China throws $5 billion lifeline to Venezuela's floundering economy

Venezuela’s cash-strapped socialist government has secured a new $5 billion development loan from China, President Nicolas Maduro said.

Maduro did not elaborate on the conditions of the loan, or explain what types of development projects his government will fund with the influx of Chinese money. But he said more Chinese aid could be on the way.

“We are working on more [cash] advances. As the deals are worked out and they come through I will provide more information,” Maduro said during his Sunday television show.

China has not commented publicly on the new loan.

Low oil prices and currency controls have Venezuela’s economy on the ropes. Some analysts estimate that government revenue will fall by $30 billion and the economy will contract by 7 percent in 2015. The Financial Times says inflation could exceed 100 percent as the government prints cash to cover its debts.

While Venezuela looks like a risky bet by most standards, some analysts say it makes sense for China to lend money to the stumbling South American nation. That’s because Venezuela sits on the largest oil reserves in the world — and that’s something China needs to keep its economy fueled.

Meredith Myers, an expert on Chinese-Latin American relations at the Inter-American Dialogue think tank in Washington, D.C., says Chinese loans assure the Asian giant its share of Venezuela’s oil reserves while making it easier for Chinese companies to get favorable oil concessions in the future.

“It’s a way for China to keep the status quo…and it keeps the [economic] relationship going,” Myers told Fusion.

The status quo has more to do with pragmatism than ideology. Myers says China’s communist government has not shown much interest in Maduro’s socialist ideals, and even sought meetings with Venezuelan opposition leaders prior to the 2013 presidential elections.

China has lent Venezuela $50 billion since 2005, according to a study conducted by the Inter-American Dialogue.

The South American country has paid back close to $30 billion, mainly in oil. Venezuela exports some 500,000 barrels of oil to China every day, according to Venezuela’s state run oil company PDVSA.

With that type of existing payment structure, Chinese loans to Venezuela essentially turn into a form of advance payment for oil shipments. And China, which consumes around 10 million barrels per day, needs lots of the black stuff. Venezuela currently supplies around 5 percent of China’s total oil demand.

But with more than $20 billion in outstanding loans to Venezuela, China does have a reason to continue backing Maduro’s government.  Another government might decide not to honor those commitments, or might ask for debt restructuring.

Manuel Rueda is a correspondent for Fusion, covering Mexico and South America. He travels from donkey festivals, to salsa clubs to steamy places with cartel activity.