Can China change Latin America?

Development Centre

A new global courtship is blossoming, and it is bringing China and Latin America closer together. Whether it ends in happiness or in tears depends mostly on Latin America.

China’s economic boom has been like a tectonic shift that has sent near-shock waves through Latin America. China is on everyone’s lips. Major international events have been dedicated to the country’s remarkable emergence, from the World Economic Forum on Latin America to the COFACE Annual Conference on Country Risk, both held last spring.They may just be events, but they symbolise Latin America’s move towards Asia. Nor is it an accident that they are taking place mostly in Chile. In 2006, more than 36% of the country’s total exports were directed towards Asia, with China taking a record of 12% of the total. Recently, in 2006, Chile concluded the first trade agreement between a Latin American country and China and started negotiations on another with India.Chile is not alone in seeking to do business with Asia. In 2006, Brazilian corporations like the iron ore producer, CVRD, or the jet manufacturer, Embraer, concluded huge contracts in China. In early 2007 Venezuela agreed to a US$6 billion joint investment fund for infrastructure projects on its soil and oil refineries in China able to process Venezuelan heavy crude. In March 2007, Beijing launched China’s official candidacy to the board of the Inter-American Development Bank. If it succeeds, it will become the bank’s third Asian member, after Japan and Korea.These ties with China are read as good news in most Latin American countries. For one thing, they allow exporters to diversify away from traditional markets to the north. It also means trading with the new engine of world growth. With the exception of Mexico and Central America, which still rely on markets in the NAFTA region and other OECD countries, in Latin America China generally represents a “trade angel”, like a business partner who offers a helping hand and a leg-up into the heady world economy. It is an outlet for huge amounts of the region’s commodities, while providing very little competition for Latin American products in the US and in Europe, as a recent OECD Development Centre study reveals (see references).But for the region as a whole, and especially the possible laggards, the buzz about China should above all be taken as a wake-up call for more reform, particularly in the area of infrastructure. Even Mexico, though a thriving OECD member, will need to reform if it is to remain competitive, especially as its low labour costs are no longer that advantageous relative to China. True, Mexico’s proximity to the US remains a major strategic asset, but to capitalise fully on this asset, it must improve the efficiency of roads, ports, railways and airports.For other countries seeking to profit more from the rise of China, as well as the other Asian dynamo, India, a major policy issue will be to avoid the pitfalls of commodity dependency. China has become Brazil’s second and fastest growing export market, but 75% of these exports are concentrated in just five commodities–soybeans, iron ore, steel, soy oil and wood. Brazil is not alone in this situation. Argentina sends soybeans to China as its major export to that country, while Chile and Peru depend on copper for the bulk of their exports to China. This may benefit the trade balance of many Latin American countries in the short term, but such dependence on commodities is an issue for the long-term development of these countries.There are fiscal challenges too. In this regard Chile, the largest producer and exporter of copper in the world, offers a good example of adequate practice. Rather like Norway with its oil and gas revenues, its management of the copper windfall has so far been wise: most revenues are being held offshore in foreign currency, in order to ease the upward pressure on the Chilean peso. All surpluses over 1% of GDP will continue to be channelled into a new “economic and social stabilisation fund”, that will also be held abroad and used in future for education, training and industrial innovation. Latin America and Asia are watching each other admiringly, but there is cause for excitement too. After all, for the first time in its history Latin America can benefit not from one but three major world growth engines. Until the 1980s the US was the major trading partner of the region. Then came the boom of European investment in Latin America during the 1990s. Now, this century, China is fast becoming a new suitor, with India and other Asian countries not far behind.The danger for Latin America is complacency. If the continent basks in the glow of windfall profits from commodities, while traditional manufacturers continue to see operating on the US market as a given, the current courtship could become a missed opportunity. The region will have to embrace reform, as strongly as it seems to be ready to embrace China. If it does that, then its courtship with the global market’s main star could bear real fruit after all. References
  • Santiso, Javier ed., (2007) The Visible Hand of China in Latin America, Paris, OECD Development Centre.
  • Santiso Javier (2006), Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers, Cambridge, MIT Press, 2006.
Visit www.oecd.org/development©OECD Observer No. 262 July 2007High resolution printable version of this article available on request: observer@oecd.org


Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

Poll

What issue are you most concerned about in 2016?

Unemployment
Euro crisis
International conflict
Global warming
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016