Latin America’s current socioeconomic relationship with China: Conditions and challenges. The case for China’s overseas foreign direct investment in Latin America

Enrique Dussel Peters

Introduction

The socioeconomic and political relationship between LAC and China has increased substantially since the beginning of the 21st century and far beyond economics, that is, also in terms of culture, bilateral and regional political relations, as well as in areas such as education and language, among others. This new relationship qualitatively has generated important opportunities and massive challenges for the region in each of the fields mentioned previously. From this perspective, this chapter will highlight a group of international issues that have considerably affected the LAC-China relationship - particularly the increasing tensions between the United States and China - as well as the increasing complexity of the LAC-China relationship; as we shall see, both will be critical for the future of their relationship. In addition, it will discuss only one of the proposed issues in depth, that is, China’s overseas or outbound foreign direct investments (OFDI) in LAC for 2000-2018 as an example to understand China’s socioeconomic relevance.

The chapter is divided into three parts. The first examines the global changes in the relationship between China and the United states - as a result of domestic changes in both, China and the United States - and their impact in the “new triangular relationship”, that is, specifically with LAC; it will also suggest a systematization of the increasing complexity of the LAC-China relationship since the beginning of the 21 st century. The second part will exemplify in depth the increasing complexity of the LAC-China relationship for the case of China’s OFDI during 2000-2018 based on a group of recent studies in LAC. Finally, the third part will summarize the main conclusions of earlier parts and specifically for China’s OFDI in the region. [1]

vis-a-vis LAC, the United States’ response, as well as a proposal for discussing the current LAC-China relationship since the beginning of the 21st century.

Globalization with Chinese characteristics and the recent response of the United States

China’s increasing global presence - in the context of profound domestic social, economic and political reforms since the 1970s - has also been reflected in the increase of activities and responsibilities by China in the Security Council of the United Nations, in the acknowledgement of China's relevance in the international financial system through its membership in 2016 with the Renminbi as part of the Special Drawing Rights and its increasing leadership at the G20. From this international perspective launching the OBOR (more recently known as the BRI) Initiative at the end of 2013 - initially formally under the leadership of Vice-Premier and member of the Standing Committee of the Political Bureau of the Communist Party of China (CPC) and Vice-Premier of the State Council and other high leaders of the CPC - is critical to understand China’s proposal of a globalization process with Chinese characteristics.

BRI is the key international cooperation strategy of China with countries in Asia, Africa and Europe, since January 2018 formally recognizing Latin America at the CELAC-China Forum, and specifically through “five links”: policies, roads and highways, trade, currency and people-to-people.2 The New Development Bank of the BRICS countries (Brazil, Russian Federation, India, China and South Africa), as well as the Asian Investment Infrastructure Bank (AIIB) are some of the powerful instruments of this global strategy. From this international perspective, the launch of the BRI is critical to understand China’s proposal and ambition of a globalization process with Chinese characteristics.

In addition, the conclusions of the 19th National Congress of the CPC at the end of 2017 and the two sessions in 2018 are relevant to stress the previously discussed initiatives3: they emphasize not only a long-term socialist development of China for 2035-2050 and to elevate Xi Jinping’s thought as part of the CPC but also the importance of BRI as part of this domestic and global strategy of China.4 After the second BRI Forum in April 2019, 130 countries had joined the BRI and 17 from LAC.5 The AIIB, on the other hand, accounts for 70 members including 44 regional members and 26 non-regional members and 27 prospective members (6 regional and 21 non-regional).6

As part of these strategies China has participated in a growing group of trade agreements and accounts for 15 FTAs - including those signed with Chile, Costa Rica and Peru - in addition to the agreements with the Special Administrative Region of Hong Kong, Macao and negotiations with Pakistan and Israel. From a regional perspective, China has been also leading efforts within APEC and ASEAN.7 However, Beijing prioritized in the last years the RCEP with 16 member countries including Philippines, Japan, Korea, Australia, India and Vietnam. So far, no LAC country participates.

