A $16 billion oil deal between China and Venezuela signed this week illustrates Beijing’s growing economic might and political influence in Latin America.

Trade between the region and China has swelled from $10 billion in 2000 to more than $102 billion in 2008.

Latin American leaders — not just leftists like Venezuela’s Hugo Chavez but also moderates such as Brazil’s Luiz Inacio Lula da Silva — have beaten a path to Beijing and Chinese officials are frequent visitors in return.

China is gobbling up Latin American commodities from soy to iron ore and at the same time eyeing a market of 500 million people while growth in its traditional trade partners remains flat.

And increasingly, China is a source of financing and investment in a continent that the United States has traditionally considered its backyard.

“It is important to recognise the Chinese engagement is significant and is having a significant effect,” R. Evan Ellis of the Center for Hemispheric Defense Studies in Washington said at a presentation at London’s Canning House. “Latin American politics and economics are coming of age and the region is looking to a number of players, not just the United States.”

Former U.S. President George W. Bush’s government is widely seen as having paid too little attention to Latin America during its eight years in power. Some U.S. politicians have raised the alarm about communist China’s intentions, warning that it poses a security threat. So should the United States be afraid?

Ellis believes there is no direct security challenge from China.

Beijing’s main intention is to secure supplies of resources, increase its clout in international politics, and to isolate Taiwan. It does not appear to be interested in a military presence or cultivating client states, he said. China also needs to stay on good terms with West so their economic relationship can continue to prosper.  “There is no need for China to antagonise the West for little benefit,” he said.

Although China supplies some non-lethal military gear to Latin American countries and has discussed selling a radar system to Venezuela and Argentina, Russian is the favourite weapons source for the populist governments.

There is an indirect threat however, Ellis said. China’s close business and economic ties with countries hostile to the United States such as Venezuela, Ecuador and Nicaragua means it act as “enabler” for them. “It does not want to get dragged into a fight but it is useful,” he said. “It is does not have a nefarious interest but it has strategic interests.”

A second threat is the spread of Chinese organised crime in Latin America, especially in money-laundering and human trafficking. Chinese and Taiwanese mafia are already active in the tri-border area of Paraguay, Brazil and Argentina.

Thirdly, there is the question of how China would react if its business interests are threatened, either by a change of a government’s policy or by other players.

Meanwhile, China is growing even stronger in Latin America. As well as its ties to anti-U.S. states, it is an important partner for U.S. allies Chile, Peru and Colombia. It is also helping fellow BRIC Brazil in its rise as an emerging power. It is transforming infrastructure with projects to develop ports from Mexico and Panama to Chile and to open up transport corridors between the Pacific coast and the continent’s interior.

In the future, we can expect to see more Chinese exports of value-added goods such as motorbikes and computers, Ellis said. Chinese companies are buying into the commodity sector while assets are low, especially in Peru and Brazil. There will be more investment and financial deals at preferential prices, for example using its currency reserves to pay in advance for commodities. China is creating a world that is safe for its remergence as a global power,” he said.

Ellis’s book “China and Latin America: The Whats and Wherefores” has just been published.

(Reuters photos: Venezuelan President Chavez arrives in Beijing and Chinese Vice-President in Caracas)

China and India are sitting down for another round of talks this week on their unsettled border, a nearly 50-year festering row that in recent months seems to have gotten worse.

China's Vice Foreign Minister Dai Bingguo and India's National Security Adviser M.K. Narayanan are unlikely to announce any agreement on the 3,500 km border, even a small one, but their talks this week may well signal how they intend to move forward on a relationship marked by a  deep, deep "trust deficit", as former Indian intelligence chief B. Raman puts it.

While the entire Himalayan border is disputed, including the Aksai Chin area, it is the row over large parts of India's Arunachal Pradesh in the eastern stretch of the mountains that has strained ties in recent months.

The Chinese, says Raman,  are demanding that at least the Tawang tract of Arunachal Pradesh, if not the whole of it, should be transferred to it.  They are apparently adamant that if that doesn't happen, there won't be any border settlement, he says.

India's position is that there can't be a transfer of populated areas in any border settlement. Tawang is a populated area, its citizens are Indians, New Delhi says.

