beyondbrics

Being a commodity-hungry emerging power with plenty of cash can be a frustrating occupation sometimes. The goods are out there, the price is right, but getting hold of the stuff (be it oil, copper, wheat…) can be a drag. That’s why China has been building railways in Africa since the 1970s. Now it’s decided to do the same in Latin America.

Cristina Fernández, the Argentine president, was hoping to secure a breakthrough on China’s ban on Argentine soya oil imports during her trip to Beijing this week. Instead she sealed a $10bn train deal, the latest step in intensifying trade ties between the two nations.

Argentina used to have an enviable, largely British-built rail system (one curious reminder is that trains still “drive” on the left) which helped the country shift agricultural produce as it became an emerging economic power in the late 19th century. The network was privatised in the late 1940s and then largely dismantled during the country’s privatisations wave in the 1990s. Today the network is piecemeal and the rolling stock dilapidated. Rising road haulage costs, the soaring cost of air freight and the flat rolling pampas that are idea train terrain make rebuilding the rail network a smart bet.

Under the Beijing deal, the China Development Bank will put up 85 per cent of the cost of repairing two branch lines, while Argentina will fund the rest. Part of the money is to be spent on rehabilitating the Belgrano Cargas line which runs through Argentina’s agricultural heartlands and thus would make it easier for China to get Argentine produce to port. The deal also envisages a metro system for the country’s second biggest city, Córdoba. This Reuters story has more details.

But this is not the first time Ms Fernández has, with much fanfare, announced a major railway deal. In 2008, Argentina signed a contract with a consortium led by Alstom of France to build the first high-speed train in the Americas, linking Buenos Aires with the grains hub Rosario and Córdoba in nearly a fifth of the current journey time. Eight double-decker trains were to travel at 200 mph; investment was to be $3.7bn; Argentina was to have issued 30-year debt to help pay for it. Ms Fernández called the train project “a leap into modernity”.

The only thing is, the leap never happened. The project, planned since 2006, was buried by opposition to its cost and financing problems. Another plan, to build a high-speed link to the seaside resort of Mar del Plata was also relegated. Meanwhile, the government was accused of frittering away money on yuppie projects rather than improving basic services in a country where passengers on some lines travel crammed like cattle in ageing wagons. (A note to tourists however: the Chinese deal also envisages improvements to Buenos Aires’ primitive metro network – so visitors should rush to ride the picturesque old wooden wagons on the A line before a little piece of history disappears.)

Argentina, meanwhile, hopes the end is in sight to the soya oil dispute. It had been expecting to export 2m to 2.5m tonnes of soya oil to China this year, worth some $1.7bn (of which $600m would go straight into government coffers because of high export tariffs).  But China halted imports from its principal soya oil supplier on the grounds that Argentine oil does not meet quality standards. The real motivation, many analysts believe, was Argentine anti-dumping measures against a range of Chinese manufacturing goods, including textiles.

Argentina is confident it will get the ban lifted. “This is going to be resolved  because they need it,” says César Mayoral, Argentina’s ambassador to China.

China is a major customer of Argentine commodities to feed its industrial boom, and has been mooted as a possible buyer of BP’s 60 per cent stake in Pan American Energy, Argentina’s second biggest oil producer and its biggest oil exporter last year (BP, struggling with the Gulf of Mexico spill, is reportedly seeking a buyer for the stake).

In a deal earlier this year, China’s state-owned energy company, CNOOC, agreed to take a 50 per cent in Bridas, the private company which owned the remainder of Pan American, in a $3.1bn deal which it described as a “beachhead” to enter Latin America.

Deloitte & Touche, the consultancy, says Chinese trade in South America added up to $140bn in 2008 and Beijing wants to double that by the end of this year. It has invested $6bn in South America in the last five years, 45 per cent of that in Argentina including the Bridas deal.

“Argentina is definitely positioning itself as a strategic partner for China with mining, energy and petrol, agriculture and food and the car sector the main areas of interest,” Deloitte said in a recent report.

Trains could be next on the list. Who knows, maybe they’ll even be full of soya oil.

Related reading:
Argentina and China to sign $10bn of deals, FT