The Latin Link

By+Sun+Yanfeng

Chinese President Xi Jinpings second tour to Latin America in less than two years since taking office underscored the high importance China places on Sino-Latin American relations. The host of advantages in the region—including huge market potential， rich natural resources， a large working-age population， an evolving industrial system， and a relatively stable security situation—have provided a robust environment for Chinese enterprises overseas investment. Sino-Latin American economic and trade ties have advanced by leaps and bounds in recent years， as the region has already become an indispensable strategic partner for Chinas foreign economic cooperation.

Complementary economies

China and Latin America have large degree of mutual complementarity in terms of their economic structure and development stages. Latin America is Chinas most important resources and energy supplier， while China in turn provides electromechanical equipment， electrical appliances and light industry products. At the same time， each party is becoming the others most promising investment market.

China is the most important consumer of Latin Americas agricultural and livestock products， which are major export products in Brazil， Argentina， Chile and Mexico. For example， the annual soybean yield in Brazil is close to 100 million tons； and that of Argentina is more than 40 million tons. Argentina and Brazils beef， Mexicos pork and Chiles seafood are not only of high quality， but are also voluminous in quantity. Meanwhile， as living standards improve in China， demand for Latin American agricultural and livestock products has soared. China is now the biggest buyer of Brazilian and Argentinean soybeans， as well as the primary prospective market for Latin American meat， fishmeal， fruit， wine and soybean oil. In February， China National Cereals， Oils and Foodstuffs Corp. （COFCO） purchased 51 percent of the Netherlands Nidera， an agribusiness and trading company which is sourced in some Latin American countries. The partnership will help extend COFCOs global presence and its access to Latin American agricultural products.

Latin America is rich in natural resources. Brazil is the worlds largest iron-ore producer and exporter； and it ranks among the top 10 in deep-sea petroleum reserves. Chile is the worlds largest producer and exporter of copper. Venezuela and Mexico are both rich in petroleum reserves. In the meantime， China—dubbed the “factory of the world”—requires a stable supply of energy and resources. Thus， China and Latin America must work together more closely in the fields of energy and natural resources. In recent years， oil giants like China National Petroleum Corp.， China Petrochemical Corp. and China National Offshore Oil Corp. have expanded their presence in the Latin American energy industry by becoming shareholders in local oil companies in Brazil， Venezuela， Argentina and Ecuador.

China is also expected to become Latin Americas biggest investor in its infrastructure construction. Outdated infrastructure has hindered the ability of Latin American countries to maximize their economic potential. Countries in the region are strengthening local logistics systems and the construction of power plants and oil pipelines. Brazil uses infrastructure investment as a means to tackle economic problems. The country began the reconstruction and expansion of its airports last year， anticipating large air travel during the 2014 World Cup season； more highways， railways and ports will be built or upgraded. Brazil is looking forward to the participation of Chinese enterprises and capital. Meanwhile， Argentina expects Chinese companies to accelerate investment in power generation and transportation， especially its two $4 billion hydropower stations in the south， and a multi-billion-dollar contract for an intercity railway reconstruction and vehicle supply project in its capital. In addition， Latin America integration—which includes more efficient transportation and communication connections—will benefit from greater Chinese investment.

Obstacles ahead

However， several issues stand in the way of Sino-Latin American economic and trade cooperation.

Traditional industrial cooperation relies largely on trade—historically the strongest Sino-Latin American link. In the past decade， trade between the two sides increased sharply， growing from $26.8 billion in 2003 to $261.5 billion in 2013. But the rate of trade growth dropped from a year-on-year increase of 20-30 percent in 2003-05 to merely 0.1 percent in 2013. This slowing of bilateral trade growth is due in part to the general economic slowdown in China that caused a drop in commodity demand. At the same time， Latin American countries are adjusting their domestic industrial structure—seeking to “re-industrialize，”protecting domestic producers and limiting imports of industrial goods. Protectionist measures such as anti-dumping initiatives against Chinese products are on the rise. A few Latin American scholars even expressed concern over the current trade structure between the two sides， noting that 80 percent of products exported from Latin America to China are raw materials， whereas China exports mainly industrial products to Latin America.

Moreover， the two sides lack adequate mutual understanding—a shortcoming due in part to geographical distance， as well as differing beliefs， cultural backgrounds， languages and social systems. Even among the 33 Latin American countries themselves， stark differences exist. Despite the growing number of Chinese people learning Spanish and a growing number of Mandarin learners in Latin America in recent years， bilingual speakers are still few even as bilateral relations become closer. Many Chinese enterprises have encountered problems investing in Latin American countries as they are unfamiliar with local laws and regulations， and vice versa. The media often exaggerates such issues， causing harm to China-Latin America relations. In particular， as there is a lack of direct communication between China and Latin American countries， most Latin American people are inclined to learn about China from Western media， which are can be biased against China.

Potential platforms

Currently， China-Latin America intergovernmental political mutual trust is strengthening thanks to a frequent exchange of visits between highlevel officials from both sides. The cooperation framework between China and the Community of Latin American and Caribbean States （CELAC） is taking shape. China is also interacting more closely with regional powers including Brazil and Mexico on global issues. Now， China and Latin American countries may seize new opportunities to collaborate in a wider range of fields.

Trade is the cornerstone of Sino-Latin American economic relations. At present， China has begun to ease import restrictions on pork， beef and chicken from Mexico， Brazil， Argentina and Chile.

China-Latin American relations should be driven more heavily by investment rather than by trade. China pledged more than $60 billion worth of non-financial investment in Latin American countries from 2002 to 2012 with half already being put into use. The Chinese Government should also encourage Chinese companies with comparative advantages in terms of capital， technology and human resources to participate in infrastructure construction. In the future， investment and financing should become the new impetus for Sino-Latin American economic cooperation. The two sides need to come up with more innovative ways to interact， such as establishing a “China-Latin America infrastructure development fund” as a new platform to take advantage of Chinas large foreign reserves. These measures can help Latin American countries finance infrastructure construction as well as guarantee Chinas stable import of resources. In addition， China with Brazil and Argentina should carry out currency swap agreements， making these two countries pilot locations for the renminbis internationalization.

Furthermore， China and Latin American countries should make joint efforts to promote the establishment of the China-CELAC Forum. They also need to strengthen cultural and people-to-people exchanges， including exchangestudents programs. The two sides can also share experiences and collaborate in areas such as science， nuclear energy technology， tourism， social governance， and more.

As developing nations， China and most Latin American countries are in a similar stage of development and face many of the same challenges. As such， the two sides should seize the current favorable environment to advance Sino-Latin American economic ties in the next decade.