So firmly have the Chinese dug their heels in, that they refused to endorse an Asian Development Bank  irrigation project in Arunachal Pradesh in June on grounds that it was its territory. Last month, India's Foreign Minister S. M. Krishna confirmed to parliament in a question-answer session media reports about the Chinese objection to the project which appeared to have stung India.

So where do they go from here ? India's decision to deploy additional troops along the border in Arunachal Pradesh and beef up its air defences in the region have deepened the sense of unease, more so by making a public announcement of the military moves.  It might be concerned about Chinese buildup in the area and of growing border violations, but to talk openly of the Chinese threat and moves to counter it hardly inspires confidence.

There is a history to this: in the months leading up to the 1962 war between the two countries, India, according to some people at least, took fairly strident positions in public against China, only to be humiliated in the brief conflict.

There are some signs of a calmer, more measured stance in New Delhi and Beijing ahead of this week's meeting in the Indian capital. There was no need to "demonise" China as a potential threat, India's top level cabinet committee on security headed by the prime minister concluded last weekend at a preparatory meeting, acording to a report in the Indian Express. But New Delhi will be watching China closely, it said.

Beijing for its part said the two countries must exercise the "greatest political wisdom" to arrive at border settlement. The People's Daily quoted China's ambassador to India Zhang Yan as saying: notwithstanding the "twists and turns" in ties, the two countries had the same responsibilities of developing their economies and improving people's lives.

Bilateral trade, as the People's Daily in a separate article notes, has flourished despite the strained political relationship. "China has become one of India's largest trade partners, and India is now one of the most vital investment and overseas project contracting markets for China," it says.

So is trade going to be the glue holding the world's two most populous nations together?

(Photographs of India's Manmohan Singh and China's Wen Jiabao and Nathu-La on the border between India and China)

The overthrow of Madagascar’s leader may have had nothing to do with events elsewhere in Africa, but after four violent changes of power within eight months the question is bound to arise as to whether the continent is returning to old ways.

Three years without coups between 2005 and last year had appeared to some, including foreign investors, to have indicated a fundamental change from the first turbulent decades after independence. This spate of violent overthrows could now be another reason for investors to tread more warily again, particularly as Africa feels the impact of the global financial crisis.

"Although I don't think these instances of instability in Africa are related to each other or part of a pattern, I think there's no doubt external constituents and businesspeople around the world will assume there is a pattern," said Tom Cargill, Africa Programme Coordinator at London thinktank Chatham House.

The fact that coup makers have succeeded without being forced to step down or even face major censure could also embolden those who might be tempted to take power in bigger countries, where falling growth is encouraging disaffection.

"Look at ... other African countries, so-called pivotal states: Nigeria is in a terrible state, so is Egypt, so is Kenya, all these so-called big countries," said Hussein Solomon, a political science professor at the University of Pretoria.

Although there can be a tendency to group very diverse African states together, the picture is far from uniform - Ghana's presidential election two months ago was one of Africa's closest, but avoided major violence, reassuring investors despite an acute fiscal crisis.

But social pressures are growing across Africa as a result of the world economic crisis.

The dramatic U-turn by rich countries as they bail out or buy up failing industries is also prompting a reassessment of the model sold to Africa by Western donors since the Cold War -- a combination of market capitalism and multiparty democracy.

Cargill said factors were both the financial crisis and the rise of one-party state China, an increasingly important source of investment and trade for Africa.

"I think in future the whole idea of the democratic capitalist system will be tested and questioned, and there will be some who take advantage of its being questioned for their own private ends to launch their own bids for power," he said.

That debate is already taking place at the African Union, whose rules ban unconstitutional seizures of power but whose chairman for the next year, Libya's Muammar Gaddafi, opposes what he says are foreign democratic structures imposed on Africa.

The AU has told Madagascar that any seizure of power by unconstitutional means would be considered a coup d'etat, punishable by AU sanctions or suspension.

But that sits uneasily with Gaddafi's rebuke last week of Mauritania's first democratically elected leader, largely confined to his village after being deposed in a coup last year.

"He must accept the fact,” said Gaddafi, who seized power in 1969 “He is not the first head of state to be overthrown.”

Is Africa returning to the old ways or did it never really leave them behind? Will a reassessment of the financial model pushed by Western donors also mean a new look at the multiparty democracy?

