Beijing to Unveil South America Investments

China Premier Li Keqiang to discuss Brazil railway, other infrastructure projects on visit this week

BRASÍLIA—Chinese Prime Minister Li Keqiang is set to bring greater financial support to South America this week, part of Beijing’s broader effort to reassure developing countries that have been hit by China’s declining demand for raw materials.

On Tuesday, Mr. Li is expected to discuss with Brazilian President Dilma Rousseff plans to build a giant railway, corporate acquisitions and the disbursement of billions of dollars for the overhaul of Brazil’s aging infrastructure as South America’s largest economy gears up for the Rio Olympics next year.

Later in the week, Mr. Li will visit Colombia, Peru and Chile, seeking to reassure trading partners that China’s slowdown won’t affect Beijing’s engagement in the region. Beijing is proposing deals in which China buys finished products instead of only commodities.

Already, Chinese lenders have become some of Latin America’s top investors.

“China is putting money in companies and assets that are undervalued,” said Sergio Amaral, a Brazilian diplomat and former trade minister. “It isn’t only a political opportunity, but a good business opportunity.”

The cooling of China’s economy, a major driver of global growth, has sparked a commodities glut that has left exporters of soybeans, crude oil, iron ore and copper hanging dry. China’s economy grew 7% in the first quarter from a year earlier, its lowest expansion rate since 2009.

Mr. Li has sought to build global demand for China’s train makers, and is setting up opportunities abroad for deep-pocketed Chinese manufacturers.

“There is a lot more to come” in loans and investment for the region, said Margaret Myers, a China and Latin America expert at the Inter-American Dialogue think tank in Washington. “We are seeing bigger numbers. There is more engagement of all sorts.”

In Brazil, where China has replaced the U.S. as top trade partner, Mr. Li is expected to sign agreements for joint research into the feasibility of building a cross-Andes rail link across Brazil’s agricultural belt to Peru’s Pacific coast. The project, which has been mired in red tape for years, seeks to lower transport costs of Brazilian exports to China. In Nicaragua, a Chinese firm aims to build a 172-mile oceanic canal that would be able to handle large ships, just as Panama expands its canal.

The delegation led by Mr. Li is also expected to disclose plans to invest up to $53 billion for infrastructure projects in Brazil, a much-needed injection for a government facing budget deficits. The government, after using the windfall from commodities exports to lift millions out of poverty and boost domestic consumption in recent years, is reversing stimulus policies to balance its accounts.

With an economy contract by about 1% this year, Brazil’s government is cutting funding to national development bank BNDES, a traditional source of cheap financing for infrastructure projects.

“Our arms are absolutely open to Chinese investment,” said Roberto Dumas, a Chinese economy expert a São Paulo’s Insper college.

Ms. Rousseff has said she would soon announce a package of infrastructure projects her government will put up for auction. “Brazil right now can use all China’s knowledge and expertise in infrastructure, including highways, rail, ports and airports,” she said in a recent interview with a Chinese media outlet.

Last year, Chinese loans to Latin America reached $22 billion, surpassing the combined lending of long-established institutions such as the World Bank and the Inter-American Development Bank, according to estimates from the Inter-American Dialogue, a think tank.

Many of these loans, which lack the fiscal-discipline strings often attached by Western lenders, were announced during President Xi Jinping’s trip to Brazil and other Latin American countries in July last year.

Last month, the China Development Bank opened a $3.5 billion credit line for PetrÓleo Brasileiro SA, as the troubled state-run oil firm struggles with a massive corruption investigation that is crippling suppliers and big chunks of Brazil’s economy.

Top recipients also include countries with high levels of perceived risk. Oil-rich Venezuela has received $56.3 billion since 2007, or about 47% of China´s total finance in the region, according to Inter-American Dialogue.

Argentina´s government, facing severe dollar shortages and a protracted legal dispute with U.S. creditors, recently turned to Chinese credit to bolster depleted foreign currency reserves.

After an initial foray into extracting industries, state-controlled Chinese firms have also invested in banking, manufacturing and agriculture projects across the region. But several announced deals have never taken off, and sometimes loans end up feeding corruption. A $7.5 billion project in Venezuela with China Railway Group sits incomplete and mostly idle. Some of China’s investments in Venezuela have been lost to corruption scandals amid allegations of government mismanagement.Chinese firms have also stumbled on red tape and labor unrest. A mining operation in Peru, bought in the 1990s by Shougang Hierro Peru SAA has been plagued with strikes almost every year. In Brazil, where Chinese cars are increasingly popular, auto maker Chery has clashed with unions at its plant in São Paulo state right after starting production in February.

Senior Chinese officials say China wants to diversify trade with South America by importing more value-added products from the manufacturing and aviation sectors.

In Colombia, Mr. Li will seek to bolster infrastructure development and industrial cooperation. He will also sign currency swap agreements in minerals-rich Chile, and look for ways to deepen the free-trade deals that China has with both Chile and Peru.

— James T. Areddy and Kejal Vyas contributed to this article.