The Political Economy of China-Latin America Relations in the New Millennium by Margaret Myers & Carol Wise

Author:Margaret Myers & Carol Wise
Language: eng
Format: mobi
Publisher: Taylor and Francis
Published: 2016-08-11T16:00:00+00:00

Source: Authors’ calculation based on Comprehensive Economic, Industry and Corporate Data (CEIC), http://www.ceicdata.com/ (accessed October 15, 2015).

A second feature of dynamism concerns China’s foreign direct investment (FDI) in the LAC region, which has taken off in two of these Latin American EEs (Argentina and Brazil) in ways that were simply unimaginable a decade ago (see Tables 7.2 and 7.3). To date, the bulk of Chinese FDI has been channeled through the Cayman and British Virgin Islands, mainly for tax purposes, which makes it difficult to gauge the precise amount that has actually been invested in the economies under discussion. However, research to date does suggest that the bulk of these investments and the loans that have accompanied them have gone toward resource extraction.6 There are, however, some signs that Chinese FDI is branching into the manufacturing sector in Brazil and the financial sector in Argentina, where China’s Industrial and Commercial Bank (ICBC) has purchased an 80 percent equity share in Argentina’s Standard Bank.7 Even if the pattern is a lopsided one, LAC is now the destination of about 15 percent of Chinese FDI (versus 65 percent for Asia).8 At the very least, this is a noteworthy step toward LAC’s longstanding quest to diversify its global economic ties.

The upshot of these buoyant trade and FDI flows is that China has become an important engine of growth for Latin America. This became apparent when the four emerging economies considered in this chapter rebounded along with China from the 2008–09 global financial crisis (GFC) in 2010, while most of Europe is still mired in low growth and financial instability. Although the shocks that hit the region in 2008 were financial in nature, the recovery was trade-led, and China was largely the leader.9 At the same time, the Chinese government signed currency swap agreements with Argentina (2009) and Brazil (2012) to facilitate bilateral trade and lower transaction costs, and it negotiated a loan-for-oil agreement with Brazil in 2009. China’s provision of liquidity to the region has been further formalized under an arrangement between the Export–Import Bank of China and the Inter-American Development Bank (IDB), which China joined in 2009. This consists of the establishment of a US$1.8 billion Latin American Fund to spur equity investments in the region’s infrastructure, medium-sized enterprises, and natural resources.

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