The great power competition underway between the United States and China has a ripple effect in each nation’s neighborhood. As the United States prepares for possible conflict seven thousand miles away in the Taiwan Strait, China is expanding its economic influence in Latin America.

Notably, China is not only trading with the region but also mining in it, investing billions of dollars to snatch up mines throughout the region. Why? One significant aim is to secure sufficient critical minerals to supply China’s growing economy and military.

China’s exact investment numbers in Latin America’s mining sector are unknown due to the complexity of mining deals, the opacity of the involved investment firms, and the lack of host country reporting requirements. Yet the scale is large; major Chinese mining projects in Latin America consistently exceed $1 billion.

What is China Looking For?

Previously, Chinese mining investments targeted copper (the Las Bambas mine in Peru) and iron ore (the Marcona mine facilities in Peru). Chinese mining projects today mainly target metals such as lithium, which is required to make electric vehicle batteries. From 2019 to 2022, Chinese companies invested about $4.5 billion in lithium projects in Mexico and South America, according to energy transition journalist Emily Pickrell.

Chinese investments in Latin American lithium have grown significantly in recent years. In January 2022, Chinese company Zijin Mining bought Canadian company Neo Lithium for $690 million—and thus acquired the Tres Quebradas lithium project in Argentina. Zijin will also build a $380 million lithium carbonate plant in Argentina.

Chinese battery company Gotion, in a joint venture with Argentina’s state-owned mining company Jujuy Energía y Minería Sociedad del Estado, announced in June 2022 that it too would build a lithium carbonate plant in Argentina. Then, in July 2022, Ganfeng Lithium bought Argentina-focused mining company Lithea Inc. for $962 million, acquiring the Pozuelos and Pastos Grandes lithium salt lake assets. In January 2023, a Chinese consortium, including mining behemoth CMOC and battery giant CATL, committed to investing $1.4 billion in lithium development projects in Bolivia.

Increasing volumes of Latin American minerals, including those mined and processed by Chinese companies, are flowing to China as a consequence of these projects. According to Boston University’s Global Development Policy Center, China’s share of Latin American extractive exports grew from 1% in 2000 to 34% in 2020.

Thus, Chinese investment in Latin American mining has contributed to growing Latin American extractive exports to China itself, as Chinese-owned mines in the region ship these materials directly to China. As Rolando Avendano, Angel Melguizo, and Sean Miner observed in a June 2017 report: “The origins of Chinese FDI [foreign direct investment] in Latin America lie in Chinese state-owned enterprises investing in the extractive industries (oil, gas, copper, iron ore), a strategy to shore up natural resources to fuel China’s booming economy.”

Despite China’s massive investment figures in Latin America’s mining sector, these Chinese investment figures are probably underestimated. Chinese firms are likely striking backroom deals in countries like Venezuela, where 65% of China-Venezuela deal terms are not publicly known, according to Freedom House’s Gerardo Berthin.

For instance, Venezuelan journalists and academics believe Chinese companies are investing in Venezuela’s Arco Minero, which (as Venezuela’s former Minister for Ecological Mining Development Roberto Mirabal notes) has a potential mineral value of $2 trillion. But finding accurate Chinese investment figures in this zone is challenging as Venezuelan laws provide substantial confidentiality to mining companies.

Chinese companies have also been accused of signing secret deals with the Bolivian government. In short, China’s investments (and mineral control) in Latin America are likely greater than reported.

How China Has Made It Happen

China has established its critical mineral dominance in Latin America through state-led development and commercial financing of mining projects. The Chinese government has identified mining as a key area for overseas investment and thus offers financial support for such investment, making it feasible for Chinese companies to acquire and develop overseas mines.

