China’s Impact on Latin America
An Angel or a Devil for Latin Emerging Economies?
Javier Santiso
Chief Development Economist & Deputy Director
OECD Development Centre
A B C D E
To k y o

W o r l d
29-30
B a n k
May
2006
1
1
The cognitive effect: new emerging capitalisms.
2
The trade effect: the dark side of the boom.
3
China and India as a wake up call.
2
China: extraordinary or back to normal?
2005 - GDP in US$ (% of w orld)
China GDP (% of w orld total)
35%
Canada
Spain
Italy
China
France
United Kingdom
Germany
Japan
United States
2.5
2.6
3.9
4.3
4.8
5.0
6.4
30%
25%
20%
?
15%
10%
10.6
28.4
5%
0%
0
Source: IMF
5
10
15
20
25
30
1500 1600
1700 1820
1870
1900 1950
2001 2045
Source:Angus Maddison
According to IMF estimates Chinese gross domestic product based on purchasing-powerparity (PPP) amounts to 13.6% of 2005 world GDP (20.7% in the case of USA).
3
The cognitive impact: The emergence of new
capitalisms. Center and Periphery rebalanced…
GDP share of world output (WEO, 2004)
Emerging
China
Asia
4.2%
8.0%
Korea&Japan
12.7%
Asia represents more than one
fifth of world output.
US
29.6%
EU
30.7%
LatAm
4.8%
4
China has doubled its GDP in 8
years…without the help of Money Doctors!
PPP per capita GDP in constant prices
(thousand of US$, 2004-5 estimate)
Japan
28
24
20
Korea
16
Mexico
12
China
8
Brazil
4
2004e
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
2003 1968
2000 1965
1997 1962
1994 1959
1991 1956
1988 1953
1985 1950
0
Source: based on WEO and PWT
Chinese growth rates has been higher than those observed in Brazil
and Mexico during their glorious years.
5
Asia´s growth on an outward looking
strategy: a development strategy to follow.
Trade openness (X+M/GDP, 2004)
250%
200%
China’s
trade
openness
surpasses that of all Latin
American countries …
150%
100%
Region's Average 2004
50%
Source: WTO, National Statistics
Brazil
Peru
Colombia
Argentina
Uruguay
Venezuela
Mexico
Chile
India
Indonesia
South Korea
China
Thailand
China's share in world merchandise trade
(%, 1980-2004)
7%
6%
5%
3%
2%
1%
Source: IMF DOTS
6
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
0%
1982
… and its share in world
merchandise
trade
has
doubled in less than a
decade.
4%
1980
Malaysia
0%
1
The cognitive effect: new emerging capitalisms.
2
The trade effect: the dark side of the boom.
3
China and India as a wake up call.
7
Are raw material prices facing a Chinese
shock?
Com m odities Prices in real term s
140
120
China?
100
80
60
40
1900
1915
1930
1945
1960
1975
1990
Many economists
are putting the
blame on China
and -to a lesser
extent- on other
emerging
economies (India)
for the current
increase in raw
material (70% in
real terms).
2005
Source: University of Oxford
8
The stars have been lined up for Latin America:
Commodity boom has been a bonanza
Worldwide GDP growth and oil price
7
70
Worldwide GDP growth
(in %)
6
60
5
50
4
40
3
30
2
20
1
10
Price of Brent barrel
in USD (right-hand side scale)
0
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
0
Source: BBVA from original FMI and Bloomberg data; * Projection
9
The stars have been lined up for Latin America:
Commodity boom has been a bonanza
Exports of commodities
BBVA-MAP Index of Latin America commodity prices
170
(100 =jan03)
over total exports (2004)
160
150
140
Without oil
130
120
110
TOTAL
100
90
80
Source: BBVA
2005
2004
2003
2002
2001
2000
1999
1998
1997
60
1996
70
Venezuela
83.1%
Peru
70.7%
Chile
59.1%
Colombia
46.3%
Argentina
38.0%
Brazil
29.6%
Mexico
14.6%
Latam
31.2%
Source: BBVA
10
The stars have been lined up for Latin America:
Asia is becoming a major growth pilar
Exports of agricultural, energy and minery products
(in % over the total) (2003)
100
90
Latin America
80
70
60
50
40
30
20
Hong Kong
Japan
Taiwan
China
Germany
South Korea
Italy
US
Singapore
UK
France
Belgium
Malaysia
Mexico
Spain
India
Thailand
Indonesia
Brazil
Colombia
Peru
Argentina
Uruguay
Bolivia
Venezuela
Chile
Ecuador
Paraguay
0
Canada
Netherlands
10
Source: WTO
11
The stars have been lined up for Latin America:
China became a major trading partner
Growth of GDB in China
(Annual Percentage variation)
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1997
1999
Source: Based on domestic sources.
