Chile is the latest country to find itself with a difficult decision to make on whether to block Chinese investment. Currently being looked at by the antitrust regulator FNE is the acquisition of a 24% stake in one of the world's biggest lithium producers by Tianqi Lithium (listed on the Shenzhen Stock Exchange). But Chile is studying a proposal for a China supported high-speed rail project linking Santiago with two coastal cities.
China Railways Group Limited (CREC) is part of the Consorcio TVS, alongside Chilean entities Sigdo Koppers and Latinoamerica Infraestructura. They presented their proposal to then-President Michelle Bachelet in January 2018. She has since been replaced by newly elected President Sebastian Pinera. The consortium pitched itself as being the first major rail project in South America to be totally supported by the private sector. Construction would take four years. Trains carrying 890 passengers would travel the line from Santiago at 200 km/h, reaching Vina del Mar in 39 minutes and Valparaiso in 45 minutes. Chile has for many years been regarded as having the most developed financial system in Latin America, but nonetheless the estimated project cost of US$1.6 billion calls for deep pockets. On big projects Chinese contractors typically bring debt finance, making them attractive partners.
Not only is the consortium proposing to build the high-speed rail line, but it is suggesting that it could get involved in other infrastructure projects. CREC's local representative, Yang Jinjun, has said that there is great potential for new transport projects in Chile. Consorcio TVS head Alvaro Gonzalez has said that the consortium is interested in other projects.
This issue has added to the complexity of deciding whether to endanger relations with China by blocking the SQM share acquisition. On 17 May Tianqi Lithium Corp announced that it had agreed to acquire a 24% stake in Sociedad Química y Minera de Chile for US$4.1 billion. Under the terms, Tianqi intends to buy 62.5 million SQM A shares for US$65 each from Canada-based fertilizer company Nutrien Ltd (listed on the Toronto Stock Exchange). The stake would entitle Tianqi to seats on the SQM board and move it close to controlling the company.
In April, Xu Bu, China's ambassador in Chile, told Pulso, a Santiago newspaper, that blocking the deal could harm trade relations. He added that comments from Eduardo Bitran, executive vice-president of the Chilean economic development agency (Corfo), questioning the deal were bringing in an unnecessary political element. Bitran said that such threats inhibit the antitrust process. Corfo is the agency that requested the review. The NEP has several months in which to decide whether to conduct a formal investigation.
The deal is important for China. Ensuring lithium supplies is the kind of strategic goal that underpins the Belt & Road initiative. China is moving fast in electric car production. Part of this is related to concerns over air pollution. Plus, since petrol engine technology is dominated by traditional carmakers such as BMW and Mercedes, an emphasis on electric cars gives Chinese players an opportunity to build global brands in a new industry. Given the potential demand for electric cars, supplies of lithium will be vital as one of the raw materials in rechargeable batteries.
China is fourth in global lithium production, behind Australia, Chile and Argentina. Chengdu-based Tianqi plans to triple production capacity by 2020. It is already building a sizeable lithium processor in Western Australia, and SQM is the world's second largest lithium producer. Given its vast mining industry, Chile is a target for Chinese companies looking to ensure supplies of raw materials. Tianqi has been interested in SQM for several years, per media reports. Tesla, a US electric carmaker, may also be interested in buying a stake in SQM, according to reports in January 2018.
