LEO 2016 at the Wilson Center Washington DC
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Presentation of the Latin American Economic Outlook 2016 Wilson Center, Washington DC April 18, 2016
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LEO 2016 at the Wilson Center Washington DC
- 1. Wilson Center Washington DC, April 18, 2016 Latin American Economic Outlook 2016 Towards a new partnership with China Adriana Arreaza CAF, Development Bank of Latin America Angel Melguizo OECD Development Centre
- 2. Latin American Economic Outlook 2016 Towards a new partnership with China • The new China: an opportunity in the context of the economic slowdown in Latin America for structural advances, beyond commodities trading • What is needed • Economic diversification • Upgrading • Integration in global value chains (international and regional) • Investment in skills and innovation, productive development policies and a deepening of financial flows (e.g. integration and infrastructure)
- 3. 1 Macroeconomic outlook for Latin America 2 Opportunities from China: upgrading, difersification and integration China’s new normal: new links with Latin America 3 Latin American Economic Outlook 2016
- 4. Growth has weakened in Latin America and the prospects for recovery are subdued GDP growth in Latin America and the OECD (% annual) -6 -4 -2 0 2 4 6 8 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 % OECD Latin America Source: OECD Economic Outlook 98 database for the OECD. For Latin America, 2000-2014 CEPALSTAT, and 2015-2017 Latin American Consesus Forecasts (March 2016)
- 5. Draged by external headwinds… Weak global demand Volatile financial markets Lower commodity prices
- 6. Price of selected commodities (100 = 2005) The end of the “commodity super cycle” Source: OECD/CEPAL/CIAT/BID (2016), Revenue Statistics in Latin America and the Caribbean 2016 0 50 100 150 200 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Minerals and metals Crude oil
- 7. Domestic factors also weigh on investment and growth GDP growth by demand components in Latin America (% annual) Source: CAF -1.9 -1.4 -1 -0.8 0.6 3.7 2.0 0.4 0.8 -0.6 4.5 3.7 3.2 2.4 1.1 -4 -2 0 2 4 6 8 10 2010 2011 2012 2013 2014 Consumption Investment Net Exports GDP (market prices) %
- 8. … as illustrated by differing positions within the economic cycle Illustration of the cyclical position in Latin American economies (2015, deviation from trend using the HP filter) Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China Argentina Bahamas Barbados Bolivia Venezuela Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Jamaica Mexico NicaraguaPanama Paraguay Peru Trinidad and Tobago Uruguay Brazil -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81
- 9. Growth prospects for Latin American countries in the short term are of a very modest recovery, with some exceptions… GDP growth in Latin American economies (% annual) Source: For Brazil, Chile, Colombia, Mexico and the OECD: OECD Economic Outlook 98 database. For the Latin American region (LA), Argentina, Peru and Venezuela: Latin American Consesus Forecasts (March 2016) -10 -8 -6 -4 -2 0 2 4 6 Argentina Brazil Chile Colombia Mexico Peru Venezuela LA OECD 2009-14 2015 2016 2017
- 10. … with risks tilted downwards The main risk remains a hard landing of the Chinese economy GDP growth in Latin American economies with different scenarios for China (% annual) -4% -2% 0% 2% 4% 6% 8% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Soft Landing Hard Landing Note: Weighted average. Countries included: Argentina, Brazil, Chile, Mexico, Peru, Uruguay and Venezuela. The soft landing refers to a growth rate in China of 6,7% in 2015 that converges to 6,5% in 2018. The hard landing refers to a growth rate of 4,3%% in 2015 that converges to 5,5 in 2017. Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China based on CAF calculations and official data
- 11. What has been the policy response?
