As China's Economy Shifts, Will Latin America Be Affected?

A recent report published by the Deutsche Bank revealed that China is rebalancing their economy, creating potentially devastating effects for Latin America. The report highlights the declining growth of real GDP as China shifts from a production to consumption based economy. The shift will have the largest effect on countries that primarily trade natural resources with China. The lessening of dependence on Latin America for metals such as iron ore, copper and crude oil will specifically hurt Chile and Venezuela. Chile’s exports to China reached almost seven percent of their total GDP, and Venezuela, while only exporting roughly 20 percent of oil to China, relies exclusively on the commodity to survive. The rebalancing of the Chinese economy could mean good news for the countries of Uruguay and Argentina. Both countries enjoy strong soya bean and beef industries, sectors that will be of utmost importance as Chinese consumption continues to rise.¹

The shifting of the Chinese economy does not mean a shift away from the region of Latin America; in fact recent history has shown the opposite. Over the last 10 years China has invested over $USD 119 billion in the region, more than the World Bank, Inter-American Development Bank and U.S. Import-Export Bank combined.² This spring Brazil’s semi-nationalized oil company Petrobras received $USD 3.5 billion from China’s development bank. The loan was issued as Brazil looks for possible financial options following the recent corruption charges against Petrobras.³

The impending creation of the Asian Infrastructure Investment Bank could bring significant financial assistance to many Latin American countries. The AIIB has received strong criticism from the United States but is gaining international support even from traditional U.S. allies such as Israel and the U.K. The move to create the investment bank is a result of China’s desire to have an increased role in development- citing lack of influence in both IMF and World Bank.⁴ Latin American countries have not flocked to the AIIB, mainly because of their roles in the China-CELAC agreement.⁵ However, it did not stop Brazil from joining as one of the founding members of what is being called the “BRICS Bank.” China’s ever increasing financial role in Latin America has affected the way the region operates, and will continue to do so in the future. As China’s needs pivot, it will be of importance to note if countries hurt by the shift will attempt to accommodate the changing market.

Sources:

1. Forster, Magdalena. “China Rebalancing: Blessing and Curse for Latin America” Deutsche Bank Research. March 26, 2015. https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000353197/China+rebalancing%3A+Blessing+and+curse+for+Latin+Am.pdf

2. “China-Latin America Finance Database” Inter-American Dialogue. 2014. Available at: http://www.thedialogue.org/map_list

3. Spinetto, Juan Pablo. “Petrobras Deepens China Tie with $3.5 Billion Loan Deal”. Bloomberg. April 1, 2015. Available at: http://www.bloomberg.com/news/articles/2015-04-01/petrobras-signs-3-5b-financing-accord-w-china-development-bank

4. Sobolewski, Matthias and Jason Lange. “U.S. Urges Allies to Think Twice Before Joining China-Led Bank”. Reuters. March 17, 2015 Available at: http://www.reuters.com/article/2015/03/17/us-europe-asia-bank-idUSKBN0MD0B320150317

5. Welitzkin, Paul. “Brazil Alone in LatAm in Join in Joining AIIB”. China Daily. April 6, 2015. Available at: http://usa.chinadaily.com.cn/world/2015-04/06/content_20006503.htm

6. Cover Photo by Nahuel Berger. World Bank. September 12, 2007