On October 20, 2014 the China and Latin America blog published an update on recent changes to the Venezuela-China Fund Agreement that contains several inaccuracies. The amended version below includes corrections based on new information:
The China-Venezuela Joint Fund channels contributions from both governments to support social and economic programs in Venezuela. Chinese loans to the joint fund are repaid through oil shipments tied to market prices.
On October 10th Venezuela’s Official Gazette published changes to the agreement that remove the minimum quantity of oil repaid (previously 330 thousand barrels per day), allow Venezuela’s government to make contributions in local currency rather than US dollars, and alter the maturity of one of three loan tranches.
These changes were detailed in a news summary posted on China’s Ministry of Foreign Commerce (MOFCOM) web site. The MOFCOM posting was not an official statement by the ministry, as reported by our blog on October 20th. The article in question has since been removed from MOFCOM’s website.
The cited news report also included several factual errors. It incorrectly suggested that changes in the agreement responded to falling oil prices and to Venezuela’s inability to meet its payment obligations, noting:
Analysts explain that the declining oil price means more barrels of oil to return, but Venezuela is unable to increase production in the short term. So the Venezuelan government sought to extend the loan period.
Multiple sources have later clarified that this interpretation is unsubstantiated. Changes to the China-Venezuela Joint Fund Agreement were decided prior the precipitous slide in the oil price in mid-October. In fact, US-based analysts suggest that the removal of the minimum shipment requirement appears intended to avoid overpayment by Venezuela rather than underpayment.
Venezuela accounts for roughly half of China’s total financing in Latin America. Much of the over $50 billion dollars in loans that Chinese policy banks have pledged Caracas since 2006 is tied to the country’s energy resources. Oil-for-loan commitments are partly responsible for the rapid growth of Venezuelan exports to China in recent years.
China’s imports from Venezuela increased from 2.6 billion dollars in 2006 to 13.1 billion dollars in 2013, with oil and related products accounting for nearly all of this total. Venezuelan oil minister Speaking in November 2013, then-head of PDVSA Rafael Ramirez attributed roughly half of the 640 thousand barrels per day of oil exported to China at that time to loan repayments. Click here to read more on the evolving China-Venezuela relationship.