Procurement: Latin America Orders Chinese

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March 3, 2015: China is making a major effort to become the largest exporter to Latin America (South America and the Caribbean). One of the major offerings is not cheap consumer goods but military equipment. This stuff is not only cheaper than anything the Americans have but is also sold without any restrictions. Over the last few decades the United States has added a growing list of conditions to its military exports. All these are directed at withholding weapons from any nation who that does not meet current American standards for political correctness. China has long ignored that sort of thing sold to anyone (openly or clandestinely) to anyone who could pay. China also realizes (as do most South American military leaders) that these countries do not need the best (as in American) weapons just something as good as or a little better than what their neighbors have.

China is so eager to get into and dominate the Latin American market that it is willing to ignore the credit worthiness problems. Thus China has offered Argentina armored vehicles, warplanes and warships on easy terms. China also wants to open factories in Argentina to produce Chinese military equipment. All this in a country that, over the last few decades, has stumbled from one fiscal crises to another and is now a pariah to most foreign investors. But China sees a long term opportunity and wants to sustain spectacular growth in trade with Latin America. This grew from $18 billion a year in 2002 to nearly $300 billion now. That is still a third of the trade the United States does with Latin America but it is still impressive growth. It will take deals like the one with Argentina to keep the growth going.

China isn’t going blind into Argentina. Back in 2011 China licensed an Argentinian firm to build military versions (CZ-11Ws) of the Chinese Z-11 helicopter. Despite a Western arms embargo, China was able to buy Honeywell LTS101-700D-2 engines for its Z-11 light helicopter. Normally, American military grade equipment cannot be sold to China, but the Z-11 is considered a civilian helicopter. This despite the fact that there is a military version, which is armed with four anti-tank missiles, two 12.7mm machine-guns or four rocket launchers. The 2.2 ton Z-11 can carry up to six people, cruises at 259 kilometers an hour and has an endurance of 4-5 hours. There was no such embargo on Argentina, so they will be able to buy American equipment for their Chinese designed helicopter gunships. However, because of the way American export laws work, these Argentinian gunships could not be sold back to China. Argentina planned to build about 40 CZ-11Ws. That deal was eventually cancelled, in part because the Americans would not play along and China got tied up in the Argentinian bureaucracy. China did not consider all that a failure but rather a learning experience and are proceeding more confidently into the new deal. 

Before the 2011 Chinese helicopter deal Argentina sought, for the first time, to buy Russian military equipment in the form of two Mi-17 helicopters. The main reason for this 2010 move was price. American or European helicopters would cost more than twice as much. Russia also offers lower rates for training pilots and mechanics. Russia is keen on establishing good relations with new South American customers, and has been increasingly successful selling weapons in this region during the last two decades. This deal fell apart because the Russians were put off by the fiscal anarchy rampant in Argentina and the poor prospects of ever getting paid.

 

 


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