Latin America

China’s great railway dream: Traversing South America

A century and a half ago, thousands of impoverished Chinese migrants arrived in the United States to toil in perilous conditions on America’s first transcontinental railroad.

Today, China is once again playing a critical role in the proposed creation of a transcontinental railway, this time across South America, the continent’s first. But rather than provide menial labor, China is proposing to design and finance much of a state-of-the-art rail corridor.

In visits to Brazil and Peru earlier this year, Premier Li Keqiang said China would allot $10 billion for feasibility studies and eventual construction of the railway, which would run from Brazil’s Açú Port northeast of Rio de Janeiro on the Atlantic Ocean to an undecided port on Peru’s Pacific coast. It would penetrate part of the Amazon jungle and push over the Andes Mountains.

If built, the railway would reshape the movement of people and goods in South America in a way reminiscent of history in North America, speeding Brazilian exports to China, avoiding transport through the Panama Canal and running a shorter route than crossing the Atlantic and Indian oceans.

That’s a big “if,” however, and many people remain skeptical in both Brazil and Peru, and not just because of the recent plummet in China’s finances.

The challenges to constructing such a railway are particularly evident here in eastern Peru on the banks of the Ucayali River, one of two major tributaries to the massive Amazon River. Some 140 miles of inhospitable rainforest, crisscrossed by rivers, stretch between this city and the Brazilian city of Cruzeiro do Sul. It is widely believed that the China-backed railroad would have to traverse this segment.

Additionally, while the benefits to China and Brazil are evident – China’s appetite for Brazil’s soybeans and iron ore is ravenous – it’s less clear how it helps Peru. Most of the 1,860-mile border between Peru and Brazil is jungle, and trade between the two countries has not been important to either.

The one road that connects the two countries, the Inter-oceanic Highway, far to the south near Bolivia, has created a maelstrom of lawlessness in the jungle border area since its completion in 2011, drawing illegal loggers, miners and drug traffickers and leaving a wake of slashed forest. To the north, all trade occurs along the Amazon River, which has its headwaters in the Peruvian Andes to the west.

But the railroad might provide Peruvian goods with new markets in Brazil, which by reason of geography has traded primarily with Europe, Africa and the Caribbean.

“If they need cement in (the Brazilian states of) Acre and Rondonia, they are 4,500 kilometers from Sao Paulo but only 1,500 kilometers from Peru,” said Miguel Vega Alvear, president of the Peru-Brazil Chamber of Commerce and Integration, a trade group based in Lima, Peru’s capital.

A transcontinental railway also could supercharge development in the fertile heart of South America, which has more arable land than all of China. If the route were to pass through Peru’s Huallaga Valley, a prime area for coca leaf cultivation needed to make cocaine, it would make licit crops more attractive and easier to get to market, he said, cutting down on illegal activity.

China's train through Brazil

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China is looking at designing and financing the first transcontinental South American railroad. As Brazil has become a stronger trading partner with China, a modern rail corridor would help ease the Atlantic nation's ability to export to its Pacific trading partner.
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A railroad would be built from Açu Port on the east coast of Brazil to Peru's Pacific Coast, increasing Brazil's access to shipping to Pacific Rim countries

Top importers of Brazilian goods, 2000-2014

China has gone from not being among the top importers of Brazilian goods in 2000 to being Brazil's top buyer since 2009.

1999
 
Soy, one of Brazil's largest exports to China, currently must be shipped from the center of the continent to the eastern shore where it can be exported. A new rail line would allow transporting the crops directly to the Pacific Ocean.
More than 1 million tons 50,000 to 1 million tons 10,000 to 50,000 tons 5,000 to 10,000 tons 1,000 to 5,000 tons
The Inter-oceanic Highway is the only road connecting Brazil to Peru
The proposed train route would run from eastern Brazil, through much of the country where soy is produced to the western coast of Peru, from where it could be shipped to Asia.
 
Source: Instituto Brasileiro de Geografia e Estatística, UN Comtrade Database, McClatchy Washington Bureau

In Brazil, government officials have kept largely silent about what’s called the “twin-ocean railway” proposal. A request for information and an interview made to Brazil’s Ministry of Transportation was unanswered.

One of Brazil’s most important newspapers, Valor Economico, captured this sentiment earlier this year with an article headlined, “Agribusiness views train with skepticism.” The paper said business executives would not speak on the record and quoted one commodities trader saying, “It will never see the light of day.”

But there are reasons the China-backed project may advance. Brazil’s economy is in a prolonged slump, and commodity prices have fallen significantly. China’s economy is also growing slightly less than it did in the past.

China is Brazil’s largest trading partner and has been since 2012. It has been Brazil’s largest destination of exports since 2009 and increased every year, until last year. Yet four-fifths of the $41 billion exported to China last year were commodities, primarily soya and iron ore.

The prices of those commodities have dropped and in the next five years are not expected to return to the level of the boom years. This has created new pressure on Brazilian commodity producers to lower their costs.

“Soya alone is a driver of the whole project,” said Juan de Dios Olaechea, president of a Peruvian railway firm called Ferrocarril Central Andino. “What the Chinese are trying to reduce is the transport costs, which are extremely high and make (Brazilian soya) cheaper than soya from Iowa. That’s the benchmark.”

Diane Santos, an economist with Rio de Janeiro-based Funcex, a nonprofit research center focused on international trade, said the project also could benefit the exports of iron ore, the price of which also has plunged. With prices high, the companies could handle high transportation costs. With prices now low, there’s impetus to save.

