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The visible hand of China in Latin America Opportunities, Challenges and Risks

This article discusses the cognitive and trade effects of China's presence in Latin America, highlighting the impact on commodity prices, exports, and trade integration. It also explores the competition between Latin American and Asian countries and the need for reforms to enhance competitiveness.

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The visible hand of China in Latin America Opportunities, Challenges and Risks

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  1. The visible hand of China in Latin AmericaOpportunities, Challenges and Risks Javier Santiso Chief Economist & Deputy Director OECD Development Centre London Business School London  June 2007

  2. 1 The cognitive effect: new emerging capitalisms. 2 The trade effect: the dark side of the boom. 3 China and India as a wake up call.

  3. China: extraordinary or back to normal? According to IMF estimates Chinese gross domestic product based on purchasing-power-parity (PPP) amounts to 13.6% of 2005 world GDP (20.7% in the case of USA). Source: OECD Development Centre Based on: International Financial Statistics and Angus Maddison, 2006.

  4. Korea&Japan 12.0% US 28.0% EU 30.3% LatAm 4.7% The cognitive impact: The emergence of new capitalisms. Center and Periphery rebalanced… GDP share of world output (WEO, 2005) Emerging Asia 9.1% China 5.0% Asiarepresents more than one fifth of world output.

  5. China has doubled its GDP in 8 years…without the help of Money Doctors! China Source: Datastream (Economist Intelligence Unit) Chinese growth rates has been higher than those observed in Brazil and Mexico during their glorious years.

  6. 1 The cognitive effect: new emerging capitalisms. 2 The trade effect: the dark side of the boom. 3 China and India as a wake up call.

  7. Are raw material prices facing a Chinese shock? Commodities Prices in real terms 140 120 China? 100 80 60 40 1900 1915 1930 1945 1960 1975 1990 2005 Is China to blame for commodities prices? Source: OECD Development Centre. Based on Oxford Latin American Economic History Database and Thomson Datastream, 2007.

  8. Latin America is endowed with natural resources and dependent on the commodities’ cycle LATIN AMERICA'S PERCENTAGE OF COUNTRIES' EXPORTS Commodities Oil 100 Agriculture & other 90 80 70 60 % of country's exports 50 40 30 20 10 0 Venezuela Chile Peru Argentina Colombia Brazil Latin Mexico America Source: OECD Development Centre, 2007. Based on: National Balance of Payments, 2005.

  9. Whereas exports with the US are stable, countries are increasingly sensitive to China Source: OECD Development Centre, based on IMF Trade Statistics, and OECD Trade Directorate, 2007.

  10. Latin America is tackling its vulnerability to US slowdown by diversifying exports Source: OECD Development Centre and UNCTAD, 2007.

  11. 1 The cognitive effect: new emerging capitalisms. 2 The trade effect: the dark side of the boom. 3 China and India as a wake up call.

  12. A trade wake up call: Is China’s trade integration: a bonanza or a threat? * Latin American countries competition* vs. Chinese Asian countries competition vs. Chinese exports to main export products US, % 60% 70 60 50% 50 40% 40 30% 30 20% 20 10 10% 0 0% Japan Perú Chile Brasil Taiwan Malaysia Thailand México Indonesia Uruguay Colombia Philippines Singapore Argentina Venezuela South Korea å n n a a 1 it jt å - - *Arithmetic average of the following indexes: CC= and CS= n n 1 a a *Value of exports to US from China in same product categories as n å å it jt 2 n n 2 2 ( a ) ( a ) n it jt country´s exports, as % of country´s total exports to US n n where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t. Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso (2006)

  13. Diversification is a concern for Latin America’s competitiveness… Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

  14. Productspecialisation has increased recently in the region… Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

  15. A wake up for reforms: The proximity to export markets Mexico benefits from its geographic proximity to its major export markets: • Lower transport and communication costs • Access to FTA • Just-in-time delivery 24 Days 4 Days 160 Km 11,700 Km Shipping time Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or supplier and short reaction times.

  16. Pending reforms : the upgrade of port facilities

  17. Conclusions: A Watch List • Africa and Latin America: Out of the Value-Chain Game? • The share of China’s total exports produced by foreigners has risen sharply, from 32% to 60% between 2000 and 2005. • Foreign outsourcing is becoming a major driver of India’s and China’s high tech exports, both countries moving up quickly in the value added ladder. • In 2005 for example, of China’s top 100 exporters, 53 were foreign companies and all were electronics/information technology companies. • After China: India?

  18. Another Emerging Player from Asia: India’s M&A in 2006 Source: OECD Development Centre. Based on Dealogic and local press.

  19. The rise on outward direct investment among emerging economies is remarkable Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

  20. …helping to the fall of cost of capital * Data for 2007 is estimated and includes recent deals Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit).

  21. Thank you Based on: Javier Santiso (ed.). “The Visible Hand of China in Latin America”. OECD Development Centre Studies, 2007. Javier.santiso@oecd.org

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