- 12. Source: Datastream Exchange rates have played part in the adjustment… Exchange rate of Latin American currencias against the dollar (100 = March 2000) 50 70 90 110 130 150 170 190 210 Brazil Chile Colombia Mexico Peru
- 13. …but at a cost since inflation rates are beyond targets in most countries, limiting the scope for monetary stimulus The inflation rate and targets in selected Latin American economies (%, December/December, 2015 and 2016) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Brazil Chile Colombia Mexico Peru Uruguay Inflation 2015 Inflation 2016 Upper limit Lower limit Source: Datastream, Consensus Forecast and OECD Economic Outlook 98 database
- 14. There is not much space for fiscal stimulus either Structural balances are less robust now than they were last decade... Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China Fiscal impulse and output gap in Latin American economies (change in the structural primary fiscal balance, % GDP) -9 -7 -5 -3 -1 1 3 5 Argentina Brazil Chile Colombia Costa Rica Mexico Peru Uruguay 2007-2009-2014 Fiscal impulse Output Gap
- 15. … and debt levels have increased Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China Public debt in Latin American economies ( % GDP) 0 10 20 30 40 50 60 70 80 Ecuador Bolivia Brasil Panamá Colombia Perú Argentina Uruguay Paraguay Venezuela México Chile 2010 2014 2000
- 16. The current account deficit will remain high, and in some cases is no longer covered by direct investment Current account balance in selected Latin American economies (% GDP) -8 -7 -6 -5 -4 -3 -2 -1 0 1 Argentina Brazil Chile Colombia Dominican Rep. El Salvador Guatemala Mexico Nicaragua Peru Uruguay Costa Rica 2014 2015 2016 2017 Source: For Brazil, Chile, Colombia, Costa Rica and Mexico: OECD Economic Outlook 98 database. IMF World Economic Outlook database (October 2015) for the remaining countries
- 17. It is more than the cycle Structural issues that explain weakness in growth… Trend growth in Latin American economies (% annual; HP filter) Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China 0% 2% 4% 6% 8% Argentina Bolivia Brasil Chile Colombia DomRep Ecuador Mexico Panama Paraguay Peru Trinidadand Tobago Uruguay Venezuela 1990-99 2000-09 2010-14 2015-19
- 18. The contribution of productivity to growth is scant … Growth accounting: contribution of factor accumulation and total factor productivity to growth in Latin America (% annual) -4% -2% 0% 2% 4% 6% 8% 80-85 85-90 90-95 95-00 00-05 05-10 10-15 K L PTF Y Source: CAF (2015). The woes of productivity in Latin America. Work in progress. Note: Annual weighted average of Argentina, Bolivia, Brazil, Colombia, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay and Venezuela.
- 19. “Productivity isn’t everything, but in the long run it is almost everything” (P. Krugman) Labour productivity in selected Latin American and Asian economies (% productivity of the US, 5 year moving average, PPP) Source: Melguizo, A. y J.R. Perea (2015), “Skill gaps in emerging economies: An empirical analysis”, Working Paper No. 329, OECD Development Centre 0% 10% 20% 30% 40% 50% 60% 70% 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 Korea Latin America Chile Colombia China Mexico
- 20. Resuming strong and stable growth rates is neccesary to overcome the middle income trap GDP per capita in a number of OECD, Asian and Latin American economies (GDP per capita, PPP in USD from 1990) Source: OECD Development Centre (2016), “Overcoming the middle income trap in Latin America: The role of skills, infrastructure, finance and fiscal policy”. In progress Low income Middle income High income 0 5000 10000 15000 20000 25000 30000 35000 CHL URY ARG VEN CRI MEX COL BRA PER CHN SGP JPN KOR ESP PRT MYS 2014 1980 1950
