CROSSING THE CHINA SEA – LAC COMPANIES CAN BENEFIT FROM INVESTING IN CHINA
Investment in China by companies from Latin America and the Caribbean is one of the remedies to the imbalance of trade say Latin American trade experts.
The Inter American Development Bank publication “Ten Years After the Take-off – Taking Stock of China-Latin America and the Caribbean Economic Relations” researched by the Bank’s Integration and Trade Sector (ITS) says, “A greater presence by LAC firms in China would help them to diversify the region’s exports by reducing information and cultural barriers and by offering them the opportunity to exploit the peculiarities of China’s trade regime.”
The publication was published in time for the 4th China-LAC Business Summit held in Chengdu, China from October 21-22, 2010.
The ITS highlighted possible investment sectors by LAC companies in China as, “agriculture, mining, aeronautics, biofuels, private pension schemes and poverty alleviation programmes, which could take China a long way in addressing some of its growth constraints,” it concluded.
In its discussion, the ITS highlighted three companies that have experienced growth by reaching across the China Sea. Brasilian aircraft manufacturer Embraer, entered the China market in 2000 after winning a contract to make five jets. They are now the marginal market leader in China for planes with no more than 120 seats. They opened a subsidiary in 2010 offering aviation consulting, logistics and technical services to Chinese aircraft companies.
Mexican baked goods company, Grupo Bimbo Foods bought a going concern in China in 2006 for US$10 million. Through careful attention to Chinese traditions and urban trends, their marketing campaign has yielded an increase in sales in China of 50% last year.
Chilean metals company, Molymet, bought 50% of the Chinese company LuoMo High Tech, a subsidiary of metals company China Moly, for US$37 million in March this year. “Molymet will gain a foothold in the China market, and integrate its distribution channels in China by leveraging China Moly’s existing distribution networks, reduce production cost by utilising Chin Moly’s facilities and infrastructure, and take advantage of China’s favourable export tariffs rate to expand the radiance spectrum of its products in the Asia Pacific region,” the article by ITS says.
These investments in China are considered to be valuable to the region as, “It could also be an effective way to circumvent the barriers imposed by China’s trade regime and to take advantage of its peculiarities such as the virtual free trade offered for goods imported in bond under processing trade, which accounts for 40% of China’s trade (WTO 2010),” the article says.
Crediting figures from the Ministry of Commerce of China, the ITS says that China contributed 0.1% of Foreign Direct Investment (FDI) to the region in 2006 and 0.7% in 2010. These were mainly for metals and energy projects in South America’s Southern Cone (Argentina, Brazil, Bolivia, Chile, Paraguay, Uruguay). In raw figures, Chinese investments climbed from US$60.06 million in 2006 to US$576.6 million in 2010.
On the other side of the coin, the ITS says that investment in China from the LAC was a total of US$584 for the entire period between 2006 and the first half of 2010. Investment from Brazil of US$234.83 million was more than half of that entire contribution.
The publication was presented at the recently concluded 4th China – LAC Business Summit that was held in the city of Chengdu, China from October 21-22. An outcome of the summit was a letter of intent signed by the Inter American Development Bank (IDB) and China Eximbank indicating a partnership that will finance up to $200 million worth of trade activity during any given period for an initial two-year period.
Underscoring the importance of the trading relationships between the regions, President of the Inter-American Development Bank, China joined the IDB in January of 2009, becoming the Bank’s 48th member country. Over the past decade China has become a major commercial partner for many countries in Latin America and the Caribbean. Trade between this region and China jumped 13-fold since 1995, from $8.4 billion to $110 billion in 2007. China is now the region’s second biggest trading partner after the United States.”
Two CARICOM member nations of the IDB, Jamaica and the Bahamas were represented at the Summit the theme of which was, Strength accumulated from cooperation, growth witnessed by harmonious development.