The year 2024 marked a turning point in the relations between the People’s Republic of China (PRC) and Peru. While at the global level countries such as those of the European Union, Canada, and the United States have been implementing measures to curb China’s advance, the PRC consolidated its control over strategic sectors in the Andean country.
In February, Peru approved the purchase by state-owned China Southern Power Grid International (HK) of Enel Distribución Perú and Enel X Perú, thus ceding total control of electricity distribution in Lima, the country’s capital, to the PRC. “China wants to be Latin America’s switch, and Peru has become the paradigm of that effort,” Peruvian political analyst and economic journalist Paolo Benza told Diálogo.
It didn’t take long for another large-scale operation to join this list. Barely a month later, Peru ceded exclusivity of essential services of the Multipurpose Port of Chancay to COSCO Shipping, the Chinese state-owned company that holds a 60 percent stake in this project. For security and defense expert Evan Ellis, research professor of Latin American studies at the U.S. Army War College Strategic Studies Institute, this case is a clear example of how China “exploits the vulnerabilities of its partners to guarantee its own interests in Latin America,” a situation that was discussed in the first part of this report.
International organizations’ warnings about the risks of these investments are constant. One example is the November 2023 annual report of the U.S.-China Economic and Security Review Commission. The report highlights how the PRC has leveraged its ties with Latin American and Caribbean countries to finance and develop dual-use infrastructure, such as ports and energy networks, which could give the PRC control over important strategic assets or provide a foothold for a future military presence in the region.
Despite the magnitude of these moves, no significant debate has emerged in Peru either in the media or in political, economic, or academic circles. “There is a sepulchral silence in Peruvian society about any criticism of China, and we will see what story to tell in a couple of years,” Juan Pablo Cardenal, former China correspondent for Spanish media and author of the report China in Peru: The Hidden Side of an Asymmetrical Relationship, told Diálogo.
In June, Peru’s President Dina Boluarte met with her counterpart Xi Jinping in Beijing to “strengthen bilateral relations.” “The way Peru has opened its doors to China is unmatched by any other country in the region,” Cardenal added.
But as Peru, the second largest recipient of Chinese investment in the region, continues to open the way for Beijing, experts are urging caution. They warn that the relationship is asymmetrical, and that Chinese investments, far from benefiting Peru equally, reinforce the PRC’s strategic interests. They also warn of the socio-environmental effects that these investments are generating, deepening tensions in the affected local communities. “The risks of Chinese investments for Peru’s security and sovereignty are becoming increasingly evident,” Benza said.
China: Lima’s switch
After a year of intense negotiations, in June 2024, Italian company Enel completed the sale of 83.15 percent of its shares in Enel Distribución Perú S.A.A. and 100 percent of the shares of Enel X Perú S.A.C., which controls electricity distribution in the northern part of Lima. North Lima Power Grid Holding S.A.C., a subsidiary of the Chinese state-owned China Southern Power Grid International (CSGI), made the acquisition for a total value of some $4 billion.
With this transaction, China strengthens its influence in Latin America by consolidating the monopoly of electricity distribution in Lima and 55 percent of electricity distribution assets nationwide, according to official data. In 2020, Luz del Sur, the company responsible for distribution in the southern part of the capital, was also acquired by another Chinese state-owned company, China Three Gorges Corporation.
For Benza, there is no doubt that China is seeking to become Latin America’s “switch,” and is taking advantage of the gaps left by European companies, turning its state-owned companies into “voracious buyers of consolidated assets” to that end. “The space left by European companies has allowed China to change its strategy from government-to-government lending — a tactic that allowed China to increase its influence in the region a decade ago — to direct investments in key sectors, through which it can continue to expand its geopolitical power but with a more secure return,” Benza said.
Peru’s National Society of Industries (SNI) had already expressed concern about the risk associated with this transaction. In an April 11, 2023 statement, SNI warned that, if the sale were approved, Peru would leave in the hands of the PRC 100 percent of the electricity distribution market in Lima.
However, neither the warnings of entities such as the SNI, nor the Merger Control Law (Law No. 31112), which came into force in 2021 to prevent economic concentrations that could reduce or distort competition, managed to prevent the PRC from taking over the entire electricity distribution of Lima.
The National Institute for the Defense of Competition and Protection of Intellectual Property (INDECOPI) approved the transaction, saying that a series of conditions were imposed to avoid unfair competition and protect consumers.
