Buried deep in the bowels of the U.S. legislation against Cuba (collectively referred to as the “embargo”), there is a tiny line item that restricts Western development finance institutions from doing business in Cuba.
Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 – also known as the Helms-Burton Act – Sec. 104. “United States opposition to Cuban membership in international financial institutions”
The U.S. is able to enforce this restriction because of the threat to withdraw vital financial support for those institutions, the most notable of which are the World Bank and the International Monetary Fund (IMF). Since the passing is the Helms Burton Act, the Western development finance institutions have withered in terms of relative balance sheet size and as a result experienced a parallel loss of influence in the developing world that has quickly been replaced by China.
The China Development Bank’s birthday was just two years prior to the passing of the Helms Burton Act, and since that time China’s two main development finance institutions have eclipsed its Western counterparts many-fold.
Development finance, particularly for infrastructure projects, has emerged as an important component of China’s engagement with the Caribbean region and a political tool employed globally. Evan Ellis, associate professor at the National Defense University’s William J. Perry Center for Hemispheric Defense Studies, wrote in 2013:
The explosion of Chinese bank-financed infrastructure and resort projects in the Caribbean and the Andes is fueling a wave of work by Chinese construction companies and workers in the region. An estimated $75 billion in such loans have been made in the past two years, with the use of Chinese companies typically a key condition for the funding. – Evan Ellis
In fact, between 2005 and 2013, the Chinese stock of foreign direct investment in the Caribbean increased tenfold from $81.2 million to $604 million, according to a 2016 report by the Inter-American Development Bank.
Since 2013, the trend has intensified in the Caribbean. One notable project includes the single biggest investment by the Chinese in the Caribbean, the “Beijing Highway”, a $600 million four-lane highway in Jamaica.
In Cuba, it is common to see a wide variety of Chinese products and projects including port infrastructure, Geely cars, Yutong busses, Haier air conditions, Huawei mobile phones and more. The Chinese are constructing a container terminal in the eastern city of Santiago de Cuba, backed by a $120 million Chinese development loan and built by a Chinese construction company. And the Shanghai Zhenhua Heavy Industries Co, a global leader in port equipment, has provided four ship-to-shore gantry cranes, 12 rubber-tiered gantry cranes and two rail-mounted gantry cranes to the Mariel Container Terminal, itself a $900 million facility financed by Brazil’s leading development bank and built by Brazilian construction giant Odebrecht.
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China’s massive development banking balance sheet will continue to deploy capital in Cuba and in the region and with it a political influence likely to have economic consequences for the U.S.