China: An economic panacea for Latin America?

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China An economic panacea for Latin America?

• Jorge Blázquez
• Paris, 16-17 March 2006

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China is already the sixth larger economy in US
and current prices
But Chinese economy could be even larger.
According to IMF estimates for 2005, Chinese
gross domestic product based on
purchasing-power-parity (PPP) amounts to 13.6
of world GDP (20.7 in the case of USA).
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China extraordinary or back to normal?
If recent average rates of growth (1996-2005)
hold and real exchange rates hold constant-
China could recover its historical weight in
around 40 years. According to economic historian
Maddison, what was extraordinary was its
performance in 19th and 20th century.
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
Trade Channel
Commodity price Channel
Financial Channel
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
Trade Channel
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China becomes a global player in merchandise trade

• Chinese impact on commercial relations is double.
  On the one hand, China offers to Latin American
  an opportunity to export, but, on the other,
  China can be hard competitor. In Asia, China has
  surpassed Japan from the point of view of trade

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China and Latin America do not compete, excluding
Mexico
Source Intracen
Latin American countries are specialised in raw
material, while China exports industrial goods.
Like China, Mexico is specialised in industrial
goods. Generally speaking, China is a commercial
opportunity.
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China and Latin America do not compete, excluding
Mexico
Source Intracen
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China competes intensively with Mexico on a
global level
Panel data in 3D 35 countries, 620 products and
6 years (1998-2003). The Chinese exporting and
importing structures have been compared with the
one of 15 Latin American countries (plus 16 other
emerging countries non LatAm and Spain, Japan and
USA). We have used the UNCTAD database.
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From the point of view of exports, Latin America
benefits from China

• In the last 10 years, China becomes an important
  trade partner of some Latin American countries.
  On the contrary, Mexico has been incapable of
  penetrating the Chinese market.

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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
Trade Channel
Mexico (exports industrial goods) and has not
penetrate Chinese markets
-

Most Latin American countries (export commodities)
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
Commodity price Channel
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Are raw material prices facing a Chinese shock?
Many economist are putting the blame on China and
-to a lesser extent- on other emerging economies
(India) of the current increase in raw material
(70 in real terms).
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Chinese growth is demanding intensively- raw
materials
In average, Chinese imports of goods has grown
149 in the period 2000-2004. However, this
growth hasnt been homogeneous among products.
Generally speaking, imports of raw materials have
grown much faster.
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China is, already, the third largest raw material
importer

• China amounts to 7.3 of world imports of
  commodities in 2004 (18.3, USA and 8.8, Japan).
  China uses raw materials much more intensively
  than other economies.

Technical explanation we have built this picture
in the following way 1-we have identified and,
then, summed all the raw materials (excluding
foods) imports up in 2004 -that are included in
the WTO database-. 2- The figure for each country
is our relevant variable.
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
Commodity price Channel

Most Latin American countries that export
commodities
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
China could increase the dependence of Latin
American economies on raw material . These
positive shocks could deepen this Latin American
vulnerability
Trade Channel
Commodity price Channel


-
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
Financial Channel
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China is absorbing a significant share of
emerging markets FDI
LATAM Argentina, Bolivia, Brazil, Chile,
Colombia, Costa Rica, Ecuador, Mexico, and
Venezuela. South-Eastern Asia Indonesia, Korea,
Malaysia, Philippines and Thailand. Easten
Europe Czech Rep. Slovakia, Hungary, Croatia,
Slovenia, Poland and Romania
Most emerging economies feel that China is drying
up financial markets. Is this perception correct?
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China is absorbing a significant share of
emerging markets FDI
In levels, FDI flows towards China and to other
emerging markets are positively correlated.
However, if we study the first difference of
those time series we find no significant
correlation with China. These results suggest
that China doesnt crowd out other countries from
the point of view of FDI.
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Commercial bank flows towards China are relative
large
2005
Commercial bank flows towards China and Latin
America does not show any significant
correlation. There is no evidence of a crowding
out in this kind of financial flows.
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International capital flows determinants are
outside China
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The Chinese emergence and its impact on Latin
America
CHINA EMERGENCE
China is absorbing a significant share of FDI
since 1994
..but, the decrease in financial flows towards
Latin American economies does not have to do with
China
Financial Channel

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Conclusions An economic panacea for Latin
America?

1. China is favouring directly- Latin American
   countries by means of an increase in their
   exports of raw material. The exception is México,
   that is suffering from Chinese trade competence.
2. China is also favouring indirectly- Latin
   American countries because of the increase in
   commodity prices due to its raw materials
   appetite.
3. Caveat The current situation favours the deepen
   of commodity-oriented export model.
4. From the point of view of financial movements
   China seems to have little (or no) effect on
   Latin America despite the fact that China is
   absorbing a significant share of FDI flows to
   emerging economies.