Cooperation on infrastructure along with a deal to renew currency swap lines between China and Argentina may strengthen economic ties between the two countries and bring mutual benefits, according to a senior researcher of the Chinese Academy of Social Sciences.

During his visit to China from May 30, Argentina's Minister of Economy Sergio Massa renewed an agreement for three years to swap currency for the Chinese yuan, also known as renminbi (RMB). Representatives from both sides also signed a plan promoting cooperation under the Belt and Road Initiative (BRI).

Lin Hua, secretary general of the Center for Argentine Studies under the Latin American Institute of the Chinese Academy of Social Sciences, offered her analysis of how these two agreements will help improve Argentina's economic stability and boost partnerships between Argentine industries and their Chinese counterparts.

"Given Argentina's infrastructure and energy development needs, there are numerous opportunities for partnerships between Argentine and Chinese companies under the Belt and Road Initiative. For instance, restoring Argentina's railway network with the help of Chinese firms with expertise in infrastructure construction could increase transport capacity and reduce costs. Moreover, partnerships on wind and solar power projects in areas with good sunlight and strong winds have potential to address electricity shortages during peak consumption periods. Additionally, given Argentina's uranium resources and existing nuclear power plants, there may be potential for cooperation on nuclear energy development," said Lin.

Lin stressed that renewing the currency swap agreement would significantly alleviate pressure on the Argentine central bank's foreign exchange reserves. As Argentina's external debt remains high, shortages of U.S. dollars have been a persistent issue in recent years. Recent dry weather has further worsened the situation by impacting the agricultural harvests, which are a significant source of Argentina's export revenue.

"The renewal of the currency swap agreement with China has significant implications for Argentina. Under the agreement, Argentina can access 10 billion dollars in discretionary renminbi, which can be used for trade activities with China without depleting the scarce U.S. dollar reserves. This will ease the pressure on the foreign exchange reserves held by the Argentine central bank, and the saved dollars can be utilized for critical operations such as managing currency exchange rates," said the scholar.

"This renewal provides Argentina with three key benefits. Firstly, it saves the limited U.S. dollar reserves. Secondly, it indirectly boosts the U.S. dollar income as China's imports from Argentina will still need to be paid in US dollars and thirdly, it enhances market confidence and better equips Argentina to deal with future U.S. dollar shortages," she added.

Earlier this year, Argentina's government decided that imports from China would be paid for in Chinese yuan rather than the U.S. dollar. This move has already greatly increased the use of the yuan in the Latin American country, which Lin said could lead the country to launch plans to further strengthen its financial cooperation with China in the future.

"The China-Argentina currency swap agreement was initiated in 2009 and has been renewed multiple times since then with an ever-increasing amount. It has significantly contributed to maintaining Argentina's financial stability. One key aspect of financial cooperation is the development of RMB clearing business, indicating that RMB is becoming more crucial in Argentina's economic ecosystem. Going forward, it is anticipated that the RMB will become a vital reserve currency in Argentina, with potential implications for enhancing economic and trade cooperation between China and Argentina," she said.