China has proposed a group of specific initiatives towards LAC. On the one hand, two “White Papers” for LAC, respectively, in 2008 and 2016.8 Most

relevant in this context is Xi Jinping’s cooperation scheme “1 + 3 + 6”, that is, one plan (CELAC’s Cooperation Plan for 2015-2019), three driving forces (trade, investment and financial cooperation) and six key fields of cooperation (energy and resources, infrastrucmre projects, agriculture, manufacturing and scientific and technological innovation). In the CELAC-China Forum its Cooperation Plan for 2015-2019 has a wide group of concrete instruments for cooperation in politics, culture, education and economic issues, among others. It also includes enhancing micro, small and medium firms, financial institutions, infrastructure and transportation, industry, science and technology, as well as specific sectors such as aeronautics, information and communication industries, among others. It also explicitly makes reference to the “joint construction of industrial parks, science and technology, special economic zones and high-tech parks between China and States member of CELAC, with the goal to improve industrial investments and the generation of industrial value chains”,9 accompanied in parallel by several forums and funding options: Forum on Development and Industrial Cooperation China-LAC, the Fund for China-LAC Cooperation, the Special Credit for China- LAC Cooperation and other options according to the respective cooperation priorities. Most of these instruments - as well as new ones - were renewed in the Working Program of the China-CELAC Fonun for 2019-2021.10

The response of the United States in the last decade, and particularly since the Trump administration and since 2018, has been drastic, and reflecting an overwhelming frustration of negotiation processes in the last decades and, thus, a substantial change of the US strategy.11 On the one hand, there has been a domestic policy shifts in the United States vis-a-vis China: historically the public sector - both respective Presidents and particularly the House of Representatives and respective Senates - in the United States has been more critical of China in the 21st century, while the private sector has been more interested in doing business - from trade to investments - with and in China.12 Thus, the escalation between the Trump administration and China since 2018, and particularly analysed under the “trade war”, goes far beyond trade, that is, China is quickly catching up in technology (from 5G to high-speed trains, semiconductors, AI and - electric - automobiles, among many other segments of global value chains), as well as in the credit and financial sectors, and resulting in the “shift” in the US’ private sector being more critical to China and resulting in an overall hardening of US public policy vis-a- vis China.13

Vice-President Mike Pence's remarks at the end of 2018 acknowledge this “great power competition” and “a new approach to China”, since hope for political change in China in the last decades “has gone unfulfilled”.14 In addition, China’s economy has continued to grow - “at the expense of its competitors - especially America” - resulting in a big trade surplus with the United States, and an approach to control “90% of the world’s most advanced industries, including robotics, biotechnology, and artificial intelligence . . . Worst of all, Chinese security agencies have masterminded the wholesale theft of American technology - including cutting-edge military blueprints”. China's military presence, particularly in Asia, is also considered a threat, that is, “America had hoped that economic liberalization would bring China into greater partnership with us and with the world. Instead, China has chosen economic aggression, which has in turn emboldened its growing military”. As a result, the United States will respond in all these fields - from trade, financing, international cooperation and in the military field - to this increasing competition. The creation of new institutions such as the US International Development Finance Corporation in 2018, more restrictive rules for Chinese investments in the United States through the Foreign Investment Risk Review Modernization Act by the Committee on Foreign Investment in the United States particularly since 2018, as well as new export controls that will not only ban foreign scientists and researchers in specific sectors but also sales of US technology firms and of other countries in which US technology accounts for at least 25% of the product value.15 These and future measures to limit Chinese potential theft in particular sectors can thus not only affect Chinese nationals and firms but also massively affect transactions in other countries such as in LAC, where US technology accounts for more than 25% of the products respective value added.16

From a LAC perspective, while it is true that the United States is still by far the most important “qualitative” actor in the region, with long historical ties with the respective elites, military, academics, and in terms of culture and as an overall point of reference, it is also true that China’s presence in LAC cannot be denied by any countiy of the region, with or without diplomatic ties.17 This presence of China is not only quantitative but also qualitative, that is, just less than a decade ago Chinese scholars presented that China would respect the US’ “backyard”.18 Since then, however, China’s presence has not only increased but also as an additional actor to the European Union and particularly the United States, and notably as an additional point of reference in terms of economy, culture, education and even in military terms in cases such as Venezuela.19

Acknowledging these trends, the concept of "new triangular relationship”20 is functional for LAC today and in the future: the region and each of its countries, without exception, have to understand, deal and negotiate within this “new triangle”. In some cases, the presence of the United States is probably still very strong - in countries such as the Caribbean, Mexico and Central America, and in others the presence of China is substantial - such as Cuba and Venezuela; nevertheless, in all cases LAC countries have to prepare and allow for an increasingly difficult balance given the increasing tensions between China and the United States.

