China is quickly making a mark in Latin America. It’s fast turning out to be the new trade destination on our neighbour’s radar.
On a successful tour of the continent, Chinese President Hu Jintao signed a free trade agreement (FTA) with Peru. He began talks with Costa Rica for an FTA, expected in early 2010. Hu also visited Cuba, an old ally, extended a credit line and agreed to buy nickel and sugar.
It would be premature to say that China is supplanting the US in that part of the world. But Chinese efforts and interests in developing commercial ties in South America are unmistakable. In this venture, China is successfully using a template it developed in Africa: Cut sweet deals for raw materials while being generous with market access and financial aid for trade partners. Many Latin American countries are heavily indebted, a problem dating back to the 1980s. China is now suggesting that it could help them reduce their debt. It also wants to help these countries overcome inequality between the rich and the poor, a problem that has created instability in the region.
Illustration: Jayachandran / Mint
It’s not only sweet deals that are being cut. In Brazil, China is negotiating a $3 billion steel mill, one that has potential to give a boost to the local economy. China’s hunger for pork, beef and poultry products has created a soya bean boom in Brazil. In 2005, for example, China consumed 45 million tonnes (mt) of soya bean, 250% times more than what it produced. Brazil shipped only 5.5mt of that. In 2006, it doubled that to 11mt. It’s never looked back. China has made investments in oil exploration in Ecuador, Colombia and Venezuela.
Where does this leave India? It is, as usual, a laggard. Trade numbers show this clearly. In 2007, US-Latin American trade was pegged at $560 billion. China’s trade stood at $102 billion; India, a paltry $12 billion. Distance cannot be an excuse. In the case of both Africa and Latin America, China has larger distances to traverse compared with India. In the case of Africa, India clearly has a distance advantage over China. For Latin America, it’s probably neutral. It’s obvious that other factors are at work here. India’s trade pattern, both imports and exports, works against it. Imports are skewed towards oil products that are cheaper to import from West Asia instead of South America. Then, information technology services greatly overshadow any single commodity in our merchandise exports. These are hardly the stuff that Latin American countries want.
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