Argentina’s Financial Crisis Creates an Opportunity for China

Set on a remote steppe in Patagonia, where the winds howl and guanacos bound through the brush, the twin dams on the Santa Cruz River are in the early stages of construction, but they’re already relics of a bygone era. The $4.1 billion concrete mammoths are Argentina’s first major hydroelectric project in a quarter-century. Harnessing rivers to generate power has become passé in an age when wind and solar are ascendant, and natural gas is plentiful and cheap in many parts of the world.

There’s a one-word answer to why the South American nation is bucking the trend: China. Argentina is in the grips of a financial crisis that has all but locked it out of credit markets and paralyzed investment. President Mauricio Macri, who at one point seemed about to pull the plug on the Chinese-financed power plants, has little choice but to allow construction to go forward while he campaigns for reelection in October. “Macri staked his presidency on the arrival of investments, but he’s ended up fighting one economic fire after another,” says Francisco Urdinez, an assistant professor at the Pontifical Catholic University of Chile who specializes in Sino-Latin American relations. “Any sort of project that can go ahead is therefore very important for him, and that’s what China is providing.”

Macri took office in December 2015, vowing to reverse many of the economic policies of his populist predecessor, Cristina Fernández de Kirchner. His administration cozied up to President Trump and made tentative moves to distance itself from China. Under Fernández de Kirchner’s eight-year tenure, Chinese companies committed to investing billions of dollars in infrastructure. Exports of Argentine soybeans to China soared, though imports from the Asian giant grew even faster.

In 2013 a consortium led by Gezhouba Group, a state-owned Chinese company, was awarded a contract for a pair of power plants with a combined generating capacity of 1.3 gigawatts, following a competitive tender. One of the dams was to be named after the then-president’s late husband, Néstor Kirchner, a former governor of Santa Cruz province, where the project is located.

When Macri moved into the presidential palace he instructed his advisers to review the contract and dispatched a delegation to Beijing to scrutinize the terms of the credit line, which critics of the project claimed were opaque. Meanwhile, his government set lofty targets for renewables and solicited bids for wind and solar farms. He also sought to lure foreign energy companies to develop Vaca Muerta, the world’s second-biggest shale gas deposit.

But Macri’s efforts to rehabilitate Argentina’s reputation with investors, which had been shredded by the country’s debt default in 2001 and years of acrimonious wrangling with bondholders, ran aground last year. Concerns about his administration’s inability to tame inflation and shrink persistent budget deficits triggered a sell-off in Argentine assets that started in April 2018 and continued for several months. The peso lost half its value against the dollar, earning the title of 2018’s worst-performing currency. The International Monetary Fund stepped in with a record $56 billion credit line to avert an implosion.

China also helped, bolstering an existing currency-swap agreement that allows Argentina’s central bank to tap yuan to boost reserves. At the Group of 20 summit in Buenos Aires in December, Macri and Chinese President Xi Jinping committed to strengthening ties between the two countries in areas such as trade, investment, and infrastructure.


China has been expanding its footprint in Latin America, partly under the aegis of the “Belt and Road” initiative, a high-priority project of Xi’s that seeks to bolster the country’s influence around the globe. According to Urdinez, China’s funding of energy projects in Latin America is six times higher than the World Bank’s. This decade, state-owned Chinese companies have built and acquired hydroelectric dams in Ecuador and Peru. Back in Argentina, China National Nuclear Corp. is in negotiations to build an $8 billion nuclear plant. “Argentina has a real lack of financing options, but it needs more power, so it’s particularly vulnerable to China,” says James Ellis, head of Latin America research at BloombergNEF.

Major hydroelectric projects such as the one Gezhouba is overseeing in Patagonia often incite opposition from environmentalists and surrounding communities. Plans for Condor Cliff and La Barrancosa, which are set to be completed in 2023, had to be scaled back because of concerns about their impact on glaciers upriver, including Perito Moreno, a tourist magnet. Gezhouba played a role in erecting China’s Three Gorges Dam on the Yangtze River, which displaced more than 1 million people.

While hydropower remains the most prevalent kind of renewable energy around the globe, it’s been losing favor to other types. Figures compiled by the Paris-based International Energy Agency show hydro’s rate of generation growth was just 0.5% in 2017, compared with 40% for solar and 32% for offshore wind.

Fernando Zárate, an official in Santa Cruz in charge of supervising construction of the dams, is content to have his state swim against the tide to meet Argentina’s energy needs. “We can’t leave the people unsatisfied,” he says.