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Energy-Hungry China Sets Sights on Latin America
The Washington Diplomat / January 2008

By Larry Luxner

From oil fields in Venezuela to a nickel refinery in Cuba, Latin America as a region has become China's fastest-growing trade partner in the world.

This trade, largely nonexistent three decades ago, is driven both by China's hunger for energy resources and Latin America's appetite for Chinese-made products ranging from pressure-cookers to personal computers.

Since 2000, the annual growth of two-way trade has averaged nearly 40%. In 2006, China-Latin America trade exceeded $70 billion, up by 39.2% from the year before. That's more than 70 times the amount of trade between the two regions 30 years ago.

China now ranks as Latin America's third-largest trading partner, and its single biggest export market in Asia. During the first nine months of 2007, two-way trade came to $73.6 billion, exceeding last year's total.

Three years ago, China joined the Organization of American States as an observer nation, and is now in final discussions to join another important Washington-based institution, the Inter-American Development Bank.

And when members of the Asia-Pacific Economic Cooperation (APEC) bloc meet next May in Lima, Peru, China's booming trade with the region — and the challenges inherent in that relationship — will undoubtedly be the chief topic of discussion.

"Success in Chinese-Latin American cooperation has enormous significance for China and the rest of the world," said Zhou Wenzhong, China's ambassador to the United States, speaking at a Nov. 16 seminar co-sponsored by Council of the Americas and The Asia Society Washington.

"The world today is undergoing major changes and adjusments. The pursuit of peace and development has become an irreversible trend of our times," Zhou told his audience of about 80 people. "On the other hand, there are countless problems. How to share opportunities and deal with these challenges is a question for all developing countries. Right now, China and Latin America are both actively exploring development paths to suit their respective conditions."

Chinese oil and gas companies are particularly interested in Brazil, Bolivia, Cuba and Venezuela, while the communist government in Beijing has especially warm relations with Venezuelan President Hugo Chávez and his Marxist mentor, Cuban President Fidel Castro — a cause for concern for the United States.

All told, according to Zhou, more than 400 Chinese enterprises have registered in Latin America, with operations covering mainly energy, telecommunications, textiles and agriculture.

"Most of them are getting good returns and are welcomed by their host countries," said Zhou, estimating that in 2006, cumulative Chinese investment in Latin America came to $7.8 billion.

"Our economies are mutually complementary. China boasts a huge amount of rich human resources, and Latin America is blessed with rich natural resources," he said. "Both have something to give, and something to take, and each can use the support of the other."

But in a policy paper written for the Center for Strategic and International Studies, Derek Mitchell and Chietigj Bajpaee wrote that China's growing economic engagement with Latin America has not been entirely positive for the region.

"Mexico lost more than 200,000 textile and factory jobs to China between 2000 and 2004, and a growing number of Mexicans are betraying concern about alleged unfair competition from China," the authors wrote. "Argentine and Brazilian manufacturers also face stiff competition from Chinese imports, although Brazilians overall view their economic relations with China positively."

Eric Farnsworth, vice-president of the Council of the Americas and chief organizer of the Nov. 16 event, noted that Chinese President Hu Jintao traveled to South America in 2004 with great fanfare, bringing promises of enormous investments for the region.

"Observers have noted that a lot of these promises haven't yet materialized," he said. "The process has been a little slower than we had initially understood it to be. But the fact that Ambassador Zhou was at our event was a symbolically important statement in and of itself. He really does speak consistently in terms of China's vision for the region."

Regarding job losses, Farnsworth concede that "every time there's a shift, in this case a major economy moving into the Western Hemisphere, some people will be disadvantaged. The Mexican economy is probably the most disadvantaged by China's move. In many ways, they produce and trade the same types of goods as the Chinese. So Mexico is competing with China in a way that Brazil is not."

Asked about the sharp increase of Chinese imports in certain sensitive sectors of Latin economies like textiles, Zhou said "China takes the concerns of these countries seriously" but added that "we all feel the pressure from growing international competition."

As a region, Latin America and the Caribbean presents a particular challenge in that it's home to half of the 24 countries that maintain diplomatic relations with Taiwan — which China considers a breakaway province.

Earlier this year, Costa Rica ended its 63-year friendship with Taiwan and switched its allegiance to Beijing, realizing that it could no longer afford to ignore the world's most populous country and its market of 1.3 billion consumers.

"The fact is, only one country in South America still maintains diplomatic relations with Taiwan, and that country is Paraguay, not including a few other countries in Central America and the Caribbean," said Zhou. "But that's changing. This is the trend of the times, and people in these countries are coming to realize that they need to correct this situation. When they make the right decision, we will welcome that."

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