LatinFinance - Latin America-China Investment Guide 2016 CLONE - 58

Towards a new relationship
The message is clear: Latin America must up
its game if it is to take advantage of myriad
opportunities stemming from China's new
normal model.
"The future now lies in the digital economy and the industrial internet, for which
universalization of broadband and lower
cost to access cloud-computing services are
crucial," says Mario Cimoli, officer-in-charge
of the international trade and integration division at the UN's Economic Commission for
Latin America and the Caribbean, ECLAC.

58 L ATINFINA NCE.COM - September/October 2016

Source: Istockphoto

consumption, the services sector, and the
promotion of a knowledge economy. This
new model is more driven by market forces.
The country's leaders concluded that the
old model was unsustainable, based as it
was on a staggering investment rate of up to
45% of GDP, which was leading to an accumulation of debt at an annual rate of more
than 15% of income.
China has reconciled itself to a slowdown
in its trend rate of growth. In the period
covered by the 13th five-year plan (20162020), this is expected to be no lower than
6.5% a year. This is still high by Western
standards but much lower than the rate of
10% seen before 2008 and 7% witnessed
until recently.
The Chinese authorities view the new
model as more sustainable in the long term.
However, the knock-on effects to Latin
America are clear. Weaker Chinese demand
- and the consequent lower commodity
prices - has forced Latin America's commodity-exporting countries to undertake
difficult policy adjustments.
A quick look at some of the figures shows
how significant China is to Latin America.
China imports 40% of global production of
soybeans; some 75% of its supplies come
from Brazil and Argentina. It buys a third
of the iron ore sold on world markets and a
fifth of the copper, with a high proportion
coming from Latin America. Between 2000
and 2013, Latin America's trade with China
rose 27% a year, a period when the region's
trade with the world expanded by just 9% a
year, according to COHA.
Brazil is the Asian giant's biggest trading
partner in the region, with China accounting
for more than 40% of Brazilian exports and
imports. The Latin American nation sends
chiefly iron ore and soybeans, which together comprise 70% of its exports to China.
However, China's economic slowdown
is exposing underlying fragilities in Latin
America's economy.

PUSH AND PULL: Latin American exports
to China need to evolve from staples such as
copper, as the Asian economy morphs, say
experts

ÁNGEL MELGUIZO, OECD

"LATIN AMERICA
MUST START TO
DIVERSIFY ITS
ECONOMY FAST IF
IT IS TO SERVE THE
NEEDS OF CHINA'S
RISING MIDDLE CLASS.
EXPORTERS NEED
TO IDENTIFY NEW
SOURCES OF
GROWTH IN A MORE
MARKETS-LED CHINA"

One of Latin America's biggest problems, traditionally, has been the so-called
middle-income trap. The region has lost its
competitive edge in the export of manufactured goods because its wages are on a rising
trend. However, it has been unable to keep
up with more developed economies in the
high-value-added market.
Cimoli see a fostering of the region's digital economy as a partial solution to this issue
and as a way of integrating Latin America
with China, as the Asian giant's middle class
expands and the services sector becomes
more important there.
It will require a major upgrade in network
infrastructure and a reduction in access
costs, a strengthening of the digital ecosystem, and a shift from the consumer internet
to the industrial one.
For this to work, ECLAC says strong
national policies and regional coordination
are essential. This is fundamental to creating
a digital common market in Latin America,
which would lower cross-border barriers
and make accessibility and the distribution of digital goods and services easier.
This would boost the quality of supply and
reduce access costs by taking advantage of
economies of scale and of networking. The
creation of such a digital common market
can be based on national and regional
institutional advances that are rarely present
in other areas.
ECLAC's Digital Agenda for Latin America
and the Caribbean (eLAC2018) sets out a
framework for these objectives to be met.
Clearly, China's new model will shape
its economic relations with Latin America
region in the coming years.
Cimoli adds: "Latin America and the Carib-

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