Mapping the Modern Silk Road: Quantitative Insights into China’s Expansion into Latin America

Abstract

In 2013, the One Belt One Road (OBOR) policy (\begin{CJK*}{UTF8}{gbsn}一带一路\end{CJK*} in Chinese) made its debut in a series of speeches delivered by President Xi Jinping while visiting Kazakhstan and Indonesia. Initially, the OBOR initiative intended to promote economic cooperation, trade, and development across China to the rest of Asia, Europe, and even East Africa by establishing a network of infrastructure projects, namely railroads, highways, and ports. Nevertheless, in recent years, the OBOR initiative has expanded to include various large-scale infrastructure projects in Latin America and the Caribbean. While not officially recognized as part of the OBOR initiative, they share the same objectives of expanding China’s economic influence throughout the developing world. Although many of these projects were unsuccessful, such as the proposed canal in Nicaragua to replace the Panama canal, many of them have led to drastic alterations in local infrastructure and economies. For instance, the Coca Codo Sinclair Hydropower Plant in Ecuador was a major instance of Chinese investment in Latin America (Latam). Construction of the plant began in 2010, and it became operational in 2016 at a total cost of some US\$1.7 billion. This project was financed with Chinese loans, and the majority of the equipment and construction was carried out by Chinese companies. It has a capacity of around 1,500 megawatts, making it a significant addition to Ecuador's energy generation capacity, demonstrating China’s ability to effect change in the region. In this paper, we will conduct an analysis on several of these projects, quantifying the influence of said projects on the development of Latin American countries. Our methodology will employ Vector Autoregression (VAR) and clustered partitions analysis to examine the dynamic relationships between Chinese investments and economic indicators such as GDP growth and energy generation capacity in Latin America. Specifically, the VAR model will help us understand the temporal interdependencies between investments and economic outputs, while clustered partitions will be used to analyze how investments influence energy sector performance across different time frames and investment intensities, thus addressing some limitations with the former model. These methods will enable a nuanced exploration of the impacts of Chinese economic activities in Latin America.