China-Latin American Relations: The End of the Honeymoon?

Source: Getty
Op-Ed China Brief
Summary
An increasing trade deficit with China, coupled with Chinese purchases of large tracts of Latin American farmland, could cause strain between China and Latin American nations.
Related Topics
Related Media and Tools
 

For nearly a decade now, trade relations between China and Latin America have been booming. Within the last five years alone bilateral trade has increased by over 160 percent. In the period since the financial crisis, countries such as Brazil, Chile and most recently Peru have all seen China quickly rise to become their number-one trade partner.

The expansion of economic ties has not been limited to trade. Chinese firms have also recently dramatically stepped up their foreign direct investment in the region. For example, within the last two years China has become the top source of foreign direct investment in first Brazil and then Peru. This boom in trade and investment ties has been primarily driven  by China’s rapidly expanding demand for Latin American mineral, agricultural and energy resources. At the same time, Chinese exports to Latin America of manufactured goods ranging from modems to motorcycles have also grown dramatically.

 

Yet the boom in trade and investment ties between China and Latin America has not had an equal impact throughout the Latin American region. Exports to China have been largely concentrated in a small number of raw materials (copper, iron ore, soy and oil) from a core group of commodity-rich South American countries (Argentina, Brazil, Chile and Peru). Other countries throughout the region, with Mexico as a primary example, have a less complementary and more competitive relationship with China’s export sector. Even in those countries like Brazil, whose iron ore and soy bean producers have benefited greatly from China’s rapidly expanding production of steel and pork, domestic manufacturers have come under heavy pressure from Chinese competition.

Hopes and anxieties

Therefore, the rapid expansion of trade and investment ties between Latin America and China has produced a mix of high expectations and rising anxieties. After the financial crisis battered the economies of Latin America’s traditional export markets in the US and Europe, China came to be seen by some Latin American government and business leaders as a beacon of hope. China weathered the financial crisis better than most and its continued strong demand for commodities underpinned surging purchases—not to mention booming prices—of Latin American raw materials. Within a very short time frame China has exploded into the imaginations of many Latin American business and government leaders, as well as regular citizens, as a new global partner. For many in Latin America it must seem as if the region has been drawn into the developmental wake of China’s unstoppable growth machine. Expectations of China are high.

But at the same time, anxieties about expanding economic ties with China are rising in some countries and economic sectors in Latin America. Even in countries that have benefited the most from expanding commodity ties to China, through a combination of exports to China and an inflow of Chinese investment, there are worries. Such anxieties are often based on historical patterns of export dependency and the trauma of commodity boom-and-bust cycles that have afflicted the region for well over a century. Countries like Brazil that have fought to move away from commodity-based export growth worry about “de-industrialization” and over-reliance on demand from a single market like China. Moreover, rising Chinese foreign investment in the region’s mineral and agricultural resources have raised concerns about “Dutch disease” and its negative impact on Latin American manufacturing exports. (Dutch disease refers to the tendency for a commodity boom to result in currency inflation, which subsequently makes non-commodity exports less competitive). The surge in investment from China has also brought to the fore local sensitivities about foreign ownership of agricultural land.

After a nearly decade-long period of increasingly close economic ties between China and Latin America, the relationship now stands at a turning point. The honeymoon period based on the initial Latin American euphoria over expanded trade and investment with China is giving way to anxieties. Even the relatively small number of South American countries that have benefited the most from commodities ties with China have long expressed a desire to move beyond a narrow Chinese focus on natural resource trade and investment. Initial hopes for a broadening of the relationship, including increased exports of Latin American manufactured goods to the huge Chinese market, have largely been disappointed.

The U.S., China and Latin America: Managing Expectations and Opportunities

Much of the initial excitement in Latin America about booming trade and investment ties to China was based on a positive view of China in comparison with the U.S. Latin American sentiment about their neighbor to the North has vacillated between concerns about receiving either too much or too little U.S. attention. In the wake of the U.S. post 9/11 involvement in two foreign wars far from the Western Hemisphere, followed by the shock and ongoing difficulties of the financial crisis, leaders in Latin America felt that for better or worse, the U.S. had once again entered a phase ofneglecting the region. China has stepped in to fill this vacuum, quickly establishing itself as a leading trade and investment partner of some of the region’s main economies.

