On November 16, Chile will elect a new president who will lead the country to 2030. The presidential candidates - including Janet Jara, a representative of the left-wing coalition "Chile Solidarity" and member of the Communist Party of Chile, and the current president Jose Antonio Kast, representing the conservative Republican Party - must propose policies to address domestic issues such as declining birth rates and rising crime rates. However, one of the most important foreign policy areas in this election will be China's growing investments in Chile's increasingly weakened key mineral and transportation sectors.

China currently controls about two-thirds of Chile's energy sector through financial acquisitions of Chilean energy companies. In addition, as of 2023, China purchased nearly 40% of Chile's export products. Following closely behind is the United States, whose exports are far lower than Chile's, accounting for only 15% of Chile's total exports.

As of 2024, bilateral trade between Chile and China is estimated at $37.8 billion. In that year, Chile's exports to China mainly consisted of minerals, amounting to $27.95 billion, which accounted for nearly 75% of the total trade volume. Among these, copper was the most prominent, with Chile exporting $5.5 billion worth of copper to China. Chile possesses about 23% of the world's copper reserves, and its copper production accounted for 24% of global production as of 2024, indicating the importance of China as a stable buyer.

In 2005, China Minmetals Corporation signed a joint venture agreement with Chile's state-owned copper producer Codelco, each holding 50% of the shares, with a value of $550 million. This joint venture would ensure China's access to 55,000 tons of copper over the next 15 years.

In other projects not owned by China, Chinese banks also provided investment. In 2021, the Coquimbo Copper Mine signed a $1 billion syndicated loan with 17 banks, including three Chinese banks: Bank of China, Industrial and Commercial Bank of China, and China Construction Bank. These three banks provided $7.143 million in loans for the mine. Similarly, in 2021, Bank of China also provided $3.811 million from a $571.6 million syndicated loan for the expansion of the Mantovani Copper Mine. The Mantovani Copper Mine is not owned by China, and its annual copper production is estimated at 120,000 tons.

Chile also plays an important role in lithium mining. As of 2023, Chile is the second-largest lithium producer in the world, accounting for 25% of global production. Chinese enterprises have also been actively investing in Chile.

In 2018, Tianqi Lithium acquired 23.77% of the shares of Chilean lithium company Sociedad Quimica y Minera de Chile (SQM) from Canadian company Nutrien. Tianqi Lithium spent $4 billion to acquire SQM shares and became the second-largest shareholder of SQM (Pampa Group is the first-largest shareholder, holding 26%). A protocol signed in May 2024 assigns SQM the responsibility of producing refined lithium in the Atacama Salt Flat from 2025 to 2060.

Additionally, in 2023, China's Tsingshan Holding Group and BYD planned to invest $233.2 million to build a lithium iron phosphate (LFP) factory, which is scheduled to start operations in May 2025. Chile hopes the project will produce 120,000 tons of LFP annually. However, by 2025, the Chinese partner withdrew from the plan for unknown reasons. Moreover, BYD also postponed its plan to invest $290 million in building an LFP cathode factory with an annual production capacity of 50,000 tons in 2025. Analysts believe that this project may be canceled.

Despite recent issues with lithium projects, due to the weakening of Chile's state-owned mining company Codelco (which plays a key role in Chile's copper and lithium resources), China may have more investment opportunities. According to a report in December 2024, Codelco's debt has soared to over $20 billion, and its production reached a record low of 25 years in 2022.

Aside from the mining industry, China has also had a significant (although indirect) impact on Chile's transportation industry.

The largest port in Chile, Valparaíso Port, handles 11.5 million tons of cargo annually. By 2024, 31% of the cargo handled at Valparaíso Port will be exported to Asia, mainly China. Chile plans to expand this port (owned by the state-owned enterprise EMPORCHI), including the construction of cargo docks, expansion of cruise ship docks, and increasing the capacity of cargo ships. The goal is to maintain the competitiveness of this port in the region.

After the completion of the Chinese-built Chancay Port in Peru, competition has intensified. The rise of Chancay Port could affect the passenger traffic to ports like Valparaíso in Chile. The new "Chancay Express" connects the route from Chile's ports of Lirquín and San Antonio to the Peruvian port. In fact, this route allows Chilean goods to be transported to China via the Pacific coast of Peru, reducing the transit time from 35 days to 23 days and lowering costs by 30%.

Unlike Chilean ports, Chancay Port can accommodate ultra-large container vessels (ULCVs), meaning it has a dual advantage: besides shortening the travel time to Beijing, it can also carry more cargo. For Beijing, Chancay is not only an important transportation hub in Peru but also a crucial transportation hub in all of Latin America. In addition to the Chancay Express connecting Chile and Peru, China has restarted negotiations for a transoceanic railway that would transport goods from Brazil to Chancay.

The upcoming election in Chile is crucial for the future of its economy and its relationship with China.

Jarra has risen sharply after the recent primary elections. Her support rate reached 26%, currently leading the race, although closely followed by Kast, with a support rate of 22%.

Among the many issues facing these two candidates, ensuring the future of Chile's mining industry will be key to economic growth - especially in light of the continuous loss of assets by the Chilean National Copper Company (Codelco). Kast aims to open Codelco to private capital in order to increase production and restore income growth. His plan includes selling non-core assets to repay Codelco's debt while focusing on operational efficiency rather than national revenue. Given China's track record of investment in Chile's natural resources, Chinese companies may be eager to participate in the bidding.

On the other hand, Jarra opposes the deal between Codelco and SQM, instead calling for the establishment of a new public company to assist in the development of lithium resources. Codelco is a copper mining company, and Jarra's goal is to create a new state-owned enterprise that would play a similar role in the lithium resource sector. Given that China holds a minority stake in SQM, this will have an impact on China.

Regarding foreign policy, Jarra emphasized "not wanting Chile to submit to foreign governments or external models," and highlighted human rights issues. She has not made any explicit statements regarding China in this regard. Instead, Jarra pointed out that her foreign policy goals are trade diversification and multilateralism, focusing on expanding relations with China, India, and Latin America.

However, the current president Kast has maintained close ties with Western powers. He particularly agrees with Trump's stance, such as removing Chile from the UN Human Rights Council, and opposing immigration, LGBT rights, and any policies he considers "communist."

With these vastly different candidates running, Chile stands at a crossroads. Although Chinese investment may not be the top concern for ordinary voters, the next president will determine the extent of China's influence on Chile's economy.

Source: The Diplomat

Author: Martin Brown, special contributor to "The Diplomat"

Date: August 15

Original: https://www.toutiao.com/article/7539385228268225070/

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