Xinhua reported on October 28 that Latin America had been more resilient to the economic crisis by diversifying commercial and financial exchanges with Asian economies, with China as the main driver in the last three years, said Angel Gurria, General Secretary of the Organization for Economic Cooperation and Development(OECD), in Asuncion, Paraguay. During the Ibero-American business forum within the Ibero- American Summit, to be opened Friday evening, Gurria made a speech on the theme “Towards a more sustainable trade and investment between Latin America and China”.
The region’s relationship with the Asian giant “has changed greatly in recent years”, said Gurria, mentioning that trade and financial flows had been growing since the 1990’s from a mere US$200 million in 1975 to US$40 billion in 2004. He said that in the five years before the crisis of 2008, trade soared exponentially, coinciding with growth rates above 5 percent in Latin America and by double digits in China, “which alone has contributed to a quarter part of world GDP growth.” “It has been the global crisis which brought a new dimension to this relationship and has strengthened the ties between both regions in a definitive way”, noted Gurra.
He argued that “while exports to the United States and the European Union fell 26 percent and 29 percent, respectively, to Asia were down by only 4 percent, and which is more symptomatic is that exports to China grew even 11 percent”. He said that “in 2010, Latin American exports to China grew by 51 percent, double the growth rates of total exports, both interregional and outside.” Imports also increased by 48 percent last year, 15 percentage points higher than those from the United States and 20 percentage points higher than the European Union.
The official said that if they keep this trend and China’s demand for American products grows at only half the pace it has done so far in this decade, China is likely to replace the European Union as the second partner Latin America’s trade in 2014.
Regarding the challenges of this bilateral relationship, Gurria mentioned of the high concentration of China’s demand for raw materials, and that financial relationship has not grown as trade in recent years.
He said that in 2009, 17 percent of direct investment in China was destined to Latin America and the Caribbean, and in 2010 China was the third largest foreign investor in this region, with more than US$15 billion invested in their extraction business sector, including oil and gas and mining. If you add the financial investment, the total would reach US$41 billion, he added.
The OECD Secretary-General said that South America is at the forefront of trade integration with China, and for the past decade the signing of free trade has allowed China’s weight in total exports structure rising from 2 percent to 13 percent in Brazil, 5 percent to 23 percent in Chile, and from 6 percent to 15 percent in Peru.
But he said that in most countries of Central America and Mexico itself, “China represents less than 2 percent of total exports. This reflects a greater competition rather than complementarities in the commercial relationship.”
According to Gurria, “the fact that Latin America and China are two of the main pillars of global economic development dynamism in the coming years is an opportunity for closer relationships.”
He noted that “the real opportunity is to harness the Chinese motor as an incentive to undertake necessary transformations to Latin American productive tissue.”
He also stated that “the emerging middle class in China offers a huge market for intermediate capital goods and finished goods in Latin America and the region can and should compete in this burgeoning market.”
He suggested that each country has its own rhythm in the development of bilateral economic relationship with China; but this should be complemented by regional level dialogue “making the Asian country to match its commercial presence in the continent with an equally important investment presence.”
He also said that “Chinese international reserves could be mobilized, for example, to support Latin America needs for investments in infrastructure and innovation.”