China’s Dilemma in Venezuela

Abstract

In a Wikistrat simulation last month, analysts highlighted a facet of the ongoing crisis in Venezuela that is being overlooked: the implications for China, which has been the country’s greatest economic supporter and for which the current turmoil is a major test of its economic and foreign policy.

China has a difficult decision to make: help the regime in Caracas step back from the brink with aid and investment loans and hope that oil prices will stabilize to buy them more time — or risk a less Chinese-friendly government that would shift oil sales to whomever is willing to pay in much-needed cash.

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Strategic Takeaways

  • As long as oil prices stay above an average of $40 per barrel and Venezuela’s foreign reserves total at least $10 billion, China is likely to continue to support Venezuela with a minimal lifeline of loans.
  • The Venezuelan opposition is trying to force the referendum to remove President Maduro to take place before January 2017. If it takes place after that date, a successful recall vote would transfer power to Maduro’s vice president and party fellow, Aristóbulo Istúriz. If the decision is made to hold the referendum before January 2017, China will likely hold off with future loans until the situation clears up.
  • In the unlikely event of a public oil and gas workers’ strike, China is likely to withhold future loans until the crisis resolves itself. Venezuela’s government has placed many of its allies among the workers’ unions and managers, but the likelihood of a strike is increasing nonetheless.
  • The market is paying much attention to China’s reaction to the Venezuelan crisis so as to gleam how it would respond to such a high-magnitude default — and how it could impact the country’s global economic policy.

In the media

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This report was adapted for publication in The National Interest.

At the moment, investors and governments are paying much attention to China’s reaction to the Venezuelan crisis so as to gleam how it would respond to such a high-magnitude default — and how it could impact the country’s global economic policy.


Author

Oren Kesler

Oren Kesler
Wikistrat Group Leader


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