Peru Mine Conflict: Problem for China Commodity Strategy
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1 September 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com
As most readers of this site are aware, China has taken an unusually direct approach in insuring a steady supply of raw materials, at what it considers an appropriate price,
1 September 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com
As most readers of this site are aware, China has taken an unusually direct approach in insuring a steady supply of raw materials, at what it considers an appropriate price,
in order to feed its ever growing manufacturing capacity, at BOTH upper and lower ends of the value-added scale.
In most cases, this has meant either a direct, state-to-state agreement with the governments of commodity-producing states, or buying into state-owned commodity companies.
In rare cases – where they have no choice BUT to go “indirect” – they will contract with global multi-nationals to insure they receive commodities,
From the point of view of commodity-producing countries,
China is generally considered an excellent partner to work with,
basically because, unlike Western countries / companies,
who often feel compelled to interfere in other countries’ internal affairs, for reasons both good and bad,
they basically keep out of the domestic situations of their partners –
they simply want to make sure whatever deals have been made are going to be honored.
As long as “contracts remain sacrosanct” – somewhat ironically, given an allegedly Communist country –
the Chinese generally tend to keep their noses out of other people’s internal affairs.
So it’s a bit shocking to discover that they have been having a decades-long conflict
with the workers in a mine in Peru that they themselves own directly –
and it is a struggle with continent-wide effects.
In its worldwide quest for commodities, China has scoured South America
for everything from Brazilian soybeans to Guyanese timber and Venezuelan oil.
But long before it made any of those forays, China put down stakes
in the desolate mining town of San Juan de Marcona in Peru’s southern desert.
The year was 1992.
Chinese companies had begun to look abroad.
One steelmaker, the Shougang Corporation of Beijing, set its sights on an iron ore mine here,
which looks like this from a satellite,
and bought it in a move that seemed particularly bold,
since, at the time, Peru was still plagued by attacks by the Maoist guerrillas of the Shining Path.
But the hero’s welcome for Shougang soon faded.
Workers at the mine, which was founded by Americans in the 1950s,
and nationalized by leftist generals in the 1970s,
began fomenting the unexpected:
a revolt that has endured to this day, marked by repeated strikes, clashes with the police
and even arson attacks against their nominally Communist bosses from China.
“We quickly realized that we were being exploited to help build the new China,
but without seeing any of the rewards for doing so,”
said Honorato Quispe, 63, a longtime union official at the mine,
where workers have held three strikes this year alone,
including an 11-day stoppage last month.
The long-festering conflict with Shougang over wages, environmental pollution,
and Shougang’s treatment of residents of this company town
does not square well with China’s celebratory vision of its rising profile in Latin America,
in which everyone benefits and a “win-win” is “the consensus.”
Latin America, as this idea of so-called South-South cooperation goes,
sells China raw materials like copper, oil or iron;
in return, the region buys goods like cellphones, cars and cheap plastic toys.
Pardon me for saying so, but this sounds JUST like the dynamic of the 19th century British Empire.
The tension in Marcona, one of the most conflict-ridden towns in a country
increasingly prone to conflict over mining and energy projects,
suggests that China’s engagement in the region —
like that of the United States, Britain and other powers that preceded it in Latin America —
is not without pitfalls.
While not the dominant theme in the region’s relations with China,
a wariness is crystallizing in some countries over the booming trade with China.
Reactions to this surge largely focus on cheap Chinese imports
or on China’s assertive efforts to win access to energy reserves.
In both Brazil and Argentina, for instance, manufacturers accused
Chinese companies of unfairly dumping Chinese products in their markets,
prompting new tariffs against some Chinese imports.
But perhaps nowhere in the region has
wariness and regret over Chinese investment coalesced as much as in Marcona.
With about 15,000 residents, it still has the look of a mining town in the American Southwest,
a legacy of its construction in the 1950s by engineers from the United States.
The Americans are long gone, but the Chinese managers now live in the same ranch-style houses
built for their US predecessors in a district called Playa Hermosa, or Beautiful Beach.
They drive sport utility vehicles and talk to subordinates through translators.
They eat meals at their own cafeteria, avoiding mixing with Peruvians in town.
Workers here said the problems with Shougang began in the 1990s,
when the company slashed the mine’s work force to 1,700 from 3,000
and brought in some Chinese workers.
