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The Surge in Business Between Latin America and China- And Why It Matters

July 18, 2023 Comments Off on The Surge in Business Between Latin America and China- And Why It Matters By Bethany Newcomb

Initiatives implemented by China have boosted China-Latin America trade relations greatly over the past decade. And the forecast for the bilateral future in trade and development is looking bright.

Cargo ship arriving in a Chinese port. Photo courtesy of Xinhua, Chinadaily.com, https://global.chinadaily.com.cn/a/202003/26/WS5e7c48c0a310128217282377.html

Over the past two decades, China and Latin America have been seeing a steady increase in trade and development. Between 2000 and 2020, China-LatAm trade grew 26-fold from $12 billion to $315 billion. On the contrary, the United States’ domination as the largest trade partner with Latin America has taken the opposite route, steadily declining and slowly losing its ongoing trade war with China. How did this happen? Several reasons- the root of which begins with China’s geopolitical agenda.

What are China’s Origins and Interests in the Region?

China’s interests arguably began with diplomatic intentions, following the “South-South Cooperation” and 2001 Latin American tour and 2013 presidency of Chinese President Xi Jinping. The cooperation aimed to create a framework focusing on aid, investment, and trade, using “soft power” to help establish Beijing as a “political goodwill” and eligible political partner over the United States. Why Latin America? The great 2008 financial crisis was continuing to dampen the Americas region. President Jinping successfully signed on several diplomatic partnerships with many Latin American countries, finding allies in Argentina, Brazil, Chile, Ecuador, Mexico, Peru, and Venezuela. Soon after, China became a major source of foreign direct investment and lending in a variety of sectors: energy, infrastructure, space, military, food and agriculture, medicine, and technology. This began the $1 trillion transcontinental 2013 Belt and Road Initiative (BRI).

With the creation of the BRI, China invested heavily in the Latin American space sect, also going on to form a defense strategy with Latin America to gain stronger military ties, bolstering the trade of weapons, intellect, transportation, and other equipment. Because China’s independent financial growth skyrocketed during this period (2000-present) as well, that contributed to even more commodities flooding into Latin America. China has investments in energy and raw materials, such as building refineries and processing plants, predominantly for mining lithium. Renewable energy projects such as solar and wind facilities contribute to both energy and infrastructure efforts, in addition to construction projects such as building highways and airports.

China-Latin American Importance During COVID-19

A significant sect of the BRI was China’s contribution to Latin America’s health sect during the Covid-19 pandemic. This sect of contribution reinforced Beijing’s diplomatic and alliance efforts, distributing an extremely large array of medical equipment, billions in loans, and localized vaccine production facilities. Prior to its enactment, Latin America turned to China for medical assistance in 2018. This organized the meeting of the Community of Latin American and Caribbean States (CELAC)-China Forum in Chile from 2019-2021, coincidentally the same time Covid-19 emerged. As of June 2022, a dozen Latin American countries signed vaccine contracts with Beijing, some even including technology transfers and research cooperation with Sinovac, Chinese vaccine developer. More than 400 million Covid-19 vaccine doses had been donated to Latin America, making up about 70% of vaccine coverage in Chile, Argentina, Brazil, Mexico, and Peru.

COVID-19 health supplies from China arriving in Argentina. Photo courtesy of Health Minister, Ginés González García, Facebook.

China-Latin America Business Will Continue to be Successful- Here’s Why

According to the current trajectory projected by the World Economic Forum, China-LatAm trade is expected to exceed $700 billion by 2035, and could total to 25% of Latin America’s total trade (the U.S. currently holds a declining 28% total trade contribution). Note that these numbers are discrepant among the different Latin American-Caribbean countries due to varying political affiliations, however countries such as Brazil, Chile, and Peru may have 40% of their total trade made up by China. Contributing factors to bilateral growth are China’s drive to beat the United States in the trade war, rapid innovation, 4IR technologies, and China’s expansion to other parts of the world which creates a resourceful connection for its Latin American diplomatic allies. There are several other significant benefits doing business under the umbrella of the China-LatAm bilateral force:

  1. Market Access: Latin America gains access to one of the largest consumer markets in the world. China’s population and other allies offers immense potential for Latin American businesses to expand their reach and tap into new customer segments.
  2. Trade Opportunities: China’s robust manufacturing sector provides Latin American countries with opportunities for exporting raw materials, commodities, and agricultural products. This trade relationship can foster economic growth and diversify export markets for Latin American nations.
  3. Infrastructure Development: Chinese investments in Latin America’s infrastructure projects can fuel development and improve connectivity within the region. This can enhance transportation networks, power generation, telecommunications, and other critical areas, boosting economic productivity.
  4. Technology and Innovation: Trade and Development with China can facilitate knowledge exchange, technology transfer, and innovation. Chinese expertise in areas like telecommunications, e-commerce, renewable energy, and digital technologies can contribute to Latin America’s technological advancements and competitiveness.
  5. Investment and Financing: China’s financial resources and investment capabilities can provide Latin American countries with access to capital for infrastructure projects, industrial development, and economic diversification. Chinese investments can contribute to job creation and economic stability in the region.
  6. Cultural Exchange: Business partnerships between Latin America and China promote cultural understanding, exchange, and human-to-human connections. Such interactions can foster cross-cultural learning, strengthen diplomatic ties, and create a platform for future collaborations in various sectors.

However, it is essential for both regions to carefully consider potential challenges, such as differing business practices, cultural differences, and ensuring equitable partnerships that benefit all stakeholders involved. Additionally, Agriculture and Mining are among the industries most affected by China’s growth, so being aware of which industries are being shifted around will give Latin American businesses an advantageous scope of their competitive and financial outlook in terms of demand and supply.

Resources

Ellis, Dr. R. Evan. “Viewpoint Why Chinas Advance in Latin America Matters.” Www.nationaldefensemagazine.org, 27 Jan. 2021, www.nationaldefensemagazine.org/articles/2021/1/27/viewpoint-why-chinas-advance-in-latin-america-matters.

Kimer, James. “China-LAC Trade: Four Scenarios in 2035.” Atlantic Council, 12 May 2021, www.atlanticcouncil.org/in-depth-research-reports/china-lac-trade-four-scenarios-in-2035/#China-LAC-Today. Accessed 18 July 2023.

Nugent, Ciara, and Charlie Campbell. “The U.S. And China Are Battling for Influence in Latin America, and the Pandemic Has Raised the Stakes.” Time Magazine, 20 Dec. 2020, time.com/5936037/us-china-latin-america-influence/.

Roy, Diana. “China’s Growing Influence in Latin America.” Council on Foreign Relations, 15 June 2023, www.cfr.org/backgrounder/china-influence-latin-america-argentina-brazil-venezuela-security-energy-bri#chapter-title-0-4.

Sanborn, Cynthia. Latin America and China in Times of COVID-19. Oct. 2020.

Zhang, Pepe, and Tatiana Lacerda Prazeres. “China’s Trade with Latin America Is Bound to Keep Growing. Here’s Why That Matters.” World Economic Forum, 17 June 2021, www.weforum.org/agenda/2021/06/china-trade-latin-america-caribbean/.

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