For a brief period earlier this year, it appeared that Beijing had finally had enough of supporting its "ideological allies" in Caracas when it decided to limit its "exposure" to Venezuela after the country struggled to make interest payments on a $19 billion loan. But in the wake of reports that the US nearly supported a military uprising against the socialist government of Venezuelan President Nicolas Maduro, the Chinese Communist Party has apparently changed its mind. Instead of tightening the leash, Beijing has offered a $5 billion loan to the struggling socialist "republic" as Maduro prepares to travel to Beijing to grovel before the Party bosses, according to a Bloomberg report.
The loan will provide the Venezuelan regime with a badly needed source of financing after it stopped making payments on its foreign debt earlier this year, effectively shutting the country out of international capital markets (and forcing Maduro to rely on unorthodox financing alternatives like the "petro").
Venezuelan Finance Minister Simon Zerpa told Bloomberg News on Thursday that the country would pay back the loan with either cash or oil. The countries were expected to sign what Zerpa described as a strategic alliance on gold mining.
"Venezuela has a great alliance with China," Zerpa said.
The finance minister was speaking in Beijing ahead of a state visit by Maduro, who’s seeking greater Chinese support to weather a financial crisis that has led to unrest, assassination attempts and the collapse of the country’s currency. Maduro has halted most payments on Venezuela’s foreign debt and owes more than $6 billion to bondholders, cutting off most sources of new financing.
Amusingly, Geng specified that the financing agreement would be "in line with international norms" (though, last time we checked, offering refinancing after refinancing with only promises of future oil shipments as a security is hardly 'standard' in global capital markets).
China and Venezuela are finalizing agreements and would release details in a timely manner, Chinese foreign ministry spokesman Geng Shuang told reporters in Beijing on Thursday. Any financing cooperation would be in line with international norms, he said.
"The domestic situation is getting better and Venezuela’s government is actively promoting economic and financial reform," Geng told reporters.
Zerpa said he met with Chinese Vice President Wang Qishan, as well as various ministers, while in Beijing. Venezuela “continues to look for a mutually agreed upon solution” with foreign bondholders, Zerpa said.
The Trump administration, which is engaged in a trade war with China, had considered military action to end the long-running crisis in Venezuela. The U.S. held at least three meetings meetings with Venezuelan military officers before deciding not to help them overthrow Maduro, the New York Times reported Saturday.
As we pointed out earlier this year, China likely sees much more upside than risk in Venezuela. Even during the boom years, China has been Venezuela's largest lender, having tolerated several debt "restructurings." Of course, given China's aggressive desire to expand its global economic footprint, the world's second-largest economy may see potential in a broad Venezuelan bailout package – one that could include the country formally adopting the yuan. It's also interesting that China is upping its support - even pledging a military intervention if Maduro's many enemies again try to topple his regime via an uprising or assassination attempt.