There has been an outpouring of bitter comments under the hashtag #GuisoChino – “Chinese Stew”, slang for fraud and corruption – in Venezuela sparked by this week’s visit by Chinese president Xi Jinping, who granted more financial support to the cratering economy of president Nicolás Maduro.

China has granted some $50bn in loans to Venezuela in recent years according to the Inter-American Dialogue/Boston University China-Latin America Finance Database, far more than to any other country in the region. Venezuela, after all, has the world’s biggest oil reserves.

Maduro has strongly defended Venezuela’s increasing proximity to China in recent years. “Everything we do with China, every day, is for the happiness of both our peoples,” he said this week.

But opposition leader Henrique Capriles, who narrowly lost the presidential election last year, does not buy that line and spurred condemnation on Twitter.

“The loans that Nicolás has received form China have not delivered any benefit to Venezuelans,” he wrote.

Critics say a big part of the Chinese funds have been channelled to infrastructure projects, housing schemes and other ventures that are still in progress or fell short of expectations. Similarly, Chinese-funded imports have done little to ease widespread shortages of goods.

Some more tweets from Capriles:

“Venezuelans have no cement. The cement plant Cerro Azul is another debt with China and an unfulfilled promise.”

“Nicolás got in debt with China for $5bn to buy food. Today there is 60 per cent scarcity of milk, cooking oil and sugar.”

“Nicolás received $994m to finish the underground in Valencia, Maracaibo, and Los Teques. Unfinished works.”

And it goes on. But shrugging off criticism, Maduro said the agreements:

…do not add a heavy debt burden on our country, it is financing that is backed by a formula of production and delivery of 524,000 barrels of oil per day to China. It means, it is a virtuous formula that allows financing and development, which does not generate heavy debts like in the old systems, when savaged neoliberalism led to a financial ransacking.

During the visit Xi and Maduro reportedly signed 38 financial and cooperation agreements in areas including energy, mining, industry, agriculture and infrastructure development. That includes adding some extra $4bn to a Chinese-Venezuelan development fund, the so-called “Fondo Chino”.

But Diego Moya-Ocampos, political risk analyst for the Americas at IHS Global Insight, warns that this could make it hard for Venezuela to service its other debts.

IHS assesses that between 364,000 and 464,000 b/d of Venezuela’s oil exports to China are likely to be committed to servicing loans granted by China. At least 100,000 b/d will be required for servicing the newly approved loan. This increases non-payment risks in Venezuela. It implies that Venezuela will have at least 100,000 b/d less in the one-year outlook to allocate to pay pending debts with local industrial, food, and basic goods sectors. Total outstanding debt to suppliers already is estimated at USD18–24 billion. The loan also provides further evidence of Venezuela’s increased economic dependency on China. Venezuela continues to experience difficulties in accessing international markets and rising costs of borrowing. These reflect widespread previous nationalisations, a nationalistic resource policy, and economic distortions resulting from ongoing foreign-exchange controls. Overall, the new loan increases Venezuela’s dependency on China, while further squeezing potential payments elsewhere.

Related reading:
Reform drive puts strain on Chávez legacy, FT
Venezuela’s Maduro: ideologue or reformer? beyondbrics
Venezuela confronts volatile fuel dilemma, FT
Venezuela signals relaxation of foreign exchange regime, FT
Venezuela: no hay, beyondbrics

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