China vital for LAC firms
Nation’s growing Latin American, Caribbean investment becoming increasingly significant
China’s incoming foreign direct investments have been an important source of modernization for China in past decades. According to the United Nations Conference on Trade and Development, the Chinese mainland has become the secondlargest recipient of FDI — only after the United States — accounting for 14.61 percent of global FDI in 2022 (and 23.7 percent with the addition of the Hong Kong Special Administrative Region).
By region, China’s FDI from Latin America and the Caribbean, with a share of 10.27 percent of China’s total FDI during 2003-21 (or above $11 billion annually on average), has become increasingly important. From this perspective, China’s FDI is still macroeconomically important and relevant in specific global value chains (GVC), but it has significantly shifted. In light of 2023 being the 45th anniversary of the launch of China’s reform and opening-up policy, FDI is increasingly related to its high-tech requirements and depending on the specific modernization demands of its GVC.
Despite these important macroeconomic dynamics, China’s FDI from LAC has received surprisingly little attention in recent years; while the LAC region is mainly an FDI receiver, around 20 percent of LAC countries’ FDI was exported as outward
FDI in 2022 according to UNCTAD. Overall globalization and LAC’s reorienting to the East, specifically China, have become increasingly significant.
The Academic Network of Latin America and the Caribbean on China (Red ALC-China) recently published a detailed analysis of LAC’s overseas foreign direct investment to China in eight chapters, including a regional perspective, as well as historical and detailed country analysis for Argentina, Brazil, the Caribbean, Central America, Chile, Mexico, and Peru. In addition, the document examines the experiences of 15 multinational companies from LAC developing their businesses in China.
First, the experience of LAC companies in China is not only macroeconomically relevant for LAC and China, but they also substantially enrich the LAC-China socioeconomic relationship. The LAC-China socioeconomic relationship accounts for not only China’s increasing presence in LAC but also for the very dynamic LAC presence in China, in this case specifically regarding LAC investments.
Second, LAC companies in China present an astonishingly important group of experiences and characteristics. Most LAC companies in China initiated their experiences as trade representatives in China to deepen their manufacturing and service activities. These processes took over a decade in several cases because of difficulties in comprehending China’s respective markets.
Companies such as Bimbo supply complex products and services that the company does not offer in any other country. Bimbo’s learning process — and that of several other LAC companies — required a long and expensive process to achieve the current results in China. At least as important is to understand that LAC companies, with exceptions — Brazil’s Embraer canceled its FDI in China in 2016 — attempted to reap the benefits of low cost in China in the early 21st century in terms of labor and a large consumption market. China today has become an extremely sophisticated market and LAC companies have allowed their headquarters to learn globally.
Third, the analysis is particularly fruitful in terms of recent developments. Considering their learning process and the profound socioeconomic transition of China since its reform and opening-up, LAC companies investing in China since the early 21st century have been able to not only integrate into the most dynamic domestic market but also to learn from China with direct implications for their headquarters and global representation. This has been the case in terms of innovation, design, change in consumption, suppliers, new sales, and payment formats in which China has become a global trendsetter.
LAC companies in China have made important efforts not only in raw materials, but also in adding value to raw materials, food, beverages, electronics, vaccines, and overall consumption goods in China. Their experiences over two decades — not only in terms of acquiring Chinese companies but also in new (greenfield) investments — are also significant for other foreign companies in China.
Specific cooperation — bilaterally and in the CELAC-China Forum — could not only address the overall challenges facing LAC companies in China but could also improve the establishment of their relations with local and provincial institutions in China, provide them with a clear understanding of national and local incentives, and offer support to enhance supplier-systems and specialized companies in their respective GVC.