China and Latin America Rapprochement

1. China and Latin AmericaRapprochement Current situation Must Take into Consideration the United States Zhengzhou Asia-Pacific Business Forum Gil Mundaca. July 10, 2012

2. China and Latin America • Rapprochement comes from the French word “rapprocher” which means “to bring together”, is a re-establishment of cordial relations between two countries or two groups for instance. The Chinese central government first implemented its "going-out strategy," or zouchuquzhanlue (走出去战略) in 1999. (Inter-American Dialogue, June 13, 2012 - (http://www.chinaandlatinamerica.com). • Central questions addressed are: • Why is China executing an economic and diplomatic offensive in Latin America? • Is a rising China challenging U.S. hegemony over the Western Hemisphere? • How has the United States responded to these actions?

3. China and Latin America • The main argument advanced by some people is that there is an economic rationale behind China’s new foreign policy toward Latin America, and that the theses about an ideological or a strategic rationale must be rejected. However some analysts cite for example the speculation that China may be using the Lourdes and Bejucal listening facilities built by the Russians in Cuba (President Hu visited Lourdes facility in 2004) to gain commercial and military advantages over the United States (Pablo Bachelet, “China’s Latin Influence Is Growing, General Says,” The Miami Herald, March 10, 2005). • China’s goal is to secure the provision of agricultural products, minerals, and especially oil. China is not trying to challenge American hegemony in Latin America, but it is the first Asian country to push enough to concern American analysts. This short presentation seeks to provide empirical evidence of the new level and quality of China-Latin America relations (Asian Perspective, Vol. 30, No. 4, 2006, pp. 95-112. Rising China’s “Offensive” in Latin America and the U.S. Reaction”, Gonzalo S. Paz).

4. China and Latin America • China and Chile signed the FTA in November 2005. Then other followed: Costa Rica (2011), Peru (2010), Argentina (2011), Brazil (2012), Cooperation agreement with Mexico (2012). Additionally, since 2004 China has had an “observer” status at the Organization of American States (ibid, Paz). • From China: infrastructure, energy and railway projects . From Latin America: non-manufactured products, mostly raw materials and commodities like copper, soy, grains, oil. • China is Mexico’s second largest trading partner behind the U.S., while Mexico is China’s No. 2 trade partner in Latin America behind Brazil, which ranks 9th among China’s trade partners. 

5. China and Latin America • Venezuela, Brazil, and Ecuador are positioned to export progressively more oil to China. With respect to minerals, Latin America has an estimated 25% of the world’s reserves of silver, 30% of its tin reserves, and 45% of its copper reserves. Soy, associated vegetable oils, and fishmeal exports to China are booming (Wall Street Journal, Market Watch, ”China and the death of Latin America - Commentary: Investment policies are benefiting only Beijing” - • http://articles.marketwatch.com/2012-04-14/commentary/31338140_1_raw-materials-latin-america-china). • China buys raw materials and sends them back as low priced finished products. This is exactly what the United States had been doing for the last 100 years or more and of course they do not wish to lose their “backyard” as it is known in a negative way. China’s policies in Latin America are driven by its own industrial base: produce more than its domestic economy can consume, so that the nation can flood the rest of the world with hard-currency-earning exports.

6. China and Latin America • This morning, China reported slowing import growth in June, while exports increased 11.3 percent, which also signaled slowing growth, (New York Times, “Price Data Suggest Specter of Deflation in China”, Keith Bradsher, July 9, 2012 ). • However China’s entry into Latin America has not been welcomed by all. In textile-producing countries, notably in Central America, China is perceived more as a threat than as an opportunity. The textile industry in Bolivia is dead because of very low-priced Chinese imports (The Washington Post, “Chinese imports and contraband make Bolivia’s textile trade a casualty of globalization”,(http://www.washingtonpost.com/world/the_americas/chinese-imports-and-contraband-make-bolivias-textile-trade-a-casualty-of globalization/2012/07/06/ gJQAf7rGSW_story.html).

7. Chinese made products have a price advantage to other countries. For example, because of initial success in developing countries, Chinese automakers said they were preparing for further expansion there. • For example, in Santiago, Chile a Chery S21 automobile costs about $ 5,500 (34,650 yuan) new and full. A Toyota with similar features costs around $ 12,000 (75,600). It is roomy and well equipped and the price factor is fairly decisive for consumers there to try the new Chinese product. One $ 1 U.S. dollar is 494,200Chilean pesos. (The New York Times, “Chinese Cars Make Valuable Gains in Emerging Markets”, http://www.nytimes.com/2012/07/06/business/global/ valuable-gains-for-china-in-emerging-automarkets.html?nl=todaysheadlines&emc= edit_ee_20120706&pagewanted=all)

8. China and Latin America Conclusion • Chinese firms have become increasingly active overseas. • China will continue to pour investment money into Latin America., up to 400 billion dollars in trade in the next 5 years according to Wen Jiabao (China Daily, “Wen urges enhanced co-op with Latin America” - http://www.chinadaily.com.cn/china/2012-06/28/content_15527521.htm). • There are occasions when China acts as a unitary state, with very clear national goals. But there are also instances when China acts in a seemingly fractured and divergent manner. “Wei Hongxia of the Carnegie Endowment for International Peace noted that a lack of coordination at lower levels and competing interests among bureaucracies affect the ways in which China interacts globally, leading to variations in approach. Reliance upon personal networks in Chinese politics introduces additional complexities, Norris explained - (“China in Latin America: Unitary actor or “fragmented authoritarian” state?” http://www.chinaandlatinamerica.com April 25, 2012)”. • To be continued…………………….. Thank you for your attention. Gil Mundaca. Zhengzhou, July 10, 2012.