1. NS4540 Winter Term 2017 Latin America China Trade Agenda
Reyes and Sawyer, Second Edition chapter 1

2. Overview
Oxford Analytica, Latin America/China: Trade Agenda Sees New Phase, November 25, 2016
China-Latin American relations have entered new phase
Commodity super-cycle
Chinese growth decelerating
China looking to diversify its engagement through new financial institutions
Asian Infrastructure Investment Bank (AIIB), and
The China-led New Development Bank (BRICS bank) and
Various multilateral funding platforms

3. Analysis/Impacts
China’s regional influence will grow, especially if the U.S. retreats from its leadership role in regional and global institutions
The new scenario offers Latin America an opportunity to be more proactive in shaping the next phase of the relationship with China
Latin American governments need to craft strategies to:
Address China’s protectionist barriers, and
Reignite trade amid low commodity prices
The slowdown in trade with China
has contributed to economic difficulties in many Latin American countries, but
Represents an opportunity to rebalance a relationship many feel has been one-dimensional

4. Trade Patterns I Trade between China and Latin America
Grew at an annual rate of 31.2% between
Plateaued in 2012
Shrank 2.0% in 2013, and 7.0% in in 2015
Fundamental cause has been
Slowing Chinese economic growth which lowered demand for commodity exports
Leading in turn to slower growth in Latin America
Even during boom years the stark commodity-for-manufacturing trade pattern caused concernes in Latin America over
Export concentration, and
Failure to add value to exports for China.

5. Trade Patterns II
Handful of basic commodities – iron ore, copper, soya and petroleum have accounted for over 3/4 of total exports since 2002
China’s exports to Latin America almost all manufactures, many of which compete with domestic producers
Most Latin American countries developed large trade deficits with China as a result
The downturn since 2012 presents Latin America with an opportunity to address imbalances
Would require better access to the Chinese market where tariffs and non-tariff barriers undermine region’s ability to diversify and add value to exports

6. Trade Patterns III
Report by Inter-American Development Bank (IDB) estimates that if China lowered tariffs on Latin American imports to OECD levels, the region’s agricultural exports would increase by 10% and manufactures by 37%
Countries enjoying greatest market access in China have bilateral free-trade agreements (FTAs)
Chile,
Costa Rica, and
Peru
These agreements have increased exports of higher value added goods such as refined copper (Chile)
For larger countries
Political concerns make FTAs a non-starter.
These countries would need to identify the key barriers to their exports and advance a targeted product specific arrangement with China

7. Investment and Financing I
So far FDI has played a surprisingly small role in China/Latin America trade relations
Chinese FDI flows into Latin America totaled just over $10 billion between 2003 and 2014 – less than 1% of the region’s total during this period
This investment mostly reinforced trade patterns
84% went into natural resources between
Dominated by state-owned enterprises
Since 2010 Chinese auto makers have made investments into the region perhaps indicating future diversification of FDI

8. Investment and Financing II
In contrast China’s state owned policy banks, the China Export-Import Bank and the China Development Bank have lent more than $125 billion to LA since 2005
This surpasses the World Bank and IDB combined
However, most has gone to four countries, Argentina, Brazil, Ecuador and Venezuela
Most loans are for energy, mining, and infrastructure projects with some for general budgetary support
A portion has been loans-for-oil
Raising regional concerns over lack of transparency, and terms debtors would be committing valuable resources
Key Question is whether Chinese financing will move beyond countries that lacked access to international capital markets

9. Problems for China
Brazil the only Latin American country to sign up for the AIIB
Loans to Ecuador and Venezuela may never be repaid
China has lent $75 billion to Venezuela and $10 billion loan in 2015 suggests it feels obligated to prop up a government facing possible default

10. Outlook
Changing geopolitical ties mean China-backed institutions can be expected to play a larger role in the future
With Trans-Pacific-Partnership (TPP) a lost cause after the U.S. election, Latin Governments may look to China’s RCEP as an alternative
China’s priority in Latin America will remain access to natural resources
However increasingly Chinese firms will invest in automobiles, telecommunications and electronics
China will look to diversify its financial investments in the region, although its large exposure to Venezuela will pose a major risk.