Peru
Historical Background
Exchanges between China and Peru began in the mid-nineteenth century, when indentured Chinese workers were imported to meet Peru’s labour demand after slaves were emancipated in 1854. The first diplomatic encounter between China and Peru dates back to the signing of the Sino-Peruvian Treaty of Friendship, Commerce, and Navigation between the Qing and Peruvian government in 1875. Since then, hundreds of thousands of Chinese, after working on plantations, railway constructions, and mines, stayed and settled in Peru, building a solid cultural foundation on which both Peru and China borrowed to further their political ties. The Republic of Peru recognised the Republic of China (ROC) since its founding in 1912 and maintained diplomatic relations after the Kuomintang regime retreated to Taiwan in 1949. In 1971, Peru officially broke ties with Taiwan and supported Beijing’s bid for the seat at the United Nations as the only legitimate representative of China.
Sino-Peruvian trade relations picked up in the 1990s due to China’s rising demand for raw materials, especially minerals. Peruvian exports to China increased from 194 million USD in 1992 to 309 million USD in 1999. However, interactions between China and Peru remained limited until the early 2000s. Before then, high-level political visits were infrequent. In 2001, then Peruvian president Alejandro Toledo (in power from 2001 to 2006) met then Chinese President Jiang Zeming during the Asia-Pacific Economic Cooperation Summit (APEC) held in Shanghai, and congratulated him on China’s recent entry into the World Trade Organization (WTO). Peru recognised China’s complete market economy status in 2004.
Sino-Peruvian relations intensified after the Global Financial Crisis of 2007/2008. As Chinese companies began to acquire distressed assets globally with cheaper prices, Peru became one of the key destinations for Chinese investment due to its abundant natural resources. Meanwhile, heavily hit by the financial crisis, Peru actively sought out China as an alternative source of capital to break its dependence on the United States and diversify its diplomatic ties. Alan Garcia (in power from 1985 to 1990, and then again from 2006 to 2011) was the first Peruvian president to passionately champion Sino-Peruvian relations. Amid the Global Financial Crisis, Garcia paid a visit to Beijing in March 2008, during which he claimed that ‘Peru’s development is tied to China’. Shortly afterwards in November, then Chinese president Hu Jintao took his first trip to Peru to attend an APEC Summit in Lima. This high-level political exchange resulted in the signing of a bilateral Free Trade Agreement (FTA) in April 2009, the first comprehensive FTA between China and a Latin American country. The China-Peru FTA came into effect in March 2010 and a year later, China surpassed the United States to become Peru’s top destination for export and second largest trading partner, a milestone for Sino-Peruvian relations. Since the FTA, China and Peru have strengthened their cooperation. In 2013, then Peruvian President Ollanta Humala (in power from 2011 to 2016) attended the Annual Conference of the Bo’ao Forum for Asia, after which Peru and China jointly announced the elevation of China-Peru relationship to a Comprehensive Strategic Partnership, the highest level of relations between China and Latin American countries. Eleven documents were signed, ranging from technological and trade cooperation, cultural and education exchanges, to agricultural research and development. In 2014, China officially replaced the United States as Peru’s top trading partner for both imports and exports. During Chinese Premier Li Keqiang’s visit in 2015, the two countries signed 10 agreements on a range of issues, including investment, transportation, hydropower development, agriculture, and education, in an attempt to diversify their bilateral economic relations away from exchanges mostly focussed on minerals. When President Pedro Pablo Kuczynski took office in 2016, he chose China for his first official trip abroad, demonstrating China’s growing importance for Peru. Kuczynski’s visit was followed closely by Xi’s attendance of the 2016 APEC Summit in Peru. New rounds of negotiations began in 2018 to update the China-Peru FTA. New versions of the agreement were planned to be put in place by 2020 but were delayed due to COVID-19. Peru signed a Memorandum of Understanding (MoU) with China to cooperate with the Belt and Road Initiative (BRI) in April 2019. However, due to the pandemic little progress was made in 2020.
BRI Status
In April 2019, Peru signed the memorandum of understanding (MoU) during the Second Belt and Road Forum for International Cooperation held in Beijing. The Belt and Road Initiative (BRI) was initially launched in 2013 by President Xi. Neither Peru nor China has an official list of BRI projects, and corporations of all scales market their projects as contributing to the BRI to either gain currency in the market or trust from the public. As of February 2021, the author was able to confirm a few BRI projects, either through corporation reports or government documents, such as the 2-billion-USD mega port in Chancay, invested by COSCO Shipping Holdings Co Ltd. in a joint effort with Volcan Compañía Minera S.A.A., and the Las Bambas Copper mine. As in many other countries, Peruvian projects that were started prior to the launch of the BRI in 2013 and Peru’s official joining in 2019 is now being rebranded as part of the BRI. The Toromocho Copper Mine is a prime example: acquired in 2008 by the state-owned Chinalco, its second-stage expansion was recently incorporated under the BRI framework when it was announced back in 2018.