Proposed structure of analysis for the LAC-China relationship

A group of authors21 have highlighted the importance of going beyond the current short-term attractiveness of examining the LAC-China relationship and allowing for a concrete learning process amid the increasing quantity of analysis on the LAC-China relationship.22 Such an attempt wishes to systematize the increasing Chinese presence in LAC. From a current perspective there are a group of phases - and against “primitive stages” - that have generated a variety of results and challenges and reflect the qualitative historical differences between the relationship since the early 21st century and prior encounters between LAC and China since the 16th century.

This new and increasing complexity in the relationship could be defined in four stages and topics: (1) since the 1990s, with a rapid intensification of trade relationship, China has become LAC’s second trading partner; (2) since 2007-2008 in parallel to the global financial crisis, China has become a major financial source for LAC; (3) in the same period, Beijing also has become an important source of FDI for LAC and (4) since 2013, China has been massively building infrastructure projects in the region. This systematization of analysis could and should be widened in the future.

At least two issues result from such an approach. On the one hand, it is functional and can be of relevance for academic analysis, also for policy-makers and the private sectors. Against holistic analysis of the relevant topics in the current “complex” relationship, this proposal requires detailed and concrete knowledge on each of the issues mentioned: from history to infrastructure projects and many others, to allow for a detailed learning process and policy suggestions. While there is an increasing group of academic institutions in LAC and China working on the LAC-China relationship, it is surprising how little depth and extension there is on any of these particular topics; even in the apparently “easier” and more common topic of trade, for example, the systematic analysis of disaggregated trade by country, group of countries in LAC and respective commodity chains is practically non-existent. A few public, private or academic institutions have allowed fox- such a systematic, periodic and detailed research, even of such widespread and relevant segments of global commodity chains such as soya, electronics, yam- textile-garments, autoparts-automobiles and telecommunications, among others.

Second, the increasing qualitative and quantitative presence of China, its increasing complexity and need of specific analysis is also of critical relevance from a strictly political and policy perspective. Thus, the increasing bilateral and diplomatic relations of LAC with China since the 1970s and the specificities of the "new triangular relationship” are relevant to understand the concrete relationship for countries such as Argentina, Brazil, Mexico and Venezuela, that is, their specific political relationship, in addition to ideological and strategic characteristics. Thus, the proposed structure of analysis has implications in understanding the political relation. Rather surprisingly, while socioeconomic and political relations between China and LAC have increased dramatically, public, private and academic institutions working on China in LAC and LAC in China, as well as bilateral institutions between China and specific LAC countries and in the United States, have not reflected the same dynamism. In general, there is a widespread gap between public, private and academic institutions analysing the China-LAC relationship both in LAC and China, and socioeconomic growth.23 Beyond the fashion of studying the China-LAC relationship, in general, there are many authors and institutions in LAC, China and the United States, including think tanks, that do not review the massive, albeit insufficient, literature in China and LAC of the last four decades.24 With few exceptions, such as the Consejo

Empresarial Brasil-China (CEBC), the Institute for Latin American Studies of the Chinese Academy for Social Sciences (ILAS/CASS), the China Institutes of Contemporary International Relations (CICIR), the Center for Chinese-Mexican Smdies (CECHIMEX) at UNAM, and the Academic Network of Latin America and the Caribbean (Red ALC-China) - the institutional analysis in the public, private and academic sector is weak and with few attempts to develop a qualitative learning process beyond the institutional competition, and based on the existing analysis in LAC and China. The best example of the existence of these limited institutions is the CELAC-China Forum.23

2 China’s OFDI in LAC as an example of its increasing

complexity (2000-2018)

Several institutions in LAC and China have already analysed in depth their relationship in terms of trade, financing and infrastructure projects.26

