1. The visible hand of China in Latin America Opportunities, Challenges and Risks Javier Santiso Chief Economist & Deputy Director OECD Development Centre London Business School London June 2007

2. 2 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

3. 3 China: extraordinary or back to normal? According to IMF estimates Chinese gross domestic product based on purchasing-power- parity (PPP) amounts to 13.6% of 2005 world GDP (20.7% in the case of USA). Source: OECD Development Centre Based on: International Financial Statistics and Angus Maddison, 2006.

4. 4 Emerging Asia 9.1% GDP share of world output (WEO, 2005) EU 30.3% US 28.0% Korea&Japan 12.0% China 5.0% The cognitive impact: The emergence of new capitalisms. Center and Periphery rebalanced… LatAm 4.7% Asia represents more than one fifth of world output.

5. 5 China has doubled its GDP in 8 years…without the help of Money Doctors! Chinese growth rates has been higher than those observed in Brazil and Mexico during their glorious years. Source: Datastream (Economist Intelligence Unit) China

6. 6 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

7. 7 Are raw material prices facing a Chinese shock? Source: OECD Development Centre. Based on Oxford Latin American Economic History Database and Thomson Datastream, 2007. Is China to blame for commodities prices?

8. 8 Latin America is endowed with natural resources and dependent on the commodities cycle Source: OECD Development Centre, 2007. Based on: National Balance of Payments, 2005.

9. 9 Whereas exports with the US are stable, countries are increasingly sensitive to China Source: OECD Development Centre, based on IMF Trade Statistics, and OECD Trade Directorate, 2007.

10. 10 Latin America is tackling its vulnerability to US slowdown by diversifying exports Source: OECD Development Centre and UNCTAD, 2007.

11. 11 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

12. 12 Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Bl á zquez, Rodr í guez and Santiso (2006) A trade wake up call: Is Chinas trade integration: a bonanza or a threat? *Arithmetic average of the following indexes: CC= and CS= where ajt and ait equals the share of item n over total exports of countries j (China) and i in time t. n n jt n it aa 2 1 1 n n jt n n it n n jt n it aa aa 22 )()( *Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US

13. 13 Diversification is a concern for Latin Americas competitiveness… Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

14. 14 Productspecialisation has increased recently in the region… Product specialisation has increased recently in the region… Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

15. 15 11,700 Km Lower transport and communication costs Access to FTA Just-in-time delivery Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or supplier and short reaction times. Shipping time 24 Days 160 Km 4 Days Mexico benefits from its geographic proximity to its major export markets: A wake up for reforms: The proximity to export markets

16. 16 Pending reforms : the upgrade of port facilities

17. 17 Conclusions: A Watch List Africa and Latin America: Out of the Value-Chain Game? The share of Chinas total exports produced by foreigners has risen sharply, from 32% to 60% between 2000 and 2005. Foreign outsourcing is becoming a major driver of Indias and Chinas high tech exports, both countries moving up quickly in the value added ladder. In 2005 for example, of Chinas top 100 exporters, 53 were foreign companies and all were electronics/information technology companies. After China: India?

18. 18 Another Emerging Player from Asia: Indias M&A in 2006 Source: OECD Development Centre. Based on Dealogic and local press.

19. 19 The rise on outward direct investment among emerging economies is remarkable Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

20. 20 …helping to the fall of cost of capital Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit). * Data for 2007 is estimated and includes recent deals

21. Thank you Based on: Javier Santiso (ed.). The Visible Hand of China in Latin America. OECD Development Centre Studies, 2007. Javier.santiso@oecd.org