The China Boom in Latin America: An End to Austerity

How does a shifting economic power balance between the United States and China affect the strategic choices of Latin American governments? During the last several decades, Latin America has often relied on a Western development model that aimed to attract global market capital. After excessive borrowing led to financial busts, however, many countries have sought to insulate themselves from market volatility. Rising terms of trade and a commodity boom, driven in part by China, helped buttress economic growth during much of the 2000s. But, what accounts for the growing variation in national policy approaches, ranging from ongoing market orthodoxy to heavy government intervention? I argue that governments that tap new Chinese income streams – both non-conditional lending and taxable commodity flows – have reduced their reliance on conditionality-linked Western financing, giving them more autonomy to use budget deficits to intervene in their economies. Employing a systematic comparative analysis of three Latin American countries – Argentina, Brazil, and Venezuela – I find that Chinese non-conditional funding endows governments with greater budgetary discretion, making austerity less likely. These findings offer important new insights for the study of globalization, the Latin American left, and China-Latin American relations, by helping explain the structural conditions that enable nations to veer from Western governance models.