Illustration: Liu Rui/GT

With the world's largest oil reserves, Venezuela is undergoing an economic collapse triggered by the oil price plunge, and is facing increasing political risks. The opposition-controlled National Assembly is working to hold a recall referendum in an attempt to remove President Nicolas Maduro from power. The confrontation between the Maduro government and the National Assembly has put the nation in a precarious situation.

Venezuela's domestic conflicts have been pushed up by food and drug shortage, power deficit, hyperinflation, social unrest and high crime rates, while its possible defaults on debts are make foreign investors hesitate.

As the largest creditor and investor of the South American country, China needs to keep an eye on Venezuela's political trends to protect its own interests.

Venezuela began exploiting its first oil well in 1914 and started producing oil in 1917, making oil its economic lifeline. The "oil sovereignty" idea has always dominated the country's public opinion.

During the 13-year rule of late Venezuelan president Hugo Chávez, Venezuela more than doubled its oil revenue, boosted its economic growth and made notable progress in poverty reduction and narrowing social gap. But Venezuela's oil industry is long controlled by the president, and a mechanism of democratic and scientific management is absent.

The revenue of Venezuela's state-owned oil and natural gas companies has been mostly spent on social projects with little put in the oil industry, which led the industry's backward development. Venezuela's excessive dependence on the oil industry has impeded the development of other industries and resulted in monotonous economic structure and deformed industrial system.

As crude oil exports account for 95 percent of Venezuelan government revenue, the oil price slump has exposed the vulnerability of the national economy. A drop by $1 in the oil price means a fall of $700 million in Venezuela's public revenue. The dramatic fluctuation in the price of oil has directly affected Venezuela's economic prosperity.

The unstable exchange rate and hyperinflation have pushed Venezuelan economy to the brink of collapse. Due to hyperinflation, the purchasing power of citizens has fallen massively. The country's GDP shrank by nearly 10 percent in 2015. The current crisis is primarily caused by the economic model inherited from Chávez times and also the Maduro government's over-emphasis of ideological legitimacy and lack of reforms and adjustments.

Politically, Maduro's United Socialist Party of Venezuela has often been challenged by the opposition coalition that won a majority of seats in the National Assembly in December. Despite the opposition's attempts to force the president to step down, Maduro insisted on maintaining his presidency until the elections in 2019 and accused the opposition of colluding with other American countries for a coup. The impeachment of Brazilian President Dilma Rousseff has fomented tensions in Venezuela as well.

Since Chávez took office, the energy and finance cooperation between China and Venezuela has seen some breakthroughs. The bilateral economic cooperation is mainly driven by the loans-for-oil deals and the Chinese government has given massive financial credits to Venezuela. Given the international oil price plunge, Venezuela has to double its oil output to pay for Chinese loans yet it is unable to rapidly enhance productivity, hence the default risks.

But the political risks can be more subversive. The political standoff between the ruling and opposition parties may trigger a leadership shift and bring down Maduro. Venezuela's right-wing opposition may form new foreign and oil policies for political ends once they take office, which will affect China's commercial interests. 

In the medium- and long-term, there will always be the political risks that Venezuela's foreign policy is changed or even overturned due to rotation of the ruling parties. China faces a diplomatic challenge to make its cooperation with Venezuela survive beyond partisan conflicts.

The author is director of the Center for Latin America Studies and a research fellow of the National Academy of Development and Strategy, Renmin University of China. opinion@globaltimes.com.cn. Follow us on Twitter @GTopinion