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 As China's economy soared during the 1980's, its consumption of foreign oil rose as well, culminating in the country becoming a net importer of oil by 1993. Since this transition, China's real gross domestic product has maintained annual growth at about eight to ten percent, with Beijing now holding the distinction of being the globe's third largest importer of oil behind the U.S. and Japan.
China's consumption of oil is expected to steadily increase in the coming years, yet analysts predict domestic production will begin to decline by 2020.
China's current and ever increasing reliance on foreign oil has necessitated a broad search for oil reserves around the world. This quest has led China increasingly to Latin America, where it recently signed large oil deals with Venezuela and Brazil. This is in addition to its already existing oil related partnerships with Ecuador, Peru, Colombia, and Argentina.
China's funding of these multiple oil projects raises its already growing presence in Latin America, and will further its ubiquitous image on the continent as a deep pocketed investor. In as much as these oil contracts coincide with the recent explosive growth in trade between China, Venezuela and Brazil, the increase in trade will likely spill over to the entire region.
In the coming years other countries on the continent will presumably look to strike lucrative deals with China regarding the sale of their natural resources.
In addition to strengthening trade ties, China's oil contracts with Venezuela and Brazil may carry important political implications. Subsequently, an analysis of China's goals in the region reveal to what degree U.S. officials have reason to view Beijing's oil diplomacy in South America with alarm.
Analysis of the financial impact of these deals for Caracas and Brasilia reveals what factors motivated these two South American countries to sign multi-billion dollar contracts with Beijing.
Oil Deals With Venezuela:
On September 16, 2009 Venezuelan President Hugo Chávez announced the signing of an agreement between Venezuela's Petroleos de Venezuela (PDVSA), and one of China's state run oil firms, China National Petroleum Corporation (CNPC). The deal reportedly calls for China to invest US$ 16 billion over three years and will fund the development of oil in the Junin 4 block of Venezuela's Orinoco River belt.
On December 22, 2009 the China National Offshore Oil Corporation (CNOOC) signed an agreement with Venezuela calling for the former to help develop the Boyaca 3 oil block in the Orinoco river belt. Currently, Venezuela supplies China with 400,000 barrels of oil a day, but it aims to increase these production figures to one million barrels by 2013.
This would put Venezuela's export of oil to China in line with its current export levels to the U.S. Furthermore, Caracas and Beijing plan to work on joint refinery projects in Guarico (Venezuela) and Guangdong Province (China) that would process Venezuela's extra-heavy crude oil in order to make it serviceable.
Effect on Venezuela:
Following its successful strategy of attaching infrastructural aid projects to oil deals in Africa, the Chinese government established a four billion dollar development fund in Venezuela that would pay for improvements to infrastructure and social development projects. This includes the building of railroads, housing, highways and schools.
A Los Angeles Times report in January of last year stated that Beijing had agreed to provide billions more in funding for another round of similar development projects in the future. The aforementioned oil contracts and Chinese sponsored infrastructural projects appear to represent a windfall for Venezuela and Chávez, but experts are skeptical as to whether these deals will ever come to fruition.
Venezuela is known for its propensity to make headline-grabbing announcements and has recurrently been unable to follow through on complex oil projects and intensive infrastructural ventures. In addition, the Chinese lack refineries for Venezuela's unique extra-heavy crude oil, which are otherwise only available in the U.S. and the Caribbean, and are jointly run by PDVSA and U.S. entities.
Professor Riordan Roett, the Director of Latin American Studies at John Hopkins School of Advanced International Studies, told about his doubts regarding recent oil deals between China and Venezuela. "If this project is in the hands of the Chinese it may happen, and if it's in the hands of the Venezuelans it probably won't happen. All you have to do is look back on the track record of Chávez. Whether it's ALBA, The Bank of the South, building pipelines across the continent, none of these things have happened because one, he can't afford them, and two, his regime is incompetent."
Even though these agreements with China are not binding and the financing is not close to entering Venezuelan bank accounts, Chávez has spoken pridefully of Venezuela's oil contract with the CNPC. Notably, at the same time, the Chinese have sat back and publicly made only passing mention of forthcoming projects in the South American nation.
The contrasting silence between officials in Beijing and the public announcements by Chávez suggest differing intentions and motives of these two governments. In February 2009 Chávez went so far as to declare, "All the oil China needs for the next 200 years, it's here. It's in Venezuela."
