China is reshaping global economic dynamics by deepening its financial ties in Latin America. Its approach blends yuan-denominated loans, opaque business investments, and a deliberate strategy to reduce reliance on the U.S. dollar, which could significantly alter the international financial system. However, this expansion is sparking controversy and raising concerns in countries across the region.
Many Latin American nations are engaging with significant financial offers from Beijing. For instance, Chinese Communist Party (CCP) General Secretary Xi Jinping recently pledged a $9.2 billion credit line designated for regional development, primarily within the framework of the Community of Latin American and Caribbean States (CELAC). While this financial package is intended to support the region, its conditions are defined exclusively by Beijing and the lack of transparency in these agreements raises serious questions about their long-term impact on recipient countries.
“This direct financing is less visible than loans to governments,” Paola Garzón, director of nongovernmental organization América Sustentable, told Ecuadorian media outlet Primicias. “It’s not that [its influence] has disappeared, but that it is less visible.”
Rather than primarily offering traditional state loans, China increasingly channels investments through companies, often via public-private partnerships and contracts that are difficult to trace. In addition, as part of a broader cooperation plan unveiled at the Fourth Ministerial Meeting of the China-CELAC Forum in Beijing on May 13, the CCP announced its intention to invite 300 representatives from political parties of CELAC member states annually for the next three years to observe its Chinese-style “governance” model, according to several reports.
The risk of opaque contracts
This transformation in China’s financing strategy not only changes how investments are made but raises concerns about their implications. “The danger is that these types of contracts can give the false impression that operations are governed by free market rules and the rule of law,” Evan Ellis, research professor of Latin American Studies at the U.S. Army War College Strategic Studies Institute, told Diálogo. “Clauses and conditions that undermine the principles of good governance, transparency, and institutional control can be included in the contracts themselves.”
A particularly notable aspect of these new financial arrangements is the use of Chinese yuan instead of U.S. dollars for loans and transactions. While this move supports China’s goal of internationalizing its currency, its viability in the region faces challenges. “Control over who buys or uses the yuan remains a challenge,” Argentine news site Infobae reported, questioning how much dollar-denominated financing China would continue to channel into the region and under what terms.
De-dollarization efforts and their limits
China is actively working to expand the yuan’s use in Latin America, notably by developing cross-border payment networks using the digital yuan. This initiative aims to de-dollarize international trade. However, the strategy has limits: Most countries in the region still prefer to hold and transact in other currencies, particularly the U.S. dollar, rather than the yuan.
“As the presence of these companies consolidates in Latin America, whether through new projects, mergers, or acquisitions, this problematic dynamic will also intensify,” Ellis said. “This is not just about individual companies, but the integration of more sophisticated financial vehicles: Chinese banks, bilateral transactions in local currency, and new financial mechanisms that operate outside the U.S. dollar system.”
An unpredictable model
Despite the inherent risks, many Latin American countries continue to view China as a viable partner to address their investment needs. Yet, the persistent lack of transparency in these agreements remains a significant obstacle. “This is not just about loans from Chinese banks. We are facing a complex network that combines opaque contracts, accounting manipulation, money laundering, and abusive practices against local partners,” Ellis said. “The structural lack of transparency in China’s financial system represents a systemic challenge for the region. So the problem is not cooperation itself, but the lack of clear conditions, independent evaluations, and citizen oversight mechanisms.”
Economist Henry Tugendhat of the U.S. Institute of Peace, writing in Foreign Policy, similarly cautioned that using debt to promote the yuan has its limits. “Several Latin American countries are already at risk of defaulting on their debts for the first time in decades,” he said. “The interest [of these countries] in obtaining Chinese loans to purchase more Chinese goods and services is undoubtedly limited.”
China’s financial chess game in Latin America continues to unfold with calculated moves that could reshape the region’s economic future. However, the full economic and political cost of this strategy, are still far from clear.
