Lithium, Soybeans and currency swap: Milei has a problem with China

The libertarian economist insulted the communist country during an aggressive electoral campaign, but he will assume the presidency needing America’s second largest trading partner more than ever. Argentina As a recession approaches and foreign exchange reserves of the country are ending.

Since winning the election on Nov. 19, Milei’s team has taken a more diplomatic tone, illustrating complex ties with China, Argentina’s top importer of soybeans and beef, a key investor in lithium and the provider of a swap ‘ of coins for US$ 18,000 million that has allowed the South American country not to default.

Miguel Schiariti, the president of the meat industry chamber CICCRA, is hopeful for a relationship “cordial” between the countries, referencing recent comments by incoming Foreign Minister Diana Mondino. China buys more than three-quarters of Argentine beef exports.

Mondino told Reuters in an interview on December 2 that the new government would review agreements “secrets” between the states, but emphasized that Argentina would not break relations with China, and that in fact it would seek to promote private commercial exchange.

“The private sector is the one that does business”he said, adding that Argentina wants “export as much as possible to everyone”. The new government will be eager to transform deficit trade balances, he said, including the one with China, which was negative by about $10 billion last year.

Projects will be reviewed

Not everyone is convinced that things will be so easy, with sensitive hydroelectric and nuclear mega-projects that require solid relations between states.

In the southern province of Santa Cruz, Chinese turbines are expected to arrive early next year for a hydroelectric dam project, which according to outgoing Peronist governor Alicia Kirchner could be delayed by the change in government.

“This project with Milei is at risk,” Kirchner said in an interview in October, referring to the then-presidential candidate’s public criticism during his campaign.

“We cannot be an island, as Milei has said,” Kirchner said.

Milei did not specifically talk about dams during his campaign.

China is financing about a dozen infrastructure projects in Argentina, according to official data, ranging from railways and solar farms to space stations and fertilizer facilities. It also has a dozen investments in mining, especially the metal for electric car batteries, lithium.

Some projects are already experiencing significant delays or are “paralyzed”, said Patricio Giusto, director of the Buenos Aires-based Sino-Argentine observatory, due to mismanagement, regulatory obstacles and domestic economic problems.

This could worsen if diplomatic relations are strained, he said. Cross-cancellation clauses in some contracts could allow Beijing to stop lending to projects if one is cancelled, he added.

“If Milei tries to cancel a project, China can ask to return the money,” Giusto pointed out.. “That is money that Argentina does not have”

Construction of the two hydroelectric plants in Santa Cruz, China’s largest investment in Argentina financed by the China Development Bank, began in 2015 but is less than half complete, two provincial sources close to the construction work said.

Chinese investors would probably be practical, a senior diplomat said in Buenos Aires. “There will not be a confrontation with Argentina, but projects will be reviewed.”

The Chinese embassy in Buenos Aires did not immediately respond to a request for comment.

Other problems to solve first

China is also a key importer of soybeans and other grains from Argentina, taking more than 93% of the country’s oilseed exports so far this year, according to official data. In the case of barley and sorghum, that figure amounts to practically 100% of shipments.

In total, about 10% of Argentina’s exports are destined for the Chinese market, while more than a quarter of its imports come from the Asian giant.

“We believe that the Foreign Ministry is going to maintain relations and negotiations with China,” said Gustavo Idígoras, president of the CIARA-CEC chamber of grain exporters and processors, which represents key agro-exporting companies such as Bunge and Cargill.

Meanwhile, Chinese companies Gangfeng Lithium, Tsingshan Holding Group and Zijin Mining have significant investments in the lithium industry in Argentina, the fourth largest producer of the metal known as “White gold”.

In China, experts foresee a probable pragmatic relationship.

“Milei will look at the political relationship with China in economic terms. At the end of the day, he is an economist,” said Hu Yukun, a Beijing-based Chinese international relations analyst.

Yukun believes Milei would at most degrade the relationship, but, like previous governments, would treat China as a crutch for the country’s economic woes, highlighting the currency swap, which gave Argentina funds used to pay debt with he International Monetary Fund (IMF).

The swap, of which around US$11.5 billion has already been activated, could enter the Milei government’s sights, said a source from the Argentine central bank.

“It is an issue now for the next administration. The exchange was useful for the current Government because it avoided a ‘default’ of payments with the IMF”said the source.

Milei’s newly appointed economic team has not commented on the swap, but has already had meetings with the IMF that Milei described as “collaborative”.

The swap “could (be affected) by what he has said about not having relations with China at the state level,” the source said. “But in recent weeks his speech has moderated and he has many other problems to solve first.”