China Takes Initiative in Relations with Latin America

Bearing in mind the 2011 increase of 30 percent, this substantial slow-down in Sino-Latin American trade is partly attributable to the floundering global economy. The unrelenting European debt crisis, ailing American economy and drop in bulk commodity prices on the international market all had negative impact on the economy of each country. The slowdown in China’s economy is another factor. Low demand on both overseas and domestic markets also affected economic and trade exchanges between China and Latin American countries. Continuously lower economic growth estimates in the Latin American region are another reason. The economic performances of LAC countries are to a large extent dependent on periodical adjustments by developed countries and on the degree of economic slowdown in emerging economies. Last October the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) lowered the region’s economic growth estimate from 3.7 percent to 3.2 percent.

Greater Cooperation on All Fronts

Despite this slowing increase, there are reasons to be cheerful about Sino-Latin American trade. First, the yearly trade volume is expected to exceed US $250 billion, taking it to a new stage. Second, besides exporting finished products to Latin America, China has also contributed much to these countries’ service industry, including banking, telecommunications and logistics. Certain Latin American countries have also increased their exports of finished products to China. They include textiles, raw materials, chemical products and transport equipment from Brazil, electromechanical and stereo equipment from Argentina, and watches and medical equipment from Chile. Third, the safeguard mechanism in Sino-Latin American trade has been consistently strengthened. Chile, Peru and Costa Rica have signed a Free Trade Agreement (FTA) with China. During his visit to China last May, Colombian President Juan Manuel Santos Calderon negotiated a similar agreement. If signed, this FTA will guarantee trade between the two countries and also promote Sino-Latin American trade. China has moreover suggested setting up a free trade zone with MERCOSUR, known as the Common Market of the South, so expressing its willingness to deepen economic and trade cooperation.

Under the present international economic environment, China hopes to boost trade cooperation with Latin American countries through new strategies that will bring mutual benefits and sustainable development. They are based on the facts that China and Latin America are developing economies, and that South-South cooperation has important impact on their progressive modernization. Also that international economic integration inevitably entails adjustments in the international economic order. Closer South-South cooperation will have vital impact on establishing and reforming a new international economic order. China and Latin American countries can learn from each other in the process of development and make concerted efforts to tackle issues and challenges.

Under this strategic guidance, China and Latin America have expanded their scope of trade and cooperation and explored new cooperation modes. Latin America is now China’s second largest investment destination, and China is still increasing investments in the Latin American region and seeking new fields. A US $10 billion loan for infrastructure has been set up to help Chinese companies looking for opportunities in Latin America and also to foster and expand these countries’ domestic markets. The fund hence serves their mutual interests.

Financial Cooperation

In October of 2012, the People’s Bank of China and Inter-American Development Bank (IDB) set up the first joint financing fund for the LAC region. The IDB signed an agreement with the People’s Bank of China to explore co-investments in Latin American development projects, marking a new phase of Sino-Latin American financial cooperation. In addition to providing a platform for cooperation between China and LAC countries, China also works with the IDB to finance trade and infrastructure projects and to conduct micro-credit and personnel exchanges.

During Premier Wen Jiabao’s visit to LAC countries, China and Brazil inked a US $30 billion currency swap agreement (60 billion Brazilian Reals/RMB 190 billion). Both sides will also work towards pushing forward the establishment of a currency exchange fund among the BRICS countries. The currency swap system in the emerging economies not only furthers the internationalization process of the RMB, but also helps China and other developing countries promote healthy international finance.

Global Significance

The global significance of Sino-Latin American relations signifies the rising international status of China and LAC countries. Rapid progress has taken place over the past decade in tandem with both sides’ comprehensive political, economic and social development.

The close relations between China and Latin American countries originate in their respectively strategic importance to one another, mutually beneficial economic ties, and common views and concerted actions on building a more effective economy and a fair and just international order.

Emerging markets are playing a growingly important role in advancing the world economy. China and the Latin American region have entered a new phase of development that highlights their functions and strategic standing in the world economy. They have also maintained close cooperation in multilateral frameworks such as the U.N., G20 and BRICS, and carried on communication and coordination on global governance, international financial crisis, climate change and other big issues.

Relations between China and Latin America are also polarizing world attention. In October 2012, China and the EU held discussions on Latin American affairs and exchanged views on the regional situation. China has also held similar discussions at various levels with the U.S, Russia, Japan, ROK and Brazil.

Mutual Understanding Essential

Cultural and educational exchanges expanded in 2012. Twenty-one Latin American countries are travel destinations for Chinese residents, and Chinese language learning is becoming more common in the region. There are now 25 Confucius Institutes and 10 Confucius Classrooms in 12 Latin American countries.

But these exchanges do not add up to total common understanding.

China’s distinctive political system, rapid development, unbalanced development of its relations with LAC countries, and the geopolitical location of LAC have engendered a dichotomous attitude towards China in Latin America and the rest of the world, wherein it is seen as both an opportunity and a threat. Relations between China and LAC, therefore, are not simply bilateral but also involve third party interests. Misunderstandings, such as the notion that China’s trade and investments in the region have led to the de-industrialization of certain LAC countries, need to be clarified. Relations between China and Latin America are at an important stage of strategic opportunity. Strategically mutual trust is hence essential.

Having become acquainted, China and Latin America still have a long way to go before they can understand and eventually embrace one another.