- 21. • Economic growth in Latin America will continue to be weak in 2016 and 2017 • Given the structural characteristics of the region, the scope for demand (monetary and fiscal) policies is limited • To overcome the middle income trap, Latin America has to re-establish an agenda that promotes productivity for inclusive growth • Close infrastructure gaps • Improve human capital and worker’s skills • Increase State capacity • Identify and mitigate frictions that impede the growth of most productive enterprises and mobilizing factors to them Latin American Economic Outlook 2016: macroeconomic outlook
- 22. 1 Macroeconomic outlook for Latin America 2 Opportunities from China: upgrading, difersification and integration China’s new normal: new links with Latin America 3 Latin American Economic Outlook 2016
- 23. Contribution to global growth: China vs. Latin America and the Caribbean (%) Note: Latin America covers 32 economies of Latin America and the Caribbean. The advanced economies category covers 37 countries. Source: OECD/ECLAC/CAF based on data from the International Monetary Fund, World Economic Outlook Database, (database), (April 2015). China will continue to be an engine for global growth 0 10 20 30 40 50 60 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 Advanced economies China India Latin America
- 24. Trade structure by technological intensity (%, 2014) Note: The definition of the five categories of products is based on calculations of technological content according to Lall (2000). Source: OECD/ECLAC/CAF based on the United Nations, United Nations Commodity Trade Statistics Database (COMTRADE). Moving beyond raw materials and increasing the content of technology remains a challenge… 0 10 20 30 40 50 60 70 80 90 100 To China To the world From China From the world Exports Imports % High-technology manufactures Medium-technology manufactures Low-technology manufactures Natural-resource-based manufactures Commodities
- 25. Participation in global value chains in Latin America and China (%) Note: LAC6 covers Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico due to data availability. ‘Full sample’ covers 61 high- and middle-income countries. Source: OECD/ECLAC/CAF based on the TiVA database, OECD/WTO (2015). … as well as improving the position in global value chains 0 10 20 30 40 50 60 2000 2011 2000 2011 2000 2011 LAC 6 China Full sample % GVC participation in % of gross exports Forward participation Backward participation 0 2 4 6 8 10 12 14 16 18 Intraregional China Intraregional China Backward linkages Forward linkages % Intraregional and China's share in Latin America's GVC linkages 2000 2011
- 26. ‘Beyond trade’ I: Expanding financial flows Loans from China and multinational organisations to Latin America (Millions USD) Source: OECD/ECLAC/CAF based on annual reports (CAF, IDB, World Bank) and Gallagher and Myers (2014) for data on Chinese loans. Note: Chinese loans include mainly loans granted by the CDB and the CHEXIM. Loans from the World Bank are comprised of the IBRD and the IDA. CAF loans concerning credit commitments and IDB data include loans and approved guarantees. 0 5000 10000 15000 20000 25000 30000 35000 40000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 WB CAF IDB China
- 27. Latin American Foreign Direct Investment inflows, 2009-13 (%) ‘Beyond trade’ II: FDI flows from China still low, but a growing opportunity 0% 20% 40% 60% 80% 100% Brazil Mexico South America Caribbean Total FDI inflows to Latin America by sector, 2009-13 Services Manufactures Natural Resources 65%3% 10% 15% 4% 3% China's outward FDI (2010) Asia Africa Europe Latin America North America Oceania Source: OECD/ECLAC/CAF based on data from national sources and China’s National Bureau of Statistics.
