LAC Investment Patterns in China

We pleased to circulate a new study released by the Integration and Trade Sector of the Inter-American Development Bank (IDB). In the report, authors Theodore Kahn, Mauricio Mesquita Moreira and André Soares examine Latin American and Caribbean investment in China and evaluate policy options for further internationalization of Latin American firms.

Main findings include the following:

• Trade between China and Latin America remains undiversified. China continues to import large quantities of primary goods and natural resources from the region, while exporting value added products. The authors suggest that Chinese investments in LAC will continue to reinforce this pattern.

• While LAC companies’ presence in China remains small, “there is considerable potential for growth.” Investment flows to China between 2002 and 2012 exceeded 900 million dollars. Brazil alone accounted for nearly half of this total, while Argentina, Mexico and Chile contributed 14 percent, 11 percent and 10 percent, respectively. These statistics exclude tax havens in the Caribbean, which are frequently a destination for “round tripping” – the practice of moving capital in and out of China to take advantage of foreign investment incentives.

• The composition of Latin America’s FDI in China is diverse, with manufacturing firms making up just over half of companies sampled in the IDB study. Services comprised more than quarter, while primary goods accounted for a smaller but still robust share. The activities of Latin American firms in China varied considerably across sectors, with manufacturing firms more likely to engage in production while primary sector companies were generally focused on sales and marketing. Service sector firm overwhelmingly concentrated on sourcing and direct service provision.

• LAC companies “should look to China sooner rather than later,” the authors advise. China will continue to solidify its role as a leading producer of manufactured and value-added goods in coming years, with “dense” connections to rapidly growing Asian markets. Growing demand in China for food products and services create additional opportunities for LAC firms to harness their competitive advantage in these areas.

Additional information on LAC investment in China is available in Kahn, Mesquita Moreira and Soares’ full report.