However, experts’ concerns go beyond the financial sphere. Due to the involvement of Chinese state-owned companies, they fear that the deal may be driven by geopolitical rather than commercial interests, which could create several long-term risks. “The entry of Chinese companies into Peru’s energy sector is something that should not have been allowed from the beginning. These are companies that, although they do not operate in a communist economic system in the academic sense of the term, at the end of the day the parent companies and their subsidiaries are aligned — because they are the same — with the strategy of the Chinese Communist Party (CCP),” said Benza.
Light in China’s hands: a latent threat
Energy specialist Will Tobin, deputy director of the Atlantic Council’s Global Energy Center (GEC), warns that one of the main risks of giving the PRC control of the electricity sector lies in data security. “Although Peru has not yet reached a high level of digitization in its energy infrastructure, when it does, Chinese companies will have more tools to gather information and exert greater influence over the country,” Tobin said.
China wants to be Latin America’s switch, and Peru has become the paradigm of that effort.
– Paolo Benza
However, the main risk is the loss of sovereignty, Tobin warns. “Handing over control of a resource as vital as energy to Chinese companies puts decision-makers in a delicate position, forcing them to walk a tightrope when making decisions during times of tension or conflict of interest with Beijing,” Tobin said, adding that “this situation could limit Peru’s autonomy in strategic sectors, subjecting it to external geopolitical pressures.”
A clear example of this dynamic, Benza points out, was the recent legal dispute over the Port of Chancay, suggesting that the PRC’s influence could threaten Peru’s sovereign decisions. “Knowing the practices of the Chinese Communist Party, it would not be unthinkable that, at some point, if Peru were to act against Beijing’s interests, it would face retaliation such as a controlled blackout in Lima,” said Benza said.
China’s interest in power distribution in Peru is coupled with a move into the generation sector. Currently, state-owned China Three Gorges owns Peru’s third largest hydropower plant, Chaglla, as well as other facilities acquired with the purchase of Luz del Sur. The PRC’s ambitions, however, do not stop there. According to Bloomberg, China Three Gorges and Yangtze Power are in advanced talks to acquire Kallpa, the largest power generator in Peru.
This move, according to Benza, exposes China’s strategic plan to vertically integrate the Peruvian energy sector. Such integration would create a scenario in which these state-owned companies would not face adverse constraints, as they would control the entire energy supply chain. “If China takes over the distribution and generation of energy, they could practically say to Peru: ‘I own you’, because a country without energy, without light, simply does not work,” said Benza.
Economic opening, but at what price?
The PRC’s advance in Peru’s electricity sector comes on top of its growing control over the mining sector, the main engine of the Peruvian economy. According to Peru’s Ministry of Energy and Mines (Minem), Chinese companies produce around 25 percent of copper and 100 percent of iron ore, accounting for some 20.8 percent of total investment in mining.
Despite these figures, which show the importance of Chinese investment, experts warn that it has not generated equitable or sustainable development. On the contrary, it has led Peru to dependence on the PRC and has exacerbated social tensions and environmental problems.
The phenomenon is largely explained by the PRC’s insatiable appetite for natural resources and the advantageous conditions that Peru has provided for foreign investment. “There is an almost unanimous belief in Peru that national prosperity and economic development are intimately linked to the opening up of its economy. In this narrative, China plays a central and dominant role,” Cardenal said.
With the PRC as the largest copper consumer, absorbing about 50 percent of world demand, and Peru as the second largest producer, Chinese companies, backed by the state, saw the country as fertile ground on which to consolidate their influence. “Unlike other companies, the objective of Chinese companies is not an immediate return, but the fulfilment of strategic goals, which allows them to act more aggressively in politically unstable countries like Peru,” Tobin said.
The Free Trade Agreement (FTA), signed in 2009, intensified this trade relationship. Peru’s exports to the PRC increased from $5.5 billion in 2010 to $23 billion, according to data from the Peruvian Foreign Trade Society (ComexPeru). Although from a macroeconomic perspective these figures could represent a success in bilateral relations, and have been celebrated by both governments, the truth is that behind them lies a more revealing scenario.
According to ComexPerú, 87 percent of Peru’s exports to the PRC are concentrated in the mining sector, mainly iron ore and copper. In contrast, non-traditional sectors, such as textiles and agriculture, account for less than 5 percent and have declined. A trend that is even more alarming when compared to exports to the United States and the European Union, where value-added products, key to economic development, make up 50 and 56 percent, respectively. Experts see this as evidence of an asymmetrical relationship. “China takes what it wants, the minerals, while Peru fails to expand its export basket,” Cardenal said.
Even more worrying is that 70 percent of Peru’s copper exports go to China, followed by Japan and the United States, which export 5 percent and 3 percent respectively. This trade concentration has generated a dangerous dependency. “If China decided to stop buying, there would be no other market capable of supplying that demand, which gives China immense power over Peru,” Benza said.
Knowing the practices of the Chinese Communist Party, it would not be unthinkable that, at some point, if Peru were to act against Beijing’s interests, it would face retaliation such as a controlled blackout in Lima.
– Paolo Benza
To which Cardenal added, “what capacity does Peru have to be able to pressure China not to punish it with non-tariff barriers, which is what China tends to do when it is displeased with something?”
In addition to the economic risks, the socio-environmental impact of Chinese investments is alarming. Investments in the mining sector exceed $11.3 billion, and according to data from ComexPeru, 65.9 percent of the socio-environmental conflicts recorded until January 2022 are linked to mining. “Although these projects are presented as drivers of development, they have generated serious tensions with local communities and serious consequences for the environment,” Cardenal said.
A key part of the problem lies in the absence of environmental safeguards in the FTA with the PRC. Unlike the trade agreements Peru has signed with the United States, the European Union, or Canada, the treaty with China does not include “green sections” that guarantee respect for environmental protection standards or labor rights. “The lack of clear regulations leaves local communities at a disadvantage, as Chinese companies often operate without adequate control by the Peruvian state,” Cardenal said. He also stressed that these companies’ human rights and environmental violations “are a recurrent problem throughout Latin America.”
Las Bambas: the hidden side of Chinese mining
Las Bambas, located in the Andean region of Apurímac, is one of the world’s largest copper mines and the largest Chinese investment in mining outside its borders. The project, operated by MMG Limited, 62.5 percent owned by state-owned China Minmetals Corporation, has received around $10 billion in investment since its inception.
To date, it has produced more than 2 million tons of copper, which represents about 2 percent of Peru’s Gross Domestic Product (GDP). Despite these figures, what was initially projected as a pillar for the country’s economic and social development has ended up becoming a paradigmatic example of the social and environmental conflicts surrounding Chinese investments in the Andean country.
In August 2022, the Ombudsman’s Office reported 209 active social conflicts in the country, of which 12 were directly related to Las Bambas. “The communities feel that they are being harmed by MMG, while the Peruvian state does not intervene,” Cardenal said.
One of the main focuses of the conflict was MMG’s decision to transport the ore by road, following the purchase of the mine in 2014, instead of building the originally planned pipeline. This transformed the communal roads into a national route, which increased pollution and severely affected the health of local communities and biodiversity in the area. According to a Dialogue Earth investigation, the situation was exacerbated because the change in transport strategy was approved through a Technical Sustainability Report (ITS), a quicker legal mechanism that avoided the citizen consultation required by an Environmental Impact Assessment (EIA). This generated indignation among the inhabitants, who felt excluded from decisions that impact their environment.
This conflict is compounded by allegations of irregularities in the contracts between MMG and the local communities. Activists claim that the company has exploited the ignorance and economic precariousness of the communities when negotiating agreements for the purchase or use of land in a region where 29 percent of the population is illiterate, according to Dialogue Earth.
Another recurrent criticism is the project’s lack of fiscal contribution and little development for the benefit of local communities. Although MMG was exempt from paying income tax for the first five years of operation, research shows that in October 2023 the company had a tax debt of $1.6 billion. “The impact at the local level is enormous, as Las Bambas is the largest copper deposit in the country, and the region depends on that income to sustain its economy,” Cardenal said.
The sum of these conflicts has led to ongoing social unrest that has resulted in numerous protests. Since 2016, Las Bambas has shut down production for nearly 400 days due to blockades and demonstrations. Protests, which have sometimes turned violent, seem to be the only way for local communities to be heard. “Activists complain that in the face of a government that refuses to consider the risks of these investments, protests are the only way out,” Cardenal concluded.
Part III
The situation at Las Bambas mirrors a recurring pattern at other Chinese-controlled mines in Peru, such as Shougang Hierro Peru in Marcona, Rio Blanco, owned by Zijin Mining Group, and Toromocho, managed by Chinalco Peru. Despite the serious conflicts surrounding these projects and how the PRC has been taking over strategic infrastructure in the Andean country, a disturbing silence prevails in Peru. The reason? Research indicates that China exerts a strong influence on the media, employing censorship mechanisms to silence any publication that might damage its image. On top of this, corruption has plagued several Chinese companies in the country, the infamous “Tarot Club” being an emblematic example. These and other revelations will be detailed in the third and final part of this report.
