***Article first published by 'The Center for Strategic & International Studies' on April 3, 2018***

As the United States continues to shape its policy toward Latin America, China is rising as an economic and geopolitical force in the region. China’s influence in Latin America is neither transparent nor market oriented, and no country has felt the consequences more than Venezuela. Through loans and outbound direct investments, China has poured funding into Venezuela at the cost of Venezuela’s citizens and long-term success.

China’s involvement in Venezuela stems from President Xi Jinping’s plan to extend Chinese influence internationally. In the wake of China’s global ambitions, it has taken advantage of a collapsed, cash-strapped Venezuela to sign one-sided financial agreements. Inspired by state-dominated economic systems, both Hugo Chavez and Nicolas Maduro welcomed China’s financial support to fuel their “socialism of the 21st Century.”

There are four main issues that should concern the United States regarding China’s role in the Maduro-ruled Venezuela: (1) China is propping up Maduro’s undemocratic and repressive narco-regime; (2) China’s investments fail to bring long-term benefits to Venezuela; (3) Chinese loans and agreements are not transparent and in some cases are illegitimate; and (4) China’s agreements create energy and security concerns.

Propping up the Regime

Even as other countries have backed off from doing business with Venezuela, China has doubled down on its support. Over the past decade, Venezuela received over $62 billion from China, which is 53 percent of all money lent by China to Latin America. China currently owns $23 billion worth of Venezuela’s foreign debt, making it the country’s biggest creditor.

Venezuela is in the midst of a man-made economic and humanitarian disaster, driving an unprecedented refugee crisis, hyperinflation, and the biggest oil production collapse in the country’s history. Until recently, China was essentially the sole provider of cash to help the Maduro government honor its debt. Venezuela has not paid a sovereign bond since September 2017 and, according to sources at Caracas Capital, is now in default on 16 sovereign bonds and coupons totaling $1.81 billion.

Lately, in the face of a restructuring of Venezuela’s debt, China has seemed reluctant to increase its exposure to Venezuela. A key sign of distancing occurred in December 2017 when major Chinese oil company Sinopec sued Petroleos de Venezuela S.A. (PDVSA) in a U.S. court, accusing Venezuela of not fulfilling a 2012 contract for $23.7 million, a relatively insignificant amount of money (in comparison to the $62 billion lent over the past decade). However, given Venezuela’s limited funding sources, due to U.S. sanctions and massive debts, the Maduro regime will need to seek even more funding from the Chinese in the future.

Short-term Benefits, Long-term Consequences

While Chinese engagement could be seen by other Latin American countries as an attractive path to development, the short-term benefits often lead to long-term dependency. Chinese investments focus on extracting natural resources and trading high value-added manufactures from China for Latin American commodities. China’s appetite for commodities will only increase. Since 1980, half of China’s population has joined the middle class, and the middle class is set to expand by more than 80 percent between now and the mid-2020s. This will create a higher demand for energy resources and consumer consumption. China will become more dependent on Latin American natural resources in coming decades, leaving countries like Venezuela little reason to develop more sophisticated products with higher value.

Commodity-driven relationships can quickly boost the economy in resource-rich countries like Venezuela, but they do not require building greater institutional capacity. While China may prop up these economies now, a change in its commodity demands or the discovery of cheaper goods elsewhere could leave the region devastated. Such a relationship disproportionately affects Venezuela, a country completely dependent on its natural resources.

Corruption Compounded

Chinese investments lack even the most basic norms of transparency. Chinese investment typically takes the form of outbound direct investment (ODI) or lending through Chinese policy banks. However, China’s ODI is often routed through Hong Kong to undisclosed final destinations, and Chinese policy banks do not report detailed information on lending by country. In Venezuela, Chinese investments have been in the form of oil-for-loan deals, which are difficult to track. Furthermore, China has refused to join the Paris Club, which sets standards for bilateral investments. Without the accountability of a forum like the Paris Club, the international community has limited ability to find out the extent of China’s investment in Venezuela.

This lack of transparency adds yet another layer to the entrenched corruption of the Maduro regime. As of 2017, Venezuela was rated the 11th most corrupt country in the world. The international community should be skeptical of the seemingly endless amounts of untraceable money pouring into a country with a history of corruption, deep-state narcotrafficking, and without checks and balances.

Citizens and National Security at Risk

Over the past decade, 12 of China’s 17 loans to Venezuela have been specific to the energy sector—a total of $55 billion. China’s most significant commitment to Venezuela’s oil sector was its investment in the Orinoco Belt, one of the world’s richest oil areas, which produces extra heavy crude oil and sits across central Venezuela. In 2010, China’s national oil company signed a 25-year land grant for a 40 percent investment in one portion of the Orinoco Belt. The energy industry is at the heart of Venezuela—economically, politically, and socially. Oil accounts for 95 percent of the country’s exports and provides the cash to import everything else. Therefore, China’s focus on the energy sector could be viewed as a “power play” to gain authority over the political and social structures of Venezuela, as well as its extensive oil reserves.

Even as severe food and medicine shortages have crippled Venezuelans, the Maduro regime has prioritized purchasing weapons and military equipment over food and medicine. Between 2000 and 2017, Venezuela purchased over $5.6 billion worth of weapons, including $628 million from China. Traditionally, Russia was the biggest provider of weapons to Venezuela, but as of 2013 China has assumed this role. Venezuela ranks 21st in the world—and first in Latin America—of the countries that spend the most on military goods.

The incoming flow of lethal and nonlethal weapons has landed squarely in the hands of Venezuela’s military police, raising domestic and regional security concerns. Venezuela’s military leadership is both brutal and corrupt, prompting a formal investigation by the International Criminal Court. China’s weapons have fueled the regime’s oppression—particularly during the Spring 2017 protests, in which 163 people were killed and over 2,000 were injured. Sophisticated Chinese crowd-control weapons have instilled terror in Venezuelan society, deterring Venezuelans from expressing free speech and protesting peacefully and motivating thousands to flee the country altogether.

Policy Recommendations

The United States and other regional countries should hold China accountable for its actions in Latin America and in Venezuela. Publicizing the ways in which China has sustained the brutal, repressive Maduro regime and damaged Venezuela’s long-term economic success, is a good step forward. A public stance from the United States will deter other regional countries from entering into similar detrimental partnerships and increase pressure on China to create market-oriented and transparent relationships in Latin America.

China’s commodity-driven relationships generate short-term benefits for the region rather than sustainable industrial growth. In Venezuela, China’s trade deals in military weapons have fueled the repressive Maduro regime, and China’s nontransparent involvement in Venezuela’s energy sector indicates deeper meddling in Venezuela’s political and social structures. Venezuela’s crisis has made it more vulnerable than ever to Chinese influence, putting U.S. economic, security, and diplomatic interests at risk. While further sanctions on the Maduro regime are much needed, the United States needs to engage the region with a comprehensive foreign policy approach that stimulates economic growth, security, and prosperity.