China’s rapacious appetite for oil, minerals and other natural resources has pushed the country’s leaders into a rapid courtship of many developing nations – not least across the western hemisphere. According to the UN Economic Commission for Latin America and the Caribbean (ECLAC), between 2000 and 2005 the region’s exports to China increased by an average of 38% annually, from almost $3 billion in 1999 to $26 billion in 2005.
The region is now China’s main supplier of soy, fishmeal, sugar, copper, nickel and iron. China is the second largest export market for Chile, Peru and Cuba, and the third largest for Brazil. China has also actively engaged with Venezuela, investing $12 billion to facilitate oil production, with the projected exports in 2012 amounting to 15-20% of her oil requirements.
The Inter-American Development Bank (IDB) is quick to stress the positive impact China has had on the region. In a recent research report, the multilateral agency pointed out that “China will force Latin America to rapidly restructure some of its productive sectors in order to defend its position in international markets.” Yet the economic boost to Latin America may not be as beneficial as it’s often portrayed, says Riordan Roett, professor of political science and director of the Western Hemisphere Program at the Johns Hopkins University.
Limitations Roett believes that China’s engagement with the region represents a short-term strategic relationship, which has had the perverse result of undermining meaningful reform. “The region, especially the Andes, has a long historical problem, being dependent on raw materials, exporting with only a short-term perspective, failing to address the limitations of the productive model,” he says. The Asian nation is forcing the region to specialize on resource-based exports, which makes countries yet more vulnerable to demand and price volatility, as well as encouraging reform complacency, says Roett. “There have been very few measures to address counter-cyclical fiscal challenges, especially in Chile, and I am increasingly sceptical that the region’s leaders are aware of the need to diversify the economy.”
An influx of cheap Chinese imports and lack of inward investment (despite President Hu’s promise of $100 billion in the next 10 years) has also led to a domestic backlash in parts of Latin America. Roberto Giannetti da Fonseca, head of trade issues at Brazil’s Industrial Federation (FIESP), has accused China of dumping shoes, toys and textile products sourced from the country’s own raw materials, with little value added. FIESP maintain that, due to this market economy status, Brazil’s $101.5 million industrial surplus in 2002 has led to a deficit of $2.1 billion in 2005.
The possibility of such competitive threats is not lost on institutions such as ECLAC. It advises: “The sub-region should strengthen its trade links and seek greater productive complementarity with China by establishing the necessary trade and technological alliances. This could help to avert the protectionist pressures that could arise in these industrialized countries.”