China is getting deeper into Latin America and the dispute with the US is growing in the region

02/01/2020

The Asian giant became Argentina's main trading partner and did the same in Brazil, Bolivia, Chile, Peru, and Uruguay. In addition, they lent money to the region for a value similar to the North American Marshall Plan in Europe.

Trade with China has a significant relevance for growth in Latin America, says the Bank of Spain report
Trade with China has a significant relevance for growth in Latin America, says the Bank of Spain report

China began to mark its supremacy in Latin America and started gradually reducing the economic and commercial power of the United States in the region.

According to the Argentina Indec, China displaced Brazil as Argentina's main trading partner in September 2019. The Asian giant has also set sail in Brazil, Peru, Chile, Uruguay, and Bolivia. From January to November 2019, trade with the region amounted to US$286.83 billion.

Beijing's "landing" is explained by the high growth rates of its economy and its complementarity with the region. Its trade linkage strategy is, however, different in each country. In Venezuela and Ecuador, OPEC members buy oil. In Peru and Bolivia, it buys minerals. In Brazil and Argentina, raw materials and food.

But it is not only in the commercial field that China is making a big impact, but also in the financial field. "The Chinese lent the region around 140 billion dollars between 2005 and 2015, which would be the equivalent in dollars in current prices to the U.S. Marshall Plan in Europe," explained Bernabé Malacalza, a Conicet researcher and professor at the National University of Quilmes. "The loans have two main destinations: supporting infrastructure development and sustaining the extractive industries," he said.

Given China's progress, the United States this month launched the America Grows initiative. With the aim of "catalyzing private sector investment in telecommunications, energy, ports, roads, and airports," the White House signed memoranda of understanding with Argentina, Chile, Jamaica, and Panama.

Source: Indec

Trade with China has significant relevance for growth in Latin America

Trade with China may have significant relevance for the growth of Latin American countries, according to the May 2019 report of the Bank of Spain entitled "China's Impact on Latin America: Commercial Channels and Foreign Direct Investment."

The document, prepared by Jacopo Timini and Ayman El-Dahrawy Sánchez-Albornoz, of the General Directorate of Economics and Statistics of the central bank of Spain, notes that since China's entry into the World Trade Organization (WTO), Latin American exports to the Asian country have increased significantly, a fact that would have a positive impact on the growth of the region.

"Since China's entry into the WTO, Latin American exports to China have gone from representing 1.5 percent of the total in 2001 to 10 percent in 2017," the report explains. On the other hand, "imports from Latin American countries from China have also grown rapidly, becoming 18 percent of the total in 2017 (from 3 percent in 2001)," says the study.

This impact of China on Latin American growth can also be manifested through competition in third markets, according to the document, since the Asian country is a competitor for some countries in the region, "especially for those specialized in the production and export of goods".

"Empirical estimates indicate that trade exposure to China is significant for the growth of Latin American countries, (...) and that Latin American exports to that country would have had a positive and statistically significant impact on the growth rate of GDP per capita," says the report.

China is the 2nd commercial partner of Latin America

The volume of bilateral trade between the two blocks reached a record of 307.4 billion dollars in 2018, with an increase of 18.9 percent over the previous year, according to the data just released by the General Administration of Customs (AGA) of China in February.

The growing share of high value-added products, such as frozen meat, fruits, flowers, tobacco, and alcohol, contributes to the increase in the value of exports from Latin America to China, according to Sun Yanfeng, deputy director of the Institute of Latin American Studies, under the Institute of Contemporary International Relations of China.

The value of China's exports to Latin America was 148 billion 790 million dollars last year, while that of imports stood at 158 billion 610 million, which meant increases of 13.7 and 24.1 percent, respectively, according to the AGA.

By Mexicanist