China's not-so-generous offer to 'help' fix Venezuela's blackout
As patients die in hospitals and ordinary Venezuelans scrounge for water from sewers based on a horrific going-on-six-days nationwide blackout, China hasn't been idle, watching the spectacle unfold. The Venezuelan socialist regime's incompetence and neglect may have created a humanitarian crisis all right, but more important to China, the blackout also cut off Venezuela's oil production. That's what Venezuela uses in order to pay its $23-billion pile of bailout loans back to China.
So, six days after the crisis, China's state-owned CGTN reports that China is willing to "help":
China's Foreign Ministry is concerned about the power blackout in Venezuela and hopes the country will find the cause of the incident as soon as possible.
The ministry spokesperson Lu Kang made the remarks on Wednesday during a daily briefing.
China is willing to provide technical support for Venezuela to help restore the power, Lu added.
It's vague, but that's about all the news there is. Reuters has a similar report.
How very generous of them! The hospital patients are dead, the food is spoiled, the aid is blocked, and the New York Times reports that the power issue isn't going to be easily fixed. There is reportedly some version of power on now in much of the country, but I wouldn't count on it lasting, and I doubt it's reached western Venezuela, from which there are no reports. Now it's China to the rescue.
China just wants the power on so that the oil production can go back up and its loans to Venezuela can get repaid. It also likely sees a new opportunity to extend its influence. Both objectives are premised on holding Venezuela's Maduro dictatorship in power, which isn't exactly something that serves Venezuelans' interests.
Venezuela's massive power outage actually cut off oil production, the country's only source of income.
According to the Washington Post:
The blackouts have also hit Venezuela's oil industry. The country hasn't shipped $358 million in oil since the power failures started, and "the whole system is grinding to a halt," said Russ Dallen, a Miami-based partner at the brokerage firm Caracas Capital Markets.
Two large tankers are sitting empty at the Jose offshore oil-loading dock, and at least 19 other ships are waiting their turns there, Dallen said.
With the country's oil production miserably low even before the blackout, the lost dollar amount was merely hundreds of millions, not billions. But it still is the only income socialist Venezuela has, so its incompetence-linked blackout amounted to cutting off its own money supply — and the oil that China is "owed" based on all those billions extended in loans. No wonder China wants the power back on.
Those loans aren't exactly popular in China, either. According to Bloomberg columnist Shuli Ren:
In the last decade, China made more than $62 billion of loans to Venezuela, where hyperinflation prompted the government to devalue the bolivar by 95 percent at the weekend. In July, another $5 billion advance was approved to increase petroleum output there, even though a previous oil-for-loan program backfired.
What will China's citizens say if Beijing is splashing out billions to foster friendships with (perceived) basket cases, when at the same time people at home are stuck in ghettos, small businesses are going bankrupt and no one is feeling rich because of the stock market and peaking home prices?
You can expect a revolt.
Meanwhile, the Wall Street Journal, in a July 15 "Heard on the Street" column titled "How Venezuela Became China's Money Pit," reported:
At one point when prices were higher and its oil industry less decrepit, Venezuela was sending China 600,000 barrels a day, according to Russ Dallen, the chief executive of Caracas Capital Markets, who has done extensive work untangling Venezuela's opaque finances. He estimated that has brought the balance down to about $20 to $23 billion, plus another $3 billion to $4 billion owed to Russian oil company Rosneft.
The cash drain from these enormous debts may have exacerbated the decline in output, and there is scant chance that China's latest infusion will do much to arrest the fall. Hence the market's shrug at the news. But why does cash keep flowing in?
Part of it is the potential equity value of that bad debt. Chinese and Russian companies have been given valuable hydrocarbon concessions — in some cases including properties expropriated from Western firms such as Exxon Mobil. While past loans are a disaster, China and Russia now have investments to protect. Disbursing more modest, targeted sums makes sense.
Venezuela needs that cash. Right now it only can sell about 500,000 barrels a day for hard currency.
The cash paid to keep the tyrant in Caracas afloat was bad enough, but China doesn't just loan money out of the goodness of its heart.
It typically uses its loan money to get third-world socialist regimes "hooked," same way a drug-dealer does to an addict. It's called the "Belt and Road Initiative." As these socialist nations, which can't draw investment the normal way due to their hostile business environments, eventually default, China's loan structures enable China to take over for strategic purposes. China has just gotten its hands on a 99-year lease for a deep-water port in Sri Lanka, for one. It will undoubtedly have similar takeover clauses in Venezuela as the country staggers back to some version of normalcy. China's help is going to come with strings. As I wrote here, last May, China's aid isn't as free as it looks. And Venezuela's socialist coeval, Ecuador, has already found itself almost completely sold out to China.
Now China wants to "help" in Venezuela. What it sees is an opportunity. And Maduro will be happy to sell his country down the road for it. Anything to keep out the gringo's actual aid. Once again, the wisdom of the Monroe Doctrine shows itself with this sorry picture.