Latin America and China
China’s presence in the US “backyard”
November, 2016. Xi Jinping, president of China, visited Ecuador, Peru and Chile, with the aim to further discuss trade deals with Latin America. The change of China’s foreign policy with Mr. Xi Jinping looks to a more power projection and active engagement.
Latin America represents an interesting opportunity to the world’s second-largest economy as energy provider, and market for infrastructure projects. In fact, the Chinese Ministry of Commerce has expressed that Latin America together with the Middle East/Africa and Russia/Central Asia as the three main areas that are likely to become net energy suppliers for Beijing (1).
During the official visit in Chile, Ms. Michelle Bachelet signed twelve memorandums of understanding with Mr. Xi Jinping covering areas like Power and technology transfer. (2)
Besides, China’s commercial interests. It also has to be considered that Latin America wide natural resources, which are crucial to China economic development.
Between 2000 and 2015, Chinese premiers and presidents visited the region as many as thirty-one times, with Brazil, Argentina, Chile, and Cuba figuring as the top destinations.
In 2015, China signed agreements with Latin American countries promising to double bilateral trade to $500bn within ten years and to increase the total stock of investment between them from $85bn-100bn to $250bn. (3)
The question is if Latin America can benefit for these agreements? Latin America raw material (copper, iron, oil and soya beans) exports to China account to around of 75% of their exports (4). In the other side of the trade balance, the imports from China are mostly cheap manufactures. That arise open uncertainties including local unemployment and exports subsidies. The classic arguments to doubt Trade agreements.
“To blame trade for job losses is to use a convenient scapegoat, but it ignores both the benefits of trade and the disruptive nature of technology,” UNCTAD Secretary-General Mukhisa Kituyi (5)
If a business relationship between China and Latin America can achieve a win-win situation is still questionable, but considering the wall that US is predicting to build relating to Free Trade. It is certainly an area of opportunities to follow.
Background
Chinas investments in Latin America:
- The Chinese State Power Investment Corporation (SPIC) recently acquired in Chile Pacific Hydro, a Chilean company producing renewable energy (2)
- September 2016, China’s State Grid bought a 23% stake in CPFL, a Brazilian energy utility, for $1.8bn. (3)
- WTorre, a Brazilian construction company, signed a deal with China Communications and Construction Company International to build a port in Maranhão, a north-eastern state. (3)
- Fosun, an investment company, recently bought a controlling stake in Rio Bravo, an asset manager in São Paulo. (3):
- Last year Bank of Communications bought 80% of BBM, a Brazilian lender, for 525m reais ($174m). (3)
China Free Trade activities in Latin America:
- Bilateral trade between China and Latin America stood at $263.6 billion in 2014.
- In 2013, the total volume of Chinese-Latin American trade was 24 times larger than it was in 2000.(1)
- Since the Free Trade Agreement of 2005, China has become one of Chile’s most important wine markets in the world with annual wine exports at over USD$175million. (3)
- China has currently trade agreements with Peru, Chile and Costa Rica.
- 2015, China’s prime minister, Li Keqiang, went to Colombia to talk about one.
- 2016, Mr. Xi wants to expand the FTA that China signed with Chile in 2005.
- October 2016, Uruguay’s president, Tabaré Vázquez, went to China to talk about an FTA.
- The death of the Trans-Pacific Partnership (TPP), from which Mr Trump has said he will withdraw, may also prove an opportunity.
- China is hoping to use a meeting in Peru of 21 Pacific Rim economies to boost the prospects of its TPP-alternative, the Regional Comprehensive Economic Partnership, which includes India and Japan, but not the United States.
Sources:
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http://www.orfonline.org/research/latin-america-on-chinas-foreign-policy-agenda/
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http://www.emol.com/noticias/Nacional/2016/11/22/832423/Visita-de-Xi-Jinping-a-Chile-El-detalle-de-los-doce-acuerdos-que-firmo-junto-a-Bachelet.html
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http://www.economist.com/printedition/2016-11-19
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Gonzalez, Elizabeth. “Infographic: China-Latin America Trade.” Americas Society and Council of the Americas. Accessed August 08, 2016. http://www.as-coa.org/articles/infographic-china-latin-america-trade.
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http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=1390
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http://www.winesofchile.org/en/news/11-2016/xi-jinping-en-route-chile