China and Latin America:
rewards and risks
Kevin P. Gallagher
kpg@bu.edu
Global Development Policy Program
Department of International Relations
Boston University
Outline: One Point, Five Questions
• LAC trade/investment with China has real benefits:
– New export market for LAC commodities
– New investment destination for Chinese finance
– Price effect on LAC commodities
– Cheaper import prices for manufactures and consumers
• Five Questions:
– How long will Chinese demand last and in what form?
– What are the implications for competitiveness and
industrialization?
– How will employment and environment be effected?
– Will LAC channel the benefits to productive use?
– What can LAC learn from China?
Latin American Exports to China, 1985 to 2011
80,000,000,000.00
70,000,000,000.00
$USD 2005
60,000,000,000.00
• Approx. $75b in 2011 ($4.2b in 2000)
• 11.7 percent of all LAC exports
•More than 25% of China’s commodity
imports
50,000,000,000.00
40,000,000,000.00
30,000,000,000.00
20,000,000,000.00
10,000,000,000.00
0.00
1985
1990
1995
2000
2006
2008
Source: Author’s calculations based on United Nations commodity Trade Statistics, 2012
2009
2010
2011
Five Countries, Eight Sectors, Dominate LAC Trade to China (2009)
Sector
Share of total LAC
exports to China
Country Share of Total LAC
Exports to China in Sector
Copper Alloys
17.9%
Chile( 90%)
Iron ore and concentrates
17.3%
Brazil( 89%)
Soybeans and other seeds
16.8%
Brazil( 83%) , Argentina( 16%)
Ores and concentrates of base metals
13.5%
Chile( 47%) , Peru( 39%)
Crude petroleum
4.5%
Brazil( 65%) , Colombia( 20%)
Soybean oil and other oils
4.5%
Argentina( 79%) , Brazil( 20%)
Pulp and waste paper
4.4%
Brazil( 55%) , Chile( 43%)
Feedstuff
2.4%
Peru( 63%) , Chile( 30%)
TOTAL
81.3%
Source: Author’s calculations based on United Nations commodity Trade Statistics, 2010
Share of China Exports in Selected Countries and Sectors (2009)
Country, Sector
Exports to China in Sector % Total Country Exports in
(USD 2005)
Sector
Argentina
Soybean oil and other oils
1,458,265,606
38%
Soybeans and other seeds
1,099,203,909
62%
Crude petroleum
205,349,443
9%
Iron ore and concentrates
6,402,428,920
53%
Soybeans and other seeds
5,792,662,027
55%
Crude petroleum
1,222,191,176
14%
Pulp and Paper
1,001,722,671
33%
Meat
371,845,753
32%
Copper Alloys
6,635,603,970
39%
Ores and concentrates of base metals
2,647,063,384
28%
Pulp and waste paper
771,871,242
43%
Iron ore and concentrates
331,705,359
65%
Ores and concentrates of base metals
2,156,998,736
38%
Feedstuff
618,422,279
45%
Brazil
Chile
Peru
Chinese Foreign Direct Investment in Latin America
Year
Month
Investor
Quantity (m)
Sector
Subsector
Country
Resource-seeking
2005
2005
2005
2006
2007
2007
2007
2007
2008
2008
2009
2009
2010
2010
2010
2010
2010
2010
2010
2010
May
June
September
September
February
April
June
December
May
May
February
December
March
March
March
April
May
May
May
September
Minmetals
$500
Minmetals
$550
CNPC and Sinopec
$1,400
Sinopec
$420
Zijin Mining
$186
Golden Dragon
$100
Chalco
$790
Minmetals and Jiangxi Copper
$450
Chinalco
$2,150
Jinchuan Group and China-Africa Development Fund
$214
Shougang Group
$1,000
Shunde Rixin
$1,900
State Grid
$1,050
East China Minerals (Jiangsu)
$1,200
CNOOC
$3,100
CNPC
$900
China Sci-Tech
$255
State Grid
$1,720
Sinochem
$3,070
Chongching Co
$300
Metals
Metals
Energy
Energy
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Energy
Energy
Metals
Power
Energy
Real estate
Oil
Soy land
Cuba
Chile
Ecuador
Columbia