Chávez publicizes these agreements because he regards them as a fait accompli and because they legitimize his rule. For the Venezuelan President, the deals with China demonstrate his diplomatic capacity to orchestrate lucrative oil contracts while simultaneously raising the global economic relevance of his country.
On the other hand, China has its own reasons for not speaking publicly about its commodity agreements with Chávez. For one thing, China may not be that committed to extracting Venezuela's hard crude oil, and it may not even see itself following through on its non-binding agreement.
It is also possible that China's coyness when it comes to this topic is based on the country's desire to not ruffle the feathers of the U.S., which has a close, if somewhat sclerotic economic relationship with Venezuela, but is increasingly at odds with it diplomatically.
Cynthia Watson, a professor at the National War College specializing in East Asian and Chinese Affairs, referred to China's respect for the U.S.'s standing in South America, noting that, "China is willing to engage with Venezuela, but it is very cautious to not step on the toes of the U.S. China sees Chávez as a volatile leader, and it does not want to be part of the chaos that he entails."
Brazilian-Chinese Oil Deals
Unlike Venezuela, which struggles mightily when oil prices drop due to its oil-focused economy, Brazil has weathered the global recession and the downturn in oil prices quite handily. In part, this is due to Brazil having the most diversified economy in Latin America, and its government's healthy operating budget that does not solely rely on oil revenue to fund infrastructural projects.
However, even with abundant cash reserves, Brazil is turning to outside lenders such as China in order to help fund the development of its vast oil potential. Brazil recently discovered extensive reserves in the sub-salt layer about 200 miles off its coast, but much work lies ahead before it can begin extracting this oil.
These off-shore reserves are miles below the surface and covered by rock and salt deposits, requiring sophisticated technology that will be extremely costly to mobilize.
Due to the recent economic downturn, there are fewer lenders with the disposable capital to facilitate such costly long-term projects. However, deep-pocketed, state-sponsored oil firms in China are more than happy to fill this void.
In May of 2009, in return for a Chinese loan of US$ 10 billion, Brazil signed an agreement with Beijing to provide as many as 200,000 barrels a day, at market prices for the next ten years.
Other than simply looking to outsource some of the risk associated with such an expensive project, Johns Hopkins' Riordan Roett believes that Brazil likely came to this agreement with Beijing as a way to "put another building block in the strategic relationship with China. Brazil is perfectly aware that China needs its soy beans and iron ore; and if it now can have a ten-year agreement to supply China with oil, it is only one more brick in an important evolving relationship."
As the current agreement stands, Chinese oil firms have no stake in the extraction of oil from Brazil's sub-salt region. Erica Downs, an expert in Chinese energy security, expressed her belief that China loaned Brazil the US$ 10 billion with the hope that this would ultimately lead to a Chinese oil firm drilling in its sub-salt terrain.
Brazil's ability to take on this complex drilling project without technological assistance from other international oil firms is due to Petrobras' pre-eminence as an operator at offshore drilling sites. Petrobras already is recognized as one of the most technologically advanced oil firms in the world when it comes to offshore drilling, and it has no real need for Chinese technological assistance in these drilling projects.
Strengthening Trade Ties with Latin America
While ensuring its own long term energy requirements may have served as the impetus for China's oil deals with Venezuela and Brazil, Beijing's involvement in the region will also result in the fostering of stronger trade relations with all of Latin America.
For a cash-strapped, but oil rich country such as Venezuela, these oil contracts could help fund lagging social welfare programs as well as important construction and infrastructure projects in the immediate future.
After viewing the benefits of supplying China with oil, other Latin American countries are likely to be motivated to want to provide it with various other commodities. China's ever-growing need for a steady supply of Latin America's abundant resources - iron ore, copper, aluminum, nickel, and soy - suggest that the Chinese consumption as well as the dependence on Latin American commodities will continue to grow for years to come.
Beijing would be well served to follow the investment strategy it has pursued in Africa and introduce numerous infrastructural projects in Latin America in order to prevent any future push back from those nations that could come to view China as being exploitative.
Latin American countries that are today supplying China with a steady stream of natural resources, but are at the same time experiencing enormous trade deficits with China in the manufacturing sector, should use their leverage (China's appetite for their natural resources) to try and pressure China to reduce its vast trade surplus.
At the present time, China continues to flood the region with cheap manufactured products, while simultaneously importing a small percentage of their manufactured goods. If Beijing does take action to boost Latin American exports to China in return for assurances that commodities will continue to flow to China, the sale of such resources will have brought Latin America very tangible benefits.
