While anti-globalization and anti-trade highlight Mr. Donald Trump's political position, China's President Xi Jinping has demonstrated staunch support for better developed and structured trade relations with other countries. Latin America, essential to China in terms of product exchange yet relatively neglected in almost all other dimensions of China's foreign policies, is a region where China may look to become more influential in the face of America's receding interest in trade and globalization. This November, President Xi took a 7-day tour to Chile, Ecuador and Peru with the objective of making new progress to improve China-Latin America relations. Several ambitious plans related to trade, investment and commercial collaboration were proclaimed during the visit, and China's increased visibility in Latin America was touted in several mainstream news sources, including an article in the Wall Street Journal by Mark Magnier titled Con la era de Trump a la vista, China relanza su ofensiva en América Latina ( With the Trump's Era in Sight, China Relaunches Its Offensive in Latin America).
In contrast with Mr. Trump's insistence on abandoning the TPP, President Xi's diplomatic rhetoric in favor of closer connections with Latin America shows the possibility of a more active China in the region. Nevertheless, the concern that China is able to undermine and even replace the U.S. to exert substantial political and economic influence in Latin America in the near future is highly unlikely. Below are four reasons suggesting why the scope of China's new incursion may be overstated.
First, China is still focusing on product exchange with Latin America. Economic transactions requiring deeper communications as well as interactions outside the economic sphere remain weak and even nonexistent. Unlike European countries, the U.S., and Japan, China had few connections with Latin American countries until the beginning of the 2000s, when bilateral trade started to grow exponentially and account for a significant share of GDP. As trade continued to burgeon, government officials and businessmen in both regions began to engage in more complex investment schemes and pushed for cultural projects, including the establishment of Confucius Institutes in several countries. However, much work has to be done before China-Latin America relations can move from mere product exchange to more comprehensive interactions in which both sides cooperate actively to pursue mutually beneficial projects and settle conflicts peacefully. As Dr. R. Evan Ellis argues in his book China on the Ground in Latin America , China and Latin American countries are learning to enhance mutual understanding to overcome challenges and construct more rewarding interactions. One of the biggest challenges that China must deal with in order to achieve remarkable progress is the inward-looking tendency complicated by the language barrier. It is reasonable to argue that China's plan to expand influence in Latin America may not be very successful if the Chinese community makes little effort to embrace local cultures and immerse in local societies.
Second, in terms of foreign direct investment, China has been most visible in agriculture, natural resources, and construction, and has made only slow inroads in other sectors, namely energy, telecommunications, and finance, all of which will not see Chinese dominance in the near future. The concentration of FDI on certain sectors reflects the traditional strategic importance of Latin America to the Chinese economy, which imports various types of agricultural products to satisfy domestic demand and natural resources to fuel economic production. Additionally, infrastructure investment has seen substantial growth, given that some countries such as Venezuela have little access to capital provided by multilateral institutions and benefit from indiscriminate lending from China. As China grows more interested in investing, and Latin American countries become hungrier for FDI, governments of both sides are making efforts to diversify investment sectors and foster deeper collaboration. For instance, during President Xi's visit in November, China and Chile agreed to upgrade FTA signed in 2005 and strengthen cooperation in astronomy, finance, education, agriculture and trade . The intention to create more profound cooperation was clearly stated. However, given that only 7 years have passed since Chinese investment became a phenomenon in Latin America and that many projects of deeper cooperation are still in the incipient phase, it is unclear how fast Chinese businesses can go beyond the “traditional domain” and actually compete with firms from advanced countries in newly explored sectors.
Third, Mr. Trump’s negative attitude towards trade and globalization does not necessarily represent multinational corporations’ interests, and there is little indication that American MNCs will become weaker and lose competitiveness in Latin America. In order to appeal to blue-collar workers who suffered the largest shock from competition from abroad, Mr. Trump did urge giant firms such as Apple to operate plants in the U.S. and bring jobs back to Americans. Despite Mr. Trump's victory in the election, it is very unlikely that these MNCs will decide to abandon locational advantages, transfer production resources back to the U.S. and reduce profitable foreign portfolios. This is especially true for Latin America, where vertical investments that involve controversial outsourcing are much fewer than in Asian countries. With a brand that can be easily recognized and other core advantages, many American firms will continue to dominate the Latin American market despite gradually improved competitiveness of Chinese firms.
Lastly, conflicts between Chinese businesses and local communities are frequent, intense and not negligible. A friendly diplomatic gesture does not guarantee any practical progress, which can be made and sustained only when projects and investments satisfy interests of both local people and Chinese businesses. Language barriers, lack of experience in doing business in Latin America, and inability to perform effective management may result in a challenging process for China to take a firmer stand in the Latin American market. Although the Chinese government continues to proclaim a no intervention policy and portray China as a friendly economic partner that is different from western counterparts, persistent conflicts with governments, firms, workers, environmentalists and local communities indicate that China must reconsider and improve its policies towards Latin America in order to make its expansion in Latin America more acceptable and sustainable.
References:
An Baijie, “China, Chile seek to upgrade FTA”, China Daily Asia, November 22nd, 2016. http://www.chinadailyasia.com/nation/2016-11/23/content_15530169.html
Mark Magnier, “Con la era de Trump a la vista, China relanza su ofensiva en America Latina”, The Wall Street Journal, November 28th, 2016. http://lat.wsj.com/articles/SB11764334981443623769004582463204044099464
R. Evan Ellis, “China on the Ground in Latin America- Challenges for the Chinese and Impacts on the Region”, Palgrave Macmillan, 2015.
Sergio Bitar, “China y Chile 2030”, El Mercurio, December 26th, 2016.
Yingtao Xie
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