- 28. ‘Beyond trade’ III: Latin America has been ‘middle-income’ (as China today) for decades The middle income trap in Latin America and the OECD (GDP per capita constant 1990 PPP dollars) Low Middle High 0 5000 10000 15000 20000 25000 30000 35000 CHL URY ARG VEN CRI MEX COL BRA PER BOL CHN SGP JPN KOR ESP PRT MYS 2014 1980 1950 Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China
- 29. 1 Macroeconomic outlook for Latin America 2 Opportunities from China: upgrading, difersification and integration China’s new normal: new links with Latin America 3 Latin American Economic Outlook 2016
- 30. 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Agriculture Mining and ores Manufacturing and services Fossil fuels Annual growth Baseline scenario Low-investment scenario Exports growth 2000-2010 Projected Latin American exports by product (% annual growth until 2030, according to China’s growth scenarios) Latin America needs to diversify and upgrade given the prospects for exports… Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China
- 31. Food Opportunity Index in Latin America from Chinese demand … although China’s consumption prospects will offer opportunities for Latin American exports in commodities and services Note: The weighted average weight osilates between -2.4 and 2.1; the data correspond to the year 2013 and the Revision 4 of SITC. Source: OECD/ECLAC/CAF with data from the Comtrade and Agricultural Outlook 2014-2023 database of the OECD-FAO (2014). 0 0.2 0.4 0.6 0.8 1 1.2
- 32. Projections of the population with tertiary education in China and Latin America, (number of people) Expanding and improving skills is an increasingly important factor 0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 LAC (high graduation) LAC (baseline) China (high graduation) China (baseline) Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China
- 33. Skills is the new currency for modernization and competitiveness Students with higher education by field in China and Latin America (%) Source: OECD/ECLAC/CAF with data from the Bureau of National Statistics (China) and World Bank Edstats (Education Statistics). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% China LAC Other Humanities, social sciences, law and education STEM
- 34. Beyond coverage: quality and pertinence (soft skills, bridges with the labour market) Performance on PISA tests by students from China, Latin America and OECD (points) Note: The sample from China includes 21 003 students from 621 schools in 11 provinces and municipalities (Fangshan district of Beijing and Tianjin municipality, Hainan, Hebei, Hubei, Jiangsu, Jilin, Ningxia, Sichuan, Yunnan and Zhejiang provinces). Source: PISA database and OECD Economic Survey China (2015). 0 100 200 300 400 500 600
- 35. Scenarios for China to finance Latin America Countries Traditional Diversified ARG BRA ECU VEN ADDITIONAL COUNTRIES Sectors Targeted Infrastructure (transport, energy, telecoms) SCENARIO 1 (TODAY) SCENARIO 2 (BASELINE) Extractive Diversified Technological innovation SCENARIO 3 (NEW SECTORS) SCENARIO 4 (NEW SECTORS AND COUNTRIES)Green technologies Information technologies Chinese financing in Latin America will (should?) move towards greater diversification Source: OECD/CEPAL/CAF (2015), Latin American Economic Outlook 2016: Towards a new partnership with China.
- 36. This diversification will take place at the sector level (FDI) and country level (loans) Loans Oriented to countries: • With less access to international markets • Rich in natural resources • Willing to accumulate debt in renminbi Baseline scenario: geographic expansion, with the same sectoral concentration Foreign direct investment Oriented to countries not receiving bilateral loans Diverse sectoral approach: telecommunications, energy, agriculture, manufacturing, innovation. Baseline scenario: expansion into new sectors in countries which receive loans (e.g. Brazil) and countries which do not receive loans (e.g. Chile)
- 37. Trade • China is already the primary trading partner of Brazil, Chile and Peru • Growth prospects in several markets: food and agriculture, services and tourism Investment • Various investment initiatives: China-Mexico bi-national energy fund, Integral Strategic Alliance in Argentina, China-Brasil Bi-lateral Fund, China-CELAC loan programme Policy dialogue and co-operation • Co-operation programmes: food technology in Argentina, Joint Action Plan 2015-21 in Brazil, CONICYT-China agreement in Chile for science and technology, agreement with Peru for water resource management (…) Summing up Opportunities from a new relationship Latin America- China…
