Chile deepens economic ties with China amid growing dependency concerns

Straits Times

5 days ago

China's President Xi Jinping and Chile's President Gabriel Boric at the opening ceremony of the China-Celac Forum ministerial meeting in Beijing on May 13. PHOTO: REUTERS
– In the northern Chilean port city of Mejillones, customers of the country's largest electrical utility by clientele, Compania General de Electricidad (CGE), are concerned that they are being left in the dark.
Frustrated with the frequent power cuts in the region, a small group of protesters took to the streets on June 10 and blocked traffic, to demand an end to the blackouts.
CGE, which is controlled by China's state-owned State Grid Corp – the world's largest utility company – has said it has taken 'various measures' to fix the problems and they 'deeply regret the inconvenience caused'.
In 2021 , State Grid carried out a US$3 billion (S$3.8 billion) takeover of CGE.
The June blackout, which CGE attributed to external factors, was the latest in a series of disruptions to Chile's electrical grid, which is now more than 57 per cent controlled by Chinese state-owned companies, including China Southern Power Grid.
Chile's blackouts are not solely linked to Chinese-owned firms – a power outage that affected 90 per cent of the population in February was attributed to a Colombian electricity distributor. But experts say they reflect China's deepening influence in critical infrastructure in Chile at a time when the two countries are becoming more interconnected economically.
Chinese energy companies have boosted their presence in Latin America in the past few years, with investments particularly in logistics and telecommunications. China's rising influence throughout the region has raised concerns in the United States, which traditionally has the most commercial influence over Latin America and access to its natural resources.
Chile was the first Latin American country to sign a free trade agreement with China, now its top trade partner, in 2005. Since 2015, Chile's exports to China have increased about 130 per cent from around US$16 billion to US$37 billion in 2024, according to Marca Chile, the country's promotional agency.
That constituted about 40 per cent of Chile's total exports in 2024, more than double those to its next-biggest export partner, the US, with 16 per cent (US$15.3 billion), according to the United Nations' Comtrade database on international trade.
Chile has also seen a sharp increase in foreign direct investment from China in its power grid under the latter's flagship Belt and Road Initiative.
In 2016, the country's economic development agency, InvestChile, had US$310 million worth of Chinese investment in its portfolio. In 2024, that value reached nearly US$4 billion.
As China reaches out, Trump adopts a more assertive approach
During the China-Celac (Community of Latin American and Caribbean States) Forum ministerial meeting held in Beijing in May, Chinese President Xi Jinping told Chilean President Gabriel Boric that the two countries should create a model of common development between China and Latin American countries and set a stellar example of South-South cooperation.
Within the framework of the China-Celac Forum, China and Chile signed three new trade deals , which will expand Chile's agricultural exports such as poultry, wool and leather to China – further entrenching China as Chile's biggest trading partner.
At the same time, Chile's relationship with the US is becoming more complicated in the wake of the Trump administration's chaotic tariffs. In February, US President Donald Trump threatened to increase tariffs on copper, one of Chile's biggest exports. Much of the refined metal being sent to the US is coming from giant mines in Latin America, specifically Chile and Peru.
Complicating matters further for Chile is big-power contestation: The US and China have butted heads recently over development projects in Chile, including a planned space observatory in the Atacama Desert and a transpacific fibre-optic cable.
'Chile faces growing pressure to choose between technological ecosystems, with projects like digital infrastructure becoming focal points of geopolitical competition,' political science associate professor Francisco Urdinez, who researches China's use of economic diplomacy at the Pontifical Catholic University of Chile, told The Straits Times.
Still, Prof Urdinez noted that Chile has been successful so far at balancing the two superpowers. 'Unlike some other Latin American countries that experienced complete economic displacement, Chile appears to have significantly increased China's economic weight without diminishing US influence,' he said.
Bolivia's leftist government, for instance, fell out of favour with the US, and has become increasingly dependent on Chinese investment and trade as its economy falters.
However, the balancing act is 'becoming increasingly challenging, as evidenced by Chilean President Gabriel Boric's 2023 statement that he had been privately pressured to support one of the two powers', said Prof Urdinez.
