Several Latin American countries have joined the China lead infrastructure bank, seen as a counter-balance of power to the American dominated World Bank. Also several Latin American countries are hoping to get help from China, to implement massive road, rail and sea infrastructure projects that will better link all Latin America together, along China’s plan for Europe China link through the New Silk Road & Sea route.
What is the prospect of this? Fundamentally, China and Latin America are clashing globally and also within the region, on trade. However, China, while hurting the business and economics of Latin America, with trade, also brings with the country investments in other countries, and here, China could be bringing massive infrastructure investments to Latin America.
Trade between China and Latin America increased by 1,200% or from $10 to $130 billion between 2000 and 2009. Only the United States was a larger trading partner. The top five nations in the trade were Brazil, Mexico, Chile, Venezuela and Argentina. The value of trade increased to $241.5 billion in 2011
In 2009 7% of Latin America’s exports was to China. It consisted largely of raw material and commodities such as copper, iron ore, oil, and soybeans. China was the largest export market for Brazil, Chile, and Peru and the second largest for Argentina, Costa Rica, and Cuba. Four nations contributed 90% of the exports: Brazil (41%), Chile (23.1%), Argentina (15.9%), and Peru (9.3%). Increased Chinese demand has also been argued to increase the commodity prices of Latin American exports. In the case of Brazil the rise of a new middle class has even been seen as due to Chinese commodity demand. On the other hand, a large part of the exports of Costa Rica (which has a Free Trade Agreement with China), El Salvador, and Mexico to China were high-tech manufactured goods.
5% of China’s exports went to Latin America in 2009 and consisted mainly of industrial and manufactured goods. Chinese goods are popular in part due to their low costs. Chinese manufacturers are also making substantial efforts to establish themselves as brand names for the new middle class.
According to a 2012 Fitch ratings report in 2010 92% of Latin American exports to China were commodities. 85% of Chinese foreign direct investment went to extractive industries as did 60% of Chinese loans. The report stated that the effects are mixed but overall Latin America has benefited from the relationship with China by higher commodity prices, increased growth, increased investment, and improved governmental financials. There are of course many concerning environmental impacts related to the huge increase in extractive industries and agriculture by Chinese companies in Latin America, including pollution, deforestation, habitat destruction and rising fossil-fuel emissions.
There have been concerns regarding the relationship due to Latin American dependency on exports of low-value added, highly price volatile commodities that employ relatively few people. Latin American manufacturers have faced increasing competition from China on both domestic and international markets. In some countries there have protests against the raising inflow of Chinese manufactured goods, local Chinese businesses, and perceived loss of manufacturing jobs to China. The book The Dragon in the Room: China and the Future of Latin America found that 92% manufacturing exports from Latin American where in sectors where China was increasing its market share while Latin America was decreasing its share, or where both China and Latin America where increasing their shares but Latin America at a slower rate. Several experts have even argued that the long-term outlooks for Latin American manufacturing are poor and other sources for growth and trade such as services should be sought.
After the Chinese economy peaked in mid 2015 many Chinese investment projects in Latin America were canceled or slowed.
The Silk Road Economic Belt and the 21st-century Maritime Silk Road known as the Belt and Road Initiative, the Belt and Road (abbreviated B&R), or One Belt, One Road (abbreviated OBOR, is a development strategy, proposed by Chinese paramount leader Xi Jinping that focuses on connectivity and cooperation among countries primarily between the People’s Republic of China and the rest of Eurasia, which consists of two main components, the land-based “Silk Road Economic Belt” (SREB) and oceangoing “Maritime Silk Road” (MSR). The strategy underlines China’s push to take a bigger role in global affairs, and its need for priority capacity cooperation in areas such as steel manufacturing. It was unveiled in September and October 2013 in announcements revealing the SREB and MSR, respectively. It was also promoted by Premier Li Keqiang during the State visit in Asia and Europe. It was the most frequently mentioned concept in People’s Daily in 2016. The coverage area of the initiative is primarily Asia and Europe, encompassing around 60 countries. Oceania and East Africa are also included. Anticipated cumulative investment over an indefinite timescale is variously put at US$4 trillion or US$8 trillion. One Belt, One Road has been contrasted with the two US-centric trading arrangements, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.
