The Panda’s Pawprint: The Environmental Impact of the China-led Re-primarization in Latin America and the Caribbean

In the last ten years, China has grown into a major trade and investment partner for Latin America and the Caribbean (LAC). It is now South America’s top export destination and the second-largest source of foreign direct investment (FDI) inflows for the LAC region.

However, this new relationship has also come to symbolize the trend of “reprimarization” in LAC: the shift away from state-led industrialization back toward LAC’s traditionally competitive production of raw commodities. While much has been written about how this new relationship fits into the history of industrial policy in LAC, less has been written about its environmental impacts in LAC, one of the world’s most biodiverse regions and home to most of the world’s annual tropical deforestation.

In a new journal article, Rebecca Ray sets out to test that hypothesis against evidence from the last decade in LAC. She finds that – contrary to theoretical expectation – the most environmentally intensive products in LAC are not high-technology manufactured goods but primary products, measured through net greenhouse gas emissions and water use. Furthermore, LAC exports to China are significantly more environmentally intense than other LAC exports.

Main findings:

• It is unambiguously better for LAC to produce high-technology goods, from both an emissions and water perspective.
  • LAC is unique among world regions in the fact that the greenhouse gas (GHG) emission intensity of exports falls with every increase in technology.
• From 2003 to 2013, the real value of LAC exports rose by 37 percent, while the net GHG emissions from exports rose by 40 percent and the water used in exports rose by 59 percent.
  • From 2003 to 2013, net GHG emissions from LAC exports rose by 40 percent. If the emissions intensity of those exports had remained stable and only their volume changed, the emissions would have risen 37 percent, or 92 percent of the actual rise.
• The majority of LAC’s growth in both export-based net GHG emissions and water use was due to a rise in primary goods exports. China was responsible for about 40 percent of the growth in both primary and resource-based goods.
• Given China’s role in driving re-primarization in LAC, and the fact that primary commodity production is more environmentally intensive than manufacturing in LAC, it is unsurprising that LAC exports to China have been more environmentally intensive than other LAC exports. Overall, LAC’s boom in exports to China has driven the region’s production into carbon- and water-intensive sectors.

China is now the largest export market for South American goods and the second-largest export market for LAC overall. But Chinese demand for raw materials and the competition from cheap Chinese manufactured goods have driven LAC away from manufacturing and back toward primary commodity production. Contrary to the hypothesis of the environmental Kuznets curve, primary production is more environmentally intensive than manufacturing in LAC: it creates more net greenhouse gas emissions and uses or contaminates more water per million dollars of export value.

It is not surprising then that LAC exports to China are more environmentally intensive than other LAC exports. Given these risks associated with this important new economic relationship, it would be environmentally beneficial for LAC governments to approach it with renewed emphasis on setting environmental safeguards that meet the needs of their development strategies.

This journal article was originally published as a working paper in October 2016.

Read the Journal Article