- 38. … that can be optimised through policy responses • New Productive Development Policies Upgrade GVCs and develop services and logistics Develop food and agriculture sectors with higher valu-added • Skill development Reinforce vocacional training and training in the private sector Improve information mechanisms to promote enrolment in STI • Consolidate a regional strategy with China Use the regional platforms (e.g. Pacific Alliance, Mercosur, CELAC, Caricom) Take advantage of China’s investment to reduce gaps in infrastructure Improve regulatory frameworks to: • Favour regional integration • Reduce the environmental impact of extractive industries
- 39. Thank you! Access the full publication here: http://www.latameconomy.org/es/outlook/
Hinweis der Redaktion
- And to end where we started, the 2016 LEO captures these findings -Trade between Latin America and China experienced an unprecedented expansion, but the region’s current slowdown reveals the structural characteristics of commodity-based growth. -Latin American governments are looking for ways to remain competitive in and attractive to China, exploring innovative productive development policies to better participate in global value chains and boost economic diversification. -To benefit from China’s new normal, Latin American needs to invest in skills, regional integration and infrastructure. -In dealing with China, Latin American requires better regulations towards investment, stronger government capacities to enhance integration and environmental sustainability. Requisitos: Mejores regulaciones hacia las inversiones. Buena gobernanza y transparencia. Sostenibilidad ambiental
- La nueva China: una oportunidad en América Latina para avances estructurales, más allá del comercio de materias primas Se precisa Diversificación económica Modernización del tejido productivo (upgrading) Integración en cadenas globales de valor (internacionales y regionales) Inversión en competencias y habilidades, innovación en políticas de desarrollo productivo, y profundización de flujos financieros destinados a la integración regional y la infraestructura
- LATAM (Crecimiento del PIB % anual): 2015 -0.3 2016 -0.5 2017 2.0 OCDE (Crecimiento del PIB % anual): 2015 2.0 2016 2.2 2017 2.3
- LATAM (Crecimiento del PIB % anual): 2015 -0.3 2016 -0.5 2017 2.0 OCDE (Crecimiento del PIB % anual): 2015 2.0 2016 2.2 2017 2.3
- Brasil para el 2017 no aparece puesto que es 0.0 (Brazil es 0.6 en el Consensus para el 2017)
- Brasil para el 2017 no aparece puesto que es 0.0 (Brazil es 0.6 en el Consensus para el 2017)
- DEFICIT FISCAL SE HA VENIDO DETERIORANDO EN LOS PRINCIPALES PAIS ES DE LA REGION. Ven: -25%; Brasil: -8%; Argentina: -5%; Colombia, Mexico Chile mayor a -3% Peru -2%. Los saldos fiscales se han deteriorado en la mayoría de los países debido al menor crecimiento y a a la caída de los ingresos provenientes de las materias primas. Los países con baja deuda pública (y, por tanto, con financiamiento más fácilmente disponible) han reaccionado ante la ralentización con políticas fiscales más activas (p. ej. Chile, Perú). En países con niveles más elevados de deuda pública o que enfrentan dificultades financieras, la debilidad de las cuentas públicas ha provocado anuncios de futuros recortes presupuestarios (Brasil, Costa Rica, Ecuador, El Salvador). El control de gastos debe tener en cuenta la necesidad de proteger la inversión y evitar círculos viciosos con ajustes fiscales excesivos que estrangulen el crecimiento y los ingresos fiscales, ampliando con ello el déficit y aumentando el peso de la deuda pública.
- DEFICIT FISCAL SE HA VENIDO DETERIORANDO EN LOS PRINCIPALES PAIS ES DE LA REGION. Ven: -25%; Brasil: -8%; Argentina: -5%; Colombia, Mexico Chile mayor a -3% Peru -2%. Los saldos fiscales se han deteriorado en la mayoría de los países debido al menor crecimiento y a a la caída de los ingresos provenientes de las materias primas. Los países con baja deuda pública (y, por tanto, con financiamiento más fácilmente disponible) han reaccionado ante la ralentización con políticas fiscales más activas (p. ej. Chile, Perú). En países con niveles más elevados de deuda pública o que enfrentan dificultades financieras, la debilidad de las cuentas públicas ha provocado anuncios de futuros recortes presupuestarios (Brasil, Costa Rica, Ecuador, El Salvador). El control de gastos debe tener en cuenta la necesidad de proteger la inversión y evitar círculos viciosos con ajustes fiscales excesivos que estrangulen el crecimiento y los ingresos fiscales, ampliando con ello el déficit y aumentando el peso de la deuda pública.
