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DEVELOPMENT: China Wants Business with Latin America

Mitch Moxley

BEIJING, Aug 18 2010 (IPS) - China, now the world’s second largest economy with a ferocious appetite for resources, is aggressively strengthening relations with Latin American countries, but this has not been without roadblocks.

According to a report by the Economic Commission for Latin America and the Caribbean (ECLAC), released in May, China will displace the European Union as the region’s second largest trading partner by the middle of 2011. Latin American countries are actively exploring cooperative arrangements with China in the fields of mining, energy, agriculture, infrastructure and science and technology, the report said.

China has in recent years diversified its investment in Latin America, from natural resources to manufacturing and the services industry, according to a July report by the Chinese Academy of Social Sciences’ Institute of Latin American Studies.

China’s interest in Latin America ranges from oil from Venezuela to timber from Guyana and soybeans from Brazil.

Zhang Sengen, executive director of the Institute of Chinese International Economic Relations, said Latin America has dual appeal for China: It has abundant resources, which are needed to fuel China’s future growth, and it is a huge market for Chinese products – with 560 million consumers and a combined Gross Domestic Product of 4 trillion U.S. dollars.

“Latin America is a very attractive spot for Chinese investment,” Zhang said.

China’s foreign direct investment in Latin America reached 24.8 billion dollars in 2008, making up 14.6 percent of China’s total foreign direct investment, according to figures from the Chinese Ministry of Commerce. Meanwhile, Latin American investment in China hit 112.6 billion dollars, roughly 14 percent of the total foreign capital China absorbed.

Exports from Latin American countries to China are expected to reach 19.3 percent of the total by 2020, up from 7.6 percent in 2009, according to the ECLAC report.

China has prided itself on what it calls a “win-win” relationship with Latin America, in which the region sells China raw materials, such as copper, iron and oil, while Latin American countries receive goods from China, including mobile phones and cars.

But relations have not been altogether smooth. Across the region, a growing wariness about trade with China has also been emerging.

In Brazil and Argentina, manufacturers have accused China of dumping products in their markets, prompting new tariffs on some Chinese importers. Other countries worry about China’s aggressive efforts to win access to energy reserves.

In Peru, a state-owned Chinese company has faced a nearly two-decade long revolt from mine workers, featuring repeated strikes, clashes with police and arson attacks, ‘The New York Times’ reported earlier in August. Disputes at the mine, founded in 1992 by steelmaker Shougang Corp, focus on wages, environmental damage and the company’s treatment of local residents.

Wang Peng, a researcher at the Chinese Academy of Social Sciences’ Institute of Latin American Studies, said Chinese companies in Latin America need to do proper risk assessment and better protect the local environment. “There are more NGOs in other countries than in China, and many of them focus on environmental protection,” Wang told IPS. “If our companies violate local environmental laws, no wonder tension happens.”

Despite the problems, relations continue to develop. In April, Chinese President Hu Jintao visited Brazil, a move that was heralded in China’s state media as a significant step in cementing relations with Latin America.

“China and Latin American countries, all as developing countries, share extensive common interest. China has always attached great importance to its relations with these countries,” Vice Foreign Minister Li Jinzhang said at a press conference in April, according to state-run Xinhua News Agency.

During the meetings, Brazil and China inked a joint action plan for 2010 to 2014 and reached agreements in the fields of culture, energy, finance, science and technology and product quality inspection, according to Xinhua.

China is Brazil’s largest trading partner and biggest export market. Trade with Chile, China’s second largest trading partner in the region, reached a record 17.7 billion dollars in 2009.

Oil-rich Venezuela is China’s fifth largest trading partner in Latin America with a trade volume of 7.15 billion dollars in 2009. In March that year, Su Zhenxing, director of the CAAS’s Institute of Latin American Studies, told ‘Beijing Business Today’ that Latin America will become a leading strategic provider of crude oil.

Jiang Shixue, vice president of the Chinese Association of Latin American Studies and deputy director-general of the Chinese Centre for the Third World Studies, said China’s interest in Latin America is not just economic, but also political.

Of the 23 countries in the world that have diplomatic relations with Taiwan, 12 are in Latin America. China can gain leverage over these countries though investment incentives, Jiang said.