US and China relations

with Latin America”2012 International Conference on American Foreign Policy and the

New Global Milieu”, Tamkang University, Graduate Institute of the

Americas, April 27th, 2012

Carlos Aquino Rodríguez Professor at San Marcos National University, Peru Master and Doctor course at Kobe University, Japan Visiting researcher, Graduate Institute of China Studies, Tamkang University, Taiwan, February-August 2012

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E-mail : carloskobe2005@yahoo.comWeb site, Blog, Facebook

Index

I. Review of US and China relations with Latin America

II. Case study: Peru III. What should U.S. do? IV. Conclusions

I. Review of China and U.S. relations with Latin America

Not so long time ago Latin America was considered the “backyard” of U.S. but this is changing.

US has been the biggest investor in the region, the biggest trading partner, the biggest donor of economic cooperation, and exerted strong political influence in the region.

There was a time it was said: “When the U.S. economy sneezes, Latin American countries catch a cold”

China emergence as an economic power and its appetite for natural resources, and food, of which Latin American countries have in abundance, is challenging U.S. position.

China is now the biggest trade partner of Argentina, Brazil, Chile and Peru. China has FTA with Chile, Costa Rica and Peru

Merchandise trade

In 2010 U.S. exported to South and Central America 137 billion dollars, it was 58 billion in 2000 (and to Mexico 163 billions and it was 112 billion in 2000) and imported 136 billion dollars, it was 77 billion in 2000 (and from Mexico 232 billion dollars and it was 137 billion in 2000) (Table I:13 and A11 http://www.wto.org/english/res_e/statis_e/its2011_e/its2011_e.pdf)

The same 2010 year China exported to South and Central America 69 billion dollars (5 billion in 2000) and imported 84 billion dollars (4 billion in 2000) (Table A14 http://www.wto.org/english/res_e/statis_e/its2011_e/its2011_e.pdf)

As we see trade between U.S. and South and Central America grew just twice last decade (to 273 billion dollars), but with China it leaped nearly seventeen times (to 153 billion dollars).

Trade in manufactures

China is the third biggest trade partner of Latin America, after EU and the US (or the second if only country partner is considered).

In the year 2010 US exported 94 billion to and imported 37 billion dollars from South and Central America in manufactured goods.

The same year China exported 65 billion to and imported 7 billion dollars from South and Central America in manufactured goods. (Table II.29 http://www.wto.org/english/res_e/statis_e/its2011_e/its2011_e.pdf)

As we see nearly 27% of U.S. imports from the region were manufactures, but the figure for China was a little more of 8%.

Trade

See evolution of trade between US and Latin America, and China and Latin America from 1990 to 2010 (from Osvaldo Rosales: “Vision Group’s Role for the Development of FEALAC: Latin American perspective” 1st FEALAC Vision Group Meeting, Seoul, Republic of Korea, March 13, 2012 http://www.fealac.org/2011/news/board_view.asp?txtIdx=130)

Asia-Pacific, and especially China, has been a key factor in diversifying markets for the region.

However, the dynamism of AP does not lie solely in China

A. Exports B. Imports

LATIN AMERICA AND THE CARIBBEAN, INTERNATIONAL TRADE, BY MAJOR PARTNER, 1990-2010(Share in regional total)

Source: ECLAC based on COMTRADE.

Trade

China exports mostly manufactured goods to the region and buys from them mostly raw materials.

It is an asymmetric trade relationship For example 55% of Chile exports to China is

copper, 53% of Argentina exports is soybeans, 78% of Venezuela is oil, and 38% of Peru exports to China is copper. http://www.china-files.com/es/link/17025/mas-que-amenaza-u-oportunidad-china-es-una-realidad-en-america-latina

If we consider trade in services, US trade with L.A. is overwhelmingly bigger than trade in services of China with L.A.

