Chinese investments are a risk for Latin America

Latin America

According to economist Enrique Dussel Peters, Latin American countries and China do not know each other, and this leads to skewed bilateral relations. Between 2000 and 2019, China invested about US$ 135 billion in the region. Chinese state-owned companies are a problem because they stifle Latin American manufacturing.

Buenos Aires (AsiaNews) – The economic damage wrought by the pandemic in Latin America and the Caribbean and China’s “asynchronous” situation have enhanced the attractiveness of the millions of dollars in investment that country makes in the region. in light of this situation, a Mexican researcher warns of the risks of mutual ignorance that can generate bilateral conflicts, like someone who offers a banquet without knowing their main guest well.

“Compared with the largest economies, China is experiencing a completely asynchronous moment,” said Enrique Dussel Peters, head of the Latin American and Caribbean Academic Network on China (ALC-China[*]), speaking to AsiaNews. For the past four years, he has covered Chinese outward foreign direct investment (OFDI) in Latin America and the Caribbean.

“Whilst Latin America’s Gross Domestic Product (GDP) will fall by 9 per cent in 2020 according to the Economic Commission for Latin America and the Caribbean (ECLAC) and extreme poverty will increase by about 30 per cent (from 67.7 million people in 2019 to 96.2 million in 2020), the Chinese economy will be the only one of the top ten to experience GDP growth, in terms of both exports and imports. This is already being felt in Argentina, Brazil, Paraguay and other countries that export soybeans, meat, oil, gas, fish and other products. The only demand that is growing is from China,” notes Dussel Peters.

ALC-China data tend to be different from the official data of the countries involved since they include as Chinese investments also those made by Chinese companies based outside of China. A report on China’s involvement in the region between 2000 and 2019 shows that in that it invested some US$ 135 billion, generating some 380,000 jobs. In particular, in 2019, Chinese investment stood at about US$ 13 billion, 0.23 per cent of the region’s GDP.

For Dussel Peters, although “not everything is black and white”, bilateral relations with China are generally permeated by mutual ignorance.

“China has become the second global source of foreign direct investment and some Latin American countries find it very appealing to attract investment from that country, but in general the specific characteristics of Chinese investment are not understood,” he says.

Dussel Peters is referring to the fact that more than 70 per cent of the Chinese companies that invest in the region are owned by the Chinese government and this has technical, economic and political implications. “If there are problems with a Chinese company, there will be problems with China’s state sector. People must know who they invite to the party because they may be surprised,” says the researcher. For example, “There have been cases in Mexico and Brazil in which a project’s failure that left a state-owned company in dire straits led to a freeze of the bilateral relationship with multiple effects even in sports, culture, academic exchange as well as financial matters.”

On the other hand, the ignorance of labour regulations and Latin American manufacturing by some companies that ” began to look outside of China just five years ago ” ends up benefiting their country’s economy and harming the local one. For someone who “invests, for example, in a Latin American country in a telecommunications company and does not know who develops software locally or where to buy the hardware they need, the easiest thing to do is to buy it in China if the counterpart in the region allows it, does not makes an explicit request or does not help find suppliers in the region. The result will be little local job creation and little local, national or regional integration.”

Dussel Peters suggests that “governments and business organisations that promote integration with China must share responsibility” because the issue “is not only about attracting investment but also offering support. This is often not done and then come the surprises, like when they thought that the Chinese were going to buy screws in their country, until they found out that the Chinese were coming with a ship full of screws putting out of business local screw manufacturers.”

[*] Red Académica de América Latina y el Caribe sobre China / RED ALC-CHINA.

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