The most recent official analysis of FDI for LAC - with information up to 2017 - reiterates the downward trend in the reception of FDI in the region since 2014, both due to the drop in international prices of raw materials and the economic recession of 2015 and 2016, particularly in Brazil.27 From a long-term perspective, FDI in LAC has been increasingly concentrated in manufacturing and services, beyond FDI in raw materials and extractive sectors; it is also important to highlight the drop in the average profitability of FDI in LAC: from levels close to 9% in 2008 and 2011, to less than 5% in 2017.2S

Two additional general aspects of Chinese OFDI are relevant. First, Chinese OFDI in 2018 recovered slightly to reach US$129.83 billion and a growth rate of 4.2% over 2017. With this, China managed to overcome the drastic fall of Chinese OFDI in 2017 - of -36.5% and the first in more than a decade29 - but is still far from the maximum levels reached in 2016 and 20 Ю30; if during 2015 and 2016 the Chinese OFDI had for the first time surpassed its FDI, in 2018 the OFDI/FDI ratio was 96.17%. Second, total Chinese OFDI employs around 4.92 million Chinese abroad and contracted by -3.0% in 2018.31

Main trends of Chinese OFDI in LAC (2000-2018)

During the 2000-2018 period, Chinese companies carried out 402 transactions in LAC countries, representing US$8,203 billion in 2018 and with a growth rate of -31.8% with respect to 2017; that is, in 2018, Chinese OFDI represented 51.66% of 2016 (see Table 2.1). The fall in employment generated by Chinese OFDI in 2018 was even more pronounced, at -66.3%.32 As a result of these trends since 2017 and again in 2018, the amount per transaction decreased to US$178 million. If the 2018 Monitor showed three phases of Chinese OFDI in LAC, from 2017 onwards a fourth phase with a dynamism significantly lower than that of 2010- 2016 can be seen: in the short and medium term a relative stagnation is expected at relatively low levels of OFDI and particularly compared with the dynamism of the previous phase (see Table 2.1).

Transactions

(number)

Amount

(million

USD)

Employment (number of workers)

Amount/

transaction

(million

USD)

Amount/

workers

(million

USD)

Employment/ transaction (number of workers)

Total Chinese OFDI

2000-2005

16

4,444

13,905

277.73

0.32

869

2006-2009

58

15,825

33,023

272.85

0.48

569

2010-2018

238

101,429

277,168

426.17

0.37

1,165

2000-2018

402

121,698

324,096

302.73

0.38

806

2015

35

10,182

29,554

290.91

0.34

844

2016

38

15,879

48,523

417.87

0.33

1,277

2017

59

12,018

71,984

203.70

0.17

1,220

2018

46

8,203

24,240

178.32

0.34

527

Mergers and acquisitions

2000-2005

3

570

5,950

190.00

0.10

1,983

2006-2009

22

4,466

16,750

203.00

0.27

761

2010-2018

120

70,841

173,893

590.34

0.41

1,449

2000-2018

145

75,877

196,593

523.29

0.39

1,356

2015

7

7,381

17,670

1054.44

0.42

2,524

2016

17

14,323

39,258

842.53

0.36

2,309

2017

27

8,682

54,839

321.55

0.16

2,031

2018

23

6,132

16,478

266.61

0.37

716

New investments

2000-2005

13

3,874

7,955

297.97

0.49

612

2006-2009

36

11,360

16,273

315.54

0.70

452

2010-2018

208

30,588

101,275

147.06

0.30

487

2000-2018

257

45,821

125,503

178.29

0.37

488

2015

28

2,801

11,884

100.03

0.24

424

2016

21

1,556

9,265

74.09

0.17

441

2017

32

3,336

17,145

104.26

0.19

536

2018

22

2,031

7,562

92.31

0.27

344

Source: Own elaboration based on Monitor of Chinese OFDI m LAC 2019.

By type of investment, Table 2.1 also reflects:

  • 1 In 2018, mergers and acquisitions have consolidated themselves as the main type of Chinese OFDI, accounting for 74.76% and 67.98% of the amount and employment generated by Chinese OFDI, respectively.
  • 2 Asa result, Chinese OFDI mergers and acquisitions in LAC have become the most relevant, accounting for 62.35% of the OFDI amount and 60.66% of employment during 2000-2018, respectively.

