infrastructure projects in Colombia with Chinese investment

In Colombia, Chinese investment has found its place especially in infrastructure. The presence of Chinese companies in the country has grown, and their participation in infrastructure megaprojects is increasingly common. Among the most prominent projects are the Autopista al Mar 2 and the First Line of the Bogotá Metro.

In addition, two road projects have been financed by Chinese commercial banks: the Pasto – Rumichaca highway, financed by the Bank of China, and the Pamplona – Cúcuta highway, which has financing from both the Bank of China and the Industrial and Commercial Bank of China (ICBC).

Other important projects involving Chinese participation include the Regiotram de Occidente, the Tibitoc Water Treatment Plant, the Usme Hospital and Puerto Antioquia.

International Competition and the Future of Chinese Investment in LAC

While Chinese investment in traditional infrastructure has declined, other economies, such as the United States and the European Union, are stepping up their presence in LAC. According to ECLAC data, non-Chinese FDI in the region grew by 55% in 2022, reaching a record of more than USD $224 billion. This reflects a growing interest by Western powers to compete with China in strategic areas such as energy transition and digitalization.

In this context, Latin America faces the juncture of taking advantage of the opportunities offered by Chinese investment in “new infrastructure” and diversifying its trading partners to reduce geopolitical risks. The relationship with China will continue to be critical for the region’s economic development, but will depend to a large extent on the ability of Latin American countries to effectively manage their relations in a multipolar world.