Former Mexican President Ernesto Zedillo has an original view on protectionism.

Instead of promising not to raise barriers to trade (and quietly ignoring their pledges), leaders should hit back hard with all the legal means available at any country trying to use protectionism to shield itself from the crisis at the expense of others.

Zedillo, who steered Mexico through the 1994/95 “Tequila crisis” and the 1997/98 Asian crisis, compares this to the doctrine of Mutually Assured Destruction that kept the nuclear peace during the Cold War.

Perversely, the threat of 1930s-style tit-for-tat trade retaliation could prevent countries from risking the policy in the first place, said Zedillo, who is now professor of international economics and politics at Yale University.

World Trade Organisation (WTO) rules give countries plenty of room to retaliate against unfair trade practices.

They include challenges in the WTO’s disputes system, raising tariffs that have been cut unilaterally back to their agreed ceilings, and withdrawing preferential treatment for developing countries.

That threat would alarm exporters, who would provide a counterweight to protectionist lobbies, Zedillo  said in a lecture at Geneva’s Graduate Institute of International and Development Studies.

The only thing that could make politicians think twice about protectionism is the possibility that another political constituency will be hurt. Leaders toying with the idea of going protectionist should be aware that others can hurt their export sectors.

“Let’s use whatever tools the system has in order to make clear to whoever decides to ride the protectionist wagon that there will be no such thing as a free ride, but rather there will be blood – let the WTO’s teeth bite!”

Earlier this month, Zambian economist Dambisa Moyo argued that Africa needs Western countries to cut long term aid that has brought dependency, distorted economies and fuelled bureaucracy and corruption. The comments on the blog posting suggested that many readers agreed. In a response, Savio Carvalho, Uganda country director for aid agency Oxfam GB, says that aid can help the continent escape poverty - if done in the right way:

In early January, I travelled to war-ravaged northern Uganda to a dusty village in Pobura and Kal parish in Kitgum District. We were there to see the completion of a 16km dirt road constructed by the community with support from Oxfam under an EU-funded programme.

The road is bringing benefits in the form of access to markets, education and health care. Some parents say their daughters feel safer walking to school on the road instead of through the bushes. Many families have used the wages earned from construction work to pay for school fees and medical treatment. This is the impact of aid.

Having lived and worked in east Africa, I have witnessed the positive effects of aid. But done badly, it can be very limiting and even has the potential to create more harm. To avoid this, it must be provided within an enabling environment in which it is used as a catalyst for change and not as an end in itself. Governments must show leadership through an accountable system.

For individuals, access to resources – including aid - is like an investment. Aid can build up poor people’s assets, support good governance and enhance skills and capacities to bring about transformation. But it can become a bane when it makes communities dependent, lazy and hopeless. Governments, aid agencies and the United Nations need to ensure the delivery of aid is well planned and coordinated, leading to higher self-reliance among poor communities.

Aid is also beneficial when trade is fair. There are several examples in Africa, like the case of coffee farmers in Uganda, where aid has been used effectively to improve the overall quality of the coffee seeds, thereby giving farmers better prices for their produce. When they have access to markets at home and abroad, they generate income which is ploughed back into increased output, better access to health and education, and overall improvement in the quality of their lives. To make this happen, developed countries need to stop procrastinating and put in place fair trade practices.

Aid works well if governments are accountable – in other words, when they are responsible and encourage active citizenship. On this continent, civil society is still weak and needs to be nourished. But stopping aid will not resolve frustrations about poor governance, which is partly a result of weak public scrutiny. Aid should be used to help fight corruption and promote accountability through active input from ordinary people.

As I have argued here, receiving aid is not just an act of charity. It should be understood as the right of poor communities to a life of dignity. As stated in international conventions, people have a right to good health, food, water and education. We all need to ensure the planet’s resources are equitably distributed. As Mahatma Gandhi said, you must be the change you want to see in the world.

So what do you think? Which argument is most convincing?

Trade protectionism -- or at least the threat of it -- has raised it head as the global economy has declined, bringing with it all the historical fears about the Great Depression. Consider the flurry of concern about a "Buy American" clause in one of the U.S. stimulus bills.

It is traditionally assumed that widespread protectionism would most hurt the biggest economies, the United States and Japan. But Barclays Capital analyst David Woo says this is not so and that Russia, Canada, Australia and Sweden are the most vulnerable.

