Guiding Chinese Investment in Latin America

China’s 2011 Overseas Industry Investment Guide (对外投资国别产业指引) was published in September by China’s Ministry of Commerce, Ministry of Foreign Affairs, and National Development and Reform Commission. According to a letter accompanying it, the guide is intended to provide small- and medium-sized enterprises (SMEs) with an overview of foreign investment priorities, foreign investment regulations, and industrial development zones in 115 countries around the world.

The guide’s Americas section includes one- to two-page reports on Panama, Peru, Bolivia, Ecuador, Colombia, Costa Rica, Canada, Mexico, Venezuela, Uruguay, and Chile. Each report contains very brief synopses of host country industrial development goals, promising investment destinations, and host country foreign investment rules and regulations. The guide also provides overviews of each country’s trade with China, and in most cases, a list of Chinese firms currently operating in each country.

The Latin America country reports are unsurprising for the most part. Emphasis on canal-based industries in Panama, for example, shouldn’t raise any eyebrows. Nor should a focus on primary goods in Ecuador and Peru. Of greater interest, perhaps, is what is missing from the guide – Argentina, for example.

There are a few possible reasons why Argentina was excluded, while every other major South American economy made the list. As Derek Scissors of the Heritage Foundation has explained, the overseas investment guide tends to point SMEs toward sectors not already dominated by China’s state-owned enterprises. It favors sectors/countries in which SOEs have previously failed, or where SOEs aren’t naturally inclined to operate (outside the realm of energy or natural resources, for example). This is why Mexico, a country in which China’s SOEs have been fairly unsuccessful, receives considerable attention in the guide – more so than any other Latin American country.

According to Dr. Scissors’ explanation, Argentina is most likely excluded because most of the promising investment opportunities are already dominated by China SOEs, leaving little room for SME activity. Another possibility is that Argentina is considered an overly risky investment destination. This explanation seems less likely, however, considering that other ill-fated economies made the cut.

This explanation also makes sense of the guide’s very detailed focus on specific host country regions and sectors. The Brazil report highlights Sergipe (and only Sergipe), as a favorable investment destination for Chinese SMEs. It also focuses extensively on Brazil’s re-insurance (再保险) industry. These very specific industries/regions are seen, perhaps, as well-suited for smaller investors.

Some country reports (those on Ecuador, Venezuela, Bolivia, and Peru, for example) emphasize sectors in which SOEs are already active and successful (minerals, hydrocarbons, oil, and so on). In these cases, it is possible that China’s SOEs intend to contract smaller Chinese firms, assuming local laws permit such an arrangement. Or perhaps China’s SOEs have yet to exhaust potential investment opportunities in these sectors, leaving substantial room for investment from SMEs.

In any case, Latin America remains an important destination for Chinese investment – whether it comes from SOEs or SMEs. The region is well-represented in the 2011 investment guide. The guide’s reports are still overwhelmingly focused on Latin America’s primary goods, however. This is a function not only of China’s investment interests, but also of individual countries’ industrial priorities (or lack thereof), as clearly indicated within guide.