THE IMPACTS OF CHINESE GROWTH ON LATIN AMERICA Professor Rhys Jenkins University of East Anglia Norwich, UK
$ million The Growth of Latin America-China Economic Relations Exports to China 90000 80000 70000 60000 50000 40000 China and Hong Kong's Imports from Latin America, 1990-2008 Rapid growth of Chinese imports from Latin America from 1999 Concentrated in a few countries 30000 20000 10000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 est. Argentina Brazil Chile Mexico Other
$ million The Growth of Latin America-China Economic Relations Imports from China 80000 70000 60000 50000 40000 30000 China and Hong Kong's Exports to Latin America, 1990-2008 Rapid growth of imports from China from 2003 Increased competitiveness of Chinese goods China s Entry to WTO (2001) 20000 10000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 est. Argentina Brazil Chile Mexico Other
Bilateral Foreign Direct Investment FDI flows in 2007 Chinese FDI in Latin America: $300 mn. Latin American FDI in China: $100 mn. Rapid growth of Chinese FDI in Latin America since 2005 Latin American FDI flows to China not increased
Typology of Impacts of China on Other Developing Countries Impact Positive Negative Exports to China Imports from China FDI in China FDI from China Increased export earnings. Increased government revenues. Reduced cost of living. Cheaper inputs and capital goods for producers. Higher profits. Better access to Chinese market. Additional investment & employment. Export platforms. Direct Diversion of resources to export sector primarization. Displacement of domestic producers. Diversion of domestic investment. Displacement of domestic firms (M&A) Indirect Competition in third markets Rising commodity prices Increased export earnings for exporters of primary commodities. Competition for FDI Attraction of FDI into global value chains. Loss of export markets to China. Deteriorating terms of trade for importers of primary commodities. Diversion of FDI to China
Latin American Exports to China Not all countries have participated in the export boom to China Some countries do not have diplomatic relations with PRC Exports are dominated by primary products and resource based manufactures Each Latin American country s exports are concentrated in one or two products In Chile and Argentina exports to China have generated significant government revenues
Latin American Exports to China by Type of Product 100% 80% 60% 40% 20% 0% 1995 2001 2006 Primary Products Resource based Low technology Medium technology High technology
Latin American Imports from China China accounts for 10% of Latin American imports Imports are not just labour-intensive, low-tech products Imports include machinery and equipment and industrial inputs as well as consumer goods
Latin American Imports from China by Type of Product 100% 80% 60% 40% 20% 0% 1995 2001 2006 Primary Products Resource based Low technology Medium technology High technology
Impacts of Chinese Imports on Latin American Manufacturing Imports from China have partly displaced those from other countries Share of Chinese goods in total consumption of manufactures remains small Continued protection of labour-intensive industries Impacts significant in some industries e.g. electrical and electronic products Some producers benefit from cheap Chinese equipment and inputs Problem of contraband
Latin America s Trade Balance with China Growing trade deficit with China Contrast between South America and Mexico and Central America South American surplus 2002-2005 Mexico and Central America growing deficit South America in deficit since 2006
Latin America s Trade Balance with China, 1990-2007 (US $mn.) 10000 5000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007-5000 -10000-15000 -20000-25000 -30000-35000 -40000 South America Mexico + DRCAFTA Latin America
Foreign Direct Investment FDI between China and Latin America lags a long way behind trade Only 1% of Chinese FDI goes to Latin America <1% of FDI in Latin America comes from China Main recipients of Chinese FDI in Latin America Chinese FDI mainly resource seeking
Chinese FDI Stock in Latin America, 2007 (US$ mn.) 200 180 160 140 120 100 80 60 40 20 0 Argentina Bolivia Brazil Chile Cuba Ecuador Mexico Panama Peru Venezuela Other
Chinese Competition in Export Markets Concern that Latin American exporters are losing out to China in export markets (especially US) Impact relatively small in 1996-2001 period but substantial after 2001 Central America, Dominican Republic and Mexico most affected Mercosur also lost markets to China
Loss of Exports to China in the US Market, (% of country s exports to the US) 1996-2001 2001-2006 Argentina -1.8% -5.1% Brazil -4.1% -7.7% Costa Rica -1.3% -7.8% Dominican Rep -2.4% -13.0% El Salvador 6.5% -12.3% Guatemala 6.2% -10.5% Honduras 3.8% -7.7% Mexico -1.1% -11.4% Paraguay -6.9% -5.7% Uruguay -5.8% -9.3% Total for 18 Latin American Countries -1.0% -9.3%
Competition between China and Latin America for FDI Limited evidence on impact of China on FDI from other countries Contradictory results from studies FDI diversion to China, particularly from Mexico No impact from China on FDI in Latin America Complementarity between FDI in China and Latin America Need for more specific sectoral studies
China s Impact on Global Commodity Prices China is a significant consumer of primary commodities Rapid growth of demand in China contributed to commodity boom Impact of China particularly significant for minerals and oil Latin American export earnings from 15 commodities 10-20% higher in 2006 Indirect impact probably as large as the direct increase in exports to China
Share of China in Global Consumption of Key Commodities, 2002, 2007 Poultry Beef Fishmeal Soya oil Soybean Oil Zinc Aluminum Copper Iron ore 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 2002 2007
Additional Export Earnings from "China Effect" on Commodity Prices, 2006 (US$ mn.) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0-2000 Crude oil Iron ore Copper Aluminium Zinc Soybean Soya oil Fishmeal Beef Poultry Tropical agricultural products* Forest products**
The Differential Effects of China on Latin American Countries Should not exaggerate the impact of China on the region USA and EU are still more important trade partners Most FDI in Latin America comes from the OECD countries Not all countries in the region have been affected by China to the same degree Not all countries affected in the same way
Summary of the Direct and Indirect Impacts of China on Latin America Impact Countries most Affected Impacts Exports to China Costa Rica, Chile, Peru, Argentina, Brazil Imports from China Argentina, Chile, Peru, Brazil, Mexico FDI in China FDI from China Competition in third markets Rising commodity prices Competition for FDI Brazil, Argentina, Mexico, (Panama) Brazil, Argentina, México, Venezuela, Peru Dominican Republic, El Salvador, Mexico, Guatemala Argentina, Brazil, Chile, Ecuador, Mexico, Peru Mexico, (Brazil), (Colombia) Direct Indirect Increased export earnings. Increased government revenue (Chile and Argentina) Concern over primarization Displacement of local producers in a few sectors. Limited significance. Limited significance. Negative impact on exports especially to US. Increased export earnings. Improved terms of trade.. Diversion of FDI. Little evidence of positive impacts.