On November 2, Venezuelan President Nicolas Maduro announced that his cash-strapped government would begin an effort to restructure and refinance the country’s foreign debt. There are a number of questions about how exactly the government would go about this process, particularly considering recent U.S. sanctions on issuing new debt and the fact that Maduro named Vice President Tareck El Aissami to lead the effort. As El Aissami has been included on the U.S. counternarcotics “kingpin list,” bondholders would be unlikely to engage with him, even if negotiating new debt deals did not run afoul of U.S. sanctions.
The move comes on the heels of a high-profile debt payment from state-owned oil giant PDVSA on October 27, which focused attention on an increasingly important source of capital for the country: Russia. Venezuela has found in Russia a source of quick loans and oil deals that have been essential to the government’s efforts to stay afloat. In return, as the New York Times reported this week, Russia is “getting a strategic advantage in Washington’s backyard.” In the near term, it appears that Russia is willing to accept the high risks associated with lending to Venezuela in exchange for an increasing role in the country’s oil industry.
This has been a major point of concern U.S. policymakers. The Venezuela Humanitarian Assistance and Defense of Democratic Governance Act—which passed the House Foreign Affairs Committee on September 28 and is awaiting consideration by the full House—specifically tasks the State Department and intelligence community with providing a report on Russia’s activities in Venezuela.
Much of the discussion on Venezuela’s international backers have tended to lump Russia and China in the same boat, with some painting them both as “enablers” of the Maduro government. However, these arguments obscure more than they reveal.
For one thing, Russia’s economic support has clear limits. As Mark Galeotti, a senior researcher at the Prague Institute of International Relations, has pointed out, Russia’s economy has been degraded by declining oil prices and sanctions. As he notes, Russia has a GDP smaller than that of New York state, and its capacity to project power abroad is somewhat exaggerated. While the Russian government has been willing to accept higher risks in backing Maduro, they do not appear to have the resources to provide an indefinite lifeline.
China’s government, on the other hand, has a far greater capacity to do so, but appears to have more interest in looking beyond the Maduro government than its Russian counterparts. China is the largest creditor of the Venezuelan government, and as such has more to lose than Russia by far in the event of a default. Since 2014, China has lent more than $60 billion to Venezuela in exchange for oil shipments and preferential access to business deals, even allowing Venezuela to fall behind on payments to avoid a default. Unlike Russia, though, China moved to stop issuing new loans to the country in 2016, and has held unofficial meetings with individual members of the opposition to seek assurances that debt would be honored by a potential opposition government in the future. More recently, PetroChina announced that its U.S. affiliate would respect the U.S. debt sanctions announced by the White House in August, and China has reportedly grown impatient with increasing delays in shipments of Venezuelan crude.
Interestingly, there were hints of these cracks in the relationship in China’s response to Maduro’s restructuring/refinancing announcement. In a statement, Chinese Foreign Ministry spokeswoman Hua Chunying said that China had “taken note of the news, and also of Venezuela’s commitment to continue fulfilling its obligations.” However, her addition that “for now, all efforts are working correctly and we will continue collaborating” has led some analysts to perceive a note of bitterness in the response (with an emphasis on “for now”).
International relations analysts have pointed to two other clear incentives for China to support a resolution to the Venezuelan crisis. Both are related to China’s long-term global ambitions as a rising global superpower, which is especially on the mind of China’s leadership as the Trump administration embraces a more inward, “America First” approach to foreign policy.
The first of these reasons, put plainly, is that serving as a lifeline to the Maduro government is bad for China’s “brand” in Latin America. At a time when China is actively seeking to deepen trade deals in the region, it stands to reason that supporting a government that is fueling mass migration is unpopular among Latin American governments. International relations scholar Oliver Steunkel has pointed out that the governments of Colombia, Brazil, Argentina and elsewhere in the region are in a unique position to encourage China to support a peaceful solution to Venezuela’s crisis in their own bilateral meetings with Chinese officials. As Steunkel writes: “China will only stop supporting Maduro when it believes the cost – both economic and political – of doing so exceeds that of losing an ally in South America.”
The second reason for a Chinese interest in backing away from Maduro and supporting some kind of transition is China’s own evolving approach to relations with other developing nations. In recent years, analysts suggest that China has been cautiously reevaluating its long-held policy of non-intervention in other states’ internal affairs, with its support for UN sanctions on Libya’s government in 2011 being a widely-cited example. Matt Ferchen, a nonresident scholar at the Carnegie–Tsinghua Center for Global Policy, has written that China “may already be moving away from a rigid adherence to its policy of noninterference and increasingly finding that its own practical national interests might necessitate new forms of involvement or engagement on contentious issues of domestic governance in other countries, including Venezuela.”
None of this should suggest that China is remotely interested in direct, public confrontation with Venezuela’s government. At the moment, China is calculating that the benefits of having Maduro in power outweigh the risks of his government’s economic mismanagement. As Robert Evan Ellis has noted, as a result of China’s efforts to restrict credit to Venezuela in recent years, “its outstanding debt exposure in Venezuela may be as little as $10-20 billion, hardly worth risking its relationship with a strategically useful regime sitting on top of 300 billion barrels of recoverable oil.”
However, the differences between the Chinese and Russian approach to the Venezuelan crisis suggest that China’s support for Venezuela cannot be taken for granted. Moving forward, it is unlikely that the Chinese government will be an entirely inflexible ally to Maduro.