Woo studied various factors that would play on the effect of protectionism on a country, from openness and flexibility to its dependence on trade and it savings.

Japan turned out to be the least vulnerable. "Its relative closeness, relative flexibility of its labour market, and its terms of trade more than outweigh the negative contribution to its growth from a narrowing of its trade surplus in a global protectionist environment," Woo writes.

As for the United States, "the only reason why it failed to take first place is because of its extremely low saving rate, which will limit the scope for domestic demand to offset falling exports."

Mexico,  India and China took the third, fourth and fifth places, respectively. So it's not all about emerging markets.

If anyone in Africa was worried that the global financial crisis might dim China’s interest in the continent, President Hu Jintao will be visiting this week to give some reassurances - as well as possibly to temper any unrealistic hopes for the amount of assistance to be expected.

As Chris Buckley reported from Beijing, this visit is also about China showing the wider world that it is a responsible power.

The fact that none of the countries Hu will visit is among Africa’s economic or resource heavyweights - Mali, Senegal, Tanzania and Mauritius - is seen as a sign that China wants to send a message that its engagement with Africa is about much more than resources.

Trade between China and Africa rose to $107 billion last year and more deals are expected on this visit. Nearly all of Africa's exports to China still come from a handful of countries rich in oil or minerals, though, and now the global downturn has put those in more doubt.

China’s involvement in Africa is a subject we looked at recently. Alistair Thomson in Dakar found that even if some Chinese investments in Africa were losing their lustre, many Chinese firms were taking a longer-term view to pursue strategic expansion - and some were hunting for bargains. For China, Africa also offers an important destination for exports, as any visit to even the most remote African marketplace will quickly show.

Growing trade relations with China were one of the things seen by Zambian economist Dambisa Moyo in a previous blog post as a way for Africa to emerge better off from the financial crisis and less dependent on Western aid.

But China’s involvement in Africa has brought concern from some in the West - quite apart from those who may stand to lose out on the business front - with some critics saying Beijing’s interest is too focused on the drive to secure resources and pays little heed to the kind of thing that Western donors say they want to promote, such as elections, human rights and the fight against corruption.

Will Africa be able to depend on China in the long term? How healthy is that going to be? What do you think?

Pictures: Money changer Kwami Longange poses for a portrait on a streetcorner in Goma in eastern Congo, February 9, 2009. REUTERS/Finbarr O'Reilly

China's President Hu Jintao delivers a speech in Beijing December 31, 2008. REUTERS/Jason Lee

Few politicians so far are calling for protectionism.

Among economic and diplomatic policy-makers, openly advocating protectionism is about as socially acceptable as promoting child pornography.

So how to explain the slew of tariff hikes, export subsidies, non-tariff barriers, stimulus packages and bailouts — highlighted in a report at the World Trade Organisation – which all have the effect of slowing imports, boosting exports and generally promoting jobs at home at the expense of competitors?

The answer: they are not protectionist. Everybody says so.

New subsidies for French carmakers? Not a whiff of protectionism, says French Economy Minister Christine Lagarde. It’s all about research and development.

Export subsidies resumed for EU dairy produce? Not protectionism, says EU Trade Commissioner Catherine Ashton. It’s just a technical measure triggered by market prices.

“Buy American” in the U.S. stimulus package? Not protectionism, the Senate says. It will be “applied in a manner consistent with U.S. obligations under international agreements”.

Higher Indian steel tariffs? Not protectionism, says New Delhi. We cut them when inflation was high, and now that inflation was moderated we can put them back to their normal level.

Indonesian imports restricted to 5 ports of entry? Not protectionism, Jakarta says. It’s all about tackling smugglers.

Everybody’s doing it — denying that trade measures are protectionist.

Far from being all bad news for Africa, the global financial crisis is a chance to break a dependence on development aid that has kept it in poverty, argues Zambian economist Dambisa Moyo, who has just published a new book “Dead Aid”.

Moyo’s book, her first, comes out at a time when Western campaigners, financial institutions and some African governments have been warning of the danger posed to Africa by the crisis and calling for more money from developed countries as a result. The former World Bank and Goldman Sachs economist spoke to Reuters in London.

