China's Expansion into and U.S. Withdrawal from Argentina's Telecommunications and Space Industries and the Implications for U.S. National Security

Authored by Ms Janie Hulse.

September 2007

70 Pages

Brief Synopsis

Chinese involvement in the Latin American telecommunications and space industries has implications for U.S. national security. Unlike other commercial activities geared toward supplying raw materials to China’s 1.3 billion inhabitants, Chinese investment in space and telecommunications implies broader commercial and strategic interests that potentially put the Chinese into Western Hemisphere air and space. At present, Chinese activity in these industries is growing as U.S. engagement is diminishing. Globalization, advances in information technology, and China’s growing capacity and interest in Information Warfare make the United States particularly vulnerable should it abandon international telecommunications and space industries. In order to mitigate future threats, the United States should step up its commerce, aid. and diplomacy with Argentina and the region as a whole.

Summary

In April 2005 when the Western Hemisphere Subcommittee of the House International Relations Committee met to discuss Chinese involvement in Latin America, administration officials tended to downplay Chinese engagement in the region except in areas related to communications and intelligence. Indeed, globalization, new technologies, and growing Chinese information warfare capabilities make the United States particularly vulnerable to Chinese activity in these strategic areas. China’s recent success in Argentina’s telecommunications and space industries exemplifies China’s increasing effectiveness in strategic developing markets and raises concerns regarding increasing U.S. reliance on international information networks.

Chinese companies are aggressively positioning themselves for success in Argentina’s telecommunications industry. Relative to other developing markets in Latin America, Argentina has a robust telecommunications sector. In the 1990s, the sector was privatized leading to a period of growth and modernization that was briefly offset by a deep economic crisis in the country in 2002. Despite industry setbacks associated with the crisis, Chinese companies fought for a place in the market as many other international companies were fleeing. U.S. companies like AT&T and Bell South, that quickly set up operations after the 2000 privatization, for example, quickly exited Argentina at the first signs of economic instability. Conversely, the government-backed Chinese companies—Huawei and ZTE—doubled their efforts to gain a foothold in the floundering industry, only to receive dividends as the economy picked up a few years later. These companies first offered technology apt for rural developing markets, then worked their way up the value chain to become suppliers to the country’s two main monopolies that operate networks in urban centers. As these two Chinese telecommunications companies grow in Argentina and across the region, U.S. companies continue their retreat, preferring faster, safer returns in developed markets.

At a time when the United States is distracted from the Latin America region and is focusing less attention on cooperation with regional governments, Argentina, which has traditionally relied on U.S. space cooperation, is reaching out to China to modernize its space program. In the last few years, China has pushed to become a player in Argentina’s space and satellite industry. During President Hu Jintao’s visit to Argentina in November 2004, the countries signed a Framework Agreement on “Technology Cooperation in the Peaceful Use of Outer Space,” whereby China expressed willingness to provide Argentina with commercial launch services, satellite components, and communication satellite platforms. The Argentine government—through its newly created state satellite company, ARSAT—is taking advantage of China’s offer to launch a satellite in the commercially valuable 81 degrees longitude slot, which allows observation of all the Americas. Payment for services and equipment provided by the Chinese will be made through ARSAT stock, which would give the Chinese ownership stake and corresponding voting rights in the Argentine state satellite company. Moreover, the Chinese are interested in assisting Argentina with the development and fielding of low-orbiting, fixed observance satellites and have already provided the South American country with a third generation precision satellite laser ranger (SLR).

The implications for U.S. national security of increasing Chinese presence in Argentine and other regional telecommunications and space sectors will depend on the U.S. response to this trend. Potential threats exist as U.S. companies cede market dominance to Chinese and other foreign companies in strategically sensitive sectors. Telecommunications networks are no longer domestic, terrestrial, and circuit-switch operated. They are interdependent, diverse, and rest on terrestrial, satellite, and wireless technologies. These latter technologies are harder to control and more susceptible to tampering and attacks. Chinese capabilities in information technology and information warfare are increasing as its economic and political influence grow in Latin American countries. If unchecked, the United States leaves itself vulnerable to international information networks, which are of increasing operational importance to a modern military. Some of these international networks are now being operated by Huawei, a Chinese company with close ties to the People’s Liberation Army (PLA).

Chinese presence in Western Hemisphere space creates particular vulnerabilities for the United States. Latin America’s geographical proximity makes for convenient satellite observance of the United States. Access to space tracking facilities in the region also could give China the ability to attack U.S. satellites. Moreover, Chinese space cooperation with Latin American governments that have historically collaborated with the United States provides the Chinese an opportunity to study U.S. space technologies and practices up close. As is the case with the telecommunications industry, there is increasing competition in the international space markets. If the United States fails to maintain its preeminence in these markets, it will lose the ability to secure this extremely strategic industry.

While China is not currently building a significant military presence in Latin America, the human and commercial infrastructure that it is building in the region increasingly gives China a powerful lever for disrupting and distracting the United States in the Western Hemisphere, should Sino-U.S. relations turn sour. The United States should work to counter China’s growing influence to mitigate future threats. To do so requires improving U.S. relations with Latin American countries and making U.S. companies more competitive in the region—especially in strategic markets where U.S. security is at stake. The most effective way for the United States to improve its standing and influence in Argentina and the Latin American region as a whole is to help these countries succeed economically through increased aid, trade, and investments. Aid should be expanded in a creative, cost-effective manner and should include middle-income countries in South America, which traditionally do not qualify for U.S. Agency for International Development (USAID) assistance. Free trade should continue to be promoted, but in a more generous way. The U.S. Government should promote investment by bolstering the U.S. Commercial Service and assisting U.S. companies in gaining a foothold in the strategic telecommunications and space industries. It also behooves the U.S. Government to increase assistance to and cooperation with Latin American militaries to maintain friendships throughout the region. It is not too late for the United States to take remedial action to increase its presence in Latin America’s telecommunications and space sectors. Commercial and aid efforts should be complemented by a heavy dose of improved public diplomacy— especially in countries similar to Argentina where U.S. popularity is low and where China has made substantial inroads.

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