Investment

Regarding Chinese investment in Latin America, this has jumped from a few million dollars a couple of years ago to about US$15 billion in 2010, with most of the money going into mining and other extractive industries in Brazil, Peru and other nations, and jumped again last year 2011 to about US$23 billion (Taipei Times, April 20, 2012 http://www.taipeitimes.com/News/biz/archives/2012/04/20/2003530766)

Still US and Spain are the biggest investors in Latin America as seen in the following graphic (from Osvaldo Rosales: “Vision Group’s Role for the Development of FEALAC: Latin American perspective” 1st FEALAC Vision Group Meeting, Seoul, Republic of Korea, March 13, 2012 http://www.fealac.org/2011/news/board_view.asp?txtIdx=130)

China investment is mainly in mining, while US investment is more diversified

China investment is made by state companies and so has the backing of its government.

A recent surge in bi-regional trade has not been accompanied by a similar increase in FDI flows, despite that Chinese FDI in the region showed a hike in 2010

Announced investments1990-2009 2010 Starting in 2011

Argentina 143 5550 3530Brazil 255 9563 9870Colombia 1677 3 …Costa Rica 13 5 700Ecuador 1619 41 …Guyana 1000 … …Mexico 127 5 …Peru 2262 84 8640Venezuela (Bol. Rep. of) 240 … …

Host country Confirmed investments

LATIN AMERICA AND THE CARIBBEAN, ORIGIN OF FDI, 2006-2010 a/(Percentages)

CHINA, FDI IN SELECTED LATIN AMERICA AND CARIBBEAN COUNTRIES (

(Millions of dollars)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates on April 15, 2011. a/ This figure accounts for 80% of total FDI in Latin America and the Caribbean.

Economic Cooperation

China through entities like Export-Import Bank of China (Eximbank) and the China Development Bank (CDB), is lending money to Latin American countries, specially to countries like Ecuador and Venezuela that can not go the international financial markets. Both entities lent more money to L.A. in 2010 than the World Bank, IADB and US government together. http://www.china-files.com/es/link/17082/america-latina-encuentra-en-china-a-su-banco-de-cabecera

China is a member of the IADB US was and still is for many countries, the main donor

of aid, but sometimes it is said that most this is for fighting drug traffic, something that is subject to critics as seen in the discussions of the last Summit of the Americas (April 14th and 15th, 2012, Colombia).

Political Relations

Workers remittances from US are also important for L.A. The theme of immigration is also a point of contention

between US and L.A. Several Latin American countries, like Ecuador,

Venezuela, Bolivia, has warmer relations with China than with the US.

Even some L.A. countries are having military exchanges with China

Several L.A. heads of state have visited China, even several times, but not US.

Rise of CELAC and UNASUR as alternatives to the OAS to weaken US influence

So it seems US influence is waning while China one is rising.

II. Case study: Peru

Why Peru? Peru was the first country in Latin America to

receive large scale immigration from China, starting 1849

Because of that Peru has the largest community of Chinese in Latin America

Peru was the first to establish diplomatic relations with China, in 1874

Peru was the first to receive large scale FDI from China FDI in 1992.

Peru main trade partner is now China, and it has a FTA with it.

Graphic 1: Gross Domestic Product growth, 1992-2012 (annual growth average, 2012 data is for period March 2011-February 2012)Source: Peru National Statistics Institute: http://www.inei.gob.pe/perucifrasHTM/inf-eco/cuadro.asp?cod=3842&name=pr01&ext=gif

Trade

U.S. was traditionally the biggest trade partner of Peru, now it is China. Last year 2011 China overtook the U.S.

Peru exported in 1993 around 3,344 million dollars, of which 695 million dollars was to U.S. and to China 140 million dollars.

But in 2011 Peru total exports were 45,636 million dollars, of which 5,808 million dollars went to U.S. and to China 6,961 million dollars.

