Latin America must see China as a trade threat, as well as a partner
Major Chinese investment in Latin America is now a regular event: Sinopec’s $7.1bn investment in Repsol’s Brazilian unit is just the latest example. Such deals are rightly celebrated with fanfare in Latin America. However, the long-run effects are uncertain – especially given that Latin American exports are losing badly to their Chinese counterparts in world markets. Latin America needs to diversify its exports – away from oil, iron, soya, meat and the like – if it is to grow sustainably. Unfortunately, as the region has focused on selling its commodities to China, Chinese firms have been outcompeting Latin American manufacturing exporters at a frightening pace. In the 1980s and 1990s, Latin America looked to the US as a core economic partner, adopting the Washington Consensus in order to attract US investment and gain better access to US markets. Alas, in the twenty years up to 2002, Latin America grew by barely one per cent a year in per capita terms. Enter China. It has served as a new and more dynamic destination for Latin American produce: buying $44bn worth of the region’s exports in 2009, ten times more than in 2000. In addition, Chinese demand for those exports – 80 per cent of which are primary commodities – played a key role in driving up global prices. Thus China has helped boost economic growth in Latin America. However, Latin America has lost sight of the need for export diversification. In our new book, The Dragon in the Room, Uruguayan political economist Roberto Porzecanski and I calculate the extent to which Chinese companies are outcompeting their Latin American counterparts. We draw on the methods of the Asian Development Bank to examine data for thousands of sectors and sub-sectors. A Latin American manufacturing export sector is classified as “under threat” from China, […]