28
May
Bilateral trade between China and Latin America has been growing over the past decade, but the honeymoon is coming to an end, warned the Economic Commission for Latin America and the Caribbean (ECLAC) yesterday.
Commerce between the region and the Asian giant will not keep expanding at the same pace due to the slower rate of growth forecast for the upcoming years both in China and in Latin America, according to a report released by the organization.
Trade between the region and China dropped two percent in value terms last year compared to 2013, representing the first decline since 2009. Bilateral trade, which in 2013 totalled nearly US$274 billion — an all-time high — declined to US$269 billion in 2014.
The report was released as China’s premier Li Keqiang ended his Latin American tour in Chile. The Chinese leader had also travelled to Brazil, Colombia and Peru.
Latin America is expected to grow one percentage point this year after a 1.1 percent growth last year, according to CEPAL, which also estimated Argentina’s economy contracted 0.3 percent last year and will remain stagnant this year. Meanwhile, China grew 7.4 percent in 2014 and its economy will slow slightly to seven percent this year.
“In order to halt the worrying ‘reprimarization’ of exports, progress must be made in terms of productivity, innovation, infrastructure, logistics and the training of human resources. These advances are fundamental to growing with equality, in a context of accelerated technological change,” Alicia Bárcena, ECLAC’s executive secretary, states in the document’s prologue.
The drop in exports to China last year is mainly explained by the sharp fall in the value of exports from Latin America to China, which was partly offset by an increase in the value of its imports from that country.
The decline in the region’s exports to China was generalized and reflect a slackening of raw-materials demand in that country, ECLAC said. Exports to China were down in 13 of the 16 countries analyzed in the report last year.
China is now the second main source of the region’s imports and the third main destination for its exports. In addition, the region has increased its importance as China’s partner: while in 2000 it absorbed three percent of China’s total exports and was the source of two percent of the country’s imports, in 2013 its participation in both flows rose to six percent and seven percent, respectively.
Diversifying exports
Even though the region has increased sales to China, its exports still need to be diversified, according to ECLAC, which points out that only five products, all of them commodities, represented 75 percent of the value of regional shipments to China in 2013. Most Latin American countries run trade deficits with China, including Argentina, and only three have reported surpluses: Chile, Brazil, and Venezuela.
“Although the region has benefited in various ways from the growth in sales to China, the composition of the export basket remains a cause of concern,” ECLAC said. “The persistence of a clear commodity bias in exports to that country hinders attempts by the region’s governments to move toward a more diversified and socially and environmentally sustainable productive and export structure.”
China’s share in Argentina’s foreign trade, measured as the sum of exports and imports, accounted for 11.5 percent of the total in 2014. Between 1994 and 2014, trade between Argentina and China, measured in dollars, rose 16 times, growing 15.1 percent per year. Nevertheless, there’s still a high deficit in the trade balance between both countries, which totalled US$6.1 billion in 2014.
The amount of Argentine exports to China plunged 27.4 percent last year, when compared to 2013, according to the report. Five products represent 85 percent of the country’s exports: soybeans (58 percent), crude petroleum oils (13 percent), soybean oil (10 percent), unprocessed tobacco (two percent) and raw hides and skins from bovine or equine animals (two percent).
But this year could see an increase as exports to China soared in the first quarter of the year, compared to the same period last year, rising by almost 50 percent to US$384 million, according to government figures. When looking at imports, China also gained market share, as purchases from that country grew from 17 percent to 18 percent on the year, reaching US$2.3 billion. Although total imports from China fell 11 percent, they did so at a slower pace than purchases from the rest of the world, which shrank 16 percent overall.
Increasing investment
Chinese foreign direct investment in Latin America has increased significantly in recent years, according to ECLAC. In the two decades prior to 2010, the region’s inward foreign direct investment from China totalled US$7 billion, reaching a turning-point five years ago when it reached an estimated US$14 billion. That was equivalent to 11 percent of the region’s total foreign direct investment.
For China, Latin America is mainly a producer of raw materials and this is evident when considering Chinese investment in the region. Almost 90 percent of estimated Chinese investment between 2010 and 2013 went to natural resources. China is one of the major foreign investors in oil and gas extraction in the region. On the other hand, outward foreign direct investment from Latin America to China is still in its infancy.
President Cristina Fernández de Kirchner called the country’s relationship with China an “integral strategic alliance,” after signing a package of 22 agreements with Chinese leader Xi Jinping in Beijing on February 4. The accords include areas like space technology, mining, energy, financing, livestock and cultural matters and cover the construction of two nuclear and two hydro-electric plants.
Source: http://www.buenosairesherald.com/article/190086/region