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China and Latin America

China and Latin America. Donald Lien University of Texas at San Antonio May 16, 2012. The Mighty China Marching on. GDP growth rate is 10.3% in 2010 and 9.7% in Q1 of 2011 In 2010, China export increased by 23.1%; China ’ s import increased by 22%

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China and Latin America

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  1. China and Latin America Donald Lien University of Texas at San Antonio May 16, 2012

  2. The Mighty China Marching on GDP growth rate is 10.3% in 2010 and 9.7% in Q1 of 2011 • In 2010, China export increased by 23.1%; China’s import increased by 22% • EIU predicted 8-9% GDP growth for the next five years • IMF forecast that China GDP (in PPP) will exceed that of the US in 2016

  3. Market Opportunities • Large population (20% of the world population) • Fast increasing middle classes • Substantial current account balance

  4. China Entering Latin America • In 2005-2010, China’s trade value with Latin America grew twice as fast as it with the world overall • The share of Latin America now accounts for 6% of China’s total trade value • In 2010, the region’s exports to China grew by 51%; its imports from China grew by 48% • In 2014, China is expected to overtake the European Union and becomes the second largest buyer of the region’s exports

  5. Exports and Imports • China is a larger trade partner on the import side than on the export side • Import consists of capital goods, particularly electronic items, auto parts, equipment and machinery, and textiles • Exports are mainly primary products

  6. The Good, the Bad, and the Ugly • One region, two speeds • Brazilian cluster • Mexican cluster • Mexico

  7. The Good • Brazilian cluster: Brazil, Argentina, Bolivia, Chile, Peru, and Venezuela • Demand for commodities keep prices high • Maintain trade surplus with China • Concern for Dutch Disease • Anti-dumping cases against China

  8. The Bad • Mexican cluster: Mexico and other countries of Central America and the Caribbean • Commodity importer • Great exposure with the US and other industrialized countries • Chinese market has been little explored • Partially threatened by China

  9. The Ugly • Mexico directly compete against China in exports • 98% of Mexico exports faced a competitive threat from China • Nonetheless, Mexico’s share of US imports remained steady in a 10-12% range

  10. Bright Future (China’s New Strategy) • Twelfth five-year plan • Enhance domestic consumption • Upgrade its manufacturing sector with R&D • Cooperate with Latin America on energy and environment related technology

  11. Bright Future (Mexico) • Mexico’s labor productivity and wages both lag China’s • Mexico’s wage-productivity ratio falls below China’s • The biggest productivity growth appears in transportation equipment, machinery and equipment, and furniture • The bulkiness and weights of these products favor Mexico in the US market as far as transportation cost is concerned • FDI is expected to flow into these industries

  12. Implications for Logistics • China’s FDI leads more goods flow from Latin America to the US and other Asian countries • Growth of Mexico’s heavy manufacturing sector promotes goods flow to the US • Role of Port San Antonio

  13. References • Stephen J. Kay, Trade strengthens ties between China and Latin America, EconSouth, Second Quarter, 2011 • ECLAC, People’s Republic of China and Latin America and Caribbean: ushering in a new era in the economic and trade relationship, 2011 • RBC Capital Markets, EM currents: Mexico’s manufacturing competitiveness & China’s threat, Emerging Market Research, 2011

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