China and Latin America: Connected and Competing

Since the 1960s China’s relationship with Latin American countries has experienced both continuity and change. Chile, with its socialist government under Allende, was the first in Latin America to recognise China in 1970, although trade between the two countries began as early as 1961. Fast-forward through the 21st century, and trade between China and Latin American countries has been growing rapidly.Although Sino–Latin American trade continues to represent a relatively small share of their respective global trade volumes, growth has exceeded many predictions. From 2000 to 2009, annual trade between China and Latin American countries grew more than 1,200 per cent, from US$10 billion to US$130 billion, according to UN statistics.
Posted on 10/14/13
By Kayla Chen and Xiangming Chen | Via The European Financial Review
China’s growing demand for South America’s leading exports – copper, iron ore, oil and soybeans – has had an undeniably positive impact on the region’s export growth. (Photo by Darren B. Hillman, Creative Commons License)
China’s growing demand for South America’s leading exports – copper, iron ore, oil and soybeans – has had an undeniably positive impact on the region’s export growth. (Photo by Darren B. Hillman, Creative Commons License)

The Global Rise of China

The rise of China has stolen more headlines than any other global issue these days, stirring up questions about what China’s growing prominence really means, and how – more than why – it affects the world. While the rise of previous global powers took decades, if not centuries, China’s rise has been spectacularly fast and furious, considering the tremendous economic prowess it has gained over a relatively short period of time. Accounting for approximately 2 percent of the world’s total GDP around 1980, China holds almost 15 percent of world GDP in purchasing power parity today. From a longer historical perspective, however, China has yet to regain its dominant status in the world economy back in 1840 when it accounted for about a third of world GDP – the largest among all countries at the time – before its protracted economic decline in the aftermath of the two Opium Wars.

As China’s share of the world economy has grown larger, its integration with global trade has also accelerated. According to the Chinese government’s statistics, China’s share of global trade rose from 4.7 percent in 2002 to 10.2 percent in 2011, with its export share of the global total growing from 5 percent to 10.4 percent. This rapid ascent has moved China from fourth to first on the list of top trading nations. With an annual growth rate of 21.8 percent since 2002, China moved up from being the sixth largest importer in 2002 to the second in 2009, and stayed there through 2012, only behind the United States. Because China’s speed and intensity of economic growth and global integration over the last three decades is historically unprecedented, it is expected to encounter both concerns and competition from other emerging economies, mainly in Asia and Latin America.

From Old Allies to New Partners
Looking from the 1960s to the present, there has been both continuity and change in China’s relations and position with other developing countries. As a member of the old Third World camp, China preached and practiced the ideology of socialist, independent development with very limited international trade. At the same time, China provided development assistance to a number of African and Latin American countries that shared that ideology, such as Tanzania and Chile, whose socialist government under Allende was the first in Latin America to recognize China in 1970 (although trade between the two countries began as early as 1961). Between 1970 and 1975, China put up $500 million to build the Tanzania-Zambia Railway, the largest single foreign-aid project undertaken by China at the time. As part of this largely ideologically driven project, China invited hundreds of railroad engineers from both countries to Beijing for training. The irony at the time was that many of these engineers were the sons of government elites whom China treated as its “socialist brethren.”

Fast-forward to the first decade of the 21st century, and China has expanded its small and ideologically imbued presence into considerably larger and market-oriented developing economies in Asia, Africa and Latin America. China not only has expanded trade and investment ties with many of these economies, but also intensified efforts to target valuable commodities like oil, gas, metals and minerals. While continuing to provide development assistance, often involving a larger amount of resources to poor developing countries, China has become a more powerful trader and investor, with a voracious appetite for natural resources that are in short supply at home. Relative to its interests in acquiring oil and gas in Central Asia and parts of Africa, China’s economic relations with, and interests in, Latin America are more varied and complex.