In addition to confirmed BRI projects, there are numerous ongoing infrastructure projects proposed by the Chinese government. One of the most debated projects is the transoceanic railway which connects Peru’s Pacific coast with Brazil’s Atlantic coast though Bolivia. The Peruvian and Chinese governments began discussing the possibility of constructing the railway back in 2013 because it would greatly reduce transportation cost, enhance regional connectivity, and boost trade relations between China and Latin America. An agreement was reached between Peru, Brazil, and China to study the project’s feasibility during Chinese Premier Li Keqiang’s visit to Brazil in 2015. However, back in 2017, Peru opted out of the project due to its high costs, estimated at 60 billion USD. Only after a new study came out which significantly lowered Peru’s financial contribution to 7.5 billion USD, did Peru’s then president, Martin Vizcarra (2018–20), reconsider it. Another iconic project is the Amazon Waterway, which uses satellite data and GPS to make water transport in the Amazonian rainforest more secure. The Transoceanic Railway and the Amazon Waterway are probably the most controversial and capital-intensive projects proposed in Peru. Currently they are still under evaluation due to the environmental risks and operational difficulties involved.
Although the BRI centers around infrastructural connectivity, it also facilitates some high-profile Chinese investment into the mining industry, which has invited close scrutiny. The Las Bambas Copper Mine, acquired for 7.4 billion USD by MMG Ltd., a subsidiary of the state-owned mining company China Minmetals, is by far the largest mining investment in Peru’s history and highly problematic for its environmental impacts. The Toromocho project, invested in by Chinese state-owned Chinalco, also has caused much controversy, especially around the social and economic impacts of the resettlement of Nueva Morococha. Other high-profile Chinese mining investments include Zijin Mining’s Rio Blanco Project, Shougang Hierro Peru’s Marcona Iron Mine, and Zhongrong Xinda’s Pampa de Pongo Project.
Besides direct investment in infrastructure, mining or logistics, Chinese companies have become more active in bidding contracts in Peru. Successful examples include expansion of the Huanuco–Vayanco National Highway, the Lima–Canta–Huayllay–Cochamarca–Empalme Road Corridor, and the Puno Manuel Hospital Project (China Railway No.10 Engineering Group Co., Ltd.). These contracts, often less capital-intensive or socially problematic, do not receive much media reporting or public attention. Due to the COVID-19 outbreak, China and Peru have not developed new bilateral or regional initiatives to move forward BRI related projects or set up new intergovernmental mechanisms to facilitate the cooperation.
Current Economic Relations
Trade: Trade between China and Peru began to pick up in the 1980s. In 1980, Peru exported only 83 million USD of goods, mainly fishmeal and minerals, to China, and imported merely 11 million USD from China. By 2019, the total trade volume between Peru and China had grown to 24 billion USD. The bilateral trade surged after China joined the WTO in 2001, as Peruvian exports and imports to and from China increased ten- and forty-fold, respectively. The trade relations received another boost after the two countries signed a Free Trade Agreement (FTA) in 2009. In 2011, the Association of Chinese Enterprises was founded with support from the Chinese Embassy. In 2014, China replaced the United States as Peru’s top trading partner for both imports and exports. According to the National Superintendence of Customs and Tax Administration of Peru, in 2019 China took up 29.4% of Peru’s total exports and 24.2% of its total imports. While bilateral trade has slowed down due to the COVID-19 pandemic, both sides remain positive about the future.
Since Peru is a resource-rich country, raw materials make up a large share of Peruvian exports, including to China. According to the Observatory of Economic Complexity, in 2018 Peru exported 13.3 billion USD worth of copper ore, gold, refined petroleum, zinc ore, and refined copper. At the same time, Peru imported mainly machinery, electronics, cars, and broadcasting equipment from China. In the past decade, however, Peru has tried to diversify its export to China to include more value-added products and agricultural products, such as avocados, blueberries, quinoa, and coffee, although this still represents only a small percentage of its overall exports. Peru became the biggest supplier of avocados to China in 2019.
