China is rapidly overtaking Japan as a focus of attention for Latin America. Although China's impact on Latin America is small, accounting for only 3-4% of regional exports, its potential is enormous.
A big study by the IDB on the emergence of China identifies the Asian nation as a huge market for Latin American commodities and as a significant source of tourism and even investment capital. Likewise, China sees Latin America as a "land of opportunity".
Leaders on both sides have engaged in shuttle diplomacy recently, cementing mutual ties. At the end of last year, Venezuelan leader Hugo Chavez visited China while Chinese president Hu Jintao travelled to Brazil, Chile, Argentina and Cuba. Early this year, China's vice-president, Zeng Qinghong, headed for Latin America and the Caribbean, in pursuit of raw materials and energy resources.
"There is a perfect match between these two regions given the high economic growth potential of Asia and the raw material endowment and resourcefulness of Latin American countries," Ernest Kepper, a former senior World Bank group official, told Emerging Markets. Jin Canrong, an international affairs expert specializing in China agrees: "Objectively speaking, China needs Latin America, and Latin America also needs China."
Focal point
The IDB report on China will form the centrepiece of discussions at this year's annual meeting and is expected to set the basic framework for the economic relationship between leading Latin American countries and China over the coming decade. The document has already been approved at meetings in Beijing and Tokyo and is due to be formally adopted in Okinawa, according to an IDB spokesman.
While Latin American countries have traditionally looked to Japan as a prime source of foreign aid and investment – as well as their major trade pole in Asia – China's emergence is rapidly changing the situation. "China's size, fast growth, external openness and trade performance is being felt everywhere in Latin America," says a draft of the IDB report.
Call to action
China's emergence "is a new and powerful reminder to Latin America that its growth performance has been lagging East Asia for much of the last half a century," it adds. "Given the stakes involved, Latin American policy-makers cannot afford to disregard possible policy lessons from the East."
While South American commodity producers see China as a vast new market, Mexico and the Caribbean basin fear 'head to head' competition in export markets and at home. All the Latin American countries view China's emergence and the renewed dynamism this is imparting to South-east Asia as a call to action.
China is pouring investment into the extraction and transportation of Latin American natural resources – just as Japan did in earlier post-war decades. China, meanwhile, is emulating Japan by purchasing iron or coal mines in places as far afield as Australia, using countries such as Brazil as a cover for such strategic purposes. While it has more than $400 billion of foreign exchange reserves to finance the purchase of natural resources, China is anxious not to appear as big spender on the one hand and aid recipient on the other.
Services market
Latin America for its part is anxious to tap what it sees as a relatively unexplored market in services in China, according to the IDB report. Tourism is one such promising area identified. The report estimates that China could generate 100 million international tourists by 2020, making the country the world's fourth largest source. Latin American countries, it is suggested, should begin laying the groundwork now to attract these tourists.
Latin America is also seen as able to offer advice to China in a variety of areas including managing implementation of WTO membership, privatization and regional integration. Latin America, it is suggested, could also help China with capital account liberalization so that it can free up its currency regime. Meanwhile, Latin America can learn from China in poverty reduction, infrastructure development, medicine, technological development, science and engineering.
Argentina and Brazil have already found important markets in China for their agro-food industries, and as incomes grow and tastes diversify in China, imports of wines, coffee, meats, fruits and vegetables should expand. Chile is exporting copper, ores, wood and other commodities to China while Brazil is supplying iron ore. China, meanwhile, is pumping capital into iron ore mining in Peru, and into an integrated steel complex in Brazil.
Petrobras in China
By Sudip Roy
One area that is seeing greater cooperation between China and Latin America is natural resources. One of the biggest deals so far took place in February, when Brazil's state-owned oil company Petrobras signed a memorandum of understanding with China National Petroleum Corporation (CNPC).
Petrobras President Jose Eduardo Dutra and CNPC President Chen Geng signed an agreement aimed at the development of joint activities in refining, the construction of pipelines, and oil exploration and production in Brazil, China and other parts of the world.
The agreement will also see an exchange of technical information, help develop projects of mutual interest, and lead to regular meetings in China and Brazil between the two companies. The deal is central to Petrobras' plans to more than double its crude oil exports to China, the world's second-biggest oil consumer, this year.
Petrobras is also in talks with the Chinese Export and Import Bank and Sinopec for the construction of a gas pipeline linking north-east and south-east Brazil.
These agreements should help restore momentum to commercial ties between Brazil and China, which suffered a blip last year. In 2004, China's share of Brazil's exports actually declined to 5.6% from 2003's 6.2%. But there's little doubt that China is poised to become a key trading partner for Brazil, and Beijing expects trade to increase fivefold by 2010 to $35 billion a year.