The Emerging China-Latin America Nexus
Trade between China and Latin American countries has grown exponentially over the past decade. Although Sino-Latin American trade continues to remain a relatively small share of their respective global trade, growth has exceeded many expectations. From 2000 to 2009, annual trade between China and Latin American countries grew more than 1,200 percent, from $10 billion to $130 billion, according to United Nations statistics.2

China has emerged as the largest export destination for Brazil, Chile and Peru and the second largest export destination for Argentina, Costa Rica and Cuba. Overall trade with Latin America is mainly driven by China’s need to fuel its expanding economy and to feed its 1.34 billion people. Brazil, Chile, Peru and Argentina – more than half of the Mercosur group – are tremendously resource-rich. For example, agricultural and mining goods accounted for 83 percent of Latin American exports to China between 2008 and 2009. Based on a recent World Bank assessment of China’s impact on Latin American economies, China’s growing demand for South America’s leading exports – copper, iron ore, oil and soybeans – has had an undeniably positive impact on the region’s export growth. Nonetheless, growth has been quite uneven across different countries in Latin America. The Andean and Southern Cone nations have reported increases ranging from 9 to 14 percent of their total exports, respectively. In the case of Central American products, China’s imports accounted for only 2 percent of Central America’s total exports in 2004.

The composition of Latin America’s main exports to China – copper, iron ore, oil and soybeans – reflects China’s goal to strengthen its “strategic partnerships” with Argentina, Brazil and Chile, due to the value of trade and their regional influence. Economic ties between these countries and China have continued to deepen since China became Chile’s largest export consumer in 2007 and Brazil’s largest trading partner in 2009. China’s rapid growth in trade and investment in Brazil has helped to fuel the Brazilian economy in a sluggish global market. Yet, similar to the rest of the region, Brazil exports primarily raw commodities and imports manufactured goods from China. In 2009, 77 percent of Brazil’s exports to China consisted of raw materials, mainly iron ore, soybeans and soy oil, while industrial products made up only 23 percent. In 2011, Brazilian President Dilma Rousseff remarked, “There is a misbalance on our relations with China. Brazil exports commodities and imports too many knick-knacks. I’m told that 80 percent of this year’s Carnival costumes came from China.

Argentina, which maintains a trade surplus with China, exported a total value of $5.15 billion to China in 2009. The surplus is mainly driven by its heavy export of soy products. Between 2000 and 2009, 55 percent of Argentina’s exports to China were soybeans, and another 23 percent soy oil. Argentina has also been a regional leader in forging investment and technological cooperation with China. The establishment of the Argentine-China debt swap in February 2009, worth $10.2 billion, was the first such deal in the region. China’s investment in private Argentine companies has also grown. The China National Offshore Oil Corporation’s purchase of a $3.1 billion interest in Argentina’s Bridas, and Sinopec’s $2.4 billion purchase of Occidental’s Argentine holdings put Argentina on par with Brazil, Ecuador, Peru and Venezuela with respect to China’s investment deals in the region. Additional areas of cooperation between China and Argentina are evident in military and space. Argentina is one of only four Latin American countries to have purchased military vehicles from China, and one of the few countries to cooperate with China in space exploration. Argentina’s nuclear agency, CONEA, has also discussed joint projects with major Chinese telecommunications companies such as Huawei and ZTE, which have a significant presence in Argentina.

China’s growing economic influence in Argentina and the region may become a concern to the receiving parties. However, it will have no real impact on the larger and more significant reality, which is that the Chinese and Latin American economies are already strongly connected, and will become even more so through this decade and beyond.

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About the Authors 

Xiangming Chen has since 2007 been the founding Dean and Director of the Center for Urban and Global Studies and Paul Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College in Hartford, Connecticut and Distinguished Guest Professor in the School of Social Development and Public Policy at Fudan University in Shanghai, China. He has published extensively on urbanization in and globalization of China. His most recent book is Introduction to Cities: How Place and Space Shape Human Experience (with Anthony Orum and Krista Paulsen, Wiley-Blackwell, 2012).

Kayla Chen is currently an intern at VOX Global, a public affairs and strategic communications consulting firm headquartered in Washington DC. She graduated from Colby College in 2012 with a BA in Global Studies with concentrations in Latin America and Development Policy, and a minor in East Asian Studies.

 

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