Figures for 2004 and 2005 are forecasts
2001
2003
2005
12
México
7
Colombia
8
Venezuela
8
Uruguay
9
Brasil
9
Perú
10
Argentina
10
Chile
Exports to China in 2003
(Percentage of total)
China´s strong demand for energy and
commodities: a bonanza or a threat?
Share of total oil exports by destination
region/country, 2003 (%)
Share of total copper exports by destination
region/country, 2004
3%
26%
31%
9%
17%
Asia
5%
14%
0%
Canada
M exico
Others
12%
A frica
2%
China
A ustralasia
0%
Taiwan
China
2%
19%
Others A sian
18%
28%
Source: BBVA, Cochilco
Source: BP
Consumption of nickel, 2004(estimate)
S. & C. A merica
Euro pe
Euro pe
Japan
6%
USA
6%
A merica
So uth Ko rea
50%
1%
Japan
Other A sia P acific
Rest o f Wo rld
1%
Consumption of aluminum, 2004(estimate)
20%
11%
22%
13%
No rth A merica
38%
No rth A merica
Western Euro pe
Western Euro pe
China
23%
Japan
Other A sia
Other A sia
20%
China
Rest o f wo rld
Rest o f wo rld
24%
11%
Source: JP Morgan estimates
7%
11%
13
China’s demand for commodities: a bonanza
or a threat?
*
Asian countries competition vs. Chinese exports to
US , %
60%
50%
40%
30%
20%
10%
åa
*Value of exports to US from China in same product categories as
country´s exports, as % of country´s total exports to US
Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research
*Arithmetic average of the following indexes: CC=
n
it
a njt
n
å
( a itn ) 2 å ( a njt ) 2
n
n
C
hi
le
Ve
ne
zu
el
a
U
ru
gu
ay
Pe
rú
a
Ar
ge
nt
in
a
ol
om
bi
C
Br
as
il
M
éx
ic
o
Ja
pa
n
In
do
ne
si a
M
al
ay
s ia
Ph
i li p
pi
ne
s
So
ut
h
Ko
re
a
Si
ng
ap
or
e
an
0%
Ta
iw
Th
ai
la
nd
70
60
50
40
30
20
10
0
Latin American countries competition* vs. Chinese
main export products
and CS= 1 -
1
å aitn - a njt
2 n
where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in
time t.
Source: Blázquez, Rodríguez and Santiso (2006)
14
Does China compete with Latin American
countries ?
Competencia comercial china con Chile
Competencia comercial china con Argentina
20%
17%
18%
16%
12%
17%
15%
15%
13%
11%
11%
11%
11%
10%
10%
9%
8%
10%
6%
5%
4%
2%
0%
0%
1998
1999
2000
2001
2002
2003
1998
Chinese commercial competition with Paraguay
10%
8%
7%
20%
6%
2001
2002
2003
19%
17%
7%
6%
2000
Chinese commercial competition with Uruguay
8%
7%
1999
16%
16%
15%
13%
13%
2002
2003
5%
10%
4%
2%
5%
0%
0%
1998
1999
2000
2001
2002
2003
Source: Blázquez, Rodríguez and Santiso, OECD Development Centre (2006)
1998
1999
2000
2001
15
Does China compete with Latin American
countries ?