- PTF estancada. 1961-2011: +2% --- 1.4 inversion ; 0.5 poblacion y H ; 0.1 PTF
- And to end where we started, the 2016 LEO captures these findings -Trade between Latin America and China experienced an unprecedented expansion, but the region’s current slowdown reveals the structural characteristics of commodity-based growth. -Latin American governments are looking for ways to remain competitive in and attractive to China, exploring innovative productive development policies to better participate in global value chains and boost economic diversification. -To benefit from China’s new normal, Latin American needs to invest in skills, regional integration and infrastructure. -In dealing with China, Latin American requires better regulations towards investment, stronger government capacities to enhance integration and environmental sustainability. Requisitos: Mejores regulaciones hacia las inversiones. Buena gobernanza y transparencia. Sostenibilidad ambiental
- La nueva China: una oportunidad en América Latina para avances estructurales, más allá del comercio de materias primas Se precisa Diversificación económica Modernización del tejido productivo (upgrading) Integración en cadenas globales de valor (internacionales y regionales) Inversión en competencias y habilidades, innovación en políticas de desarrollo productivo, y profundización de flujos financieros destinados a la integración regional y la infraestructura
- In the 1990s, the contribution of Latin America to global growth was similar to that of China (11% vs 8% respectively around 10%). In 2011-2015, Latin America’s contribution to growth was 5 times lower (6% vs 30%).
- In 2014 (data we calculated, slightly below the one on the book), commodities accounted for 54% of the region’s exports to China, compared to 33% of its worldwide sales. The opposite is true of imports, however: whereas low-, medium- and high-technology manufactures accounted for 91% of regional imports from China in 2013, they represented just 69% of its global imports . In other words, what does this mean: Trade between Latin America and the Caribbean and China is clearly inter-industry: commodities in exchange for manufactures. HOWEVER, SOME LATIN AMERICAN COUNTRIES ARE TRYING TO UP THEIR GAME: Uruguay signed several trade agreements to enter the Chinese Market: 2002: signed a sanitary requirement agreement to export dairy products to China. 2005: signed a protocol that permitted Uruguay to export livestock to China. China and Costa Rica are working on a joint feasibility study for the creation of a Special Economic Zone in Costa Rica: Costa Rica’s strength in high technology manufacturing sectors. More than 85% of Costa Rica’s exports to China are concentrated in the medium-high and high-tech industries sector (mainly integrated circuits). 76% of Costa Rica’s backward linkages with China are concentrated in medium-high and high-technology industries. China has a strong participation in the Panama Canal: China is the 2nd major user of the Canal with 23.5% of the cargo transported through it (1st: US) Panama Ports Company, a subsidiary of the Hong Kong company Hutchison Whampoa, operates The Port of Balboa and the Port of Cristobal AT both ends of the canal. China has improved in the ranking of countries with highest diversification in export industries, going from 10th in 1990 to 7th in 2008. Mexico’s diversification in export industries has worsened, going from 21th in 1990 to 37th in 2008. Over the 2000-10 decade, Mexico’s total exports increased by 6% annually. Mexico’s trade with China has also multiplied 23 times since 2000, similar to the Latin American average (21 times), whereas trade with the United States and the EU has multiplied only by 2 and 3, respectively. The share of Mexican exports to China is low, going from 1% in 2005 to 2% in 2014. The share of imports has increased, from 8% in 2005 to 17% in 2014. Whereas in 2000 Mexico’s trade with China represented 1% of Mexico’s total trade, by 2014 it reached 9%. Today, Mexico’s trade with China (72 billion USD in 2014) is smaller than for other partners. Trade with the United States (515 billion) is 7 times bigger than with China, but close to the European Union (64 billion).
