China’s Economic Presence in Latin America

The Dialogue is pleased to feature the following excerpts from “Too Big to Fail?: China’s Economic Presence in Latin America,” by Guo Jie (??), assistant professor and Latin American affairs expert at Peking University and former Chinese scholar-in-residence at the Inter-American Dialogue. Her new article, to be published in China International Strategy Review, offers a comprehensive evaluation of the China-Latin America relationship from a Chinese perspective. The full text in Chinese can be downloaded below.

Introduction

China’s economic growth over the past ten years has become an important factor for Latin America’s development. Trade between the two parties has skyrocketed. Significant increases in Chinese foreign direct investment (FDI) in Latin America have also attracted attention.

Sensational accounts, both positive and negative, of China’s presence in the Americas have failed to capture the multiple dimensions of Sino-Latin ties. It is undeniable that China has achieved significant expansion in the Western Hemisphere. However, a lack of balanced engagement and insufficient incentives for sustainable development remain equally apparent.

A “win-win” scenario is not a far-fetched notion, but a realistic demand by both sides. Driven by this desire, the China-CELAC forum has the potential to alleviate points of tension and broaden future opportunities for Chinese relations with Latin America. Whether such goals can be achieved depends on trust, understanding and collaboration from all parties.

Excerpt: The path towards diversification and mutual development

The diversification of trade and investment between China and Latin America presents an opportunity for both parties to strengthen and sustain economic relations. Economic ties between China and the region have diversified more rapidly recent years, largely due to four factors:

• Chinese government’s incentive policies;
• Latin American countries’ interest in Chinese investment;
• Chinese companies’ greater maturity in practices overseas
• Greater pressure from domestic markets

Chinese companies operate across numerous sectors in Latin America. Multinational companies in industries such as telecommunications, personal computers, automobiles, household appliances, televisions and heavy machinery have developed rapidly in major Latin American economies such as Brazil and Mexico. Corporations in other sectors — including agriculture, electricity and renewable energy — have also gained a foothold in the region. When China officially joined the Inter-American Development Bank in 2009, Chinese financial institutions accelerated their expansion in Latin America.

Although a degree of diversification is evident, large asymmetries persist within between countries and sectors. The largest share of China’s investment has been allocated in South America. China’s investments in Brazil and Argentina have also diversified to a greater extent than those in other Latin American countries.

The China-CELAC forum proposed by China was officially approved in 2014. China expects to take advantage of this opportunity to deepen cooperation with Latin American partners and achieve greater degree of diversification. To do so, officials need to have a clear understanding of major commonalities and differences among Latin American countries. It is important that China recognize each member country’s distinct identity and expectations and openly articulates its own vision and objectives from the outset in order to avoid any unnecessary misunderstanding. As former Premier Wen Jiabao acknowledged, “the pursuit of common interests lies at the core of China-Latin America relations.” Identifying these common interests is essential for promoting sustainable development between China and Latin America.

Table 1: Chinese companies’ oil investment in Latin America, 1993-2013

  
Note: the sources are diversified, including websites and reports of the companies, publication of government authorities such as SASAC, MLR and MOFCOM, and database of think tanks such as the Heritage Foundation.

Table 2: 61 Chinese investment activities of more than a hundred million US$, 2005-2013

   
Notes: Original data from the Heritage Foundation. The author has edited it based on comparison with other sources. The table presents the results of the author’s confirmation and calculation. *Two of the seven are State Grid investment; the others are oil and gas investment. **One is solar energy and the other is wind power.