As published on gtreview.com, Tuesday 11 January, 2022.
China and Latin American countries have signed an agreement to enhance economic cooperation, including for trade and investment, as the Asian powerhouse increases its presence in the region.
The deal, titled the “joint action plan for cooperation in key areas”, was signed last month by intergovernmental body the Community of Latin American and Caribbean States (Celac) and Beijing. While light on specific details, it sets out a wide-ranging agreement to collaborate politically, economically and socially through trade, investment, innovation, energy, communications and development.
For trade, it plans to “strengthen exchanges between trade and investment promotion agencies and commercial associations and promote pragmatic cooperation between enterprises” as well as facilitate investments and optimise the trade environment.
Ties between China and Latin America and the Caribbean (LAC) have been growing over the last two decades, with trade increasing 26-fold from 2000 to 2020, according to the World Economic Forum. China’s trade with LAC is projected to more than double by 2035 from 2020 levels, and exceed US$700bn.
Before 2010, foreign direct investment (FDI) inflows to the region from China amounted to less than US$400mn per year, finds the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) in a report published last year. A decade later, FDI has risen substantially to stabilise at around US$2bn a year. The US and Europe remain the region’s top sources of investment.
Chinese and Hong Kong companies completed 150 mergers and acquisitions worth US$83bn in the region from 2005 to 2020. They also announced 652 investment projects worth an estimated US$75bn in that period.
“Over the… period, China ranked second only to the United States as the second-largest source of cross-border mergers and acquisitions in terms of the amounts involved, outperforming some of the region’s other historical investors, such as Spain, Canada, the United Kingdom and France,” adds ECLAC.
Latin America is abundant in raw materials, such as copper and nickel, which are essential in the production of certain goods. In terms of commodities, the LAC-China pact aims to “promote cooperation regarding the exploration of mineral resources and the comprehensive use of innovative technical methods and clean technologies with low-carbon emissions”.
It also states the pair will “explore the expansion of cooperation in emerging industries related to clean energy and resource”.
China has focused on exporting manufactured goods and importing commodities as a key pillar of its foreign policy for the last few decades. But there are concerns about China’s influence and lack of transparency in LAC and its grip on raw materials.
“Raw materials – mineral and agricultural – are Beijing’s major interest in Latin America. Oil, iron, copper, and soybeans are the main products the PRC [People’s Republic of China] purchases in the region. China is acting pointwise – becoming active in those areas and in those countries that are of vital importance to it, trying not to show total activity,” reads a 2020 blog by research organisation the Robert Lansing Institute.
The US, a neighbouring country to the region and China’s ultimate trade rival, held its first government review on China’s “strategic approach in Latin America and the Caribbean” in May last year over concern about Beijing’s growing influence in LAC.
“China has worked to diversify its resource dependence for more than a decade, with Latin America and the Caribbean as a component of that,” reads a statement by Derek Scissors, a senior fellow at the American Enterprise Institute and a US-China Economic and Security Commission (USCC) member, as part of the review.
“Using 2019 Chinese trade data, Brazil, with oil, soy, and iron oil, is a major supplier. The next largest regional supplier is Chile… It’s not just that Latin America and the Caribbean mostly supply China with commodities; most of Latin America and the Caribbean only supply China with one to two commodities.”
The USCC has since recommended “Congress recognise that Chinese economic, diplomatic, and security initiatives in Latin America and the Caribbean are robust and growing and demand a comprehensive response”.