China Exposed in Venezuela

Reuters has an exclusive on a report of China's investments in Venezuela, most of which benefited a few individuals, but did nothing for the people they were supposed to serve.  In the documented case of China CAMC Engineering Co Ltd, the goal was to provide jobs to many residents who would build new bridges and roads, a food laboratory, and the largest rice-processing plant in Latin America (something one has to wonder about).  It fell quite a bit short of that, but made some politically connected people more rich than they would have been otherwise. 

Part of the lack of success came from the necessity of paying bribes to local officials (indictments showed $100 million just for the rice project).  The Chinese don't seem to have reservations about paying bribes if it gets them what they want.  Only it didn't get them a rice processing plant. 

China has a string of these programs that are outright bribery to meet political objectives.  We saw examples in the Philippines, North Africa, Vietnam, and Cambodia, to name a few.  They are designed to sound like something that will benefit the country in some vague way, but they rarely do accomplish any of the promised results.  What they do is build up debt which cannot be paid, and result in China getting payment of its debt in other types of currency, like ports, infrastructure contracts, or utilities.  Ultimately, it looks just like the Mafia moving in on productive investments and corrupting them. 

This is where our policies that try to change trade behavior in China are so difficult to solidify.  They don't play by the rules of international trade or the norms of commercial business.  We can identify what kinds of activities we would like to see from China but those behaviors are significantly different than what the business and political practice of the country.  Imagine trying to get a mob boss in Boston to stop running prostitution, loan sharking, or illegal gambling operations.  We usually arrest them rather than trying to move them into legal businesses.  That won't work in international trade. 

The White House thinks taxing them, in the form of tariffs, is the right answer, but that is like trying to tax illegal operations.  That would require legalizing the behavior we are trying to stop.