Resistance in the form of strikes soon convinced the managers to return their workers to China.
Resentment also emerged when
Shougang did not invest a promised $150 million in the mine and the town’s infrastructure,
opting instead to pay a $14 million fine for failing to do so,
and left blocks of housing once occupied by workers vacant
in a town with an acute housing shortage.
At a union building, workers spoke of low wages
and company resistance to enacting government-mandated raises,
and they claimed that Shougang had dumped chemical waste into the nearby sea.
On the other side of Marcona from Playa Hermosa, some workers at the mine live in bleak company housing.
Others rent squalid rooms in the town.
A lower class of squatters subsists on Marcona’s edge in a driftwood shantytown, Ruta del Sol.
“The Chinese see us as little more than slaves,”
said Hermilia Zamudio, 58, a resident of Ruta del Sol,
whose husband was fired from the mine after working there for almost 30 years.
“They deem it beneath them to talk to us, and when they need to address problems here, they do so with their thugs.”
Clashes with private security guards and with the police,
who receive a monthly stipend paid by Shougang,
are common in Ruta del Sol,
on land where Shougang says it has concessionary rights
to exploit deposits of dolomite,
a mineral it hopes to extract for smelting iron and steel.
At one clash last year, Wilber Huamanñahui, 21, a construction worker, was shot dead
as he and dozens of others tried to take possession of land controlled by Shougang.
The case remains unsolved.
“I know there will never be justice for his killing,” said his widow, Zoila Benites, 18.
Elected officials here still express dismay over
the inability to punish those responsible for Mr. Huamanñahui’s killing.
“We think there’s an effort by judicial authorities to delay the process
for four or five years until the matter is forgotten,”
Joel Rosales, the mayor of San Juan de Marcona, said this month.
Shougang, which keeps its Chinese managers cloistered away from the news media,
has generally responded to such statements with silence.
An effort to approach Chinese executives at their private cafeteria here
was met by a threat of forceful expulsion by a guard.
Raúl Vera la Torre, a Peruvian executive for Shougang
who handles relations with the government and journalists,
acknowledged in an interview in Lima that the company faced complaints
over issues like the housing shortage, water scarcity and expulsions of squatters.
He contended this month that Shougang
had carried out projects to improve the quality of life in the town,
like providing potable water to many residents.
Still, he said, “a company cannot take on duties that are those of a government” –
a comment which, interestingly enough,
echoes the critique by German philanthropists
of the Bill Gates / Warren Buffett “billionaire giveaway” program.
For now, Shougang seems prepared to manage from crisis to crisis.
The mine here has been the focus of one to four significant strikes annually in recent years,
according to Evan Ellis, a specialist in Chinese-Latin American relations
at the Center for Hemispheric Defense Studies in Washington.
Mr. Vera la Torre, Shougang’s Peruvian executive, said he preferred to focus on Marcona’s potential.
Pointing to China’s long-term view, he said
Shougang planned to invest $1 billion to raise production
to 18 million tons of iron ore by 2012 from 8 million tons today.
Geography blessed Marcona, he said, with a location at the end of a planned highway link to Brazil.
Others are also eyeing Marcona’s location,
including an American fertilizer manufacturer that plans to build a $1 billion plant here.
Large ships could easily dock in a nearby port, which Shougang also owns.
But Marcona’s workers suggest that unlocking that potential could do little to ease tension here.
“After nearly two decades of this experiment, the answer is no,”
said Félix Díaz, 66, a senior union official in this article from the New York Times.
“When the Chinese arrived, they talked about things like solidarity and the equality of man.
If this is the brotherhood they praise, then one day sooner or later, the Chinese must be made to leave.”
Well, that doesn’t sound very promising for China’s crucial future relations with commodity-producing countries, now, does it ???
Let’s hope they have learned something from this seemingly terrible situation,
above all, if they ARE going to get involved in the domestic affairs of other countries,
it’s in THEIR interest to have them go as smoothly as possible,
and NOT turn into the antagonistic nightmare with the locals that Marcona seems to have become.
Because otherwise, it’s Rio Tinto and other commodity multi-nationals,
and we’re sure that’s a nexus they would MUCH rather avoid.
David Caploe PhD
Editor-in-Chief
EconomyWatch.com
President / acalaha.com