Peru
Mexico
Peru
Peru
Peru
Mexico
Peru
Chile
Chile
Brazil
Argentina
Venezuela
Peru
Brazil
Brazil
Brazil
Copper
Oil
Oil
Copper
Copper tubes
Copper
Copper
Copper
Copper Tubes
Iron
Iron
Copper
Iron
Oil
Copper
Market Seeking
2009
2009
2009
2010
2010
May
September
November
August
September
Lenovo
State Construction Engineering
Wuhan Iron and Steel
Chery Auto
Sany Heavy Industry
$40
$100
$400
$700
$100
Manufacturing
Real estate
Metals
Transport
Manufacturing
Electronics
Tourism
Iron
Autos
Metalworking
Mexico
Bahamas
Brazil
Brazil
Brazil
$100
$92
$400
$250
Transport
Manufacturing
Transport
Manufacturing
Autos
Textiles
Autos
Autos
Uruguay
Mexico
Mexico
Mexico
Efficiency-seeking
2007
2008
2009
2010
Total
June
April
December
April
Chery Auto
Sinotex
Hebei Zhongxin
Foton Mexico
$23,437
Source: Author’s calculations based on United Nations commodity Trade Statistics, 2012
The New Banks
in Town:
Chinese Finance in Latin America
LAC’s (new) largest creditor
Chinese Development Bank,
Export-Import Bank of China
and a few others have
provided
$75 billion
(USD) of loan
commitments to Latin
American governments since
2005
Loans to sectors that get little finance
Pay a premium and hire the Chinese
The China Hedge
What about the Longer-Run Future?
•
•
•
•
Will Chinese demand and prices continue?
Competitiveness and De-industrialization?
Impact on employment and environment?
Will LAC channel China benefits
productively?
• What can LAC learn from China?
Chinese Demand?
93
122
141
186
290
392
658
949
1,351
1,684
2,113
2,824
3,510
5,011
7,474
9,702
11,347
12,783
15,158
17,345
18,323
19,899
20,671
22,382
23,039
25,010
26,518
28,062
29,550
31,828
34,513
34,890
36,253
36,792
38,063
40,719
37,003
38,972
Crude Oil consumption per capita (barrels)
35
CRUDE OIL CONSUMPTION PER CAPITA
30
United States
25
20
South Korea
15
10
Japan
China
5
0
GDP per capita (2000 USD)
Sources: BP Statistical Review of World Energy 2010; and World Bank.
186
228
311
383
476
658
827
1,021
1,323
1,812
3,510
4,323
5,515
6,895
8,248
9,702
10,547
12,478
13,802
15,447
22,911
24,484
25,241
25,891
27,362
28,062
28,551
29,942
31,716
33,369
34,513
34,629
35,304
35,947
36,776
36,792
37,674
38,236
40,455
Iron Ore consumption per capita (grams)
1.4
IRON ORE CONSUMPTION PER CAPITA
1.2
1
South Korea
0.8
Japan
0.6
0.4
China
0.2
0
GDP per capita (2000 USD)
Note: Apparent consumption = Production + Import -Export
Sources: Iron Ore Statistics 2010 (UNDP); and World Bank.
72
99
122
141
186
290
392
658
949
1,132
1,351
1,684
2,113
2,824
3,510
5,011
7,118
8,528
10,119
11,347
12,783
14,382
15,447
17,345
18,323
19,899
20,671
22,382
23,039
25,010
26,518
28,062
29,550
31,828
34,513
34,890
36,253
36,792
38,063
40,719
Refined Copper consumption per capita (kg)
14
REFINED COPPER CONSUMPTION PER CAPITA
12
10
8
Japan
6
United States
4
China
2
0
GDP per capita (2000 USD)
Notes: Apparent consumption for China, reported consumption for Japan and the U.S.
Sources: International Copper Study Group; and World Bank.
0.2
SOYABEAN CONSUMPTION PER CAPITA
0.16
United States
0.14
0.12
0.1
0.08
Japan
0.06
0.04
South Korea
China
0.02
0
72
99
127
146
194
311
422
716
1,021
1,209
1,487
1,880
2,497
3,358
4,323
6,390
8,248
9,702
10,595
12,764
14,382
15,741
17,470
18,542
20,034
20,837
22,474
23,508
25,241
27,012
28,263
29,942
32,671
34,606
35,304
36,318
37,003
38,972
Soyabean consumption per capita (tonnes)
0.18
GDP per capita (2000 USD)
Note: Soyabean consumption per capita is domestic supply quanitity divided by total population.