Investment: The first wave of Chinese investment into Peru started in the 1990s, during the presidency of Alberto Fujimori (in power from 1990 to 2000), who pushed for the privatisation of Peru’s abundant natural resources. In 1992, Shougang Group, a state-owned steel producer, became the first Chinese corporation to invest in Peru as well as in the Latin America and Caribbean region (LAC). It acquired 98.52% of the shares of Hierro Perú, one of the first major state-owned Peruvian mines to be privatised. This was followed by China National Petroleum Corporation (CNPC), another giant SOE, which one year later obtained concession rights to China’s first overseas oilfield in Talara. In 2004, CNPC bought out the peruvian subsidiary of Grupo Pluspetrol, an Argentinian company experienced in oil and gas exploration and production, for a total of 200 million USD. A second, more intense wave of Chinese investment in Peru took place in the wake of the Global Financial Crisis of 2007/2008. In 2007 alone, three mega acquisitions took place, including Chinalco’s acquisition of the Toromocho Copper Mine (860 million USD), Zijin Mining Group’s takeover of the Rio Blanco Copper Mine (182.3 million USD) and a joint acquisition of the Northern Peru Copper Corporation by China Minmetals Nonferrous Metals Co., Ltd and Jiangxi Copper Company Ltd. (455 million USD).
So far, Chinese investment in Peru has concentrated in the extractive industry. According to the Ministry of Energy and Mines of Peru, China has cumulatively invested more than 15 billion USD in the sector from 2009 to 2020. The Ministry also revealed that as of September 2020, 23% of the national copper production and 100% of iron production come from mines operated by Chinese companies. Meanwhile, Chinese companies control 35% of national oil production and 25% of fishmeal production.
Since the signing of the FTA and the launch of the BRI, both Peru and China have sought to diversify and expand their economic relations. On the Peruvian side, the key is to increase the variety of its exports and facilitate Chinese investments in fields other than natural resources production. In the past decade, Chinese companies have been investing in a range of sectors, including infrastructure, telecommunications, manufacturing, financing, tourism, logistics, and education. Jia Guide, Chinese ambassador to Peru, revealed in 2018 the plan to invest another 10 billion USD by the end of 2020, which would include the construction of the Chancay mega port (designated as a Special Economic Zone) and the acquisition of a power distribution company. In April 2019, China Three Gorges Corporation (CTG) acquired Empresa de Generación Huallaga S.A. for 1.39 billion USD, obtaining permanent concession rights over the Chaglla plant, Peru’s third-largest hydropower facility. Chinese companies have also won numerous smaller contracts to build hospitals, roads, and schools across the country.
Aid: Chinese aid to Peru takes myriad forms in numerous fields, spanning from public health, infrastrual building, military donation and agricultural cooperation. In 2015, China donated 400 agricultural sprayers to the Ministry of Agricultural Development and Irrigation. In 2017, China signed two protocols to donate 18 million USD worth of military materials to the Peruvian Armed Forces, including humanitarian equipment for demining and natural disasters. More than 10 million USD of goods were already delivered before 2015. In 2017, China built the China-Peru Friendship Hall (Centro de la Amistad Peruano China) to honour the long-standing relations between those two countries. The same year, Peru suffered the worst floods and landslides in decades, causing more than 100 deaths and resulting in thousands losing their homes. In response, China donated 1.5 million USD to help victims and contributed 16.8 million USD to build the National Emergency Operations Centre in Lima to improve Peru’s emergency response and management capacity. China renovated the Archbishop Loayza National Hospital in Lima in 2018, after helping expand the hospital in 2011. With the outbreak of COVID-19, the Chinese government dispatched four specialists as early as May 2020 to help Peru and donated personal protective equipment, testing kits, and ventilators.
Key Controversies
Land conflict and displacement: Displacement and disputes over land are common for mining operations in Peru. In the case of Chinese investment, a few projects, such as MMG’s Las Bambas and Chinalco’s Toromocho, have resulted in displacement of local communities to make way for open-pit mining. Although both companies built what they considered modern towns with improved infrastructures to better accommodate local residents, post-resettlement conflicts arose and standards of living deteriorated. In addition, the communities of Morococha in the Junín department also denounced an illegal transfer of 34 hectares of communal land from the municipality to Chinalco (for more details see the Toromocho project profile).
