Chile expands trade with China even as dependency risks grow

Chile’s rolling blackouts in 2024 and 2025 aren’t just operational hiccups—they’re stress signals pulsing through the arteries of capital infrastructure. When power cuts hit Mejillones and the disparity in household compensation between Chinese and European utility firms surfaced, the underlying issue became harder to ignore. This isn't merely about electricity. It’s about the cost of ceding critical infrastructure to foreign state-backed capital—especially when that capital is aligned with geopolitical strategy.

Today, more than 57% of Chile’s power grid is under Chinese control. State Grid Corp’s US$3 billion acquisition of Compania General de Electricidad (CGE), bolstered by the footprint of China Southern Power Grid, has tipped the balance. At the time, Beijing’s capital came dressed as modernization. Now, the fine print reads: diminished regulatory leverage, constrained response latitude, and increasingly visible asymmetries in enforcement.

Chile’s Grid Under Strain: Capital Exposure, Not Just Technical Failures

The June 2025 blackout in Mejillones wasn’t an isolated case. It followed months of mounting frustration, capped by a February outage that darkened 90% of the country—a failure traced to a Colombian operator. Yet despite that attribution, scrutiny remains fixated on Chinese-controlled utilities. Why? Because scale brings scrutiny, and with control comes accountability—or the lack thereof.

When CGE committed just US$8.4 million in compensation to nearly 882,000 households—barely half the payout Enel provided to fewer customers—the optics were not lost on observers. These figures don’t merely show imbalance; they reveal the limits of Chile’s regulatory reach. As LSE economist Andres Irarrazaval pointed out, this isn’t about reluctance. It’s about reality. Chile’s policy hand is weaker when capital dependence overrides enforcement authority.

From Bilateral Trade to Structural Interdependence

China’s position in Chile’s economy runs far deeper than headline exports. It now absorbs 40% of Chilean goods—more than twice what the US buys—and drives foreign direct investment into sectors beyond energy: logistics, telecoms, and digital infrastructure. This isn't transactional. It’s structural.

Between 2016 and 2024, Chinese investment in Chile multiplied more than twelvefold—from US$310 million to nearly US$4 billion. But what matters isn’t just volume—it’s configuration. Chinese state-owned enterprises rarely invest without strings. Embedded procurement contracts, aligned political narratives, and operational control often follow. So when Chile’s president admitted to private pressure to lean toward one global power over another, it wasn’t diplomatic gossip. It was a symptom of systemic entrenchment.

Infrastructure, under these terms, ceases to be neutral. Grid maintenance schedules, compensation disputes, and bilateral trade mechanics become tools of influence, not just functions of public service.

Strategic Misalignment: Washington’s Tariff Threats and Geopolitical Recalibration

Even as Beijing extends its economic embrace—sweetened by poultry and leather trade expansions—Washington has chosen a harder edge. President Trump’s tariff threats on copper, despite America’s reliance on Chilean mining, amount to strategic self-harm. Yet they reflect a broader posture: conditional engagement through economic coercion.

This places Chile in a tightening vise. Its lithium and copper exports underpin both Chinese manufacturing and global AI ecosystems. But economic overreliance on extractives—without sufficient downstream leverage—erodes policy optionality.

And what happens if the US starts penalizing mineral exports to non-aligned nations? Chile, trapped between its top customer and top geopolitical counterparty, could find itself excluded from both supply chains. In that light, diversification isn’t strategy—it’s survival.

What Sovereign Allocators and Policymakers Should Watch

The blackout in Mejillones may have flickered briefly in global headlines, but its implications run deeper. It’s a test case in sovereign constraint. When foreign state-owned enterprises dominate core infrastructure, a host country’s ability to intervene, demand redress, or even communicate dissatisfaction becomes blurred.

Chile has signaled intent to pivot. Trade pacts with Vietnam, India, and ASEAN reflect that shift. But intent alone doesn’t insulate. Strategic sectors—particularly energy and digital infrastructure—remain heavily exposed. And without buffer capital or credible regulatory risk mechanisms, sovereignty risks remain latent.

This isn’t Chile’s burden alone. Across Latin America, the pattern is repeating: short-term infrastructure gains are traded for long-term vulnerability, with few safeguards in place for course correction.

What This Signals

China’s grip on Chile’s infrastructure isn’t total—but it is deliberate. And in the context of intensifying US-China rivalry, Chile’s model of economic engagement is now facing its outer limits. What once looked like pragmatic trade alignment now reads like strategic dependency.

This isn’t just about policy ambiguity. It’s about structural loss of leverage. When infrastructure ownership is foreign and state-aligned, domestic regulators play catch-up. The muted compensation, the service instability, the quiet regulatory backpedals—all point to a broader truth: sovereignty is compromised not by ideology, but by inescapable capital configurations.

For other resource-led economies similarly entangled with Chinese capital, Chile offers a cautionary blueprint. Without structural redundancy, every trade boom carries a shadow cost. And as geopolitical pressure mounts, the real risk isn’t supply disruption—it’s policy paralysis.

In the end, resilience won’t be defined by trade volume. It will hinge on whether countries can unwind dependence without collapsing leverage. That’s the emerging threshold of fiscal sovereignty in a realigned, multipolar order.