Latin America and the Caribbean's (LAC) relationship with China has passed through many stages in the last few decades. It is only after the 1990s that this relationship has entered a new stage: China has recently become LAC's second largest trading partner and its second major source of foreign direct investment (FDI). China is also a new critical partner bilaterally, regionally and multilaterally, not only in political terms, but also in education, science and technology, culture and language, among many others.
Current economic relations between LAC and China –including trade and investments—entail at least six areas:
- China has become LAC´s most dynamic trading partner since 2000: between 2000 and 2014 exports to China increased from 2 percent to 9 percent of the regions’ global total. Imports from China grew from 2 percent to 16 percent.
- LAC´s trade deficit with China has jumped from less than $20 billion in the mid-2000s to more than $75 billion since 2012. The Caribbean, Central America, and particularly Mexico largely account for this deficit, although there is an increasing trade deficit in manufacturing for all of LAC.
- Low-value added and low-technology goods dominate exports to China as the level of LAC-bound exports has increased. Medium and high technology exports to China account for barely 5 percent of LAC´s exports to China. It is also relevant to understand that most of Chinese imports to LAC are intermediate and capital goods: in the case of Mexico, for example, that represents more than 91 percent of imports from China.
- While some LAC countries have suffered from Chinese competition in third markets–notably Mexico and Central America in the U.S.—it has been the U.S. in particular that has lost in this “new triangular relationship.” The U.S.' share in LAC's imports fell from 46 percent in 2001 to 32 percent in 2014. If the U.S. share of the region's imports had remained the same as in 2001, the value of U.S. exports to the region would have been $145 billion in 2014. Based on recent estimates by the Department of Commerce, the additional exports would have generated 840,000 jobs in the US in 2014 alone.
- China has invested an average of almost $10.7 billion annually in LAC in the last five years, and its investments are expected to increase substantially due to China's Community of Latin American and Caribbean States (CELAC) commitments. But this foreign direct investment (FDI) is quite different from that of other countries. From 2000-2012, 87 percent of China´s LAC-FDI came from public-owned firms, which concentrated on the acquisition of raw materials.
- If we include China's increasing financing presence in LAC–with total loan commitments above $118 billion from 2005-2014—it is understandable how China is able to offer turnkey projects, also based on the “omnipresence” of China´s public sector.
LAC benefitted substantially from China´s demand for raw materials–particularly minerals, oil, gas and soya—until 2014, although LAC’s manufacturing sector in countries such as Argentina, Brazil, Colombia and Mexico has suffered from bilateral competition and third markets. LAC´s integration process–in general, but also in Central America, Mercosur and NAFTA—has also been affected substantially.
Rather surprisingly, none of the LAC countries has so far designed a short, medium, and long-term strategy vis-a-vis China, particularly considering that Chinese FDI so far has accounted for less backward and forward linkages than FDI from other nationalities. These strategies–including infrastructure, tourism, immigration issues, visas, direct flights, ports, telecommunications, trade, investment, education and culture—should not only be designed at the bilateral level, but also for the region as a whole, such as at CELAC.
Enrique Dussel Peters is a Professor at the Graduate School of Economics of the National Autonomous University of Mexico (UNAM); Director of the Center of Chinese-Mexican Studies at UNAM, and Director of the Academic Network for Latin America and the Caribbean on China.
