China-Latin America Economic Bulletin, 2018
In 2017, Latin America and the Caribbean (LAC) continued to strengthen economic ties with China, especially with respect to trade and foreign direct investment (FDI) in extraction, infrastructure and to a lesser extent, manufacturing activities. Conversely, Chinese policy banks gave fewer loans to Latin American governments, according to the China-Latin America Finance Database, jointly administered by the Boston University Global Development Policy Center and the Inter-American Dialogue.
China’s relationship with the LAC region took on a more targeted focus than the broader engagement of years past. While previous years were marked by discretionary official loans and a broad array of investments, in 2017, energy became a primary driver of both finance and investment.
These are among the findings of the fifth annual China-Latin America Economic Bulletin, 2018, assembled by Rebecca Ray. The bulletin provides the most important annual trends of China and LAC’s burgeoning relationship in terms of trade, finance and investment.
Main findings:
- China continues to be the most important export market for South America, and the second largest for the LAC region overall.
- LAC exported approximately $104 billion in goods to China and imported $140 billion from China in 2017, up from $84 and $122 billion in 2016, respectively.
- The LAC region’s trade deficit with China eased slightly to 0.7 percent of GDP, buoyed by a rebound in the prices of the major commodities that continue to dominate LAC-China exports, especially petroleum, copper and iron.
- China now buys over one-fourth of extractive exports from LAC.
- Chinese firms invested $4.4 billion in LAC in new (greenfield) FDI projects in 2017, up from $2.2 billion in 2016.
- Extraction maintains an important role, but metals and manufacturing, which account for four of the top five new projects, are also taking positions of prominence.
- Chinese firms spent a record $17.7 billion on LAC mergers and acquisitions in 2017, mostly in the Brazilian energy sector.
- The State Grid Corporation of China and the State Power Investment Corporation both made important deals in Brazil’s energy sector, totaling $14.5 billion.
- Chinese policy banks lent LAC governments $9 billion in 2017, the lowest level since 2012.
- Notably, Ecuador and Venezuela were both absent from Chinese finance, while Brazil’s Petrobras signed the region’s only oil deal with China for $5 billion.
- Chinese participation in LAC infrastructure and energy sectors is expected to grow, as several deals have already been signed for Chinese financing and contracting for future roads and dams, especially in the Andean Amazon region.
However, the International Monetary Fund (IMF) and the World Bank expect a fall in metals prices in 2018. In particular, IMF and World Bank data forecasts iron and petroleum prices will remain between one-half and two-thirds of their peak prices for the next five years. The authors suggest LAC governments concerned about the region’s trade deficit with China should attempt to diversify production away from these raw materials toward products with more value added. Overall, the authors highlight the notable shift to infrastructure in Chinese development finance in LAC, which is expected to continue.