PRC trade and Latin America's paradox

PRC trade and Latin America's paradox

Relations between China and Latin America and the Caribbean are paradoxical. As bilateral trade increases and diplomatic relations strengthen, a lack of knowledge persists between the two regions, and in some cases tensions are growing. Hardly any major projects between China and Latin America have been initiated by the private, public or academic sectors, and bilateral institutions do not yet reflect the weight of economic dynamics.

There are two aspects to this paradox. First, many Chinese enterprises -- particularly in basic goods sectors such as soy, meat, iron, steel, copper and oil -- have initiated activities in Latin America, either through direct investment or by buying products and/or businesses. To a lesser degree, Latin American enterprises -- such as Gruma, Modelo, Embraer, Marco Polo and Embraco -- have introduced themselves in China.

Even so, Latin America remains a secondary economic and commercial partner for China. Last year, Latin America and the Caribbean accounted for 3.7 percent of China's exports and 4.3 percent of its imports. But bilateral trade has been growing at impressive rates, with Chinese exports and imports up by 24.8 percent and 23.9 percent respectively from 1995 to last year.

For practically all Latin American countries, China is one of the 10 main trade partners with rates of growth well above total trade. Even for those countries that do not have diplomatic relations with China, commerce has been prolific.

Second, China's penetration of the US and EU markets has in many cases displaced Asian and Latin American competitors. In the case of the US, for example, Latin America's share of total imports, at roughly 17 percent, has not grown since 2000.

China represents a strong ideological challenge for the region, particularly for the status quo of economic policy promoted by the majority of multilateral institutions since the 1980s. China would seem to fit the profile of "the worst student who got the best job," with its per capita GDP growing -- under "ideologically erroneous" conditions -- 17.3 times faster than in Latin America from 1980 to 2005.

Contrary to most of Latin America, China's public sector is omnipresent, exercised through direct ownership or control of incentives in the private sectors. Nor has it liberalized labor and product markets, and it maintains strict control over the exchange rate and capital account. Likewise, it develops five-year plans, and in many cases, such as in science and technology, these are plans that exceed 15 years.

Even so, with its cheaper labor force and faster technological growth, China has attained higher export competitiveness than Latin America, several nations of which it has displaced in key sectors since 2000, such as thread and dry goods manufacturing, electronics and furniture. Whereas China exports manufactured products with an increasing level of technological input, Latin America continues to export basic goods with a minimum of added value.

China represents a massive challenge even for countries such as Brazil that have achieved a significant trade surplus. So dividing Latin American states into "winners" and "losers" makes no sense. Aside from importing basic goods, China exports manufactured goods throughout the region.

Latin American countries would thus benefit from an open, non-ideological and critical analysis of development experiences in the past few decades. They also need an effective rapprochement -- going beyond diplomacy -- that implies greater investment in bilateral institutions. Otherwise, relations between China and Latin America will be far from smooth, even as their significance grows.

Enrique Dussel Peters is coordinator of the China/Mexico Studies Center at the National Autonomous University of Mexico. Copyright: Project Syndicate
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