As a result of previous trends, the share of Chinese OFDI in total FDI in LAC, as well as its gross fixed capital formation, declined in 2018 and fell to its lowest level since 2012, at 6.28% and 0.63%, respectively (see Figure 2.1).

Chinese OFDI by destination country’ (2000-2018)

Chinese OFDI continues to diversify recently in LAC: the countries with the largest share of Chinese OFDI in LAC - Brazil and Argentina - saw then reception

LAC: Chinese OFDI in relationship to total FDI and GFCF (2000-2018)

Figure 2.1 LAC: Chinese OFDI in relationship to total FDI and GFCF (2000-2018)

decline, while Chile and Peru became by far the most important countries in this regard, receiving 63.03% and 16.31% of Chinese OFDI in LAC in 2018, respectively. Beyond the collapse of Chinese OFDI in Brazil and Argentina, the decline of Chinese OFDI in Mexico in 2018 and over the previous year is also notable (see Table 2.2).

Chinese OFDI by destination of economic activity (2000-2018)

During 2000-2018, Chinese OFDI amounts have been concentrated in three destination activities: raw materials (60.02%), manufacturing (8.62%) and services and domestic market (30.76%) (see Table 2.3).

  • 1 The diversification of Chinese OFDI in LAC has probably been one of the most significant aspects in the last five years: if during 2000-2010 the share of raw materials in OFDI and in the employment generated was by far the most significant, since then its presence has varied: by 2018 it accounted for only 53.39% of the amount of Chinese OFDI in LAC and 35.99% of employment by 2018, respectively.
  • 2 In recent years, Chinese OFDI has focused on manufacturing and particularly on services, the latter accounting for 36.21% and 34.88% of the amount of OFDI and employment during 2010-2018, respectively.
  • 3 The purchase of technology in LAC by the Chinese OFDI has been a secondary factor: for the entire period 2000-2018, four cases woxth US$395 million were recorded, generating almost 2,500 jobs throughout the region.

Chinese OFDI in LAC by type of firm ownership (2000-2018)

One of the most striking cases of Chinese OFDI is the very high public sector participation: during 2000-2018 participation in the amount of OFDI and employment generated in LAC was 70.2% and 49.1%, respectively (see Table 2.4).

  • 2000-
  • 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

  • 2000-
  • 2018

Argentina

Number of transactions

0

0

1

0

0

3

1

0

5

3

0

3

5

6

27

Amount (million USD)

0

0

4

0

0

5,597

330

0

3.919

523

0

215

1.413

513

12,512

Employment

0

0

200

0

0

2,601

1.600

0

1,785

480

0

670

4,824

3,451

15,611

Brazil

Number of transactions

6

2

4

1

2

10

12

3

6

13

19

16

17

11

122

Amount (million USD)

3,565

30

152

60

425

12,867

2,919

3,232

902

1,747

5,319

13,903

3,017

421

48,557

Employment

6,303

2,111

4,174

61

61

15,208

15,748

1,200

2,551

7,128

13,950

37,163

34,220

5,756

145,634

Chile

Number of transactions

0

0

0

2

2

1

1

3

3

2

1

3

4

6

28

Amount (million USD)

0

0

0

39

2.450

18

11

227

45

36

286

215

2,764

5,170

11,261

Employment

0

0

0

78

250

0

55

64

81

43

175

4,284

5,691

6,515

17,236

Mexico

Number of transactions

4

2

3

4

1

4

6

1

1

10

9

4

23

9

81

Amount (million USD)

563

45

109

331

40

84

39

70

8

1.140

1.001

81

2,733

398

6.643

Employment

6,354

103

1.409

3,654

1.000

478

1.106

144

3

2,470

4,915

1.455

18.099

2,628

43,818

Peru

Number of transactions

0

3

4

3

2

4

1

2

3

5

1

1

3

3

35

Amount (million USD)

0

290

1,085

124

1,402

1,527

4

64

45

421

11

211

73

1.109

6,366

Employment

0

1.900

17,952

2.000

720

1.018

23

300

81

2,259

250

655

1,247

300

28,705

Source: Own elaboration based on Monitor of Chinese OFDI in LAC 2019.

