LatinFinance - Latin America-China Investment Guide 2016 CLONE - 60

bean should prepare to seize the opportunities and address the challenges arising from
these shifts. The region must take advantage
of the changes under way in China to diversify its export basket."
The OECD's forecasts about the number of future tertiary graduates in China
underscore the fundamental changes that
must take place in Latin America if it is to
strengthen its commercial and investment
bonds with the Asian giant in the future.
China has around 50 million tertiary graduates today but that number is expected to
multiply fourfold by 2030. Latin America
has a similar 50 million today but its figure is
only predicted to double.
One out of every two future students in
China is expected to study sciences and
technology, whereas only one in five Latin
American students is predicted to do so. The
services sector makes up 40% of Chinese
GDP today but the World Bank forecasts that
will rise to 48% by 2018.
This blueprint for the transformation of
Chinese society has huge ramifications for
Latin America - and indeed the rest of the
world - because the Asian nation is expected to contribute one-third of the world's
future economic growth, according to the
OECD. China is expected to overtake the US
as the world's biggest economy in real terms
in about a decade's time.
"Latin America must start to diversify
its economy fast if it is to serve the needs
of China's rising middle class," says Ángel
Melguizo, head of the Latin American and
Caribbean unit development center at the
OECD. "Exporters need to identify new
sources of growth in a more markets-led
China. Opportunities are everywhere."
A wake-up call
China's shifting economy should be a
wake-up call to Latin American leaders and
an opportunity for the region to pursue a
development strategy centered on a greater
degree of productive diversification, upgrading, and integration.
Latin American firms - including smalland medium-sized enterprises that account
for a high proportion of the region's industry - must move up the supply chain and
offer more value-added products.
Traditionally, Latin America has exported
crude oil to China and left the refining to
take place there. Similarly, it has exported
soybeans and not soybean oil.
China's rising middle class means myriad
opportunities will exist for meat and fisheries exporters, for example. Advanced logis-

60 L ATINFINA NCE.COM - September/October 2016

tics is also a sector that is likely to expand
rapidly in Latin America, including software
tracking. New mineral sources will have to
be identified and their transportation carefully thought through.
Professional services - including lawyers,
accountants and architects - must prepare
for the growing importance of China in Latin
America. Mandarin has to become a much
more important language option for young
Latin Americans. Direct flights are needed
between major Latin American and Chinese
cities.
New trade agreements with China are
key, and services must be included. Currently, only three Latin American countries
have bilateral accords with the Asian nation:
Chile, Peru and Costa Rica. Chile and Peru
are both founding members of the Pacific
Alliance, the forward-looking Latin American trading bloc. The association as a whole
could attempt to strike deals with China.
The Trans-Pacific Partnership Agreement (TPPA) - a trade agreement among
12 Pacific Rim countries signed in February
this year - could lead to a big boost in world
trade. Its Latin American members include
Chile, Peru and Mexico. China is not yet a
signatory but is considering becoming one.
However, doubts are growing as to whether
it can be ratified - Peruvian President Pedro
Pablo Kuczynski gives it a 30% chance of
ever making it through the US congress, for
example.
"The rise of the bundling of goods
and services is an important trend," says
Douglas Lippoldt, global senior trade
economist at HSBC. "For example, Mexico
is expanding its automotive export sector
in a big way, but that includes the development and integration of the software used
in the vehicles."
Evan Ellis, professor of Latin American studies at the US Army War College,
agrees. "Traditionally, Latin America has
only supplied China with relatively lowvalue-added goods and services. However,
nowadays more technologically advanced
Chinese firms are setting up shop in Latin
America. There is more pressure on Latin
American firms to move up the value
chain."
Increasingly, China is becoming the dominant trading and investment partner in Latin
America. As Chinese imports slackened during the past few years, new vulnerabilities in
Latin American economies were exposed.
The region must embrace the digital and
knowledge economies if it is to take full
advantage of the new opportunities. LF

DOUGLAS LIPPOLDT, HSBC

"THE RISE OF THE
BUNDLING OF GOODS
AND SERVICES IS AN
IMPORTANT TREND.
MEXICO IS
EXPANDING ITS
AUTOMOTIVE EXPORT
SECTOR IN A BIG WAY,
BUT THAT INCLUDES
THE DEVELOPMENT
AND INTEGRATION OF
THE SOFTWARE USED
IN THE VEHICLES"
MARIO CIMOLI, ECLAC

"LATIN AMERICA
AND THE CARIBBEAN
SHOULD PREPARE
TO SEIZE THE
OPPORTUNITIES
AND ADDRESS THE
CHALLENGES ARISING
FROM THESE SHIFTS.
THE REGION MUST
TAKE ADVANTAGE OF
THE CHANGES UNDER
WAY IN CHINA TO
DIVERSIFY ITS
EXPORT BASKET"
http://www.LATINFINANCE.COM
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