- Panel A: In the period 2000-2011, Latin America’s total participation in GVCs slightly improved, although it remained lower than the global average. Panel B: During the same period, China-Latin America’s linkages in GVCs have become more important than intraregional linkages. CONSIDER SOME EXAMPLES FROM THE REGION Mexico participation in GVCs is higher than the Latin American average: 15% of forward linkages: mainly explained by its high integration in manufacturing activities, especially in non-natural resource-based manufactures. 32% of backward linkages: high level due to Mexico’s strong integration with NAFTA. Peru signed a FTA with China to become a regional hub for Chinese products: The FTA aimed at integrating Peru into the Asian supply chains. After 3 years: Peru exported 312 new products – 97% non-traditional ones– to China, Created 468 new exporting companies, and Doubled trade with China.
- Chinese lending to Latin America has become the most important source of external financing, overcoming well-established international financial institutions in the region. Financial flows from China to Latin America will probably continue to be concentrated on traditional sectors (infrastructures, energy, transport and mining) but to a broader group of countries. Whereas FDI could focus on these and other sectors including manufacturing, scientific and technological innovation. This opportunity should be matched by efforts on transparency and regulation specially on the environmental front. Country Note Example: China has gained prominence as a bilateral lender to Brazil: 18% of Chinese loans to LAC were allocated to Brazil (1% of Brazil’s GDP). These loans were concentrated in energy (56%), mining (6%) and infrastructure (4%). Chinese loans to Mexico since 2005 represent 2375 USD million, which corresponds to 1.1% of the country’s financing sources. Multilateral loans are 11 times larger than the outstanding China-Mexico loans. Mexico receives only 2% of China’s total loans granted to Latin America between 2005 and 2014.
- Los sectores en los que China invierte actualmente (en LAC): 45% infraestructura de transportes 20% energia 7% telecomunicaciones El resto está destinado a otros (e.g. mineria) China’s represents only 0.9% of Mexico’s inward FDI
- La nueva China: una oportunidad en América Latina para avances estructurales, más allá del comercio de materias primas Se precisa Diversificación económica Modernización del tejido productivo (upgrading) Integración en cadenas globales de valor (internacionales y regionales) Inversión en competencias y habilidades, innovación en políticas de desarrollo productivo, y profundización de flujos financieros destinados a la integración regional y la infraestructura
- This figure shows the patterns of exports for different country clusters (constructed according to their exposure to China) for the period 2000-2010 (horizontal line) and for the two scenarios of China’s rebalancing. Data was kindly provided by DRC. Results show that Latin American exports will experience a slowdown (of different intensities) in their average export growth, depending on the export baskets and their exposure to the country. China’s rebalancing will also involve to re-composition of consumption, opening opportunities for Latin American exports, notably in certain agro-food sectors. Additionally, China is experiencing changes in its food consumption patterns due to the urbanisation process and the consolidation and prospects for growth of its middle class. To fully capture the growing consumption trends of food products, Latin America’s governments should try to position firms in high value-added stages of the production chain. Country Note example: Dominican Republic has a complex relationship with China that has improved in recent years: DR opened a Business Development Office in Beijing that expanded commercial ties. China expressed its desire to expand the import basket from DR, especially to include tobacco and avocados.