2000-2005

2006-2009

2010-2018

2000-2018

2015

2016

2017

2018

Raw materials Transactions

7

39

78

124

4

9

8

12

Amount (million USD)

3,795

15,097

54.152

73,045

6,953

4,505

2,807

6.467

Employment

7,048

23,815

99,757

130,620

4,498

13.111

13,081

6,423

Amount/Transaction (million USD)

542.20

387.11

694.26

589.07

1,738.18

500.51

350.85

538.88

Amount/Employment (million USD)

0.54

0.63

0.54

0.56

1.55

0.34

0.21

1.01

Employment/Transaction

1.006.86

610.64

1,278.94

1.053.39

1,124.50

1,456.78

1,635.13

535.25

Manufacturing

Transactions

4

11

121

136

17

14

29

9

Amount (million USD)

118

540

9,831

10.489

2.012

484

4,497

454

Employment

954

6,576

73,860

81,390

22.000

7,007

20.144

4.486

Amount/Transaction (million USD)

29.55

49.08

81.25

77.12

118.36

34.56

155.08

50.42

Amount/Employment (million USD)

0.12

0.08

0.13

0.13

0.09

0.07

0.22

0.10

Employment/Transaction

238.50

597.82

610.41

598.46

1,294.12

500.50

694.62

498.44

Services and domestic market Transactions

5

8

120

133

11

15

20

20

Amount (million USD)

530

188

36,726

37.444

1.146

10,890

4.460

788

Employment

5,903

2,632

96,671

105,206

2,306

28,405

37,084

7,876

Amount/Transaction (million USD)

106.00

23.50

306.05

281.53

104.15

726.03

223.00

39.41

Amount/Employment (million USD)

0.09

0.07

0.38

0.36

0.50

0.38

0.12

0.10

Employment/Transaction

1,180.60

329.00

805.59

791.02

209.64

1,893.67

1,854.20

393.80

Purchase of technology Transactions

0

0

9

9

3

0

2

4

Amount (million USD)

0

0

720

720

71

0

254

395

Employment

0

0

4,880

4,880

750

0

1,675

2,455

Amount/Transaction (million USD)

0

0

542

542

250

0

838

614

Amount/Employment (million USD)

0.00

0.00

0.15

0.15

0.10

0.00

0.15

0.16

Employment/Transaction

0.00

0.00

542.22

542.22

250.00

0.00

837.50

613.75

Source: Own elaboration based on Monitor of Chinese OFDI in LAC 2019

  • 2000-
  • 2005
  • 2006-
  • 2009

2010-2018

2000-2018

2015

2016

2017

2018

TOTAL

Transactions

16

58

328

402

35

38

59

44

Amount (million USD)

4.444

15,825

101,429

121,698

10,182

15,879

12,018

8,103

Employment

13.905

33,023

275,168

322,096

29,554

48,523

71.984

21.240

Amount/Transaction (million USD)

277.73

272.85

309.23

302.73

290.91

417.87

203.70

184.16

Amount/Employment (million USD)

0.32

0.48

0.37

0.38

0.34

0.33

0.17

0.38

Employment/Tran section

869.06

569.36

838.93

801.23

844.40

1276.92

1220.07

482.73

Public firms Transactions

8

30

121

159

9

19

14

10

Amount (million USD)

3,869

11.190

70.401

85.460

4,974

13,378

6,892

507

Employment

7,839

16,418

133,751

158,008

7,239

35,832

25,851

2,862

Amount/Transaction (million USD)

483.58

373.00

581.83

537.48

552.68

704.12

492.32

50.70

Amount/Employment (million USD)

0.49

0.68

0.53

0.54

0.69

0.37

0.27

0.18

Employment/Tran section

979.88

547.27

1105.38

993.76

804.33

1885.89

1846.50

286.20

Private firms Transactions

8

28

207

243

26

19

45

35

Amount (million USD)

575

4.635

31,027

36,238

5,208

2,501

5,126

7,596

Employment

6.066

16,605

141,417

164,088

22,315

12,691

46.133

18,378

Amount/Transaction (million USD)

71.88

165.55

149.89

149.13

200.30

131.61

113.91

217.03

Amount/Employment (million USD)

0.09

0.28

0.22

0.22

0.23

0.20

0.11

0.41

Employment/Tran section

758.25

593.04

683.17

675.26

858.27

667.95

1025.18

525.09

PERCENTAGE (TOTAL = 100)