40%
Chinese commercial competition with Costa
Rica
33%
31%
30%
26%
Chinese commercial competition with El Salvador
30%
36%
31%
27%
23%
23%
1999
2000
26%
24%
21%
28%
20%
20%
10%
10%
0%
0%
1998
1999
2000
2001
2002
2003
1998
2002
2003
Chinese commercial competition with Panama
Chinese commercial competition with Guatemala
14%
19%
18%
18%
17%
12%
12%
11%
11%
11%
10%
10%
17%
16%
2001
16%
16%
15%
8%
8%
16%
6%
15%
4%
14%
2%
13%
0%
1998
1999
2000
2001
2002
2003
Source: Blázquez, Rodríguez and Santiso, OECD Development Centre (2006)
1998
1999
2000
2001
2002
16
2003
Does China compete with Latin American
countries ?
Chinese commercial competition with Bolivia
Chinese commercial competition with Colombia
14%
12%
25%
11%
12%
11%
11%
10%
20%
8%
8%
8%
15%
6%
10%
4%
21%
19%
19%
19%
18%
2002
2003
16%
5%
2%
0%
0%
1998
1999
2000
2001
2002
1998
2003
Chinese commercial competition with Peru
20%
17%
16%
17%
12%
15%
2000
2001
Chinese commercial competition with Venezuela
17%
15%
1999
13%
11%
9%
10%
8%
10%
8%
8%
7%
6%
6%
4%
5%
2%
0%
0%
1998
1999
2000
2001
2002
2003
Source: Blázquez, Rodríguez and Santiso, OECD Development Centre (2006)
1998
1999
2000
2001
2002
17
2003
China has become a major destination of
Brazilian exports: The bonanza.
Trade Balance with China
3000
US$ millions
2.385
2500
2000
1.729
1.694
1500
966
1000
574
500
0
2001
2002
2003
2004
2005p
Major countries of destination of Brazilian exports
1999
2004
United States
22,6%
1º
United States
21,1%
Argentina
11,2%
2º
Argentina
7,6%
Netherlands
5,4%
3º
Netherlands
6,1%
4º
China
5,6%
Germany
5,3%
Japan
4,6%
5º
Germany
4,2%
Italy
3,8%
6º
Mexico
4,1%
Belgium
3,8%
7º
Italy
3,0%
United Kingdom
3,0%
8º
Japan
2,9%
France
2,5%
9º
Chile
2,6%
Spain
2,4%
10º
France
2,3%
Mexico
2,2%
11º
United Kingdom
2,2%
Chile
1,9%
12º
Spain
2,1%
Russia
1,6%
13º
Belgium
2,0%
Paraguay
1,6%
14º
Russia
1,7%
China
1,4%
15º
Venezuela
1,5%
Source: SECEX
Source: BBVA
18
Brazilian exports of primary products: more is
not better (Dutch disease and monopsony).
Herfindahl-Hirschmann Concentration Index of
Brazilian exports by industry, 1990-2003
0,20
+ concentration
0.12
0.11
0.10
0.09
0,18
0,16
0,14
0,12
0,10
Source: BBVA and Bradesco
0,04
Source: WTO.
19
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0,00
1993
0,02
1992
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
0.05
0,06
1991
0.06
0,08
1990
0.07
+ diversification
0.08
Jan-89
less
concentration
more
concentration
Herfindahl-Hirschmann Concentration Index of
Brazilian exports by country of destination
1
The cognitive effect: new emerging capitalisms.
2
The trade effect: the dark side of the boom.
3
China and India as a wake up call.
20
China competes intensively with Mexico on
a global level
Chinese global trade competition
Chinese trade competition with Latin America
0.7
0.6
T hailand
Hungary
Mexico
0.5
0.6
0.4
Costa Rica
Mexico
0.5
USA
0.3
Brazil
0.1
Argentina
Peru
Japan
0.4
0.2
Colombia
Poland
0.3
Venezuela
Spain
Chile
0.0
0.0
0.1
0.2
Czech R.