She believes that makes the project “more probable today than it was in 2011.”

Brazilian Planning Minister Nelson Barbosa, an influential figure in President Dilma Rousseff’s government, said that he expects feasibility studies to be done by next May and then concessions to start taking place during the second half of 2016.

Still, the project could face opposition from indigenous and environmental groups and even from the laws of physics as they relate to rugged mountains.

Rainforest advocates say the environmental costs of cutting through the Amazon rainforest, either with a railway or a highway, are too high.

“No matter if it’s a train or a highway, this whole corridor would be flooded with colonists,” said Paulo Sima Flores, program coordinator in Pucallpa for the Instituto del Bien Común, a Lima-based public advocacy group. “You build a highway and it brings drug traffickers, prostitution and crime.”

Proponents of the railway say it would be more environmentally friendly than a highway. Rail stations or stops could be placed far apart, hindering the illegal mining and logging that has festered along the Inter-oceanic Highway.

“Compared to a highway, a railway is less invasive,” said Severo del Castillo Rojas, president of the Chamber of Commerce, Industry and Tourism in Ucayali, the department surrounding Pucallpa.

It’s not only the jungle that would be affected. Indigenous groups like the Shipibo and the Ashaninka, as well as at least a dozen other tribes in Peru’s Ucayali region, could be affected, though leaders are far from united. A few favor a train.

Some indigenous hamlets face hunger, malnourishment and dire poverty, said Elvis Príncipe Miranda, an ethnic Ashaninka who is a forestry adviser for a regional organization of indigenous groups in Ucayali. He said a railway could foster ecotourism, but stations would have to be placed so tourists could get on and off.

“If we have a train that we only see pass by, how will that help us? Just watching the train travel by at high speed?” Príncipe said.

The geography of the steep Andes also holds challenges for a transcontinental railway, which must accommodate long, heavily laden trains to be economical.

In most parts of the Andes, “you have short, narrow curves and it makes a long train unfeasible,” said Olaechea, the Peruvian rail president. “It’s going to limit your train to 30 or 40 wagons. . . . It’s not a question of technology. It’s a question of physics.”

He said a route that headed north from Pucallpa and across the Andes in northern Peru toward the port of Bayovar, south of Piura, could be feasible because of lower elevations and gentler terrain.

A transcontinental train could draw migration from Peru’s coastal areas back to the interior – “It makes no sense having one-third of the population living in Lima” – and take some of the steam out of a drive to build another Peru-Brazil highway through the Amazon, he said.

“I beg for it because if they build the road, they’ll destroy the jungle,” he said.

The railway “is good for the economy, is good for the ecology and the protection of the jungle, and it is good for greenhouse gases. It’s only going to be bad for the people trafficking in coca,” Olaechea said.

If U.S. history is any indication, the railway could dramatically affect outlying areas of Peru and Brazil. “Was Utah affected by these railways? Yes. Was California changed? Yes,” Oleachea said.

Del Castillo, the chamber of commerce chief, said he is under no illusions about who is calling the shots on the project.

“In reality, the train would be Chinese,” Del Castillo said.

But he had no doubt his city of Pucallpa would benefit.

“We could sell rocks to Brazil. They need gravel for construction. It sounds ridiculous but they need crushed rock for cement,” Del Castillo said.

China's investment in Latin America

As Chinese trade with Latin America has grown, the country has begun to invest in a variety of projects across Central and South America.

Tap on the map points to learn more.

Argentina

China has pledged $2.5 billion for Argentine railways and $5 billion for two hydroelectric dams, as well as technology for two nuclear plants. For its part, Argentina allowed China to construct a satellite monitoring station in Patagonia.

The Bahamas

A Chinese bank and construction firm salvaged Baha Mar, the largest resort and casino complex in the Caribbean, with a $2.4 billion loan and some 4,000 Chinese laborers. The four-hotel complex has yet to open amid lawsuits.

Brazil

In a flurry of activity, Chinese lenders rescued Brazil’s troubled state-run oil producer, Petroleo Brasileiro SA, with a $10 billion loan in May, and in the same month China’s fifth-largest bank, Bank of Communications, bought an 80 percent stake in Brazilian lender Banco BBM.

Brazil-to-Peru Rail

China has pledged $10 billion to build a transcontinental railway from Brazil to Peru through some of South America's most environmentally sensitive areas. The railway would transport Brazilian iron ore and soybeans to China at lower cost.

Ecuador

Among China’s projects in Ecuador is its largest hydropower plant, the $2 billion Coca Codo Sinclair project which will satisfy about one-third of the country’s electricity demand when complete.

Jamaica

China Harbor Engineering Company employs some 2,000 persons in Jamaica, and is currently executing highway projects valued at some $1.5 billion.

Nicaragua

A Chinese tycoon won the 2013 concession to build a 170-mile canal from Nicaragua’s Atlantic to Pacific coast. Serious construction on the $50-billion project has been delayed, and skeptics say it will never be built.

Venezuela

Since 2007, China has provided some $56 billion in loans to Venezuela in so-called oil-for-loan deals that ensure Beijing a steady supply of energy. Venezuela exports about 600,000 barrels of oil to China a day, nearly half of which go towards repaying its loans.

Johnson reported from Pucallpa, Peru, and McClatchy special correspondent Sreeharsha from Rio de Janeiro, Brazil.

This story and others on the growing Chinese influence in Latin America was supported by a grant from the Pulitzer Center on Crisis Reporting.

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