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China Goes after South America’s New Treasure: Lithium PART II

With a triple action of state investment, diplomacy, and geostrategic corruption, China is leading the race for lithium. This situation was discussed in the first part of this report, exposing the tactics of the People’s Republic of China (PRC) to conquer the Andean countries rich in this metal. But what is a gain for China is a loss for Latin America. Experts and analysts are alarmed by the socio-environmental impact of Chinese investments in the exploration and exploitation of lithium and fear a dependence on the Asian country to obtain this mineral, indispensable for the modern world and the energy transition.

Advantages for China, disadvantages for the region

Part of the attraction of partnering with Beijing, in the opinion of experts, is the very nature of Chinese agreements. The PRC has demonstrated that, when partnering with countries of the region, they will find fewer demands on environmental, economic, and political conditions than those de rigueur in Western investor contracts. “Governments know that Chinese companies will not bring the same quality that U.S. or European companies can offer, but they also know that they will bring fewer headaches, fewer environmental, and human rights lessons,” Ryan C. Berg, director of the Americas Program at the Center for Strategic and International Studies (CSIS), told Diálogo.

Added to this is China’s ability to disburse money faster, which also ends up being a major attraction and deciding factor in defining partnerships. “Above all regional governments value the speed with which Chinese companies are able to disburse money for the execution of projects,” Berg added.

Chinese advantages that seem unbeatable have become, at the same time, the greatest disadvantages for the countries of the region, in this case the Lithium Triangle. China’s capacity to obtain lithium in Argentina, Bolivia, and Chile give rise to a series of concerns regarding the environment, labor rights, and the rights of the affected communities.

Experts are especially concerned about environmental issues because they consider that China’s perception of environmental care is different from the Western concept, and they point out the extent to which ecological transformations in China are affecting landscapes in other places without any qualms. According to Pablo Ampuero Ruiz, researcher at the Social Science Research Institute of the University of Amsterdam and author of Worlds of Lithium, “the ideological political context of the PRC is based on an understanding of ecology that is economically productive, so there is not necessarily a contradiction in building an ecological civilization through the expansion of extractive activities, be they lithium, cobalt, graphite, or copper […] with a questionable environmental impact.”

On their land, Chinese mining companies have few environmental restrictions, and this is transferred to the countries of the region. This situation is especially worrisome because there is no State presence where these foreign extractions are carried out, resulting in lack of accountability. “Chinese companies especially operate in places where there is a low institutional framework in the global south, extractive projects such as lithium tend to be in very remote areas where the State has no access, so it is not only the absence of checks and balances due to the lack of scrutiny that Chinese companies have in their country, but also the absence of that same control in the receiving countries themselves, and that leads to greater possibilities of excesses and abuses, much greater, and that is exactly what is happening,” Juan Pablo Cardenal, writer and former correspondent in China (2003-2014) and current member of the Center for the Opening and Development of Latin America (CADAL), told Diálogo.

Argentina’s disastrous case

In February 2023, an association of Latin American nongovernmental organizations presented to the United Nations Committee on Economic, Social and Cultural Rights (CESCR) the report Human Rights and Chinese Business Activities in Latin America, in which they express great concern about violations of environmental and social standards by Chinese investors in the region’s infrastructure, energy, and extractive sectors. Ariel Slipak, economist and research coordinator for the Environment and Natural Resources Foundation (FARN), an Argentine environmental group, who participated in the report, spoke with Diálogo and expressed his qualms concerning Chinese capital in lithium production in Argentina. Although the report particularly denounced the case of the Santa Cruz River dams — a project incorporated into the Belt and Road Initiative (BRI) — for disruptions to Argentina’s glaciers and biodiversity, similar and alarming situations are already evident in the projects of Chinese companies in Argentina’s salt flats.

Of the six projects for the construction of plants to extract lithium in Argentina that are at an advanced stage, four are of Chinese capital, Slipak told Diálogo. One of them is that of the Exart mining company, led by the Chinese company Ghanfeng Lithium, located in the Cauchari-Olaroz salt flats in the province of Jujuy. In this project, which is estimated to start producing lithium in the second half of 2023, issues concerning hygiene and safety conditions have been reported. “When it was under construction, in that specific project in Jujuy the mine accounted for 20 percent of the cases of COVID contagion,” Slipak said. “What has become evident is that there is no rigor or serious evaluation of the impact on water in this specific project in Jujuy.”

