Transcript The Impact of China on Latin America and the Caribbean

Song Peiyuan , Tan Xinyue, Wang Linming , Xie Wentian ,Ye Teng


China’s economy
GDP: 9% grown annum

Second largest economy in the world in terms of GDP.

Share of world trade: <1% in 1980 to >6% in 2004,
making the second Largest economy.

The world largest exporter next decade


LA and China
Trade was limited but changed dramatically later.

China’s imports from LA increased seven-fold and
exports more than tripled between 1999 and 2004.

After the Chinese President Hu Jintao visited the
LA in 2004 and a number of LA leaders have been
to Beijing, Chinese firms began to invest in LA.


Indirect impacts:
The threat of increased competition from
China in 3rd markets.

3rd market: The same exporter market of both
China and LA countries. (ex. USA)

Foreign direct investment( FDI) is being
diverted from LA to China.

The rising price for primary commodities, and
it has trend to push down.

Thus China’s growth can have implications for
LA even in the absence of bilateral links or
competition on the 3rd markets.

China’s rapid growth has also had a multiplier
effect on world demand.

Brazil: the largest LA exporter to China, 14th
amongst China’s supplier, 1.5% of total
imports.

Mexico: the largest LA importer from China,
ranked 22nd with <1% of China’s total exports.

The whole LA accounts for only 3% of China’s
exports and 3.8% of its imports.

The next section focuses on the bilateral
trade and investment links.

The penultimate section emphasis on the
possible implications for poverty reduction in
the region.

The last section identifies major policy issues
which need to be faced by policymakers both
in LA and in China itself.

Threat to Latin America and Caribbean
exports

Threat of Foreign Direct Investment diversion
to China

China’s impact on term of trade and the LA
economy



Export
Import
Foreign Direct Investment (FDI)

GRAPH


¾ of total exports are primary products and
resources based manufactures
Soya, iron ore, copper, pulp, fish meal and
leather



Competitive Advantages
Commodity Structure of Export
Obstacles of LA Exporters: tariffs, quotes



Whether they displace local producers
Whether they simply replace imports from
other countries
Supply of cheap Chinese manufactures




Half of Chinese overseas investment in 2004
went to LA, but only about 0.5% of global FDI
outflows
“resource seeking” kind of investment: oil
and minerals
The FDI from China is very limited
LA FDI in China is even less significant

Threat to Latin America and Caribbean
exports

Threat of Foreign Direct Investment diversion
to China

China’s impact on term of trade and the LA
economy

Necessary to distinguish between impact in the past and
that is likely to have in the future

Looking at past changes in world market shares of China
and LA economy
 Investigate the extent to which declining shares for the region are
related to an increase in china’s market share.

Compare the current product structure of China’s exports
with those of LA economies
 Countries with the most similar structure are likely to face the a
greater threat in the future

LA region is less threatened by Chinese export to
third market compare to those Asian economies and
transition economies of east European

It was estimated that losses to China represented
only 0.7 per cent of LA countries’ exports in 2002

Not a good guide with China’s accession to the WTO
in 2001 and ending of the Agreement on Textiles
and Clothing at 2005

China is having comparative advantage in laborintensive manufactures

Central American countries like Mexico were most
effected in the past years. China have overtaken
Mexico as the second largest source of US imports

Central American countries are likely to be
negatively affected in the future because they have
specialized in exports of similar products
Table #:
Brazil’s world market
losses to China by
technology intensity
(1990 – 2004)
Source: Institute of development studies,
Working Paper 281

Share of high technology products in Chinese
exports has increase significantly since 1990 (CEPAL
2005, Grafico V.2)

Although Mexico still seems to have a higher
technological level in terms of exports, China is
rapidly catching up

Study shows that Mexico has lost production lines
and FDI as a result of competition with Asia and
particularly with China

A concern has been raised that increased attraction
of China as host for foreign investors has reduced
FDI flows to LA economies

Different types of FDI according to motivation:
 Natural resource seeking (main part for LA economies)
 Market seeking (main part for LA economies)
 Efficiency seeking (main part for China)

Despite rapid growth of FDI, China only accounts for
6% of world FDI inflows

Source of FDI for LA economies mainly from US and
European, while FDI for China mainly from East Asia

US FDI in China is mainly in manufacturing while
other sectors dominate in LA economies

China’s emergence has impacts on world price
which indirectly affect LA economy through
changes in terms of trade

China has accounted for a significant share of world
demand for a number of the major commodities
exported from LA countries

As a result, this lead to an increase in price of these
primary commodities

World manufacturing export price have been falling
since the late 1990s due to the low price of Chinese
exports

Countries which are importers of such goods will be
benefited from an improvement in their terms of
trade, whereas exporters will suffer

The combined effects has led to an improvement in
the terms of trade of most major LA economies in
recent years

The impacts of Chinese economy’s global
integration has a variety of impacts on LA
countries:

Balance of Payments
Poverty Level

Some countries have trade surpluses with China
(Argentina, Brazil, Chile and Peru)
 Some counties have trade deficit with China (like
Mexico and Panama)
 However, those with trade surplus are primary goods
exporters.
 Considering the effects on third market trade, the
deficit is actually larger and the surplus smaller.

Primary Commodity Exporters
Manufactured Goods Exporters
Better
Worse
Enterprise Channel
More job opportunities?

Distribution Channel
Cheaper goods?

Government Channel
More welfare programs?

Primary Goods Market
 Mineral production is capital intensive and does
not create much employment
 Agricultural production created opportunities,
but those commercial opportunities are often
benefiting only the powerful and the rich.
 For example, Brazil exports soybeans to China,
but those soybeans are usually produced on
commercial farms which have nothing to do
with the poor.
Manufacturing Market
 There are anecdotal evidence that China’s low
labor price cost many jobs in LA.
 Shoes industry were severely impacted by
Chinese manufacturers.

There are not much literature coverage on
this topic.

Jenkins and Edwards found that the
proportion of imports from China which can
be classified as basic consumer goods (food,
beverage etc.) is low.

The increase in primary products especially in
oil and mineral production gives the
government more money to spend.

Although Chile is planning to give more
money away to the poor due to its rent on
booming copper industry, it is questionable
whether the government will spend the
money on the poor.

LA Countries show significant difference
between their data on trade with China and
those reported by Chinese authorities.

Example: Mexico case.


Lack of accurate data of foreign research
would limit research and policy in LA and
China
China investments are not always follow by a
clear distinction needs to be drawn between
planned and disbursed investment.

Most researches focus on competitive threats
reported by China to LA and Caribbean.
Relatively less attentions have given to
growth of imports from China.

Lack of detailed analysis of the outcomes for
Latin American of China’s growing economic
significance, in term of impacts on poverty.

The main challenge for LA and Caribbean is
growing strength of China.

The export and import between China and LA
and Caribbean keep increasing in recent
years, especially after China entered the
WTO.

The impact of China's integration varies on
LA balance of payments depends on what
type of goods the country is exporting. On
the other hand, China's integration does not
provide significant benefit for LA economies.

The indirect impact of china's growth depending
on the product structure of that country. Those
who is having a similar structure (e.g. Mexico)
have suffered a greater impact from China and is
likely to be impact further more in the future.

China is not a significant threat of FDI diversion
problem towards
the LA economies