China and Latin America

Relations in the New

Economic Context
David R. Mares
Director, Center for Iberian & Latin American Studies
Professor, Political Science
University of California, San Diego
&
Baker Institute Scholar for Latin American Energy Studies
James A. Baker III Institute for Public Policy
Rice University

Win-Win
A

The Challenge of Win-Win

Win-Win at time T can turn into a
Win-Lose Perception at time T+
Goal should be to generate
SUSTAINABLE Win-Win agreements
Requires each side understanding
the other and the context within
which their agreements are made

Past Decade
Rapid Chinese growth
High Commodity Prices
High Rates of Growth for Latin
America
Rapid Trade Expansion between
China & Latin America
Expansion of Latin America Middle
Class
Reduction of Poverty across Latin
America

New Economic Context

International
Dramatic fall in Commodity Prices
Significant slowing of Chinese growth
Loss of Competitiveness of Latin
American manufacturing sector revealed

Domestic
Economic vulnerabilities & challenges
BOP, Inflation,
Public Budget adjustments
Policy adjustments

How Does China Fit

in this New Economic
Context

Latin America wants:

foreign investment and loans will be a

significant factor in addressing these
challenges without having to undergo
significant structural economic and
political adjustments

China wants:
More efficient provider of natural
resources
Destination for Chinese FDI & K
accumulation

Challenges for the Future

Relationship
LA has structural impediments to
sustainable future growth
Symptom: low level of infrastructure,
low savings rate, poor quality of
education, high rates of corruption
Result: low level of international
competitiveness outside of primary
commodities

Causes are Political and

Ideational
Political
Populist-oriented appeal on both left &
right
Concentration of Authority and
consequent Weak Rule of Law

Ideational
Sovereignty
State needs to play a significant
guiding role
Democracy means Majority Rule
Law reflects Majority Rule

 Result is Institutional Weakness to

Address the Challenges of
Development in a Globalized
Economy

China to the Rescue?

Not just Commodity Trade
Infrastructure
Railroads
Highways
Ports
Technology

Manufacturing
But no integration into Global Value
Chains?

Issues
Chinese imports from Latin America
More greenhouse gas intensive than LA
exports to elsewhere
More water intensive than LA exports to
elsewhere

Chinese FDI
Environmental impact
Land tenure impact
Community impact

Brazil
investments that go well beyond
infrastructural works, with priority for
both countries in the field of trade.
Li Keqiang set up factories and
production lines, guaranteeing more
employment for local citizens
Ex: Chery automobile company
announced a $700 million
investment after having opened
another factory nine months ago, for
which $500 million was allocated.

 If these products are not globally

competitive they will render the
region more dependent on China or
intra-regional trade
Brazils global competitiveness in
automobiles and associated
industries will remain low

China as BOP funder

raises new issues for China, because
less tie-in to specific projects or
purchases from specific countries
What LA and China expect of each
other is different in this context
LA: Better terms than IMF
China: Structural Improvement

Macroeconomic oversight
necessary?

BRICS Contingency Fund:

IMF

30% of the maximum access shall be

available subject only to the agreement of
the Providing Parties
70% is subject to both the agreement of
the Providing Parties, and evidence of the
existence of an on-track arrangement
between the IMF and the Requesting Party
involves a commitment of the IMF to provide
financing to the Requesting Party based on
conditionality,
compliance of the Requesting Party with the
terms and conditions of the arrangement.

Looking Ahead
Expectations of Latin America
Expectations of China
Reality of Latin American Structural Political
Weaknesses

It will be a difficult period for the

China-Latin American relationship