Beyond Trade: China’s growing intimacy with Latin America & the Caribbean

April 11, 2020 8:47 PM

In the last two decades, since China formally joined the World Trade Organization in 2001, it has out rightly asserted itself as an indispensable trading partner globally.

This partnership has been emboldened with President Xi’s ambitious goal of increasing the total China-LAC trade to $500 billion by 2025.This partnership has been emboldened with President Xi’s ambitious goal of increasing the total China-LAC trade to $500 billion by 2025.

By Syed Ali

China has emerged as the biggest investor and the second-biggest trading partner in the Latin American and Caribbean (LAC) region. China’s bilateral trade with LAC in 2018 was US$ 308 billionwith a high growth rate of 18.9 percent. Compared to this, the US trade with LAC in 2018 was more than double of China at US$ 740 billion. The steep rise in trade between the LAC and China has raised concerns in the US with the implications it carries for its traditional markets. More worrying for the US is China’s growing ‘soft power’ influence in the LAC region, with many countries adopting China’s flagship Belt Road Initiative (BRI), and receiving investments from Chinese public and private enterprises. This influence has been further promulgated with a number of Chinese leaders visiting the region and forging bilateral partnership agreements with Argentina, Brazil, Chile, Costa Rica, Ecuador, Mexico, Peru, Uruguay, and Venezuela. This partnership has been emboldened with President Xi’s ambitious goal of increasing the total China-LAC trade to $500 billion by 2025.

China’s growing trade with the resource-rich LAC has made it the top trading partner with major economies in the region which include Brazil, Chile, Peru, and Uruguay. China’s strategic goal is to secure raw materials such as oil, ores, minerals, and agricultural produce which are essential for its manufacturing industry. Major Chinese imports from the region in 2018 were primarily natural resources, including ores (29%), soybean (19%), petroleum (19%), and copper (8%). Major Chinese exports to Latin America included electrical machinery and equipment (21%); machinery and mechanical appliances (15%); motor vehicles and parts (7%); and a wide array of industrial and consumer products.LAC countries are buyers and also development partners for China’s technology.In exchange, owing to its educated and growing middle-class population, theLAC region offersa huge market for Chinese products.

China’s state-owned banks (China Development Bank and China Export-Import Bank) have become the largest lenders in LAC with accumulated loans to have surpassed US$ 140 billion (2005-2018). However, 90 percent of this investment has been received by four countries, which are Venezuela, Brazil, Ecuador, and Argentina,making them the top recipients of Chinese lending. For Venezuela and Ecuador, much of the financing has been provided through loans-for-oil deals. In recent years, China’s banks provided more financing to the region than was provided by the World Bank and the Inter-American Development Bank combined. A significant amount of lending has been for infrastructure projects, as well as for oil and gas and mining projects. Since 2002, major Chinese companies and banks have shown interest in approximately 150 transportation infrastructure projects, with about half in various phases of construction. Increased participation of non-state investors has introduced new sources of dynamism and diversification to Chinese direct investment in Latin America. Brazil’s emerging tech industry, for instance, has successfully and continuously attracted high-profile Chinese investments. Chinese companies have also committed billions to Colombia, winning bids to build Bogota’s first metro line and a regional rail line, and acquiring a gold mine among other deals.China’s Belt and Road Initiative (BRI) a resurrection of the ancient Silk Road has also made its way to the region, and through this initiative, the region has received investment for its Physical and Digital infrastructure.

Diversifying this investment further, a Chinese initiative in science and technology diplomacy is taking shape under the banner of the “science silk road,” exemplified by the Chinese Academy of Sciences’ South America Center for Astronomy (CASSACA) in Chile and the Caucharí Solar Park complex in Argentina. China and Argentina have a number of joint development projects underway as part of the BRI, which is helping to energize local economies in various provinces. Chinese companies are helping construct South America’s largest solar farm in the northwestern province of Jujuy and wind farms in the provinces of Buenos Aires and Chubut in Argentina, with an eye to boosting renewable energy and contributing to combating climate change.

In the last two decades, since China formally joined the World Trade Organization in 2001, it has out rightly asserted itself as an indispensable trading partner globally. This ascendancy has causedripples in the traditional markets because it has jeopardized the stronghold of the old players. However, there are no permanent friends in international trade, there are only interests and whoever caters to these interests gets to exercise dominance. Europe and the US have been stagnating, and therefore have not been able to compete or provide to the insatiablemarkets of the developingworld. This widening gap has been fostering new relationships like China and LAC, and despite the geographical distance between them, the two are being connected by the desirefordevelopment as a common goal.

(The author is an independent analyst on Latin American Affairs. Views expressed are personal.)

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