Ever since its founding as a communist nation in 1959, Cuba has been economically dependent on allied nations. First came the Soviet Union, then Venezuela, and now it has a new benefactor – China.
The main driver of this new alliance is the crisis in Venezuela that has left the island drastically short of crude oil. Trade between the two countries is down 70% since Venezuela’s crisis began, according to the Cuban National Statistics Office, Dialogo Chino reported.
In 2017, the last year for which official statistics are available, Venezuela-Cuba trade was worth more than US$2.2 billion, equivalent to 12% of GDP that year. In the past two years, Havana has received less than half the 100,000 barrels of oil per day that Caracas exported from 2002 onwards.
With the dip in crude imports, the Cuban economy went into shock. Now, one of the Cuban government’s main priorities is to strengthen bilateral ties with China, a task for president-elect Miguel Díaz-Canel.
Cuba’s unicameral national assembly elected Díaz-Canel as president in early October, enabled by February’s constitutional reform. The new president visited Beijing November of last year to follow up on economic accords signed in recent years, Dialogo Chino reported.
China’s Xi Jinping recently wrote to counterpart Raúl Castro, who is still the first secretary of the Communist Party, the highest public office in Cuba: “I have the willingness to maintain close communications with you as together we write a new chapter of Chinese-Cuban friendship in the new era.”
“I sincerely vote for the ceaseless progress of the Cuban Communist Party, the prosperity of the Republic of Cuba and the eternal friendship between both countries and parties,” Xi added.
Castro also presides over the council of ministers, meaning the election of Díaz-Canel is more symbolic and does not imply a change to one-party rule.
According to Newsweek, the new president has pledged to continue Raúl’s vision, most notably his unfinished “updating” of the economy, a Cuban form of market socialism launched in 2011 to replace the former Soviet-style central planning system.
If he is successful, his reforms would produce the most profound transformation since Fidel took power six decades ago and lay the groundwork for what his brother Raúl called “prosperous and sustainable socialism.”
But, in taking the helm of government, Díaz-Canel faces strong political headwinds. He has to force Raúl’s economic reforms through a resistant bureaucracy — something even Raúl had trouble doing.
He has to hold together a fractious political elite, which is divided over how far and how fast to push economic change for fear of unleashing forces beyond its control. And he has to deliver the goods to a population increasingly vocal in its demands for a higher standard of living and a greater say in politics.
Foreign investors have been wary. Minister of Foreign Trade and Investment Rodrigo Malmierca says Cuba needs to attract US$2.5 billion a year in direct foreign investment.
But in the three years since Cuba adopted a new investment law with attractive concessions, it has raised just US$3.4 billion. Its opaque and unresponsive bureaucracy still deters all but the most intrepid foreign companies.
Meanwhile, the government has licensed 580,000 private businesses — a five-fold increase since 2010 — and the agricultural sector is composed almost entirely of private farms and cooperatives. In total, the private sector now employs 29% of the labor force.
Hemmed in by unrealistic regulations, many private companies skirt the law — buying supplies on the black market because there are no wholesale markets, evading taxes because the rates are extortionate and operating beyond the terms of their licenses because the permits are so narrow.
To conservatives in the Communist Party, this looks suspiciously like incipient capitalism run amok. To the average Cuban, the private sector’s growth has fuelled rising and visible inequality.
Today, unlike a decade ago, you can find fashionably dressed Cubans eating at the most expensive restaurants and staying at tourist hotels once reserved for foreigners.
Meanwhile, most people struggle to get by on inadequate state salaries, the equivalent of US$20 a month.
Raúl understood that market reforms would produce inequality, but he expected the changes to boost productivity, stimulate growth and raise everyone’s standard of living. It hasn’t worked out that way.
Because the state sector is so resistant to change — largely due to political risk — growth has been anemic, undermining the political logic of the reform process.
Enter China’s Belt and Road Initiative (BRI), a network of Chinese-financed maritime and land infrastructure and communications projects aimed at facilitating trade between China and the world, Dialogo Chino reported.
Cuba opted to join the BRI in 2019, hoping it would be a boon to its troubled economy.
China already became Cuba’s main trading partner in 2017. That year, the two countries exchanged around US$1.8 billion worth of goods. Cuba imported US$1.35 billion, mostly electrical products, and exported $379 million, with raw sugar and nickel accounting for the majority.
“We hope to get involved in this project in the most committed way possible, and that this means the Chinese business sector participates more actively in the process of updating our economic model,” Orlando Hernández, president of Cuba’s Chamber of Commerce, said of the BRI.
Bruno Rodríguez Parrilla, Cuba’s foreign minister, has reiterated that Chinese policies on trade and investment in Latin America are “highly appreciated” because they are “respectful of international law, and the independence and sovereignty of countries.”
China also intends to take advantage of Cuba’s development in biomedicines. Several Chinese companies specializing in biopharmaceutics and renewable energy have begun settling in the Mariel Special Development Zone, a budding investment hub.
Several joint projects are already underway. These include the transition from analog to digital television and the expansion of mobile broadband, led by Chinese telecommunications giant Huawei, and the creation of an artificial intelligence centre.
Last summer, Beijing donated Chinese-made trains to Cuba as a means of solving the problem of interprovincial transport on the island.
According to China Daily, Cuba, which is long, narrow and mostly flat, is ideally suited to rail systems. The Caribbean island was the first country in Latin America, and one of the first in the world, to have rail service beginning in 1837 with a 27-km line built to serve Cuba’s sugar industry.
As part of a program to modernize Cuba’s aging railway network, the four Chinese trains are now offering nationwide service to the local people, and more and more Cubans have relied on these trains as their key means of cross-country transportation.
These four trains have almost doubled the passenger capacity of the previous seven trains, which were acquired secondhand and have been retired after four decades of service.
And more Chinese-built trains are on the way. Thanks to a soft loan from China payable over 15 years, Cuba purchased a total of 240 railcars, which are to be delivered in batches of 80 each year through 2021.
Each train, built particularly to meet local conditions and needs, as well as international transportation standards, can accommodate up to 720 passengers, a feature new to Cuba.