Export Diversification Is the Main Challenge for Latin America and the Caribbean in Its Trade Relationship with China

Santiago, May 26, 2015.- In the last 15 years, the economic relations between Latin America and the Caribbean and China have grown strongly. China is now the second main source of the region’s imports (16% of the total) and the third main destination for its exports (9% of the total). In addition, the region has increased its importance as a partner for China: while in 2000 it absorbed 3% of China’s total exports and was the source of 2% of the country’s imports, in 2013 its participation in both flows rose to 6% and 7%, respectively.

The main pending issue for our region in its relationship with the Asian giant is export diversification, according to a new document released by the Economic Commission for Latin America and the Caribbean (ECLAC). Just five products, all of them commodities, represented 75% of the value of regional shipments to China in 2013.

The publication Latin America and the Caribbean and China: Towards a New Era in Economic Cooperation was prepared by ECLAC to coincide with the visit of Chinese Premier Li Keqiang to its headquarters in Santiago today, May 25, 2015.

The report also warns that due to the slower pace of growth forecast for the coming years both in China and in the region, bilateral trade will not keep expanding at the same high rates seen in the last decade and a half.

The moderation of China’s expansion, which has translated into lower prices for several commodities exported by Latin America and the Caribbean to that country, coupled with the measures adopted by Chinese authorities to achieve a rebalance of its development model, are factors that pose opportunities and challenges for the economic relations between both parties. In this sense, the document stresses the potential benefits of food exports to China, considering that country’s ongoing and robust process of urbanization and the expansion of its middle class.

“In order to halt the worrying ‘reprimarization’ of exports, progress must be made in terms of productivity, innovation, infrastructure, logistics and the training of human resources. These advances are fundamental to growing with equality, in a context of accelerated technological change,” Alicia Bárcena, ECLAC’s Executive Secretary, states in the document’s prologue.

Additionally, the strengthening of ties between the region and China since 2008, which culminated in the China-Community of Latin American and Caribbean States (CELAC) Cooperation Plan 2015-2019 (approved last January), shows that the Asian country views its relations with Latin America and the Caribbean as strategic, ECLAC highlights.

“This is the right time to take a qualitative leap forward in the relationship between Latin America and the Caribbean and China. The China-CELAC Cooperation Plan 2015-2019 constitutes a necessary and important first step in that direction, defining an institutional framework and general orientations. Now we must provide concrete content for that Plan, which in turn necessitates the definition of a concerted regional agenda of priorities, favoring plurinational initiatives,” Alicia Bárcena underscores.

The Plan contemplates 13 thematic work areas, eight of which are concentrated in economic spheres, and it contains ambitious goals on the expansion of trade and Foreign Direct Investment (FDI) between both sides during the next decade.

Chinese FDI in the region has grown significantly since 2010 to an estimated annual level of between $9 billion and $10 billion dollars. According to the publication, the current reforms underway in China could give a definitive boost to Foreign Direct Investment flows towards Latin America and the Caribbean in the coming years.

“If Chinese investment flows grow and diversify, this could not only drastically redefine the economic-trade relationship between both parties but could also promote productive integration within the region itself,” the document states.

The publication concludes that to the extent that cooperation with China helps close the region’s gaps in infrastructure, logistics and connectivity, intraregional trade and the development of regional value chains should also be stimulated.