Sources: Food and Agriculture Organization (FAO); and World Bank.
Competitiveness?
Resource Curse?
Taking Away the Ladder? China Becomes Most Competitive Manufacturing Exporter
(percent of World Manufacturing Exports)
1980
Fmr Fed. Rep. of Germany
USA
Japan
France
United Kingdom
Italy
Netherlands
Canada
Switzerland
Sweden
China, Hong Kong SAR
Rep. of Korea
Austria
Spain
Poland
Denmark
Singapore
Finland
Norway
Ireland
India
Australia
Portugal
Malaysia
Greece
Argentina
Thailand
Philippines
New Zealand
Hungary
Saudi Arabia
Tunisia
China, Macao SAR
Colombia
Bangladesh
Peru
Indonesia
Morocco
Cyprus
New Caledonia
Kenya
Sri Lanka
Syria
Mauritius
Barbados
Trinidad and Tobago
1985
17.8%
16.1%
14.5%
8.8%
8.4%
7.4%
3.7%
2.9%
2.7%
2.5%
2.1%
1.8%
1.6%
1.5%
1.2%
1.0%
1.0%
0.8%
0.6%
0.5%
0.4%
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
1990
Japan
Fmr Fed. Rep. of Germany
USA
France
Italy
United Kingdom
Canada
Netherlands
Rep. of Korea
China, Hong Kong SAR
Switzerland
Sweden
Spain
Austria
Singapore
Brazil
Denmark
Finland
Poland
Ireland
Norway
Turkey
Malaysia
Portugal
India
17.9%
15.4%
14.8%
6.9%
6.7%
6.3%
4.7%
3.1%
2.9%
2.9%
2.2%
2.2%
1.6%
1.4%
1.2%
1.1%
0.9%
0.7%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.4%
China
0.4%
Israel
Australia
Thailand
Greece
Pakistan
Argentina
Venezuela
Philippines
Saudi Arabia
Indonesia
New Zealand
China, Macao SAR
United Arab Emirates
Hungary
Bangladesh
Tunisia
Morocco
Colombia
Sri Lanka
Uruguay
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
1995
Fmr Fed. Rep. of Germany16.4%
USA
13.6%
Japan
13.5%
France
7.3%
Italy
7.0%
United Kingdom
6.5%
China, Hong Kong SAR
3.7%
Netherlands
3.4%
Canada
3.1%
Rep. of Korea
3.0%
Switzerland
2.5%
China
2.1%
Sweden
Spain
Singapore
Austria
Denmark
Malaysia
Brazil
Finland
Ireland
Thailand
Portugal
Mexico
India
Norway
Turkey
Poland
Australia
Israel
Indonesia
Pakistan
Romania
Greece
Argentina
Philippines
Saudi Arabia
United Arab Emirates
Tunisia
Morocco
New Zealand
China, Macao SAR
Venezuela
Syria
Colombia
Bangladesh
2.0%
1.9%
1.8%
1.6%
1.0%
0.8%
0.7%
0.7%
0.7%
0.7%
0.6%
0.5%
0.5%
0.5%
0.4%
0.3%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
2000
USA
Japan
Germany
France
Italy
United Kingdom
China, Hong Kong SAR
13.3%
12.8%
12.6%
6.3%
6.0%
5.4%
4.9%
China
3.7%
Rep. of Korea
Canada
Netherlands
Singapore
Switzerland
Spain
Mexico
Malaysia
Sweden
Austria
Thailand
Denmark
Ireland
Finland
Brazil
Portugal
Indonesia
India
Czech Rep.
Turkey
Poland
Australia
Israel
Norway
Hungary
Philippines
Pakistan
Slovenia
Argentina
Slovakia
Romania
Greece
Saudi Arabia
Tunisia
Croatia
New Zealand
Bangladesh
Colombia
3.5%
3.2%
3.1%
3.0%
2.0%
2.0%
1.9%
1.7%
1.6%
1.3%
1.2%
0.8%
0.8%
0.7%
0.7%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
2006
USA
Japan
Germany
France
14.4%
10.4%
10.2%
5.2%
China
5.0%
Italy
United Kingdom
China, Hong Kong SAR
Canada
Rep. of Korea
Mexico
Belgium
Singapore
Netherlands
Spain
Malaysia
Sweden
Switzerland
Thailand
Ireland
Austria
Philippines
Denmark
Indonesia
Finland
Brazil
India
Hungary
Czech Rep.
