Boost to Latin American economies
China’s trade with the region helps to promote industrialization, economic modernization
Industrialization is inevitable as a country strives for economic modernization. Although deindustrialization has become the path pursued by certain developed countries which have finished the process of industrialization, de-industrialization is harmful to countries that are yet to finish their industrialization process because it is not conducive to sustainable development.
In fact, de-industrialization is the result of many factors. In the case of Latin America, although it has been suggested that the region’s de-industrialization is due to China, the fundamental reason is the lack of an industrial policy that supports industrialization.
Those saying that China is the reason for the region’s de-industrialization support their argument by saying that China imports large amounts of natural resources from Latin America, which contain little technical content and added value, and that Latin America’s reliance on exports of natural resources to China has promoted the trend of deindustrialization.
They also claim that since China exports a great deal of manufactured products to Latin America, the manufacturing industry of the region is at a disadvantage. And that since China’s manufactured products compete with similar Latin American products in the US and European markets, the development space for Latin America’s manufacturing industry is squeezed.
In fact, these arguments that assign responsibility to China for Latin America’s de-industrialization do not hold water.
First, China’s imports of natural resources from Latin America help give full play to the region’s resources advantage. Although China does import large amounts of natural resources and primary products from Latin America, will Latin America stop exporting these if China ceases to import them? No, of course it will not.
Plenty of funds are a prerequisite for industrialization. It can be said the importance of investment is no less than technology, the introduction and development of which requires money. China’s imports of great amounts of commodities from Latin America brings the region huge revenues, which allows it to introduce new technologies.
Second, manufactured products exported from China to Latin America have enriched the market supply in the region. From the 1930s to the 1970s, Latin American countries built up high trade barriers to protect their domestic markets. This inward-oriented development path was criticized by many economists.
Since the debt crisis erupted in Latin America in the 1980s, the region began pursuing trade liberalization, and dramatically lowered trade barriers. This outward-oriented path brought the region closer to the world market, with more and more products produced outside the region sold to the Latin American market.
In the era of globalization, the flows of goods are accelerating and the competition among countries is growing ever more intense. China’s exports are popular in the world due to their low prices and reasonable quality. Their popularity among Latin American consumers has helped curb the region’s inflation.
Also, the market of Latin America is open to all, not only to China. Many other countries also export manufactured goods to Latin America, so why is China singled out.
Research shows that Latin America’s de-industrialization began in the 1980s, when its economic and trade relationship with China was still at a low level. In 2000, the bilateral trade volume between China and Latin American countries stood at only $12.6 billion, which ballooned to more than $300 billion in 2018. Industrial policy is formulated by a country’s government to coordinate the development of the national economy. Following the Great Depression in the 1930s, Latin American countries implemented a strategy called “import substitution industrialization”. The industrial foundation of the region was laid during this period.
But, since the 1990s, the role of government in economic and social development has been weakened, while the role of the market has increased. Consequently, Latin American governments did not formulate industrial policies conducive to the manufacturing sector. Latin American countries now face some thorny problems in developing the industrial sector: first, they are heavily reliant on imports of advanced technologies due to the lack of innovation; second, industrial companies lack the motivation to reinvest due to high financing costs; third, the region’s underdeveloped infrastructure impedes the development of industry.
In fact, China’s cooperation with Latin America in the past more than a decade has helped ease these problems.
China’s huge investments in infrastructure have laid the foundation for the development of the region’s manufacturing industry; Chinese enterprises have established many joint-venture plants in the manufacturing sector, greatly boosting the production capacities of the region; and high-tech enterprise such as Huawei have transferred advanced technologies to the region.
With the advancement of the Belt and Road Initiative, China will play a bigger role in the industrial sector of Latin America. And China will help Latin America slow down and reverse the process of de-industrialization.