China's Growing Political Ties with Latin America
In addition to expanding trade ties between China and Latin America, an added benefit of China's oil deals in the region will be the strengthening of political bonds between those nations. With contract negotiations necessitating frequent high-level meetings between the Chinese, Venezuelan and Brazilian officials, all sides are able to come to a better understanding of their respective counterparts.
China and Brazil share a particularly close connection, as they are both large developing countries experiencing enormous economic growth while simultaneously enjoying greater international influence and attention. The emerging status of Brazil and China on the global stage has led to frequent discussions between the two countries as evidenced by their close cooperation at the recently held climate change talks in Copenhagen.
Furthermore, there are signs that Brazilian-Chinese cooperation may become a function of the waning U.S. influence on Brazil. In April and May of 2009 China overtook the U.S. as Brazil's biggest trade partner, largely due to the increase in the amount of iron ore and soy exports to China.
During Brazilian President Lula's visit to Beijing last year, he met with Chinese President Hu Jintao, and reportedly discussed trading in their own currencies rather than the U.S. dollar. While the change in what currencies are utilized for trading is unlikely to happen this year, as trade continues to increase between the two countries, there will be growing pressure to move away from the American dollar.
When asked about the talks between China and Brazil, Sergio Gabrielli, the chief executive of Brazil's state oil firm, Petrobras, stated in May of 2009; "The U.S. has a problem. There isn't someone in the U.S. Government that we can sit down with and have the kinds of discussions we're having with the Chinese."
While Chinese-Brazilian relations appear to be gaining momentum, Chinese- Venezuelan relations are developing more slowly, likely due to Beijing's hesitancy to take on the political problems involved in embracing the turbulent regime of Hugo Chávez.
Should the U.S. be Alarmed?
The decision by Chinese officials to branch out beyond its traditional oil sources was likely precipitated by Beijing's desire to shore up its energy security, as opposed to primarily being an attempt to usurp American influence in the region.
With the majority of its oil originating in the Middle East and eventually traveling through the narrow Straits of Malacca, China's oil supply potentially could be compromised by international conflicts affecting these respective vulnerable regions.
By spreading its risk geographically and maintaining a diverse grid of supply lines around the world, China is less susceptible to regional flare-ups or other unforeseen scenarios such as natural disasters.
While the U.S. has had many years to shore up its own energy security by signing multiple oil contracts with its neighbors, as well as with countries in the Middle East, the alacrity with which China's economy has grown has not afforded the country much time to establish crucial oil contracts.
This has forced China to enter into contracts for less propitious oil arrangements in which other countries have been uninterested. China's determination to ensure its own energy security is further demonstrated by its signing of oil and mineral contracts with otherwise disgraced rogue governments of Sudan and Zimbabwe.
Beijing's apparent willingness to take a hit internationally by supporting these pariah states suggests that China's emerging presence in Latin America is yet another example of its determination to make deals with whoever has vital commodities for sale.
As China appears to be moving closer to Latin America through its oil deals and an assortment of other trade links, Washington has yet to show signs of discomfort with this burgeoning relationship.
Amid the wars in Iraq and Afghanistan, and the attention the White House has given to the combative regimes in Iran and North Korea, the U.S. Government has paid little notice to Latin America in recent years.
This potentially could change if China continues to strengthen its ties in Latin America, and U.S. officials decide that they must, once again, assume a greater presence in the region.
The U.S. Government is slowly seeing its influence wane in Southeast Asia as China's "string of pearls" strategy is drawing it closer to its regional neighbors (with the exception of India).
As it loses some of its influence in this distant hemisphere, and China's presence in Latin America grows, the Obama administration may once again have a good deal of impetus to try to cultivate its relationship with nations to its south.
This especially could ring true if the Sino-U.S. relationship becomes more adversarial in the future because it could lead the U.S. to further engage Latin America in order to shut out China from what was once known as the U.S.'s "sphere of influence."
Adam Trombly is a research associate at the Council on Hemispheric Affairs (COHA) - www.coha.org. The organization is a think tank established in 1975 to discuss and promote inter-American relationship. Email: coha@coha.org.
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Instead, may I humbly propose we invite the government of PRC to offer a bid to build and run a railroad system in Brasil to carry freight and passengers? I bet our distinguished fellow Brasilian writer and commentator Mr.Ricardo Amaral would fully back up my proposal.
socialist fairyland 
No, it shouldn't. Instead, it should mind its own business and concentrate more on reducing the Chinese influence on its economy.