Moreover, within Latin America, China’s influence has been seen as almost purely economic and therefore a welcome change from American political influence. Despite the anxieties that have accompanied China’s rising economic impact on Latin America, there has been widespread hope in the region that China could become a new and possibly more positive economic and political partner for the region. But exactly because the China-Latin America relationship is so new, and is as of yet so narrowly focused on Chinese demand for commodities, much work has yet to be done to broaden and solidify relations. In this there are opportunities for expanded cooperation among Latin America, China and the U.S.

Among the most obvious opportunities is the need for greater understanding on all sides. The most common concerns expressed by both Chinese and Latin Americans involved in trade, investment and diplomatic relations is the lack of mutual understanding. This includes basic language skills but extends to cultural, economic, legal and other important political factors that are essential for deeper ties. Both China and Latin America are working to create deeper mutual understanding through educational exchange and the founding of research centers. On both fronts Latin America and China could learn from, and actually in, the U.S., where universities and think tanks continue to be global leaders in both Latin American and China area studies. A win-win strategy for expanded knowledge of the U.S.-China-Latin America relationship should build on these already strong foundations.

This article was orginally published in AmCham-China's China Brief

End of document

Comments (2)

 
 
  • student
    1 Recommend
     
    very nice article, helped me with my projects on
    China- Latin America relations
     
     
    Reply to this post

     
    Close Panel
    • George smith replies...
       
      You are so right
       
       
  • Report Abuse
Source http://carnegietsinghua.org/2012/01/16/china-latin-american-relations-end-of-honeymoon/f2gl

More from The Global Think Tank

In Fact

 

45%

of the Chinese general public

believe their country should share a global leadership role.

30%

of Indian parliamentarians

have criminal cases pending against them.

140

charter schools in the United States

are linked to Turkey’s Gülen movement.

2.5–5

thousand tons of chemical weapons

are in North Korea’s possession.

92%

of import tariffs

among Chile, Colombia, Mexico, and Peru have been eliminated.

$2.34

trillion a year

is unaccounted for in official Chinese income statistics.

37%

of GDP in oil-exporting Arab countries

comes from the mining sector.

72%

of Europeans and Turks

are opposed to intervention in Syria.

90%

of Russian exports to China

are hydrocarbons; machinery accounts for less than 1%.

13%

of undiscovered oil

is in the Arctic.

17

U.S. government shutdowns

occurred between 1976 and 1996.

40%

of Ukrainians

want an “international economic union” with the EU.

120

million electric bicycles

are used in Chinese cities.

60–70%

of the world’s energy supply

is consumed by cities.

58%

of today’s oils

require unconventional extraction techniques.

67%

of the world's population

will reside in cities by 2050.

50%

of Syria’s population

is expected to be displaced by the end of 2013.

18%

of the U.S. economy

is consumed by healthcare.

81%

of Brazilian protesters

learned about a massive rally via Facebook or Twitter.

32

million cases pending

in India’s judicial system.

1 in 3

Syrians

now needs urgent assistance.

370

political parties

contested India’s last national elections.

70%

of Egypt's labor force

works in the private sector.

70%

of oil consumed in the United States

is for the transportation sector.

20%

of Chechnya’s pre-1994 population

has fled to different parts of the world.

58%

of oil consumed in China

was from foreign sources in 2012.

$536

billion in goods and services

traded between the United States and China in 2012.

$100

billion in foreign investment and oil revenue

have been lost by Iran because of its nuclear program.

4700%

increase in China’s GDP per capita

between 1972 and today.

$11

billion have been spent

to complete the Bushehr nuclear reactor in Iran.

2%

of Iran’s electricity needs

is all the Bushehr nuclear reactor provides.

78

journalists

were imprisoned in Turkey as of August 2012 according to the OSCE.

Stay in the Know

Enter your email address in the field below to receive the latest Carnegie analysis in your inbox!

Personal Information
 
 
Carnegie Endowment for International Peace
 
1779 Massachusetts Avenue NW Washington, DC 20036-2103 Phone: 202 483 7600 Fax: 202 483 1840
Please note...

You are leaving the website for the Carnegie-Tsinghua Center for Global Policy and entering a website for another of Carnegie's global centers.

请注意...

你将离开清华—卡内基中心网站,进入卡内基其他全球中心的网站。