Poland
Russian Federation
Turkey
Israel
Portugal
Australia
South Africa
Norway
Slovakia
Ukraine
Pakistan
Argentina
Romania
Slovenia
United Arab Emirates
Viet Nam
Luxembourg
4.7%
4.6%
4.5%
3.7%
3.6%
3.3%
2.8%
2.7%
2.7%
1.9%
1.8%
1.5%
1.5%
1.2%
1.1%
1.1%
0.8%
0.7%
0.7%
0.7%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.4%
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
Germany
China
USA
Japan
France
Italy
United Kingdom
China, Hong Kong SAR
Rep. of Korea
Belgium
Netherlands
Singapore
Canada
Mexico
Spain
Switzerland
Malaysia
Sweden
Austria
Thailand
Czech Rep.
Poland
Turkey
Ireland
India
Brazil
Hungary
Denmark
Finland
Russian Federation
Philippines
Indonesia
Slovakia
Portugal
Ukraine
Romania
South Africa
Israel
United Arab Emirates
Australia
Viet Nam
Norway
Saudi Arabia
Slovenia
Pakistan
Argentina
2009
11.8% China
11.5% Germany
10.2% USA
7.5% Japan
4.7% France
4.4% Italy
4.1% Rep. of Korea
4.0% China, Hong Kong SAR
3.7% Belgium
3.2% United Kingdom
2.9% Singapore
2.7% Mexico
2.5% Canada
2.5% Switzerland
1.9% Malaysia
1.6% Thailand
1.5% Austria
1.4% India
1.3% Czech Rep.
1.2% Sweden
1.0% Turkey
1.0% Ireland
0.9% Denmark
0.9% Brazil
0.8% Russian Federation
0.8% Indonesia
0.8% Finland
0.7% Philippines
0.7% Israel
0.5% United Arab Emirates
0.5% Romania
0.5% Portugal
0.4% Norway
0.4% South Africa
0.3% Australia
0.3% Slovenia
0.3% Argentina
0.3% Saudi Arabia
0.3% Pakistan
0.3% Tunisia
0.3% Luxembourg
0.2% Belarus
0.2% Lithuania
0.2% Bulgaria
0.2% Morocco
0.2% Colombia
15.9%
12.6%
9.7%
7.0%
5.0%
4.6%
4.6%
4.4%
3.5%
3.3%
2.8%
2.5%
2.0%
2.0%
1.5%
1.5%
1.4%
1.4%
1.3%
1.3%
1.1%
1.0%
0.8%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
Percentage of LAC Export Markets under "Threat" from China
Direct
Partial
Total
Argentina
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
20%
6%
53%
15%
73%
21%
Brazil
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
30%
10%
54%
18%
84%
27%
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
21%
1%
70%
4%
91%
6%
Colombia
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
27%
6%
62%
14%
88%
21%
Costa Rica
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
48%
21%
51%
22%
99%
43%
Mexico
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
52%
38%
45%
33%
97%
71%
52%
22%
40%
17%
92%
39%
Chile
LAC
As % of Manufacturing Exports in 2009
As % of All Exports in 2009
Rising Wages in China
China vs. Mexico in World IT Markets
Computers
Peripherals
Telecom
(country exports as a percent of world exports)
China
2000 Market Share
2010 Market Share
2011 MarketPoint
Share
Percentage
Change
6.0
46.4
55.0
40.4
4.0
19.9
25.0
15.9
5.6
31.0
38.8
25.3
Percentage Point Change
(2000/2011)
49.0
21.1
33.2
4.5
4.3
5.8
2.2
0.6
0.7
5.2
4.8
4.4
1.3
-1.5
-0.7
Mexico
2000 Market Share
2010 Market Share
2011 Market Share
Percentage Point Change
(2000/2011)
Source: updated from Gallagher, Kevin P., and Lyuba Zarsky (2007), The Enclave Economy: Foreign Investment and
Sustainable Development in Mexico’s Silicon Valley. MIT Press.
De-Industrialization in Brazil?
