Trade analysts in Beijing are predicting a surge in private Chinese investment in Latin America on the back of a huge surge by Chinese state-run energy firms and financiers in the region, as well as stronger political ties. Giant loans to Ecuador, Peru, Argentina and Brazil — some of which find it hard to tap international financial markets due to earlier financial crises — are helping ensure Chinese access to local markets, while Chinese firms are eyeing free trade deals in the region to tap regional markets.
On the back of that success China, which gets the bulk of its fishmeal from Chile and Peru, is capturing new markets for processed products and tilapia filets in Latin America. “There’s an increasing tendency for Chinese private investment to invest in Latin America,” on the coattails of investment by giant Chinese state-owned banks, energy and construction firms, according to Professor Jiang Shixue, VP of the Chinese Association of Latin American Studies.
Speaking in June at the first-ever summit meeting of Chinese and Latin American and Caribbean agricultural and fisheries ministers, held in Beijing, Chinese vice-minister for agriculture Niu Dun (who also oversees fisheries) said he wanted to double China’s agricultural trade with Latin America to USD 40 billion (EUR 30 billion) by 2015 (such trade increased six-fold in the past decade) by increasing free trade pacts and boosting Chinese investment in agriculture in the region.
This could be especially significant for Peru and Chile, which rank as China’s top two suppliers of fishmeal, shipping 729,460 and 136,391 tons in 2011, while third-placed U.S. acts as a conduit for some Latin American fishmeal bound for China.
Exports of Chinese seafood are also keen to tap Latin American markets. Mexico imported 46,838 tons of tilapia from China in 2011, making it the second-ranked importer after the U.S., which imported 150,595 tons in the same year. The value of tilapia shipments to Brazil meanwhile soared from USD 13 million (EUR 9.8 million) in 2009 to USD 180 million (EUR 135.7 million) in 2011, making it a bigger market than France and Canada that year. Peru and Mexico ranked third and sixty as sources of China’s mollusks imports in 2011, at 30,300 tons and 14,181 tons respectively.
A recent visit to the region by Chinese president Xi Jinping highlighted Chinese interest in Latin America, which in fact receives more investment from Beijing than Africa — though the latter partnership receives far more media attention. Chinese cash has been poured in by China’s policy banks — chiefly the China Development Bank and the Export-Import Bank of China — which have pumped more than USD 86 billion (EUR 64.8 billion) in loans to Latin American countries since 2005. Chinese loans are aimed at resources as well as infrastructure tied to the extraction of resources. In return Latin American states, particularly Ecuador and Venezuela, have become increasingly important markets for Chinese consumer goods and processed food.
The U.S. was focused on the Middle East “…and then one day we looked over our shoulder and China was number two or three trading partner of many Latin American states,” explains Dr. Kevin P Gallagher, a Boston University-based specialist on Sino-Latin American relations. Speaking to Seafoodsource in Beijing, Gallagher believes that Chinese investment into Latin America is set to surge across all resource categories, including fisheries.
Latin America’s buying power has been boosted by China’s demand for commodities helped Latin America sail through the financial crisis relatively unscathed.
“The U.S. had flu and Latin American got lucky because of the surge in trade and investment with China,” said Gallagher, co-author of the book The Dragon in the Room: China and the Future of Latin American Industrialization.
Chinese firms are also hoping to tackle other regional markets — including the U.S. — by investing in key countries like Chile and Mexico.
“Mexico alone has 12 with 44 countries, so if you invest in Mexico you’ll find the list of rules make it more difficult to invest but the benefits are important…you’ll be able to export to 44 countries,” said Enrique Dussel Peters, economist and coordinator of Chinese-Mexican studies at the National Autonomous University of Mexico.
While the opportunities in Latin America are obvious, Chinese firms are worried about the difficulties of doing business in region, compared to more traditional targets like Europe and the U.S. According to Jiang the major obstacles of the investment climate in Latin America include “red tape, bureaucracy, militant unions and rising crime rates.”
Given the top-down nature of its investors it’s not surprising that Chinese firms have struggled with the hetrogenous nature of Latin American legal systems and investment policies as well as unpredictable political climate makes Chinese firms nervous. Chinese firms for instance have struggled to understand the range of free trade deals, said Peters. “Many companies have mistakenly invested without understanding that the FTA does not fully apply to certain sectors.”