Still U.S. is the major source of imports, with 7,349 million dollars while from China was 6,321 million dollars, in the same year 2011. (http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122011.htm)

Trade

Peru sell mainly raw materials to China, around 95% are minerals and fishmeal

Peru sell to U.S. also raw materials, but in the last years the export of garments, textiles and agro industrial goods has increased (thanks in big part to the FTA between them in effect since 2009).

Peru has a FTA with China in effect from 2010. But Chinese imports are, for some Peruvians companies,

unfair competition because of dumping and subsidies. A representative case is of Chinese shoes, which even if

they have antidumping duties imposed on them from the year 2000, have came to dominate the market for imported shoes.

Number of imported Chinese shoes and share in the market of imported shoes (in thousands –right hand-, and in %) Source: Quarterly Dumping and Subsidies Bulletin of Indecopi, december 2011, pag 5: http://www.indecopi.gob.pe/repositorioaps/0/5/bol/boletin_dumping_y_subsidios/Dic11CFD.pdf

Trade

Peru has subject several Chinese goods to antidumping duties, 9, more than to any country, at the end of 2011.

U.S. has one antidumping duty and one countervailing duty, to the same product, biodiesel.

The complaint is also about the asymmetric trade relationship, because Peru sell mostly raw materials to China but buy from it manufactured goods.

Number of antidumping duties, by country of origin, as of December 31th, 2011Source: Quarterly Dumping and Subsidies Bulletin of Indecopi, december 2011, pag 22: http://www.indecopi.gob.pe/repositorioaps/0/5/bol/boletin_dumping_y_subsidios/Dic11CFD.pdf

Foreign Direct Investment (FDI)

FDI to Peru began to increase from the decade of 1990s At the end of the year 1990 the stock of FDI was only

1.2 billion dollars and at the end of year 2011 the stock of FDI was 22.0 billion dollars.

In the year 1990 U.S. investment was of 619 million dollars (half of the total FDI to Peru) and in the year 2011 was of 3.01 billion dollars (the second after Spain).

China investment in Peru was nil up to 1992. That year, Shougang Corporation (首钢集团 ) bought the state company Hierro Peru that exploits iron ore. It was the first big sale of a Peruvian state company after the government began in 1990 a process of economic reforms and opening of the economy to foreign investment.

Source: http://www.proinversion.gob.pe/1/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=1&PFL=0&JER=1747

Source: http://www.proinversion.gob.pe/1/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=1&PFL=0&JER=1747

Investment

It was one of the first biggest investments by a Chinese state company in a foreign asset. Shougang paid around 120 million dollars for the mine that is the only one that produces iron ore in Peru.

Now China is the tenth biggest investor with a total of 736 million dollars (end of 2011) Table 2. There is more Chinese investment but it does not appears as that because some is made from offshore financial centers (OFCs).

(http://www.proinversion.gob.pe/1/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=1&PFL=0&JER=1747)

US investment in Peru is mainly in mining, industry (manufacturing), finance and energy

China investment is almost exclusively in mining. Currently there are big investments, like in Toromocho by Chinalco (Aluminiun Corp of China), of around 2.2 billion dollars.

Economic Cooperation and Political relations

There has been high levels visits between Peru and China

There was more opposition to a FTA with US than to a one with China.

Confucius Institutes are being established to promote China language and culture

China influence in Peru economy is getting bigger, to the point that the Minister of Economy and Finance of Peru said last October that he “prays every day” for China economy to continue growing at high rates, so high price of raw materials and demand from China will remain. (“When the China economy sneezes, Peru and Latin American countries catch a cold”?)

But Peru has also a good relationship with US.

Why China is more attractive to Latin America countries?

Latin America has benefited from strong demand for their raw materials from China, and for the high prices for them

Also available cheap manufactured goods from China have elevated the standard of living of many of the region people, especially the poor.

China is eager to buy raw materials and pays a good price for it

China does not lecture them on human rights, democracy and so on

China big and growing market is an attraction by itself.