Public firms Transactions

50.00

51.72

36.89

39.55

25.71

50.00

23.73

22.73

Amount (million USD)

87.06

70.71

69.41

70.22

48.85

84.25

57.35

6.26

Employment

56.38

49.72

48.61

49.06

24.49

73.85

35.91

13.47

Amount/Transaction (compared to private firms, percentage)

174.12

136.71

188.15

177.55

189.98

168.50

241.69

27.53

Amount/Employment (compared to private firms, percentage)

154.43

142.23

142.80

143.15

199.45

114.09

159.69

46.43

Employment/Transaction (compared to private firms, percentage)

112.75

96.12

131.76

124.03

95.26

147.69

151.34

59.29

Source: Own elaboration based on Monitor of Chinese OFDI in LAC 2019.

The previous trend, however, is changing rapidly: in 2018, for example, participation in Chinese OFDI was only 6.3%.

Table 2.4 also reflects some of the most relevant features of OFDI: public sector transactions are much more capital-intensive with respect to employment and employment per transaction: for 2000-2018, for example, the ratio of amount per transaction was US$538 million and only US$149 million for private enterprises.

Conclusion

From a Latin American perspective, most of LAC countries are at a crossroads and in the middle of the US-China competition. Vice-President Pence highlights that “a new consensus is rising across America”, and putting enormous pressure on countries worldwide and in LAC.33 In 2017 and 2018 three LAC countries - Dominican Republic, El Salvador and Panama - established diplomatic relationships with China34 and in response, the United States recalled in September 2018 its top diplomats and threatening these and the additional 17 countries that still have diplomatic ties with Taiwan - mainly in Central America, the Caribbean and the Pacific - and proposed new legislation in the Senate to “downgrade U.S. relations with any government that shifts away from Taiwan, and to suspend or alter U.S. assistance”.35 The political and strategic situation is particularly stressful for countries in LAC which are geographically close to the United States - such as Mexico and Central America - with long historical, political and economic ties with the United States and with an increasing presence of China. In the case of Mexico, for example, the renegotiation of the North American Free Trade Agreement (NAFTA) in 2018 - now ratified by the three partners - includes an “Anti-China chapter” (chapter 32.10) that practically prohibits FTAs with China (as a “non-market economy”).36 In the case of Dominican Republic, El Salvador and Panama, on the other hand, they witnessed fulminant reactions from the Tramp administration - as discussed previously in the analysis of Vice-President Pence - in an attempt to achieve diplomatic recognition with the PRC as the United States did in 1979. From a LAC perspective, such an “exclusive” relationship, that is, either with the United States or China, is neither realistic and does not make any sense, and as discussed in detail under the concept of "new triangular relationship” as a result of China's increasing presence in LAC. Nevertheless, LAC countries will have to improve their understanding of the United States, China and then- relationship, since increasing tensions between both will with certainty affect each of the LAC countries and regional institutions.37

The first part of this chapter, in addition, invites to consider a systematization of the LAC-China relationship in a group of specific items that require more extensive and in-depth analysis; in several cases research of public, private and academic institutions in LAC and in China has allowed for a better understanding of the respective topics in the last decades. Nevertheless, in general the quality of research in China and LAC has to improve, also of the respective responsible institutions.

Finally, the second part reflects some of the earlier discussed topics. On the one hand, the analysis highlights the importance of distinguishing OFDI and infrastructure projects, as well as the methodologies of respective institutions working on OFDI - such as UNCTAD, MOFCOM, CEPAL, Red ALC-China, as well as other national institutions - to understand the substantial statistical discrepancies on China’s OFDI in LAC. The results of Red ALC-China, based on firm-level registration of China’s OFDI in LAC for 2000-2018 also reflects the increasing diversification of China’s OFDI, in addition to an important slowdown of China’s OFDI in 2017 and 2018. This diversification process is accounted for an increasing share of China’s OFDI in LAC in sectors such as manufacturing and those related to the respective domestic markets (particularly in services), and thus beyond raw materials, as well as in the increasing relevance of private Chinese firms investing in LAC, as well as new countries that have emerged as recipients of Chinese OFDI, including Chile, Mexico and Peru (and beyond the historical recipients of China’s OFDI in raw materials such as Brazil and Argentina).

