China still an en­gine for Latin Amer­i­can growth


Chi­nese Pre­mier Li Ke­qiang is on a four-na­tion visit to Latin Amer­ica, which has ben­e­fited from its grow­ing re­la­tion­ship with China. In par­tic­u­lar, the four coun­tries on Li’s itin­er­ary— Brazil, Colom­bia, Peru and Chile— have en­joyed the benefits of their deep­en­ing ties with China. For ex­am­ple, in 1993 Peru’s ex­ports to China were worth only $140 mil­lion. The fig­ure jumped to $676 mil­lion in 2003 and $7.8 bil­lion in 2012, be­cause of the strong de­mand of China for pri­mary goods— min­er­als, oil and agri­cul­ture prod­ucts— and the in­crease in their prices.

The Chi­nese econ­omy on av­er­age grew at 10 per­cent a year in the decade up to 2011. But that pace has slowed down to about 7 per­cent a year, and Latin Amer­ica has been feel­ing its im­pact. Peru’s econ­omy, for in­stance, grew on av­er­age 6 per­cent a year over the past decade. But last year its growth slowed down to 3 per­cent, partly be­cause its ex­ports to China fell to $6.9 bil­lion.

The de­mand for and prices of min­er­als have dropped be­cause the Chi­nese econ­omy is en­ter­ing a “new nor­mal” of lower but more sus­tain­able eco­nomic growth.

So what op­por­tu­ni­ties does China’s tran­si­tion have to of­fer Latin Amer­ica? A lot. That China is not grow­ing at 10 per­cent but 7 per­cent a year does not mean the size of its econ­omy is shrink­ing and its de­mand for for­eign goods will slow down. Con­sider this. The size of the Chi­nese econ­omy is now nearly $10 tril­lion. And even if it grows at 5 per­cent a year, its size will in­crease by $500 bil­lion ev­ery year, which is equal to the an­nual ex­pan­sion rate when its size was $5 tril­lion and growth 10 per­cent.

With China’s econ­omy con­tin­u­ing to grow, its de­mand for for­eign goods will also grow. Its de­mand for cop­per and other min­er­als will grow too (al­beit at a lower rate), but it will de­mand more food and per­haps man­u­fac­tured prod­ucts, which Latin Amer­ica could sup­ply. For ex­am­ple, with 55 per­cent of China’s pop­u­la­tion living in ur­ban ar­eas and earn­ing higher in­come, and the re­sult­ing change in di­etary habits, the de­mand for dairy prod­ucts and wine and spir­its could grow, which Latin Amer­i­can coun­tries can meet.

An­other area in which Latin Amer­ica coun­tries can con­tinue ben­e­fit­ing from their deep­en­ing ties with China is the coun­try’s Silk Road Eco­nomic Belt and 21st Cen­tu­ry­Mar­itime Silk Road ini­tia­tives. Th­ese ini­tia­tives de­mand huge amounts of funds, as well as goods, es­pe­cially raw ma­te­ri­als, which Latin Amer­i­can coun­tries can sup­ply.

Also, the in­creas­ing links be­tween China and Europe will boost the economies along the two Silk Roads, and in­crease the de­mand for prod­ucts and ser­vices that Latin Amer­i­can coun­tries could pro­vide.

China is now the sec­ond-largest trade part­ner of Latin Amer­ica. This part­ner­ship will con­tinue to grow. In fact, ad­dress­ing the first fo­rum of China and the Com­mu­nity of Latin Amer­i­can and Caribbean States (CELAC) in Bei­jing in Jan­uary, Chi­nese Pres­i­dent Xi Jin­ping said trade with the re­gion would dou­ble to $500 bil­lion by 2025. Chi­nese in­vest­ments in the re­gion would dou­ble, too, he said.

China’s in­creas­ing pres­ence in the so-called backyard of the United States has raised some eye­brows. And it is one of the rea­sons why the US is try­ing to im­prove its ties with Latin Amer­ica. US Pres­i­dent Barack Obama’s par­tic­i­pa­tion in the Or­ga­ni­za­tion of Amer­i­can States sum­mit in Panama and the US’ all-out ef­forts to es­tab­lish diplo­matic ties with Cuba are two ex­am­ples ofWash­ing­ton’s changed at­ti­tude to­ward CELAC.

Latin Amer­ica was de­pen­dent on the US mar­ket and in­vest­ment for a long time. Now it needs other en­gines of growth, and China is will­ing to help it in its ef­forts through a part­ner­ship that benefits both sides. The au­thor is a pro­fes­sor of eco­nomics at SanMarcos Na­tional Uni­ver­sity in Lima, Peru.

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