Another of the PRC’s projects in Argentina’s salt flats is that of Zijin Mining, one of China’s largest gold and copper producers. In October 2021, Zijin Mining announced an agreement to acquire the entire Tres Quebradas lithium mine, in the province of Catamarca, which was in the hands of Canadian company Neo Lithium. This operation attracted special attention because it was carried out a few days after the obtention of the Environmental Impact Statement (EIS) that enables construction for the eventual production of lithium. “It is something very common that companies are doing — and in this case Chinese companies such as Zijin Mining and Tsingshan Group — acquiring projects that are already authorized for construction and as such avoiding confrontation with the communities,” Slipak said. “In the case of Zijin, both companies closed the purchase at the referendum where Neo Lithium obtained the environmental impact statement.” Although the Argentine legislation was consulted prior, from the experts’ point of view it is a maneuver to get the projects.

“It’s a legal tactic and strategy to move the projects forward,” Slipak said. But what is even more serious is that it is a violation of human rights. “The fact that there is no consultation following ILO [International Labor Organization on Indigenous and Tribal Peoples] Convention 169, of a free, prior, and informed consultation, makes it a fictitious consultation and a violation of the community’s human rights,” the economist said.

The allegations concerning the China-led Tres Quebradas project go further and also involve complaints of environmental damage and labor abuses. “There have been reports that the camp does not have good connections and employees spend 14 days — completing their workday — without any communication with their family; this breaks the fabric of family,” Slipak said. In addition, contaminated water and poor nutrition have led to serious health problems. An investigation published in Argentine magazine Cítrica reported details of the situation and denounced that in November 2022 the entire population was sick for more than a month, with vomiting, skin rashes, stomach ailments, and other similar problems.” Although the Secretary of the Environment has twice shut down the plant’s construction operations due to obvious health and safety problems, the project is still underway.

The situation is also worrisome because it is not the first time that Chinese multinational corporation Zijin Mining has been reported by trade union organizations for the precarious labor conditions of its employees. “This traditional PRC company has been reported for labor rights violations in countries such as Colombia, Peru, and Serbia,” Slipak said.

Lithium today, hunger tomorrow

With lithium, Latin America is at risk of repeating the history of unbridled extractivism. “The problem is that so much investment sounds wonderful, but at the end of the day, who gets everything and ends up with everything?” said Eduardo Gamarra, professor at Florida International University (FIU) and author of How China Uses Geostrategic Corruption to Exert Its Influence in Latin America. “Not only has the extractivist model not changed in terms of what has been experienced in past centuries, but what is even worse, it has deepened, and lithium is the most extreme example of this,” he added.

The Argentine case is perhaps the most controversial. Unlike Chile, for example, where royalties of up to 40 percent of sales are paid, in Argentina they do not even reach 3 percent. “It would be an understatement and a conceptual error to say that Argentina exports lithium,” said Bruno Formillo, a researcher with the Argentine National Council for Scientific and Technical Research (CONICET). “In reality, large global corporations are currently extracting lithium […] without there being any possibility in Argentina of getting revenues or profits from this extraction […].”

According to experts, the situation is very alarming because in Argentina the provinces that have lithium are the poorest and the mineral, in addition to not generating any income or profits from this extraction, forces them by fiscal law to pay an economic burden for exports. “The export of lithium carbonate in Argentina has an export tax rebate of 1.5 percent, which means that the nation ends up giving an export rebate to the companies that is greater than what it ends up paying for provincial royalties,” Slipak said. “In other words, royalties end up being subsidized by the nation.”

Crushed dreams

After seeing their national dream of producing lithium without the intervention of transnational companies crushed — given the lack of technical capacity of countries of the Lithium Triangle to carry out the industrialization of the white gold — the three governments of Boric in Chile, Arce in Bolivia, and Fernández in Argentina, are seeking to avoid the curse of natural resources, and are betting on the production and export of lithium batteries. But how viable is this ambition? The path to lithium batteries “made in Bolivia,” “made in Argentina,” or “made in Chile,”, seemingly a promising idea, is highly challenging and may in the long run lead to greater dependency on China, experts say.

