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Jorge Heine – The next step in China-LAC links

8 enero 2015 No Comment

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By Jorge Heine (China Daily) – Miembro CRIES – Updated: 2015-01-08 08:32

The first China-Latin America and the Caribbean (LAC) Foreign Ministers’ Forum will take place in Beijing on Jan 8-9. Four heads of government, some 30 foreign ministers and 40 delegations will descend upon the Chinese capital for a major international gathering that will kick off China’s diplomatic calendar year. They will be following up on the commitment taken up in Brasilia, Brazil, last July during the visit of President Xi Jinping to institutionalize Sino-LAC links and deepen this relationship across the Pacific.

For LAC, the first decade of the 21st century was marked by the boom of the Asian economies, particularly by that of China. Trade flows between the Asia-Pacific region and LAC grew by 20.5 percent a year between 2000 and 2010, with two-way commerce reaching $442 billion in 2011, of which China accounts for half. By now, Asia accounts for 21 percent of LAC’s foreign trade, trailing only the United States with 34 percent.

Trade with China saw a real explosion, increasing from $10 billion in 2000 to $257 billion in 2013, a surge of 2,500 percent. By 2011, China had become the largest export market for Brazil, Chile and Peru, and the second-largest for Argentina, Venezuela, Cuba and Uruguay. As the World Bank observed in 2011, “the robust growth in LAC in the past decade is in an important measure due to its connections to China”. The impact on economic growth was direct, through China’s huge demand for primary commodities such as copper, iron ore and crude oil, and foodstuffs such as soy and fresh fruits to fuel its rapidly growing economy and feed its now prosperous population of 1.3 billion. China’s impact was also indirect, through upward pressure on commodity prices.

Now that the Chinese economy is settling into the new normal, growing at 7 percent rather than 10 percent, commodity prices have softened, and the LAC economies have felt the impact. LAC’s projected 2014 growth is 1.3 percent, a far cry from the 5 percent it averaged in 2003-08.

The truth is, 2014 was a very turbulent year, and the sharp drop in oil prices especially affected some of LAC’s largest economies. But the fundamentals of Sino-LAC links, the degree to which the Chinese and the LAC economies complement each other, remain as solid as ever. With 20 percent of the world’s population and only 7 percent of its fresh water, China will depend more and more on food imports, prominently from LAC, as well as on other natural resources.

The challenge, then, is to adapt and make the most of this new environment. And the whole point of institutionalizing China-LAC links is to move beyond trans-Pacific links based mostly on trade, to deeper and stronger ones, adding investment, technology transfer and cooperation across a vast array of fields. This is a key purpose of the first China-CELAC Foreign Ministers’ Forum.

CELAC, the Community of Latin American and Caribbean States, launched in 2010, embodies Latin American regionalism at its best: it brings together all countries from the Rio Grande to Patagonia, allowing LAC to speak in one voice and to develop a common agenda with counterparts like China. One of the ambitious goals is to double two-way trade to $500 billion in 10 years; another is to increase Chinese foreign direct investment in LAC to $250 billion.

A key challenge for LAC, whose per capita income is, on average, higher than China’s, is to increase productivity. One obstacle is insufficient infrastructure, both physical and digital. The vast spaces of South America need to be inter-connected, and the Atlantic and Pacific coasts linked up to each other. Much as in China, it is the coastal areas that have seen most economic development, with the interior being left behind. Chinese technology, be it in railways, in construction, in telecom or in energy, can do much to overcome this.

Over the past decade China’s vast landmass and its huge population have been integrated through bullet trains and mobile telephony. A similar undertaking awaits much of the interior of South America and other parts of the region.

The end of the commodity super-cycle offers the opportunity for a major upgrading of Sino-LAC links, in which investment flows and broad-based cooperation are added to trade as the main drivers of the world’s most dynamic region, the Asia Pacific.

The author is the ambassador of Chile to China.

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