China Rethinks Its Alliance With Reeling Venezuela: by KEJAL VYAS IN THE WALL ST JOURNAL,Sept. 11, 2016

CARACAS—China spent much of the last decade building a strategic alliance with Venezuela, a country that sits atop the world’s largest oil reserves and was led by a socialist president, the late Hugo Chávez, who admired Mao Zedong and wanted to counter U.S. influence in Latin America.
These days, confronted with a pile of unpaid bills and increasing security headaches for its citizens and companies in Venezuela, China appears to be recalculating its alliance with the nation where it has made about $60 billion in loans.
As a result, Venezuela may not get meaningful fresh loans or investment from China, raising the possibility of deeper cutbacks and shortages in the oil-rich nation or a default on more than $110 billion in government and state-oil-company bonds.
China’s envoy in Caracas conveyed concerns over security and Venezuela’s debt repayment during emergency meetings held between April and June with dozens of representatives from Chinese state companies, according to four officials from Chinese companies.
“The consensus was that no new money was going to be invested,” said one of the officials. “There was a clear message from up top: Let them fall,” said the official. He said Chinese companies were moving employees to Colombia and Panama for personal-safety reasons and because many Chinese-led projects have ground to a halt.
Since February, at least three Venezuelan opposition lawmakers as well as economists and oil-industry consultants have gone to Beijing at the invitation of China’s Communist Party to discuss a transitional government and recovery plan to turn around the world’s worst-performing economy, according to several Chinese and Venezuelan people familiar with the talks. The International Monetary Fund estimates Venezuela’s economy declined by nearly 6% last year and will contract another 10% this year.
China is still owed about $20 billion of the $60 billion is has lent, these people said, and is concerned about corruption and misappropriation of its development funds. It also wants guarantees that its investments in Venezuela will be respected by the opposition amid a fast-deteriorating situation involving food riots and rampant crime.
China’s Foreign Ministry denied in a written statement that it has been rethinking its relationship with Venezuela. It said the Chinese government has repeatedly reminded its citizens and companies in the country to raise their safety awareness. The loans Chinese financial institutions have provided, it said, were commercially driven and have “brought about practical benefits for both sides.”
Venezuela’s foreign ministry didn’t respond to requests for comment. Venezuelan President Nicolás Maduro recently told a visiting Chinese business delegation: “We value very much this extraordinary relationship with the People’s Republic of China.”
Security risks are growing for Chinese expatriates, a long-established merchant class here. They have become targets for kidnappers and extortion rings, prompting many to leave the country.
Venezuela has the world’s second-highest murder rate, according to the independent Venezuela Violence Observatory. Many recently arrived Chinese state workers rarely venture out from where they live and work.
“At all levels in China, there’s a huge worry about what is happening in Venezuela and an understanding that a change in government is needed,” said one person familiar with the discussions in Beijing.
How China plays its Venezuela hand could have ramifications across Latin America and Africa, where resources-rich countries turned to Chinese financing during the commodities boom, said Diego Moya-Ocampos, analyst with the risk consultancy IHS. “They are now reassessing political and nonpayment risk so they do not become so vulnerable like they did in Venezuela.”
Venezuela’s dollar reserves, at $11.8 billion, are at a 13-year low as President Maduro lobbies for help from allies. Bilateral talks in Caracas in August produced a commitment from China for only a few thousand vans and trucks to help ease shortages, the Venezuelan government announced, but no big loans.
“There were a lot of reasons why China rushed into its relationship with Venezuela, but now it’s about: ‘How do we get out of this mess?’ ” said R. Evan Ellis, a professor who closely tracks China’s relations in the region at the U.S. Army War College.
During the meetings in China, Venezuela’s opposition offered assurances that Beijing’s loans would be recognized, hoping to keep the door open to more credit if a new government comes to power, said the people familiar with the talks. “We can’t afford to lose the privileged relationship we’ve developed with China,” said one.
The Chinese government and Venezuela’s opposition both want to make future investment deals more transparent and subject to approval from Venezuela’s president as well as the opposition-controlled National Assembly—a bid to ensure their survival should the opposition take over.
Relations blossomed under former President Chávez. Cheap Chinese mobile phones, motorcycles and home-building materials helped Venezuela’s government win support among the poor. Venezuela welcomed thousands of Chinese technicians to work on infrastructure ventures, largely paid for with shipments to China of 600,000 barrels of oil a day. China was a crucial lender of last resort as investors in international debt markets charge Venezuela some of the highest borrowing rates in the world.
Then security emerged as a concern. Venezuela ranked below war-ravaged Syria on perceived citizen security in a recent Gallup poll. Warnings distributed by the Chinese embassy here to Chinese nationals, reviewed by The Wall Street Journal, refer to attacks against foreigners.
“As Asian people, to the greatest extent possible, you should avoid traveling by yourselves,” read one advisory from the local office of China’s state-owned Sinohydro Corp.
“At the same time, you should also avoid traveling in groups, which can easily draw the attention of criminals,” it said. Kidnappings increased 60% in 2015, the notice said. It advised workers to avoid giving out personal information, such as living arrangements, to Venezuelan colleagues, and said that local bodyguards shouldn’t be trusted.
An embassy email from March recommended buying guard dogs and installing GPS systems in cars to make abductees easier to locate. It described a carjacking and ransom payment outside an upscale hotel in Caracas’s Altamira district, where many Chinese expats reside.
Employees of some Chinese companies are urged to return to their apartments by 7 p.m. In the parking lot of one high-end Caracas residential building, workers in shorts and flip-flops exercise every evening by walking laps behind a 10-foot wall. “It’s too dangerous to go outside,” said one.
The Federation of Chinese Associations here, which keeps a registry of 23 social clubs across Venezuela, estimates that more than 30,000 Chinese have left the country since 2014. More than 100,000 remain.
“My market is destroyed,” said Rafael Lobo, who brokers apartments for Chinese expats, “Apartments that two years ago were going for $2,000 a month, I can’t even rent out now for $400.”
The economic and security crisis also has hit the more than 200,000 Cantonese who came here decades ago, many from Enping in southern China, to become shopkeepers and restaurateurs. Many shop in Chinese markets that open on Sundays in big cities around Venezuela, where Chinese newspapers and winter melons are sold next to frozen ducks stored in bloodstained coolers.
So many returned to Enping over the past year that the Enping mayor’s office sent a delegation to Caracas in July to investigate why. “They had to come here and see the reality for themselves,” said Vicente Xue, vice president of the Chinese-Venezuelan Commerce Chamber, which received the delegation.
In an effort to resolve chronic food shortages, the Venezuelan government has been using the shelf space of Chinese shopkeepers to sell price-controlled goods.
Other merchants, who handle rooms full of cash because of Venezuela’s hyperinflation, complain of frequent armed robberies. Some say they bribe the police for protection.
“Whenever thugs see a face like mine these days, all they see is an ATM,” said Carlos Wang, a second-generation shop owner who is looking to leave Venezuela. http://www.wsj.com/articles/china-rethinks-its-alliance-with-reeling-venezuela-1473628506