Environment: In general, Peruvian citizens worry that Chinese companies would replicate some of their known poor practices at home in terms of environmental protection, or that Chinese investors would prioritise profit over the environment. This concern is most pronounced in the extractive industry because it mostly operates in areas with fragile ecosystems and rich biodiversity, and mining poses serious environmental challenges with serious implications for nearby communities. Numerous mining projects have been halted or delayed due to continuous local protests over environmental issues. For example, the Rio Blanco copper project, acquired in 2007 by a Zijin-led consortium, has not moved past the exploration stage yet as local communities strongly oppose the mine’s development due to environmental concerns. In fact, four Chinese-owned companies—Rio Blanco Copper, Shougang, Chinalco, and Lumina Copper—have all been warned or sanctioned for environmental violations, such as illegal discharging of wastewater. Shortly after the Toromocho mine started production in 2014, Chinalco was ordered by the Ministry of Environment to suspend its operations due to acid runoffs.
Fierce protests and demonstrations over environmental degradation have been staged by those impacted by Chinese-invested projects. For example, indigenous people and local peasants of the impacted area of the Las Bambas Mine have been protesting against air and sound pollution since the mine began operations in 2015. They voice concerns about the daily traffic of 370 trucks transporting minerals through 18 rural communities without local consent, which they worry will contaminate their land and cause damage to their health. Violent clashes between local communities and the police have caused multiple deaths and many more injuries. In addition to mining, infrastructure projects such as the proposed Amazon Waterway and Transoceanic Railway are also highly contested due to concerns about their negative impacts on local people and environment.
Transparency: In 2011, Peru became the first Latin American country to endorse Convention 169 of the International Labor Organisation (ILO 169). This ratification has given indigenous and tribal communities the right to prior consultation on major development projects and the power to grant concession rights and permit to extractive industry. However, communities impacted by Chinese mining investment complain about the lack of transparency and perfunctory implementations of ILO 169 by these companies. For example, communities affected by the Las Bambas mine were not adequately consulted to produce modifications to the project’s Environmental Impact Study. Meanwhile, residents of Nueva Morococha were angry because after many so-called community hearings and participation workshops, their opinions and preferences regarding the resettlement were not incorporated into the final decision-making process.
Labour conflict: Most recently, Chinese investors in Peru have adopted labour localisation strategies rather than bringing workers from China. This is a lesson learnt from Shougang’s experience back in the 1990s when the company brought over its own Chinese managers and workers to execute the Marcona Iron Ore project. According to an interview conducted in 2015 by Sanborn and Chonn with Kong Aimin, then general president of Shougang Hierro Peru S.A.A., Shougang at that time had the largest workforce among Chinese firms in Peru, employing 4,200 people including 2,000 direct hires, just 20 to 40 of whom were Chinese. Under Shougang’s management, there were reports of mistreatment of workers, such as requiring them to work in unsafe environments with outdated equipment. Workers have also complained about the dual salary scale, which resulted in newer employees receiving lower wages and less bonus. This caused much apprehension in Peru and led to decades of labour disputes and an increase in unionisation in the region, which Shougang was unable to deal with properly due to its lack of experience. The Shougang example resulted in negative perceptions of Chinese investors about their labour practices. Another notable labour-related controversy is Chinalco’s Toromocho project in Morococha, which so far has generated less local employment than the company initially promised, causing discontent.
Key Sources
English-language Media:
Books, Reports, and Scholarly Publications:
- Gonzalez-Vicente, Ruben. 2013. ‘Development Dynamics of Chinese Resource-Based Investment in Peru and Ecuador.’ Latin American Politics and Society 55, no. 1: 46–72.
- Gonzalez-Vicente, Ruben. 2012. ‘The Political Economy of Sino-Peruvian Relations: A New Dependency?’ Journal of Current Chinese Affairs 41, no. 1: 97–131.
- Sanborn, Cynthia and Victoria Chonn Qing. 2015. ‘Chinese Investment in Peru ́s Mining Industry: Blessing or Curse?’ Global Economic Governance Initiative at Boston University website. Link.
- Zhu, Lin. 2020. ‘Displacement, Development and Capitalist Modernity: The Making and Unmaking of Morococha in Central Peru.’ University of Colorado at Boulder website. Link.
- Mejía, María Osterloh, Nadia Urriola Canchari, and Xiangzheng Deng. 2020. ‘The Impact of Chinese Foreign Direct Investment on Economic Growth of Peru.’ Latin American Journal of Trade Policy 3, no. 6: 32–47.
- Ministry of Commerce of the People’s Republic of China. 2020. 对外投资合作国别（地区）指南 (秘鲁) [Outward Investment Guide (Peru 2020)]. Ministry of Commerce of the People’s Republic of China website. Link.
Cover Photo: Urubamba river valley, Peruvian andes. Credit (CC): Mario Manel.
