Venezuelan President Nicolás Maduro has announced $20bn worth of investment from China. But left unsaid was whether he got what he came for: a financing lifeline from his largest creditor.

The obfuscation speaks volumes about how China’s decelerating economy and crumbling commodity prices are testing its courtship of Latin America and underscores Beijing’s reluctance -— already signalled in Zimbabwe — to commit cash blindly even to its closest friends in resource-rich countries.

That is bad news for Latin America. Over the past decade Beijing has disbursed more than $100bn of trade credits and investment to the region and this week some of its biggest clients are coming cap-in-hand, seeking fresh funds to tide them through lean times.

While Chile, Brazil and Peru are all important trade and investment partners, it is in state-to-state deals with left-leaning governments in Venezuela, Ecuador and Argentina where China finds itself most exposed.

Often locked out of western capital markets, these countries painted Chinese funds as a “south-south alternative” to private sector finance or multilateral loans from Washington-dominated lenders such as the International Monetary Fund.

That strategy binds Beijing to some of the region’s wobbliest economies, and with the end of the commodity boom it must now decide how much fresh support to offer. Beijing this week hosts the first joint China summit with Celac, a regional Latin American grouping founded by Venezuela’s late president, Hugo Chávez, which pointedly excludes the US.

China’s state-owned banks and companies are relative newcomers to the world of international finance and investment, and have never experienced the boom-bust cycles familiar to long-term investors in Latin America.

“Everyone is watching to see how they deal with defaults. The Chinese have not experienced it yet,” says Boston University’s Kevin Gallagher, author of The Dragon in the Room: China and the Future of Latin American Industrialisation.

Castigated in Africa for “blank cheque” diplomacy, Chinese policy banks have been careful to secure Latin American loans, especially to Venezuela and Ecuador, where a chunk are backed by oil exports. Commodity-backed loans account for about half of China’s $100bn exposure to Latin America, Mr Gallagher estimates.

The halving of oil prices and chaotic policy making has forced Venezuela to scramble for fresh financing to cover its import needs, even though it sits on the world’s largest oil reserves. Its international bonds now yield a prohibitive 24 per cent.

With oil trading around $50 per barrel, Asdrúbal Oliveros, head economist at Ecoanalítica, estimates that Venezuela’s financing needs are some $20bn.

China has been reluctant to increase its Venezuelan exposure, Barclays analyst Alejandro Grisanti notes, and is likely to demand additional concessions, such as economic reforms and deeper access to oil, in return for fresh credit. It has already loaned Caracas $51bn.

“The Chinese are heavily exposed to Venezuela and are likely concerned about the prospect of regime change,” Eurasia Group analyst Risa Grais-Targow wrote, noting the investments announced by Mr Maduro on Wednesday appear tied to specific projects.

“The funds do not necessarily represent freely available cash that the government can use for imports or to make debt payments. Moreover, based on prior experience, these deals are likely preliminary and could be slow to materialise.”

Hong Lei, Chinese Foreign Ministry spokesman, declined to specify whether Beijing would renew a $4bn Venezuelan credit line that comes due next month. “The lines of co-operation are open and smooth,” he said.

Caracas may draw comfort from China’s support elsewhere in the region. Opec member Ecuador, which sliced its budget by 4 per cent this week, announced that China Ex-Im Bank would extend a $5.3bn, 30-year credit line at 2 per cent interest to help maintain public spending.

President Rafael Correa secured another $1.5bn from China Development Bank and other funds from Ex-Im Bank and Bank of China, for a total $7.5bn. Since 2009, China has loaned Ecuador $10bn, according to the Inter-American Dialogue. It holds 30 per cent of Ecuadorean external debt and takes half its oil exports.

An $11bn currency swap announced last year with Argentina, locked out of western capital markets by a group of holdout creditors following the country’s $100bn debt default in 2001, has also helped Buenos Aires bolster its sagging foreign reserves.

That dispute makes Chinese investors reluctant to commit to new projects for fear that funds would be hijacked by the holdouts, says one lawyer who advises Chinese companies there.

Beijing’s long-term bet on the region’s rich natural resources is accompanied by substantial telecoms and banking investments. Chinese president Xi Jinping said last year that bilateral trade could reach $500bn a year over the next decade, and direct investment could reach $250bn.

Increased exposure comes with a steep learning curve. Chinese companies are unused to vociferous trade unions or environmental and indigenous activists. Entrenched business elites are another minefield.

“Officials in Latin America always say they welcome investments, but the help they can offer is very limited,” says Li Renfang, Latin American analyst at China’s Southwest University of Science and Technology.

The China trade has shifted Latin America’s focus away from the Atlantic basin towards the Pacific, notes Robert Evan Ellis, professor at the US Army War College Strategic Studies Institute.

Many of the more grandiose Pacific-facing infrastructure projects announced by national governments with Chinese backing have never materialised. One of the most ambitious is a planned $50bn canal across Nicaragua, backed by little-known Chinese telecoms tycoon Wang Jing, which broke ground last month.

Additional reporting by John Paul Rathbone in London, Jude Webber in Mexico City, Benedict Mander in Buenos Aires, and Owen Guo and Tom Mitchell in Beijing

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