Source: Financial Times, 2011
Jobs and Environment
World Soy Price
700
600
500
400
300
200
100
0
2000
2001
2002
2003
2004
Source: UN FAO Commodity Price Statistics, April 1, 2011
2005
2006
2007
2008
2009
2010
2011
Brazil: More Soy, Fewer Jobs
60,000
52,464
50,000
Production (1.000 t)
Employment (1.000)
40,000
30,000
23,190
18,278
20,000
10,000
1,694
741
419
0
1985
1996
2006
AMAZON SOY PRODUCTION 1990
Source: del Carmen, Maria Vera-Diaz, Robert K. Kaufmann, Daniel Neptstad, and Peter Schlesinger (2008), “An
Interdisciplinary model of soybean yield in the Amazon Basin: The Climatic, Edaphic, and Economic Determinants,”
Ecological Economics, 65, 2, 420-431
AMAZON SOY PRODUCTION 2005
Deforestation:
528,000 km2
Mato Grosso
40%
Source: del Carmen, Maria Vera-Diaz, Robert K. Kaufmann, Daniel Neptstad, and Peter Schlesinger (2008), “An
Interdisciplinary model of soybean yield in the Amazon Basin: The Climatic, Edaphic, and Economic Determinants,”
Ecological Economics, 65, 2, 420-431
Will LAC Channel Channel China
benefits?
• Stabilization funds
• Development banking, SWFs, and
endogenous innovation
• Environmental protection
WHAT CAN LAC LEARN FROM
CHINA?
China’s Neo-developmentalism
and Mexico’s Neo-liberalism
Macro/Factor side
China
• Undervalued exchange rate
• Abundant supply of credit to
local firms, at very
“competitive” interest rates
• A public funded national
innovation system, which has
contributed to reduce the costs
and risks of R&D
• Major public investment in
human capital
• A pragmatic enforcement of
IPRs
• Diaspora venture capital
•
•
•
•
Mexico
Tendency to overvalue
exchange rate
Very low levels of credit
or support to domestic
firms
Very poor national
innovation system
Passive approach to IPRs
and FDI
Mexico’s Neo-Liberalism
Micro/Product Side
China
• Sector targeting: e.g.
semiconductors, automobile
and software
• Firm targeting: “National
Champions” and “indigenous
innovation”
• “dual track” approach to
liberalization that combines
state support and gradual,
experimental liberalization
• Proactive approach to FDI and
learning in key sectors
Mexico
• ‘Horizontal’ policy that
favors foreign firms
– (exchange rate plus
maquila programs)
– No indigenous innovation
• Rapid liberalization of
markets
• Reliance on low wage
assembly operations
• Passive “quantity over
quality” approach to FDI
Upgrading for Growth?
Science and Technology in China and Mexico, 2000-2010
Mexico
Patent applications, nonresidents
Patent applications, residents
Research and development expenditure (% of GDP)
Scientific and technical journal articles
World Development Indicators, 2012
13,668
582
0.40
3,647
China
65,441
101,028
1.19
34,310
Political Economy
Implications
Politics
Political Economy of the China-Latin America Economic Relationship
Winners
Losers
Latin America and the Caribbean
Commodities Investment and Imports
Commodities exporters
Government revenue
Small-holder agriculture
Natural environment
Manufactures exporters
Penetration of Manufacturing Markets
Manufacturing firms using inputs from China
Employment in Chinese input intensive firms
Consumers of Chinese imports
Manufacturing firms competing with China
Employment in firms competing with China
Swaying Taiwan Supporters
Sectors and employees that can export to China Sectors and employees that exported to Taiwan
Sectors receiving foreign investment from China Sectors losing foreign investment from Taiwan
Brazil and China:
the political economy of the tricky
• Export expansion,
employment decline
in primary sector,
environmental
degradation and
associated activism
• Export contraction
and employment
decline in urban
manufacturing
centers
• Some positive
response
– Leveraging Chinese
demand to climb the
value chain
– Stabilization fund
– BNDES
industrialization
strategies
– Environment?
Lessons for Policy
• LAC could learn how to be more of a strategic
globalizer from China, and build on new
innovations of its own
• LAC innovations
– Stabilization funds
– Environmental protection*
• China
– Focus on industrialization and modern
services
• Leveraging location-specific assets
• Innovation and science policy
– Coalitions for global economic governance