0.3
0.4
0.5
0.6
0.2
0.30
0.35
0.40
0.45
0.50
0.55
Source: Blázquez, Rodríguez and Santiso (2006)
21
0.60
Mexico’s competitive advantage: proximity to
export markets
Mexico benefits from its geographic proximity to its major export markets:
• Lower transport and communication costs
• Access to FTA
• Just-in-time delivery
24 Days
4 Days
160 Km
11,700 Km
Shipping time
Mexico is more competitive in manufacturing more sophisticated products
which require frequent communication with the client or supplier and short
reaction times.
22
Pending reforms : the upgrade of port facilities
Cargo
Container Handling Charges
Handing Mandatory Price Fixed Cooperative
Median
Port
LSU
CMPCH
Restriction Services Agreements Agreements Clearance Efficiency Crime Index World
Index
Bank
Index
Country
Index
Index
Index
Index
time (Days) Index (1-7)
(1-7)
US$/TEU
1
0.38
0
0.33
2
6.76
6.72
117
NA
NA
Singapore
0
0.25
0
0
NA
6.38
5.46
NA
NA
NA
Hong Kong
0.5
0
0
0
NA
5.18
4.49
140
163
NA
Taiwan
0.75
0.13
0.89
1
NA
5.16
5.16
250
202
NA
Japan
0
0.25
0
0.38
7
4.95
5.76
75
NA
NA
Malaysia
0
0.06
1
0
4
4.88
6.08
200
105
NA
Spain
0
0.38
0
0
NA
4.12
5.22
NA
NA
NA
Korea
0.5
0.63
0
0.38
4
3.98
5.12
93
NA
NA
Thailand
Argentina
0
0.13
0
1
7
3.81
4.52
NA
139
NA
0
0
0
0.5
NA
3.81
5.02
NA
NA
NA
Vietnam
Chile
0
0.25
0.43
1
3
3.76
6.05
202
100
NA
China
0.5
0
0
0
7
3.49
4.44
110
NA
NA
1
0.06
0
0.38
5
3.41
4.06
NA
NA
NA
Indonesia
0.5
0.38
0
1
4
3.34
2.61
NA
NA
NA
Mexico
0
0
1
1
11
3.28
3.63
NA
NA
NA
Venezuela
El Salvador
0
0
0
1
4
2.95
2.3
NA
NA
61
Brazil
0.5
0.75
0
1
10
2.92
4.45
328
292
NA
0.5
0
0.5
1
7
2.88
3.32
NA
142
NA
Peru
0
0
0
1
NA
2.79
4.28
NA
NA
NA
India
0.5
0
0
0.38
7
2.79
3.51
118
NA
NA
Philippines
Ecuador
0
0
0.43
1
15
2.63
3.65
NA
139
NA
Costa Rica
0
0
0
1
4
2.46
3.28
NA
NA
68
Colombia
0.5
0.13
0.5
1
7
2.26
1.88
NA
NA
NA
Bolivia
NA
NA
NA
NA
9.5
1.61
4.38
NA
NA
NA
0
0
0
1
5
NA
NA
NA
NA
NA
Uruguay
NA: Not Available
Source: Data for the first 4 columns was kindly provided by Carsten Fink, Aaditya Mattoo, and Ileana Cristina Neagu* (2002).
23
Conclusions: A Watch List
 Africa and Latin America: Out of the Value-Chain Game?
 The share of China’s total exports produced by foreigners has risen
sharply, from 32% to 60% between 2000 and 2005.
 Foreign outsourcing is becoming a major driver of India’s and
China’s high tech exports, both countries moving up quickly in the
value added ladder.
 In 2005 for example, of China’s top 100 exporters, 53 were foreign
companies and all were electronics/information technology
companies.
24
Thank you
Based on
Jorge Blázquez, Javier Rodríguez and Javier
Santiso, “Angel or Devil? Chinese Trade Impact on
Latin American Emerging Markets”, OECD
Development Centre, Working Paper, May 2006.
25