Castillo prioritizes relations with China and the companies of that country in the first days of his government | PERU

In his first week in office, the new government of Pedro Castillo has wasted no time in extending the hand of friendship to China, its main trading partner and largest buyer of its flagship export product, copper.

In recent days, executives from large Chinese mines and the Chinese ambassador to Peru, Liang Yu, have met with members of Castillo’s cabinet of ministers, in which, in addition to mining, they spoke of strengthening the current Free Trade Agreement (FTA ) between the two countries, according to government sources.

The arrival of Castillo to power, who in his electoral campaign announced higher mining taxes and will review tax stability contracts signed with large transnational companies, has scared investors who fear radical measures to replace the current free market policy.

“But this is not ideological, this is pragmatic,” said the professor of international relations at Boston University and former Chilean ambassador to China, Jorge Heine, on the subject.

China has become one of the largest investors in Latin America – supplying it with oil, gas, minerals and food – and its influence has grown despite warnings from the United States, whose leadership in the region has declined.

The executive director of the National Society of Mining, Oil and Energy (SNMP), Pablo de la Flor, said that the announcement of possible tax changes in Peru’s mining sector has worried everyone, including Chinese firms.

“Two of the most important Chinese mining companies have stability agreements (tax) and I imagine that this should be a concern especially when the modification of the tax framework is discussed,” said De la Flor.

The Minister of Energy and Mines, Iván Merino, has met with executives in Peru of the Chinese MMG Ltd, of Chinalco that operates Aluminum Corp, of Shougang Hierro Peru, among others, according to a report from the ministry.

And on the commercial front, Chinese Ambassador Liang Yu met on Monday with the Minister of Foreign Trade and Tourism, Roberto Sánchez.

“At present, the technical teams of Peru and China are working, through virtual means, in the optimization of the FTA between both countries. Bilateral relations with China are extremely important, ”the ministry said in a statement.

The FTA signed in 2009 made China the main destination for raw materials exported by Peru.

Investments at stake

So far the Castillo government, which took office on July 28, has not given any indication of how or when it would implement these plans that concern mining companies, and which they say would reduce the country’s competitiveness.

During the electoral campaign, Castillo accused the large transnationals of “looting” Peru’s wealth and promised in a possible government to turn the tables and retain 70% of mining profits; and use those funds to increase investment in health, education and reduce poverty.

According to government data, the Chinese MMG Ltd and Aluminum Corp of Chinalco are among the six large copper miners in Peru with tax stability agreements.

MMG Ltd, which operates the Las Bambas mine, has a contract that guarantees that there will be no tax changes until 2030. The agreement encouraged an investment of US $ 10 billion in the deposit that produces up to 400,000 tons of copper per year.

The tax contract with Chinalco, which produces 200,000 tons of copper per year at its Toromocho mine, expires in 2028.

Chinese companies have mining investments in their portfolio for US $ 10,425 million in Peru, according to official data.

China’s offensive has also been evidenced in recent years with the signing of more ambitious agreements with Latin America, including Peru, such as the initiative called the Strip and Route of million-dollar infrastructure investment projects.

The Chinese COSCO Shipping Ports Ltd is building a port in Chancay, north of Lima, with an investment of US $ 3 billion.

“It is logical that the Chinese capital turns to the rest of the world. Beyond the issue of competition with the United States, this is the result of the great growth of China in recent years, “said former Chilean ambassador Heine.

In another sign of strengthening ties with China, the government has announced that President Castillo will be immunized against COVID-19 on Friday with the Sinopharm vaccine, which he hopes to speed up supply for Peru hit hard by the pandemic.

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