1. The visible hand of China in Latin America Opportunities, Challenges and Risks
Javier Santiso
Chief Economist & Deputy Director
OECD Development Centre
Deutsche Bank Research Conference
Berlin  September 13th 2007

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

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

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

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

7. Are raw material prices facing a Chinese shock?
Commodities Prices in real terms 40 60 80
100
120
140
1900
1915
1930
1945
1960
1975
1990
2005
China?
Is China to blame for commodities prices?
Source: OECD Development Centre.
Based on Oxford Latin American Economic History Database and Thomson Datastream, 2007.

8. Latin America is endowed with natural resources and dependent on the commodities’ cycle
LATIN AMERICA'S PERCENTAGE OF
COUNTRIES' EXPORTS 10 20 30 40 50 60 70 80 90
100
Venezuela
Chile
Peru
Argentina
Colombia
Brazil
Latin
America
Mexico
% of country's exports
Commodities
Oil
Agriculture & other
Source: OECD Development Centre, 2007.
Based on: National Balance of Payments, 2005.

9. The stars have been lined up for Latin America: Asia is becoming a major growth pillar
Source: World Integrated Trade Statistics (Comtrade), 2007.

10. 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,

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

12. China’s global trade integration: a bonanza or a threat?
EMERGING MARKETS SHARE IN WORLD
OUTWARD FDI STOCK 12
Latin America and Caribbean
Asia 10 8
US Billions 6 4 2
1980
1990
2000
2003
2004
Note: Emerging countries refer to Latin American and Asian.
Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit).

13. China’s global trade integration: a bonanza or a threat?
Source: Ministry of Commerce of the People’s Republic of China, 2006.

14. 1
The cognitive effect: new emerging capitalisms. 2
The trade effect: the dark side of the boom. 3
China and India as a wake up call.

15. A monetary wake up call: China’s rise has had a significant impact on exchange rates…
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

16. A monetary wake up call: China’s rise has had a significant impact on exchange rates…
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

17. … with striking appreciation effects in some African countries
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

18. … with striking appreciation effects in some African countries
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

19. A trade wake up call: Is China’s trade integration: a bonanza or a threat?
Asian countries competition *
vs. Chinese exports to
US, % 10 20 30 40 50 60 70
Thailand
Taiwan
Indonesia
Malaysia
Philippines
South Korea
Singapore
Japan
Latin American countries competition* vs. Chinese
main export products 0%
10%
20%
30%
40%
50%
60%
México
Brasil
Colombia
Argentina
Perú
Uruguay
Chile
Venezuela
*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. å - n jt it a 2 1 ) (
*Value of exports to US from China in same product categories as
country´s exports, as % of country´s total exports to US
Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research
Source: Blázquez, Rodríguez and Santiso (2006)

20. Trade competition: Exploring export structures
Indicators for Trade competition:
represents the share of
total exports from country i in t.
CS and CC are dispersion
measures of export composition.
If closer to 1, potential trade competition is high. å = - n jt it a 2 ) ( 1
Conformity of t
Coefficien
tion
Specialisa
Indicator for market concentration:
Where pij is the market share of country j on
exports of country i. Values closer to 1 indicate
a high degree of product (or destination) concen-
tration. n p HH j 1 2 - ÷ ø ö ç è æ = å
Herfindahl
Hirschmann
Index:

21. A Trade wake up call: China competes intensively with Latin America on a global level
CS and CC Other Emerging - China
CRI
CZE
ESP
HUN
IDN
KOR
PAK
PHL
SLV
THA
BGR
HRV
IND
JPN
MYS
ROM
RUS
SGP
SVK
TUR
USA
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 CS CC
CS and CC Latin America - China
ARG
BRA
COL
MEX
BOL
CHL
GTM
HND
PAN
PER
PRY
VEN
CS and CC Other Emerging - India
BGR
CHN
CRI
ESP
HUN
JPN
MYS
PAK
ROM
RUS
SLV
SVK
THA
TUR
USA
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 CS CC
CS and CC Latin America - India
ARG
BOL
BRA
CHL
COL
GTM
HND
MEX
PAN
PER
PRY
VEN
Note: CS and CC coefficients indicate export structure’s similarity of two partner countries.
Source: OECD Development Centre, based on WITS Database, 2007.

22. Trade structure overlapping is more marked for African developing countries
CS and CC East, Central and South
Africa - China
Benin
Cameroon
C.A.R.
Gabon
Gambia
Kenya
Madagascar
Mauritius
South Africa
Sudan
Tanzania
Togo
Uganda
Zimbabwe
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 CS CC
CS and CC North and West
Africa -China
Algeria
Cote d'Ivoire
Egypt
Mali
Morocco
Tunisia
Burkina Faso
Eritrea
Senegal
Ghana
Niger
Nigeria
CS and CC East, Central and South
Africa - India
Ghana
Madagascar
Ethiopia
Kenya
Togo
Malawi
Sudan
Cape Verde
Mozambique
Zimbabwe
Cameroon
Tanzania
C.A.R
Gambia
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 CS CC
CS and CC North and West
Africa -India
Egypt
Morocco
Cote d'Ivoire
Burundi
Benin
Algeria
Mali
Mauritius
Niger
Nigeria
Uganda
Tunisia
Senegal
Source: OECD Development Centre, 2007.

23. Specialisation patterns have unevenly evolved in recent years
Source: OECD Development Centre, 2007.

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

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

26. …whereas in Africa there is a larger pool of destinations
Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

27. …also accompanied by a higher concentration
on specific goods
Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

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

29. A wake up for reforms: Infrastructure
Source: OECD Development Centre, based on CG/LA database

30. Pending reforms : the upgrade of port facilities

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

32. Another Emerging Player from Asia: India’s M&A in 2006
Source: OECD Development Centre. Based on Dealogic and local press.

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

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

35. Thank you
Based on:
Javier Santiso (ed.). “The Visible Hand of China in Latin America”. OECD Development Centre Studies, 2007.