Gregory Chin and Kevin Gallagher term China’s financing model a “coordinated credit space model.” For instance, a consortium of Chinese mining companies—MMG, Guoxin, and CITIC Metal—acquired Glencore’s Las Bambas copper mine in Peru in 2014 with a $5.988 billion syndicated loan coordinated by Chinese state development banks (China Development Bank and Export-Import Bank of China) and Chinese state-owned commercial banks (Industrial and Commercial Bank of China and Bank of China, based in Sydney).

China’s effort to secure Latin American minerals largely began in 2004, when the Chinese government started offering subsidies for overseas investments in natural resources that were in short supply in China. China’s 2017 reforms on outward investments, further encouraged Chinese companies to invest in overseas mining. Today, China’s investments in Latin America “remain concentrated in a small number of activities deemed strategic,” including “full or partial acquisitions for accessing strategic minerals such as copper, lithium and niobium,” according to a report by the Economic Commission for Latin America and the Caribbean, a United Nations regional commission.

The Chinese government’s financial coordination has successfully led to the acquisition of overseas mining projects to secure critical minerals  In Latin America, the mining sector was the second top target—after energy—of Chinese FDI, accounting for 30% of Chinese investment in the region between 2007 and 2018. Furthermore, the mining sector comprised 51% of Chinese investments in Latin America in that same period. (This figure does exclude Brazil, where Chinese firms invest heavily in the energy sector.) Most of China’s mining deals in Latin America are mergers and acquisitions that “have ensured the supply of natural resources” for China.

China’s mineral investments also grant it a massive share of Latin American countries’ mineral production. For example, in 2015, Chinese firms controlled around 30% of Peru’s mining investment portfolio. Sometimes, even single Chinese investments in Latin America grant China significant control over global mineral production.

For instance, the Chinese company Tianqi Lithium acquired effective control of approximately 46% of global lithium production by becoming the second largest shareholder in the Chilean company Sociedad Química y Minera (SQM) for $4.1 billion. Likewise, CMOC—formerly known as China Molybdenum—in 2016 acquired two columbite mines in Brazil for $1.5 billion, giving China control over 10% of global columbite production.

Formulating a Response

The US government has announced initiatives like the Minerals Security Partnership (MSP) and the Americas Partnership for Economic Prosperity to secure its critical mineral supply chains and counter China’s influence in Latin America. Yet it still has work to do.

The MSP seeks to bolster critical mineral supply chains among like-minded partners, but it does not include any Latin American countries as members. Only two Latin American countries—Argentina and Brazil—attended the inaugural MSP meeting as observers. Similarly, the Americas Partnership has a goal of strengthening supply chains through regional cooperation, but it has yet to offer any specifics.

The only notable US government investment in Latin America’s critical minerals sector was the $30 million provided for TechMet to operate and expand a nickel-cobalt project in Brazil. This investment has been classified as a project under the Partnership for Global Infrastructure and Investment (PGII)—a G7 collaboration to deploy capital to infrastructure projects, including critical mineral projects, in developing countries. The US government may seek to invest in more critical mineral mines in Latin America under the PGII.

However, it is the Inflation Reduction Act (IRA) that may most effectively strengthen critical mineral supply chains between the United States and Latin America. The IRA includes a tax credit up to $3,750 for US taxpayers who purchase electric vehicles that contain a battery with a certain percentage of critical minerals mined or processed in the United States or countries with whom the United States has signed critical mineral agreements (e.g., Japan) or free trade agreements (mineral powerhouses Chile and Peru). Electric vehicle manufacturers in the United States are thus incentivized to source critical minerals from Latin American countries such as Chile, as doing so lowers the price of their electric vehicles for customers.

China’s state-led financing model in Latin America has effectively secured critical minerals for that nation. Obtaining mineral dominance in close proximity to the United States poses geopolitical challenges to the US as it seeks to secure its own critical mineral supply chains.

As US-China competition intensifies, critical mineral competition in Latin America will likely intensify too. So far, China’s state-led model has proven more effective than the United States’ industry-led model, but the US government seems intent on more actively—and directly—securing America’s critical mineral supply chains and countering China’s influence in Latin America.