“Most battery manufacturing is in China, which already controls 80 to 90 percent of global capacity. This is an extremely dominant position for one country at a time when everyone is trying to expand,” Cardinal said. “The chances of getting in to compete with China are small.”

The geographic factor is another impediment. “The big business that is growing frantically is electric cars and where is it? in China. In that sense, the countries of the triangle are very far from the major manufacturing centers, which makes the cost of transporting batteries very high and uncompetitive,” said FIU’s Gamarra.

“The countries of the Southern Cone of America have traditionally been exporters of their metals, not experts in taking advantage of their products. We will end up repeating the history of copper when, in the eagerness to join the production chain, we tried to create electric cables and failed. In the case of batteries, the same thing will happen: We do not have the capacity to generate a significant volume and aspire to be important in a value economy; the freight to export and reach the final consumer is too expensive, and China will continue to produce at a lower cost,” Colombian expert in the automotive sector Jorge Cortés said.

However, some projects involving the participation of Chinese capital for the creation of battery factories have already been announced. In Chile, for example, Chinese electric car company BYD will invest in the construction of a lithium battery components plant for close to $290 million, Reuters reported in April 2023. In Argentina, there are also plans to manufacture lithium-ion batteries in the province of Santiago del Estero. According to a recent report from the International Coalition Against Illicit Economies (ICAIE), three Chinese companies — Contemporary Amperex Technology Co. Ltd (CATL), Tianqui Lithium, and Gotion High Tech — would be part of the consortium, which also includes the participation of Argentine state-owned company YPF. The ICAIE research indicates that no clear records of bids or concrete public plans or financial details were obtained yet, however, Governor of Santiago del Estero province Gerardo Zamora already announced that the project is currently in the phase of acquiring the production line from China.

Experts wonder what benefits this would bring to the countries of the Lithium Triangle. “The problem with China is the gap between the ‘win-win’ rhetoric being pushed by both the Chinese government and local elites interested in that relationship and investment with China and what is actually happening on the ground,” Cardenal said.

In the case of the announced battery plant in the province of Santiago del Estero, the ICAIE study highlights the unfeasibility of the project. According to the report, the lithium extracted from Argentina will first have to be taken to China to be processed and then returned to Argentina for the production of batteries, since there is no possibility of processing the cathodes required for this purpose — a rather unproductive way of taking the raw material to the proposed manufacturing center.

According to experts, these investments are the continuity of a relationship of subordination and dependence with the PRC that has already been building up in recent years. “In the case of Argentina it is quite obvious starting with the station it has in Neuquén, which some have equated to a surrender of sovereignty. There is already a dependence at the financial level, at the infrastructure level, and at the export level, such as soybeans, for example, or lithium, which has been developing,” Cardenal added. According to analysts, this dependence has been generating a series of negative effects that do not seem so obvious or that are not made public, but that have important consequences for the region and the world. “For example, the silence of governments in criticizing the human rights situation in China or the excesses and abuses of Chinese companies in their own country. Not all countries do it, but there are some that because of the commercial dependence that is created with a country like China that has a position of strength, they do it,” said Cardenal. “And I see that there are already quite a few countries in the region that, in one way or another, are falling into this dependence on China and this is a cause for concern.”

Race against time

The energy transition that the world is experiencing has given the white gold of the Lithium Triangle countries a chance. This precious metal, due to partially replace fossil fuels, is a turning point for the economic and social development of the Andean salt flats. However, like all good things, it will not last forever. Several technologies are beginning to compete with lithium and are under development, such as cars that use hydrogen as fuel or sodium-based batteries. If so, the window of opportunity for the Lithium Triangle countries is small and the clock has already started ticking.

“The problem here is that there is a window of time, of how Latin America is going to take advantage of this momentum. We already have indications that China has discovered that sodium can be as effective or more effective than lithium and is starting to lead in that industry as well. So, if sodium becomes a better basis for battery technology, lithium’s momentum would have been very short,” Berg said.

All will depend on the smart decisions of the countries of the Lithium Triangle to make the most of their momentum. “Latin American countries must carefully consider which partner will at least try to help them capture the limited window of opportunity they have, otherwise they will simply be suppliers of raw materials that will then be consumed in finished products that are produced elsewhere,” Berg concluded.

Source : Dialogo