China Gives Venezuela $20 Billion

DAN MOLINSKI

http://online.wsj.com/article/SB10001424052748703594404575191671972897694.html

CARACAS—China will provide $20 billion in fresh funding to Venezuela, the latest sign of the Asian giant's expanding economic and financial role in Latin America.

Venezuelan President Hugo Chavez said that the funds will be used for highway-building and other projects, and that in return for the money, his oil-rich country will continue to offer China the petroleum it needs. China's state-run Xinhua news agency said the $20 billion was in "soft loans" for Venezuela's energy sector and would be provided by state-owned China Development Bank. he announcement came after Chinese President Hu Jintao cut short a trip to Latin America to oversee the response to a devastating earthquake that struck western China on Wednesday. He visited Brazil but scrapped trips to Venezuela and Chile.

Mr. Chavez announced the loan package during a ceremony Saturday at the Miraflores presidential palace in Caracas in which the two governments also signed a half-dozen other energy-related deals. "Thank you, Hu Jintao, and thank you China," Mr. Chavez said.

In recent years, China has been stepping up its investment and economic activity in parts of the developing world, including Africa and Latin America, especially in countries rich in natural resources. China became Brazil's top trading partner last year, displacing the U.S., and China Development Bank agreed to lend Petroleo Brasileiro SA, the state oil giant known as Petrobras, $10 billion to help develop Brazil's massive offshore reserves. China last year also became the second-largest trading partner with Colombia, the closest U.S. ally in the region.

Venezuela already has received, and spent, some $8 billion from China in recent years, which the South American nation has been paying back with crude oil. Mr. Chavez indicated last month he wanted to increase the credit-for-oil program.

Venezuela says it sends some 460,000 barrels a day of crude oil to China, although figures from the Chinese government indicate China imported an average of only 132,000 barrels per day from Venezuela during the first couple months of 2010.

For China, deals like the one with Caracas provide growing influence in a region long dominated by the U.S., and gives Beijing a destination for its abundant cash that can help ensure access to the oil needed to fuel its rapid economic growth.

Venezuela needs the Chinese funds to shore up its battered economy, which shrank 3.3% last year thanks, in part, to falling oil prices. Mr. Chavez also wants to reduce his country's dependence on the U.S., which is currently the main buyer of Venezuelan crude and thus its No. 1 trading partner. Mr. Chavez, a socialist, is an outspoken critic of the U.S. government, which he says remains "imperialistic" toward Latin America and other regions of the world.

Funds from China also have gone to build communication satellites in Venezuela, as well as railroads, schools and homes. China also delivered more than a dozen military aircraft at the start of this year to the Chavez government. The two countries in recent years have significantly increased their trade ties.

Among the agreements announced Saturday, the two countries signed a joint-venture deal to drill for oil at a promising block in Venezuela's eastern Orinoco region. The deal is to develop the Junin 4 oil block, expected to eventually produce 400,000 barrels a day of heavy crude. The joint venture is between Venezuela state oil company Petroleos de Venezuela and state-owned China National Petroleum Corp.

Petroleos de Venezuela will control 60% of the project, and China National Petroleum 40%. The cost of developing the Junin 4 block could reach $16 billion, officials have said.