Latin Finance - September/October 2014 - 40

China-Latin American Trade:
Where Is It Going?
by Dino Sani, Latin America Head of Sales & Relationship Management, BNY Mellon
Since the beginning of the last decade, trade between China and the
countries of Latin America and the Caribbean (LAC) has grown at
an astonishing rate: an average growth rate of 23 percent in annual
exports from LAC to China. The reasons behind this are clear: the
rise of the Chinese economy; its need to fuel it with the abundant raw
materials found in Latin America; the stagnation of the economies in
the US and Europe; and Chinese direct investment in Latin America,
particularly in infrastructure, mining and energy. Brazil, whose economy
is the most diverse and whose banking system is the most developed,
was the biggest beneﬁciary, but not the only one. In 2013, China
invested approximately US$15 billion in the region. In the same year, in
comparison, the World Bank invested $5.2 billion in 2013. Between 2005
and 2013, Chinese investment in the region was approximately US$100
billion.
Chinese direct foreign investment continues in Latin America, but a
number of factors are changing the nature of the relationship. One, the
Chinese economy, though still growing, is doing so at a slowed rate.
Two, Chinese economic growth is shifting from being primarily driven by
manufacturing toward a greater emphasis on investment and services,
meaning that the dependence on raw materials from Latin America is
slowing at the same time that the price for such commodities is falling.
These changes are particularly troublesome in that commodity exports
are not well diversiﬁed: more than ﬁfty percent of exports are made up
of iron, copper and soy and are centered primarily in Brazil, Chile and
Argentina. Three, China is becoming an increasingly larger exporter of
goods to Latin America, and the nature of the exports are in the highvalue manufacturing sector, e.g., electronics and automotive, a challenge
to Latin America's own desire to develop that sector. The result of these
factors is an ever-increasing trade imbalance and a growing role for China
not just as a trade partner but as an economic presence within the region.
This is most challenging to Brazil, which seemed poised to become the
economic driver for the South American continent and now must consider

that the partnership with China, which has been so important to Brazil's
rise, has become a hurdle to Brazil's fully transforming its economy and
reaching the position it envisioned for itself.

Chinese Investment: Resources and Infrastructure

As Chinese investment continues, it is interesting to note where - and in
what - China is investing. Focus is primarily in two areas: raw materials
and infrastructure. Regarding raw materials, the Chinese oil companies
CNPC and Sinopec have together invested US$14 billion in an oil project
in the Orinoco basin; and the Chinese have purchased La Bambas
copper mine in Peru for US$5.8 billion, the largest deal of its kind in
Peru's history. In Brazil, two Chinese ﬁrms, CNOOC Ltd. and the National
Petroleum Corporation are part of a consortium of foreign ﬁrms (also
including Royal Dutch Shell and the French ﬁrm, Total SA) that has taken
a $500 million stake in the offshore Libra oil site, which has an estimated
yield of 12 billion barrels of oil. So it would seem that China is beginning
a shift from being solely an importer of raw materials toward taking control
of the source of those imports.
Many of the infrastructure investments, particularly, are large and farreaching and seem intended to serve the dual purposes of stimulating the
regional economies (i.e., providing a healthy return on the investments),
and facilitating trade ﬂows both within Latin America and between Latin
America and China. Through a Hong Kong-based corporation, China
is helping fund a canal project in Nicaragua which, if successful, would
provide an alternative to the Panama Canal, free of US jurisdiction, and
which the Chinese would run and manage for at least the ﬁrst ﬁfty years,
renewable for ﬁfty more. China's President, Xi Jinping, visiting South
America in July, also proposed a joint project with Peru and Brazil to
build a railway from the Peruvian Paciﬁc coast to Brazil's Atlantic coast.
There are also discussions under way about an Atlantic-Paciﬁc railway
within Colombia and a similar railway in Honduras between Ampalla and
Castillo. These investments, should they come to fruition, will provide
China trade routes in the western hemisphere not only free of US control

Corporate Statement

Latin Finance - September/October 2014

Table of Contents for the Digital Edition of Latin Finance - September/October 2014