Chinese investment in Chile

1
Potential Bilateral Business Between Chilean and
Chinese Market
2

• Sino-Chilean Relationship Overview

• At present, the economic and trade cooperation
  model between China and Chile is rather simple,
  trade in primary products and goods with low
  technological content holds a large proportion in
  bilateral trade cooperation, mutual investment
  and business cooperation are rather weak and
  there lacks the support of large projects.
• To raise the quality and level of bilateral
  economic and trade cooperation, the key is to
  allow businesses to play a major role in the
  cooperation and promote the cooperation of
  businesses of the two countries, especially the
  cooperation on a number of large projects.
• (2006 - Speech of Wu Bangguo at China-Chile
  Economic and Trade Cooperation Forum)

3

• Sino-Chilean Relationship Development

Billion of UD
Trade between Chile and China has been growing
extremely fast during the last years. Metal,
forestry and chemical products are the main
exportations from Chile to China. Copper accounts
for the 77.8 of the total amount and agro
products like bottled wine, grape and other
fruits, salmons and trout grew by 69.1 in 2008
over the last year. Chinese exports to Chile
experienced a strong growth in computers and
communications technology, electronic products
and automobile.
Source Chinadaily.com, Biblioteca del Congreso
Nacional de Chile 2009
Over time, China has become the largest single
economy market for Chiles exports, replacing the
USA in 2007 (15.1 of share against 12.8 of the
USA) at the same time as it has become the second
largest source of imports, trailing behind the
United States after surpassing Argentina and
Brazil.
Source OECD, Central Bank of Chile 2008, HKTDC
2008
4

• Sino-Chilean Relationship Development

• Milestone in November 2005 the Free Trade
  Agreement is signed between China and Chile
• First bilateral agreement signed by China
• Duty exemption on most product categories
• In April 2008 Sino-Chilean Free Trade Agreement
  on services is signed
• The two nations opened their service sectors to
  each other's market on the basis of their
  commitments to the World Trade Organization (WTO)
• Chilean and Chinese governments agreed on holding
  talks on investment under the FTA, first round of
  negotiation started in January the 14th 2009.

TRADE
SERVICES
INVESTMENT
5

• Chinas ODI boom - Exponential growth, but still
  underestimated

China Investment Inflow and Outflow of FDI
The Going Global drive by Chinese corporations
that started in 2003 has received considerable
attention over the last couple of years. The
focus of these companies has mainly been to
invest in resource-rich developing countries,
mostly in Africa and Latin America.
Unit USD ml
Chinas ODI Growth Forecast, 2008-2011
Unit USD bn
Although the growth of Chinas ODI (Outward
Direct Investment) has been robust for a number
of years, it is evident that the level is far
from commensurate with the role the country
already plays in terms of global output and
trade. In 2007, Chinas ODI (state and private)
amounted to USD 22bn, just over 1 of the global
total. With deep understanding of the sustainable
development and globalization, China will go
further in the Going Global strategy.
Source from MOFCOM
6

• Chinas ODI boom - Energy, IT/software,
  manufacture have dominated the ODI scene and
  Latin America looms to be the second largest
  destination after Asia.

The figure reflects Chinas eagerness to ensure
energy security to support strong economic
growth. Manufacture, IT/software followed as the
top 3.
When we look at the geographical breakdown, most
of Chinas ODIs are made in Asia. We also see a
rising proportion from Latin America and Africa,
all of these we believe will continue to be
favored by Chinese firms for outbound investments
in the future.
Chinas ODI Distribution by Industries
Chinas ODI Distribution by Regions
Source from MOFCOM
7

• Drivers behind the boom Chinas rising wealth
  provided a strong base for its ODI activities on
  the global stage.

The capital inflows from the surpluses achieved
from a consistently strong export performance
since the mid-1990s, are reflected in the
dramatic accumulation of foreign exchange
reserves over the past decade. The total amount
of foreign reserve is expected at USD 2.7
trillion by the end of 2009.

• The largest single reserves portfolio in the
  world
• Represent more than one-third of the global stock
  
• Surpass the two-trillion threshold

Chinas Staggering Foreign Exchange Reserve Growth
Unit USD ml
Therefore, the funds for investing state vehicles
are abundant, and the Chinese state has earmarked
USD 200 bn along for its newly established SWF
(Sovereign Wealth Fund).
8

• Chinese investments offshore - Track record of
  MA deals

• While overseas MA is just one type of outward
  investment, the key MA deals give us a very
  representative glimpse of Chinas overseas
  investment trends. Energy, materials,
  communications are the main focus even for
  non-governmental investment entities.

9

• Beneficiaries Why Chile?

• While China sources the majority of its oil and
  metals resources from the Middle East and
  Australia, we believe Latin America, especially
  Chile will experience stronger growth in Chinas
  imports and direct investments in their mining,
  forestry, fishery, and other sectors.

Friendly Context Geopolitically unique the
minor presence of the western countries
Politically friendly the most stable country
in Latin America Long-term cooperation with
China and Chinese firms are better protected by
cordial inter-governmental relations FTA
support this agreement will lighten the market
pressure for Chinas ODI activities due to
Chinas strong, long-term demand.
10

• To back its economic growth not only ensuring the
  access to natural resources but taking an
  interest into them, in turn developing the
  related industries
• Mining (Kingdom of Copper)
• Agro-forestry
• Fishery

SYNERGIES AND COMPLEMENTARITIES

• Gaining value from the know-how developed by
  China in these years of growth using it as a
  complementary resource in Chilean economic
  environment
• Transportation infrastructure
• Telecommunication infrastructure
• In 2005 alone, China's railway increased by more
  than 1,200 kilometres, road by 129,000
  kilometres, expressway by more than 6,400
  kilometres, throughput of 10000-ton berths by
  nearly 190 million tons and mobile phone
  subscribers by 86 million

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On the other hand, Chile should not miss the
opportunity of considering China as a destination
of its Outward investments...
12

• Since 1990s, China has been the main destination
  of Foreign Direct Investments among the
  developing countries
• Currently 635.000 enterprises from 200 nations
  invest in China
• Attracting and stimulating FDI has been one of
  the main policies used by the Government in the
  last decades after China opened up to the global
  market
• Chinese economic growth has been mainly driven by
  exportations and FDI. However, recently
  Governments efforts have been also directed to
  balance growth and to raise private consumption

13
Domestic demand (2008) US 2.700 billion
In 2006, approximately 130 million people were
considered middle-class According to
previsions, this number is expected to grow
three-fold within 10 Years to reach the 50 of
the total population in 2026
Export (2008) US 1.500 billion
Source Economist intelligence unit, 2009
14

• Chile should explore opportunities
• In the retail sector
• not only for wine

• In MA and JV
• in the fields sponsored by the Governments in
  both countries

• Biotechnology and life sciences
• Agribusiness
• Renewable energy
• High and new technologies

15
Jesa Investment and Management Co., Ltd
History Experience and Network JESA has been a
service company on the Chinese market since 1998
and it is headquartered in Shanghai. So far, it
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