THE CHINA SYNDROME

The implications of Argentina’s ‘strategic alliance’

President Cristina Fernández de Kirchner seemed quite enthusiastic about her current visit to China and the prospect of consolidating a strategic alliance with the biggest economy in the world. Even if some argue that China has not yet surpassed the US economically, this fact makes no difference to Argentina.

This strategic alliance seems to be a quite sensible decision on the side of the current Argentine government. China comes immediately after Brazil in the list of this country’s major export markets. And lately, China has become, if not Argentina’s lender of last resort, at least a friendlier door for Argentina to knock at when in need for cash, than, say, the IMF, let alone the private markets.

In addition, this new strategic alliance is consistent with the president’s foreign policy of distancing Argentina from the US and — possibly — from the EU as well. The increased links with Russia, to include support of that country’s policy on Ukraine, not to mention Fernández de Kirchner’s public chiding of the US last September at the UN, are more than clear signals that this country is changing its international profile and alliances. So finding powerful new partners looks like the smart thing to do.

Even China’s political processes seem to make it an adequate choice at this point in time. Because the power is concentrated in the Communist Party, interlocutors are quite clear. And there is no need to lobby lawmakers — including those in the opposition — like is the case in the US.

In addition, Beijing would never dream of publicly chiding Argentina over an issue like the death of AMIA Special Prosecutor Alberto Nisman. That was not the case with the US.

There are, however, some risks worth taking into account. Many observers agree that the days of China’s two digits growth rate are gone forever. And that the current six or seven percent annual growth rate that seems marvellous by EU or US standards, might not be enough in the case of the Chinese economy, which seems to suffer some dark spots, especially in the (very) delicate public and private financial sectors.

Her hosts will possibly not mention this to the president, and it would not be polite to ask. But there is plenty of information available which shows that the largest or second largest economy in the world, is dangerously close to a real estate bubble burst similar to those which hit several Western countries a few years ago.

The signals are all there. Many empty buildings that do not find purchasers or tenants. And there are big bank loans that financed the over-building and which now have to be paid from a tighter cash flow than what was initially expected. Everything is big in China. So — if it happens — it will be a memorable burst.

True, the Chinese government might be able to avoid such a scenario. But there is still another threat. That country’s local governments seem to have gone quite wild in terms of borrowing. And have offered as collateral land which they own. Moreover, rumour has it that (in some cases) such collateral has been grossly overvalued. Should there be a problem in a couple of those local governments, the contagion effect could be fast and powerful, throwing even more real estate into an already saturated market. And banks would find themselves with devalued collaterals backing risky loans. Definitely not a good scenario.

Fortunately, Murphy’s Law does not always apply. So, although some observers describe a disaster scenario, others believe that there is much room for damage control, although there will be adjustments to be made. This is unlikely to affect Argentina’s soya related exports. After all, the Chinese government will want to keep its population’s current standards of consumption.

However, even if the possible crisis is limited, China’s usefulness as a strategic partner would be seriously affected. Especially in terms of financial assistance.

And this could be made worst if relations with the US continue to deteriorate. Angering the US (Democrats or Republicans) means angering a country which can make Argentina’s life difficult in those international organisations which — at a certain stage — could or would be necessary for Argentina.

The IMF is a clear example of this. Currently, this government does not want to have anything to do with the Fund. But it is not certain that this will be the case in the future. After all, the government will change on December 10 this year. And even if the next government shares the negative views on the US and the IMF, the fact is that need triggers pragmatism.

In any democracy, foreign policy is the exclusive bailiwick of the executive with the aid of Congress. Given the Victory Front’s legislative majority, the president has every right to enter any strategic alliance which she deems useful for the country.

But — in modern democracies — the opposition is consulted before making strategic decisions. Surely, such consultations are not binding, but the exchange of views is, more often than not, useful to all sides. This government can argue that the opposition is very fragmented. Or that it could use the consultations to play cheap political tricks. Unfortunately, this is not unimaginable.

We all know that a deep rift is currently hurting Argentina. And the decision making process which led to this — somewhat risky — strategic alliance with China is another example of the need for both government and opposition to make a serious effort to close that rift. Or, at least, to seriously commit themselves not to make things worse in this crucial election year.

@andresfederman

CREDITS: BUENOS AIRES HERALD