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  • The Ongoing Strengthening of Economic Relations between China and Central and South America: Part 2

The Ongoing Strengthening of Economic Relations between China and Central and South America: Part 2

|China

The Asia-Pacific Economic Cooperation (APEC) summit of November 2008 was held in Peru in South America, and China’s President Hu Jintao attended it. In doing so he visited Costa Rica and then Cuba, and actively developed the ongoing diplomacy with Central and South America. For this same region, its importance is currently being raised dramatically as a big supplying region of food and energy for China, and additionally as a potential export market. Still further future development is hoped for as an investment market as well, centered on petroleum- and natural-resource-related industries.

At his destinations, besides concluding an FTA with Peru, he held talks with President Arias in Costa Rica, and monetary contribution to the establishment of a petroleum-related joint enterprise and the financial and educational sectors, and the commencement of FTA negotiations were discussed. In addition, he held talks with Raúl Castro, the President of the Council of State, in Cuba, and lauded the conclusion of an economic agreement and the future strengthening of cooperation. In that country, as is well known, the new Raúl Castro administration was inaugurated in February 2008 taking over from the previous president, Fidel Castro, and currently is maintaining the socialist system, and working out a direction to gradually reduce and introduce flexibility in such things as past superfluous legal prohibitions and protection regulations, and subsidies. In aiming to build a new relationship with Cuba with its ongoing structural reforms, it is a method for China to secure rich deposits of nickel.

Meanwhile, amid the continuing of the constriction and stagnation in US consumer demand via the impact of the global economic crisis from last year on, for Central and South America China constitutes a substitute export market to the United States, and that strategic importance keeps on growing. That in only the 12 months of 2008 the leaders of the major countries, including Venezuela (President Chávez), Brazil (President Lula), Mexico (President Calderón), Chile (President Bachelet), and Peru (President García) have visited China one after another could be called proof thereof.

The visible trade between the two regions has increased markedly from 2000 on, and over the last two years has doubled from US$50.4 billion (2005) to US$102.6 billion (2007). Trade itself, however, while increasing rapidly, is at the preexisting level of 4–5% in its region-based share within China (for the figures go to http://www.jetro.go.jp/).

If we summarize the main distinguishing features of the trade and investment between the two regions, referring to the research reports of the Chinese Academy of Social Sciences Institute of Latin American Studies, then firstly we have that regarding the commodities exported from China to Central and South America, while covering a broad range (for example, the main items constituting more than 60% of the whole are electrical equipment—made up of manufactured goods, such as machinery and mechanical appliances—textile products, and chemicals and related products), the share of high-value-added products is, as before, low. Secondly, the destination for investment is skewed toward the energy and natural-resource sectors, and direct investment into the manufacturing sector is insignificant. Thirdly, that the trade from Central and South America to China is quite low in comparison with other regions, and exported commodities are limited to primary commodities (for example, the three items of minerals, vegetables, and basic metals and their products constitute 74% of the whole), etc., can be raised.2

Incidentally, if we show in order the trade (for 2007) from Central and South America to China, then with Mexico in first place (US$31.6 billion), Brazil (US$23.3 billion) in second and Chile in third (US$21.3 billion), the top three countries constitute close to 75% of the total and their share is dominant (for the figures go to http://www.jetro.go.jp/).

In such circumstances, in January 2009 China accomplishes its long-sought full membership of the Inter-American Development Bank, and is continuing to draw closer to Central and South America. In the middle of the global economic crisis the contribution from China to this organization of US$350 million will probably be welcomed by the governments of Central and South America (which are eager for continuing and long-term development finance lending).

Nevertheless there are also many future challenges for the two regions. First of all the construction of a “sustainable” cooperative relationship would probably be desired via cooperative initiatives toward investment in infrastructure and agriculture, measures on poverty, medical services, and education, and the development of new technological sectors, etc., and not just staying put with the current development of energy and natural resources.

  1. For URL access: http://wwwsoc.nii.ac.jp/aaij/
  2. Wu Guoping, Sino–Latin America Cooperation: A Benign Interactive with Growth, 2008. (Accessed in January 2009) [http://ilas.cass.cn/manager/jeditor/UploadFile/20091692043252.pdf].

[Translated by ERINA]