“I’m not saying its going to be easy, I’m just saying that there is a real opportunity for policymakers to focus on coming up with more innovative ways of financing economic development. In a way the crisis actually provides the African governments with the situation where they cannot rely on aid budgets coming through from the West.”

Moyo believes more than $1 trillion in development aid over the past 50 years has only entrenched Africa’s poverty, distorted economies and fuelled bureaucracy and corruption. She sees alternatives such as encouraging trade - particularly with emerging markets - encouraging foreign direct investment, microfinancing for enterprise and seeking funds from capital markets.

Moyo is not discouraged by the fact that all those options appear more difficult in the current environment.

“It just means the onus is on African governments to come up with a more compelling story as to why African governments are overseeing real asset investment not derivative products we don’t really understand.”

“If you focus on traditional markets like Europe and the United States, you come to the conclusion that markets are really damaged and it’s very hard to raise money in those markets, but if you start to look towards China for example which has $4 trillion of reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market for example.”

“The model that’s coming up, that I’m proposing, is essentially one where Africa and Africans become equal partners with the rest of the world, not one where there is kind of a donor and a recipient, where Africans are kind of viewed as secondary citizens,” she said.

“There is no other system, whether a political system or a business system, that has stayed as the status quo for 60 years when we all know it’s not doing what it’s supposed to do, it’s not generating growth and it’s not alleviating poverty.”

Moyo is not worried about the impact of aid being taken away:

“It actually tends to pool at the top so it’s not like the average African is going to suffer. They don’t see the aid anyway. Essentially it‘s going to really affect the bureaucratic processes at the top and would really impact on corruption.”

“You could take me to country X in Africa and say ‘look at this girl here and she’s going to school because of aid’. Yes, that’s true but on a macro aggregate perspective these economies are not growing. They’re not growing fast enough to ensure that when that girl is done with her schooling she can find a job.”

Moyo is unimpressed by Western campaigners such as rock stars Bob Geldof and Bono calling for lots more aid for Africa.

“I fundamentally object to the notion that Africa needs more aid and I do think it’s time to have many more Africans speak out, especially the policymakers, because many of the policymakers actually don’t support aid  and yet they stay in the background and they allow this money to come into the economy.”

“You very rarely see Africans on the global stage saying ‘actually we would like to have much more aid please’.”

“I do think a gap has opened up to allow other people to formulate a view on coming to the global debate and offering opinions as to what they think Africans want. But maybe we should start a website called ‘Ask the African’ because I think you might be quite surprised to find that people say ‘we want jobs’, I wouldn’t mind a flat screen television, I wouldn’t mind having my kids go on holiday sometimes ...’”

Picture: Helen Jones photography

America caught a cold and now China has one too. 

IMF chief Dominique Strauss-Kahn said on Monday that the Fund could cut its forecast for China’s economic growth in 2009 to around  5 percent. To think that only last year China was galloping at a double-digit clip. It’s staggering, and it’s worrying.

Worrying, for one thing, because  - as the Heritage Foundation’s Derek Scissors puts it - ”the American economic slump is running into the Chinese economic slump, creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world’s most important bilateral economic relationship”. 

He argues that the new U.S. administration, confronted with a record-breaking bilateral deficit and soaring unemployment, could impose prohibitive tariffs or erect other barriers to Chinese goods. The EU, Japan and others would then be permitted by WTO rules to raise barriers against a diversion of Chinese goods to protect their markets, and “some form of Chinese retaliation is certain”.

“If intemperate, such retaliation will prompt further action by the U.S. and perhaps other countries, threatening the global nature of the trading system,” Scissors concludes.

Michael Pettis, a professor of finance at Peking University, blogged on the same theme last month, warning that Smoot Hawley, the notorious U.S. tariff act that contributed to the Great Depression of the 1930s, could return in a different guise.

Pettis says that while everyone is watching to see if Washington re-enacts new versions of Smoot-Hawley, the real threat may come from current-account-surplus countries which seek to support their export sectors.  There are indeed signs that China is looking to export its way back to vigorous growth through subsidies, raising import tariffs and perhaps currency depreciation (see the grumbling from France’s Anne-Marie Idrac only yesterday on the yuan). 

The bitter lesson from the 1930s is that not all countries can export their way back to economic health at the same time. And if they try, there will be a fight.