Both Prof Urdinez and Assistant Professor Andres Borquez, Asian studies coordinator at the University of Chile, agreed that some of the pressure of being wedged between the US and China could be eased by diversifying Chile's trade partnerships even further. This would also help Chile reduce its growing dependence on China.
Indeed, Chile has signed 25 trade agreements and belongs to a number of trade groups, including the Asia-Pacific Economic Cooperation, the Southern Common Market, the Pacific Alliance and the World Trade Organisation.
Time to consider India and South-east Asia
Prof Urdinez suggested that Chile should pursue 'strategic equilibrium in its external economic relations' by diversifying its trade relationships, particularly looking to India and South-east Asian countries like Vietnam, which is Chile's largest trading partner in Asean.
Given China's vast trade potential compared with other Asian countries, Prof Urdinez suggested that Chile diversify its trade matrix towards Asian countries with large domestic markets such as Indonesia and Thailand to 'absorb some of the products currently going primarily to China'.
'This approach would gradually reduce Chile's dependence on China while maintaining access to the benefits of the relationship, ultimately providing more space for the country to defend its interests when necessary,' he said.
'If China... sneezes, it affects us,' Prof Borquez told ST, adding: 'I would say that Chile's main issue with China is trade dependence.'
Chile lacks leverage to demand things from China
In 2021, State Grid Corp carried out a US$3 billion (S$3.8 billion) takeover of Compania General de Electricidad.
PHOTO: CGE
Questions were already raised about State Grid's takeover of CGE following prolonged power cuts in August 2024, which left hundreds of thousands of Chileans in the dark for hours.
In February, it was reported that Italy's Enel – another major player in Chile's energy sector – and CGE settled drastically different compensation sums for customers who lost food and appliances in daily disruptions because of energy fluctuations.
While Enel Distribucion reportedly agreed to pay US$17.9 million to its 801,141 affected households, CGE pledged to pay just US$8.4 million to 881,965 households, according to America Economia, one of Latin America's leading business magazines.
The Italian government holds a majority stake in Enel.
Some experts perceive this disparity as an example of Chile's failure to go after companies linked to China.
'The Chilean state, not being particularly influential on the global scale, doesn't have much leverage to demand things from China,' Chilean economist Andres Irarrazaval, who is a lecturer at the London School of Economics, told ST.
'There is kind of a reluctance to push too much on Chinese companies because of the dependence. This is particularly true for Chinese companies which are very much embedded with the Chinese government,' he said.
Are copper and lithium Chile's bargaining chips or double-edged swords?
A truck being loaded with concentrated brine at SQM lithium mine at the Atacama salt flat in Chile's Antofagasta region.
PHOTO: REUTERS
Unlike other developing Latin American countries, however, Chile does have a bargaining chip in its relationship with China.
Both Prof Urdinez and Prof Borquez point to Chile's vast lithium and copper reserves as means of leverage with China.
'To a certain extent, it's an interdependence because those (companies in China)... need the resources we're selling to them,' said Prof Borquez, noting that lithium is needed for electric vehicles and copper for China's manufacturing and construction sectors.
Chile is the world's top exporter of copper and the second-largest lithium producer after Australia.
As competition hots up for the raw materials that propel artificial intelligence development and pressure mounts for countries to make the transition to sustainable energy, Chile's position will make it a 'focal point in the broader US-China technological competition', said Prof Urdinez.
However, even with current copper shortages driving up prices, Chile could miss out on playing a strong hand with other copper-importing countries.
Prof Urdinez pointed to the high concentration of the country's exports in strategic sectors such as copper and lithium, which could limit 'Chile's room for manoeuvre when political tensions arise'.
For instance, if the US sanctions countries that sell minerals to non-Western nations, Chile's copper trade with China could be severely curtailed, he warned.
Rebecca Johns is a reporter at Latin America Reports, which has a focus on Chilean affairs. Her journalistic work has been featured in The Edinburgh Inquirer and The Latin Times (from the International Business Times), among others.
Jim Glade is the managing editor at Latin America Reports, an English-language digital news publication that covers Latin America and contextualises the region's role in global affairs. He is based in Colombia and his reporting has been featured in Rolling Stone, The Atlantic, Al Jazeera, The Independent and The Bogota Post, among others.
Join ST's Telegram channel and get the latest breaking news delivered to you.