- The LEO 2016 report considers two main scenarios for China’s growth and investment patterns from 2014 to 2030. China’s rebalancing will affect the volume and the nature of Latin American exports in coming years. Using two scenarios, a “baseline” and a “low-investment” scenario, we estimate their potential effect on the volume of LAC exports up to 2030. The figure shows the patterns of exports for different clusters (constructed according to their exposure to China) for the period 2000-2010 and for the two scenarios of China’s rebalancing (2014-2030). Data was kindly provided by the Development Research Centre of the State Council (DRC). Results show that Latin American exports will experience a slowdown (of different intensities) in their average export growth, depending on the export baskets and their exposure to the country. China's new normal will have important implications for traditional commodity exports from Latin America, with growth rates that will decrease from 16% to 3% until 2030 in the case of metals, 16% to 4% for energy and 12% to 2% for food. China’s rebalancing will also involve a re-composition of consumption, opening opportunities for Latin American exports, notably in certain agro-food sectors. These changing circumstances call for new strategies. As Latin American economies recognize China’s new normal and growing trends in domestic Chinese consumption, they need to pursue innovative productive development policies to better cater to growing Chinese domestic demand in agro-food industries, foster deeper regional integration, and take advantage of diversified integration opportunities in other sectors, such as services, across the globe. CONSIDER THE EXAMPLE OF THE DOMINCAN REPUBLIC: Dominican Republic has a complex relationship with China that has improved in recent years: DR opened a Business Development Office in Beijing that expanded commercial ties. China expressed its desire to expand the import basket from DR, especially to include tobacco and avocados. A similar approach has been followed by countries like Chile or Costa Rica. Clusters: combined indicators: according to exposure to China (agriculture, metals, share of exports to China) Mexico belongs to the manufacturing and services cluster (according to exposure to China). During the period 2000-10 Mexico’s average growth in exports was 7.9%. In the baseline scenario for China up to 2030, average growth for Mexico’s exports will be around 1.8% annually.
- Chinese population with tertiary education could reach 200 million people on 2030 (23% of total population), the double than the projection for Latin America. China around half of students in tertiary education are enrolled in science, technology, engineering and mathematics fields, only 1 out of 5 in Latin America is enrolled in these areas. China increasingly will be able to capture high value to capture high value-added segments of global value chains, producing more sophisticated goods and developing its services sector. This could leave Latin America in a compromised position to compete in these areas.
- Whereas 1 out of 2 students in tertiary education is enrolled in STEM fields in China, only 1 out of 5 is in Latin America There is a clear difference in the skills composition between China and LAC. Around half of China’s students in tertiary education are enrolled in science, technology, engineering and mathematics fields (STEM); only 1 out of 5 in Latin America is enrolled in these areas. China increasingly will be able to capture high value-added segments of global value chains, producing more sophisticated goods and developing its services sector. This could leave Latin America in a compromised position to compete in these areas. Uruguay´s share of tertiary students in STEM fields is close to the regional average (16%), but well below China (48%).
- China’s 2030 strategy on skills: Improve the quality of education (coverage in pre-primary, teacher policies) Focus on skills related to services (e.g. Soft skills, creativity). Build bridges with the labour market (e.g. learning at work, vocational education)
- Participación de FDI: Infraestructura: -Brasil y Perú principales receptores. Telecoms -Huawei, ZTE, Shangai Alcatell, Datang. -Primero presente en México, Brasil y Argentina, ahora en Venezuela, Ecuador, Bolivia, Nicaragua y Cuba. Energía -Brasil (adquisición de plantas de electricidad). -Chile (projecto de energía eólica y de energía solar (900 USD million)). Agricultura y agro-industria -Chile. Inversiones de COFCO (empresa estatal China) en empresas de producción, procesamiento, logística.
- Se estima que el consumo chino de carne vacuna per cápita crecerá un 11.5% de acá al año 2024 (OECD-FAO 2015), apuntando a oportunidades de las exportaciones uruguayas de entrar en el mercado chino. Igualmente, los acuerdos China-Uruguay en el sector de servicios puede ofrecer oportunidades para el país en varias áreas (logística, servicios financieros).
- And to end where we started, the 2016 LEO captures these findings -Trade between Latin America and China experienced an unprecedented expansion, but the region’s current slowdown reveals the structural characteristics of commodity-based growth. -Latin American governments are looking for ways to remain competitive in and attractive to China, exploring innovative productive development policies to better participate in global value chains and boost economic diversification. -To benefit from China’s new normal, Latin American needs to invest in skills, regional integration and infrastructure. -In dealing with China, Latin American requires better regulations towards investment, stronger government capacities to enhance integration and environmental sustainability.