The Asian Infrastructure Investment Bank (AIIB) is an multilateral development bank that aims to support the building of infrastructure in the Asia-Pacific region. The bank has 52 member states while another 25 are prospective members (as of May 2017) and was proposed as an initiative by the government of China. The initiative gained support from 37 regional and 20 non-regional Prospective Founding Members (PFM), all of which have signed the Articles of Agreement that form the legal basis for the bank. The bank started operation after the agreement entered into force on 25 December 2015, after ratifications were received from 10 member states holding a total number of 50% of the initial subscriptions of the Authorized Capital Stock. Major economies that are not members include Japan and the United States.
The United Nations has addressed the launch of AIIB as having potential for “scaling up financing for sustainable development” for the concern of global economic governance. The capital of the bank is $100 billion, equivalent to 2⁄3 of the capital of the Asian Development Bank and about half that of the World Bank.
Telesurtv Reports (source)
Could China’s ‘One Belt, One Road Initiative’ Land in Latin America?
As Asia and the region strengthen ties, Washington could be left on the outside looking in.
Chile and Bolivia were among the seven new members approved to join the Asian Infrastructure Investment Bank (AIIB) on Saturday, a day before China’s biggest diplomatic event of the year kicks off.
The bank’s president Jin Liqun announced the new members in a joint press conference with Chilean President Michelle Bachelet.
“Better infrastructure across Asia will allow Chilean goods to access new markets, more investment in Chilean infrastructure in turn will further bind together the two great continents of Asia and Latin America,” said Jin.
The other five new members are Bahrain, Cyprus, Greece, Romania and Samoa, bringing the bank’s total membership to 77 countries.
President Bachelet and Argentina President Mauricio Macri will join other leaders from 27 countries to attend the Belt and Road Summit in Beijing on Sunday and Monday.
Delegations from around the world will attend, including the United States and North Korea.
The two-day forum is dedicated to Chinese President Xi Jinping’s signature foreign policy project, the Belt and Road Initiative, also known as “One Belt, One Road.” It aimed at rebuilding the ancient trading routes from China to Europe overland and by sea, officially refers to the Silk Road Economic Belt and the 21st-century Maritime Silk Road.
The project is expected to expand links between Asia, Africa and Europe with billions of dollars in infrastructure investment along the routes. The AIIB is launched as part of the initiative to providing finance to address the infrastructure needs across Asia.
“We think there are a lot of projects that can link Asia with or through Latin America,” Bachelet said, adding that she had spoken with Jin about the possibility of investing in a Trans-Pacific optic fiber cable to improve digital connectivity between Asia and Latin America.
“The cable could be considered a part of the ‘One Belt, One Road Initiative’ and transform the Pacific Ocean into a bridge between our regions,” she added.
Other investments could include tunnels and highways across the Andes Mountains and ports to link Latin America and South America to Asia, Bachelet added.
Currently Latin America is not included in the official initiative, but China says the initiative is “an open and inclusive one” and welcomes all countries to participate.
“This is an open and inclusive plan rather than a selfish strategy to serve China’s own interests at the expense of others,” China’s Xinhua news agency said in a commentary on Friday. “China has kicked off the initiative, and it is now up to others to play the game.”
As the Belt and Road puts international connectivity and infrastructure development at its core, South America should make the most of it, Chile’s ambassador to China Jorge Heine said in a recent column on China’s Global Times newspaper.
“For South American countries, poised to make the big leap toward being fully developed nations, but not quite there yet, their association with Asia represents the best hope to make that happen,” Heine said.
China is currently the largest trade partner of Brazil, Chile and Peru. Latin America mostly export primary goods and natural resources to China, such as copper, iron, oil and soybeans.
In 2015, Xi had pledged to double bilateral trade between China and Latin America to $500 billion and increase investment to $250 billion over the next decade.