Costa Rica switched diplomatic relations from Taiwan to Mainland China earlier this month, citing economic reasons as the deciding factor. Costa Rica’s realignment is a small example of how Chinese "checkbook diplomacy" is reshaping Latin American politics. By financing multi-billion dollar infrastructure and public works projects in Latin America, China is receiving contracts for raw materials and foodstuffs that will feed the appetite of its ever expanding economy. On his 2005 tour, President Hu Jintao spoke of a US$100 billion investment in South American infrastructure over the next ten years. Clearly, China is laying the path for a long-lasting presence in the region.

Frustrated by the Bush Administration’s disinterest in Latin America after the September 11^th attacks, Latin America is increasingly turning to China as a major partner in economic development. The region’s poverty and inequality have not been mitigated by American aid nor by economic programmes suggested by international financial institutions, and many Latin American leaders are hopeful that Chinese investment could provide a more positive outcome.

The economic implications of China’s growing presence will be ambiguous, given the large differences that exist between the national economies of Latin America. South American countries rich in natural resources, for instance, will likely see their economies buoyed by China’s insatiable demand for commodities. For Central American countries, however, China is a major, if not unwelcome competitor. Mexican exports of manufactured goods to the US have steadily been losing market share to China, and Caribbean exporters have also felt the sting of Chinese competition.

China tends to downplay the political impact of its multibillion dollar economic partnership with Latin American countries, but increasing ties between Latin America and China will have implications both for Latin American domestic politics and international relations.

For example, Chinese hunger for sources of fuel has led the government to forge a close relationship with Hugo Chavez of Venezuela. Chavez, an ardent opponent of the United States, has consolidated political power, undermining Venezuelan political institutions. Last year, China showed its support for Chavez by backing Venezuela’s bid to serve on the UN’s 15-member Security Council, ignoring the US’s support for Guatemala.

Still, it is unlikely that China’s foreign policy aims in Latin America will be overly aggressive. China has described its investment in the region as "strictly business", and wants to avoid a political conflagration with the US, its largest trading partner. Its level of investment in the region, however, will continue to increase steadily over the next decade.

Read about China’s growing involvement as an investor and aid actor in Africa here: