Latin America and China—a new dependency?

Abstract

Economic relations between China and Latin America have grown rapidly over the past decade. This paper documents the growth of trade, foreign direct investment (fdi) and other financial flows between China and Latin America and identifies the interests of China in the region as a source of raw materials, a market for exports of manufactured goods and an area of diplomatic competition with Taiwan. It points to the asymmetric nature of the relationship in terms of the relative importance of bilateral trade to each partner, the composition of trade flows, and the balance of fdi flows. It shows that these show many of the characteristics of centre–periphery relations. However, China is far from becoming a new hegemonic power in Latin America and the latter's relations with the USA and Europe continue to be more significant than those with China.

Notes

The research on which this article is based was partly funded by an ESRC research grant RES-165-25-005.

1 Brazil had already been designated a ‘strategic partner’ in 1993.

2 fmprc, China's Policy Paper on Latin America and the Caribbean, Beijing: Foreign Ministry of the People's Republic of China, 2008.

3 For a review of these debates, see R Jenkins, ‘China's global expansion and Latin America’, Journal of Latin American Studies, 42(4), 2011, pp 809–837.

4 The data used cover 19 Latin American countries. Trade with Hong Kong is included as well as with mainland China. This is justified since, although the trade statistics of the two are presented separately in international statistics, Hong Kong reverted to Chinese rule in 1997. Moreover, a lot of China's trade, particularly in the early years of its export growth, went through Hong Kong.

5 unctad, Trade and Development Report, 2005, Geneva: unctad, 2005, Fig 2.8.

6 D Rosen & T Hanemann, An American Open Door? Maximizing the Benefits of Chinese Foreign Direct Investment, Special Report, Washington, DC: Center on US–China Relations, Asia Society, Kissinger Institute on China and the United States and Woodrow Wilson International Center for Scholars, 2011, p 17.

7 unctad, World Investment Report, 2011, Geneva: unctad, Fig 1.9.

8 unctad, China: Country Fact Sheet, Geneva: unctad.

9 D Rosen & T Hanemann, China's Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implications, Policy Brief PB09-14, Washington, DC: Peterson Institute for International Economics, 2009, p 4.

10 cepal, La inversión extranjera en América Latina y el Caribe, 2010, Santiago: Economic Commission for Latin America and the Caribbean, 2011, Table III.3; and cepal, The People's Republic of China and Latin America and the Caribbean: Towards a Strategic Relationship, Santiago: United Nations Economic Commission for Latin America, 2010, p 22.

11 This contrasts with the situation in Africa, where concessional loans accounted for two-thirds of ‘aid’ financing during the same period. T Lum, H Fischer, J Gomez-Granger & A Leland, China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia, R40361,Washington, DC: Congressional Research Service, 2009, Table 3.

12 K Gallagaher, A Irwin & K Koleski, The New Banks in Town: Chinese Finance in Latin America, Washington, DC: Inter-American Dialogue Report, 2012, Fig 1.

13 See Jiang Shixue, ‘Three factors in recent development of Sino-Latin American development’, in C Aranson, M Mohr & R Roett (eds), Enter the Dragon? China's Presence in Latin America, Washington, DC: Woodrow Wilson International Centre for Scholars, 2008, pp 43–52; and E Ellis, China in Latin America: The Whats and Wherefores, Boulder, CO: Lynne Rienner, 2009, ch 2. Ellis also refers to a fourth Chinese interest in the region, namely securing strategic alliances as part of its rise as an emerging superpower. This will not be discussed here.

14 cepal, La inversión extranjera en América Latina y el Caribe, p 154.

15 Rosen & Hanemann, China's Changing Outbound Foreign Direct Investment Profile, Appendix 1, Table 1.

16 Lum et al, China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia, p 13.

17 cepal, La inversión extranjera en América Latina y el Caribe, p 163.

18 Jiang, ‘Three factors in recent development of Sino-Latin American development’, pp 43–52.

19 A López & D Ramos, ‘The Argentine case’, in R Jenkins & E Dussel Peters (eds), China and Latin America: Economic Relations in the Twenty-first Century, Bonn: German Development Institute, 2009, p 108.

20 D Saslavsky & R Rozemberg, ‘The Brazilian case’ in Jenkins & Dussel Peters, China and Latin America, p 202.

21 cepal, La inversión extranjera en América Latina y el Caribe, Box III.1.

22 Market economy status is a wto designation which affects the ease with which countries can apply anti-dumping measures. By achieving this status, China hopes that it will not be subject to so many anti-dumping actions. The USA, the European Union and Japan all still regard China as a non-market economy.

23 cepal, La inversión extranjera en América Latina y el Caribe, p 154.

24 Ibid, p 173.

25 Lum et al, China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia, p 2.

26 cepal, La inversión extranjera en América Latina y el Caribe, p 174.

27 An improvement in relations between the PRC and Taiwan in recent years has led to less active competition in this area.

28 G Aguilera-Peralta, ‘Central America between two dragons: relations with the two Chinas’, in A Fernandez & B Hogenboom (eds), Latin America Facing China: South–South Relations beyond the Washington Consensus, New York: Berghahn Books, 2010, p 173.

29 R Jenkins, ‘The economic impacts of China on Latin America’, in S Cesarin, R Jenkins & Zhao Bingwen (eds), China Outside China: China in Latin America, Turin: Quaderni Centro di Alti Studi sulla Cina Contemporanea, 2008, Table 1.

30 Aguilera-Peralta, ‘Central America between two dragons’.

31 Ellis, China in Latin America, pp 215–217.

32 See fmprc, China's Policy Paper on Latin America and the Caribbean.

33 Own calculation from imf, Direction of Trade Statistics, Washington, DC: imf

34 Data from eclac, sicgi database. Sistema Interactivo Grafico de Datos de Comercio Internacional available at www.cepal.org/comercio/SIGCI/ consulted Jan. 2012.

35 This was brought home very clearly in the case of Argentina, when China banned imports of Argentinean soy oil in 2010 on the grounds that it contained high levels of a solvent. A number of explanations were given for this action, including the desire of China to promote its own crushing industry, to reduce stocks of soy oil and palm oil, to retaliate against Argentina for its protectionism against Chinese goods and to punish Argentina for the cancellation of President Christina Kirchner's visit to China earlier in the year. See G Paz, ‘China and Argentina, 2000–2010: re-emergence of China, re-emergence of Argentina?’, paper presented at the ‘International Workshop on China and Latin America’, University of Leeds, 2011.

36 López & Ramos, ‘The Argentine case’.

37 J Barton, A Study of the Impact of China's Global Expansion on Chile: The Copper and Textile Value Chain, Cuadernos de Trabajo del Cechimex No 6, Mexico City: Centro de Estudios China–México, unam, 2010.

38 A Barbosa & DM Guimarães, Economic Relations between Brazil and China in the Mining/Steel Sectors, Cuadernos de Trabajo del Cechimex No 3, Mexico City: Centro de Estudios China–México, unam, 2010.

39 These are based on the classification of goods according to technology level developed by Lall. S Lall, ‘The technological structure and performance of developing country manufactured exports, 1985–1998’, Oxford Development Studies, 28(3), 2010, pp 337–369.

40 López & Ramos, ‘The Argentine case’, Table 11.

41 J Barton, ‘The Chilean case’, in Jenkins & Dussel Peters, China and Latin America, Bonn: German Development Institute, 2009, Table 3.

42 Saslavsky & R Rozemberg, ‘The Brazilian case’, Table 8.

43 Barton, ‘The Chilean case’, Table 2.

44 López & Ramos, ‘The Argentine case’, Table 6.

45 Rosales & M Kuwayama, China y América Latina y el Caribe: Hacia una relación económica y comercial estratégica, Santiago: Economic Comission for Latin America and the Caribbean, 2012. The shares reported here for trade with China are slightly lower than those reported in Tables 1 and 2 since they do not include Hong Kong.

46 cepal, The People's Republic of China and Latin America and the Caribbean, p 13.

47 Own estimate from data on Chinese fdi from Table 3 and unctad data on total fdi flows to and stocks in Latin America.

48 cepal, The People's Republic of China and Latin America and the Caribbean, p 10.

49 Ibid, p 11.