China and L.A. countries are both developing ones.

Problems in relation to China

Asymmetric trade (complementary economies?) High price of raw materials depend on China strong

demand for them. Problems of unfair competition from China China is buying land, like the one bought by

Heilongjiang Beidahuang State Farms Bussiness Trade Group in Argentina, around 300 thousands hectares.

China and L.A. are still very far from each other, there is a need of more direct flights.

Cultural barriers remain China interest in the region is also political, because of

23 of Taiwan diplomatic partners, 12 are in Latin America

What is needed in China L.A. relationship?

While many developed countries are battling with low growth or even recession, China and Latin America nations experience robust growth.

They are middle-income countries with a growing middle class, where internal demand is playing a bigger role in fueling economic growth.

China and Latin American countries, however, need to strengthen their trade, investment and other economic ties, and expand their people-to-people exchanges.

III. What should U.S. do?

L.A. countries are more confident because they are growing, while the US economy has problems

US should sign more FTA with Latin American countries, open its market. Put its economy in order and growing again.

Latin American growing markets are also an attraction to the US

US market is still very attractive; the biggest in the world, especially for L.A. manufactured goods. And it is also geographically close.

Still US is seen as a country to look for, and even if its economic influence diminishes, its cultural one will remain.

Latin America need to diversifies its trade and take advantage of China and US markets.

IV. Conclusions

China influence in L.A. is growing as it increase its trade, investment and economic cooperation with the region

But still there are issues in that relations like the asymmetric trade, investment focused in raw materials, and the problem with selling manufacturing goods in the Chinese market

US will remain influential for the time being And US attraction is not only economical but also

cultural, among other things. But US have to be more open to L.A. needs and work

together in solving regional problems (war on drugs, immigration, economic integration, Cuba admission to the OAS, etc.)

Bibliography

Carlos Aquino: “El tratado de Libre Comercio entre Peru y EE.UU. y las oportunidades y riesgos para el Peru”. Revista Pensamiento Critico, No. 4, Facultad de Ciencias Economicas, UNMSM, Lima, Peru, 2007 http://economia.unmsm.edu.pe/Organizacion/IIEc/Archivos/RevistasIIE/PC_04/PC04_CAP03.PDF

Carlos Aquino: “Ties good, but could be better” (about relations between China and Latin America) , China Daily, February 10, 2012, http://www.chinadaily.com.cn/usa/business/2012-02/10/content_14579217.htm

Carlos Aquino: “China and Peru relations after 40 years of diplomatic links and two years of a FTA” April 24th, 2012, UNMSM http://economia.unmsm.edu.pe/noticia/2012/PeruChina_24.4.12.pdf

Council on Hemispheric Affairs: “Looking Back on the Cuba Distraction at Cartagena and the Failure of the U.S.’ Latin America Policy” http://www.coha.org/looking-back-on-the-cuba-distraction-at-cartagena-and-the-failure-of-the-u-s-latin-america-policy/

ECLAC-UN: “2010 Foreign Direct Investment in Latin America and the Caribbean” http://www.eclac.org/publicaciones/xml/0/43290/2011-323-LIEI-WEB.pdf

Bibliography

Inter-American Dialogue: “Remaking the relationship, the United States and Latin America” , April 2012 http://www.thedialogue.org/PublicationFiles/IAD2012PolicyReportFINAL.pdf

Osvaldo Rosales: Vision Group’s Role for the Development of FEALAC: Latin American perspective” 1st FEALAC Vision Group Meeting, Seoul, Republic of Korea, March 13, 2012 http://www.fealac.org/2011/news/board_view.asp?txtIdx=130

Jiang Shixue: “Understanding China relations with Latin America” http://www.sinolatincapital.cn/Upload/2009929184158.pdf

“El imperio chino superará al imperio español” http://acontecer-ahora-es.blogspot.com/2010/08/el-imperio-chino-superara-al-imperio.html