Without a doubt, this research and analysis should be extended and deepened, based on the already existing results of public, private and academic institutions in LAC and China. In the case of Chinese OFDI, for example, studies of specific global value chains - such as oil and energy, minerals, as well as in specific chains in manufacturing and sendees (from electronics, autoparts-automobiles, telecommunications, ports, etc.) in LAC would be important to understand Chinese OFDI, as well as firm-level analysis of Chinese firms in the region.

Notes

  • 1 For an analysis from a recent perspective of the reforms process in China, see WB and DRC (2012) and Wu (2005).
  • 2 Long (2015).
  • 3 Anguiano Roch (2018, 2019).
  • 4 The analysis of Nalbantoglu (2017) is particularly relevant since it highlights the importance of BRI for the domestic social and economic stability of China. In terms of international cooperation, the core of BRI is Asia and the China-Pakistan relationship. See Cai (2017).
  • 5 From LAC, so far Antigua and Barbuda, Barbados, Bolivia, Chile, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Jamaica, Grenada, Panama, Peru, Suriname, Trinidad and Tobago, Uruguay, and Venezuela have joined BRI. See Belt and Road Portal (2019).
  • 6 So far no LAC country has become a member of AIIB but eight LAC countries are prospective members (Argentina, Bolivia, Brazil, Chile, Ecuador, Peru, Uruguay and Venezuela). See AIIB (2019).
  • 7 For a description of current Chinese trade agreements, see PRC MOFCOM (2018a).
  • 8 GPRC (2011, 2017).
  • 9 CELAC (2015:4).
  • 10 CELAC (2018).
  • 11 The TPP began as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) in 2005 and particularly President Obama explicitly highlighted TPP against the increasing global presence of China.
  • 12 The argument was particularly clear and strong by Susan Shirk at the China Development Forum organized by the Development Research Center of the State Council in

March of 2019, with similar arguments by former treasury secretaries such as Larry Summers and Robert Rubin. The AmCham (2019) also reflects this shift: while it recognizes accomplishments by China, it highlights that “Unfortunately, previous bilateral dialogues and other mechanisms have not generated the results that are needed . . ”, and is particularly preoccupied by “an economy that now differs, sometimes significantly, from other economies in any respects, even though China presents itself as a model for other developing countries to follow, since state-owned enterprises still play a substantial role, as well as the Communist Party, see AmCham (2019:5, 11).

  • 13 For a full and detailed analysis and competition between China and the United States in specific value-added chains see Idem.
  • 14 Pence (2018).
  • 15 Wang (2019a, 2019b).
  • 16 In his analysis, Pence makes a specific reference to LAC: “Beijing has extended a lifeline to the corrupt and incompetent Maduro regime in Venezuela ... And since last year, the Chinese Communist party has convinced three Latin American nations to severe ties with Taipei and recognize Beijing”.
  • 17 In the case of Central America, for example, even before the diplomatic recognition of El Salvador and Panama, China’s presence in terms of trade and investments was relevant, see Dussel Peters (2018a).
  • 18 Wu (2010).
  • 19 Koleski and Blivas (2018). See also Chapter 8 by Soliz de Stange in this book.
  • 20 Dussel Peters et al. (2013).
  • 21 Dussel Peters, Armony and Cui (2018); Salazar-Xirinachs et al. (2018).
  • 22 In the case of LAC, for example, the Center for Chinese-Mexican Studies of the School of Economics at the National Autonomous University of Mexico (UNAM) and the Academic Network of Latin America and the Caribbean on China (Red ALC-China) have allowed for a detailed and public learning processes together with Chinese counterparts in topics such as trade, foreign direct investments, international relations, raw materials and mining, as well as history, culture and learning Chinese, among others.
  • 23 Arnson et al. (2014); Dussel Peters and Armony (2015).
  • 24 Such is the case of the Atlantic Council (Avendaiio et al. (2017) and Gonzalez (2018)), the Brookings Institution (Dollar (2017)) and the Inter-American Dialogue (Myers (2018); Myers and Barrios (2018)) with topics on China’s OFDI and infrastructure projects, among others. Surprisingly, their review of existing literature in China and LAC on the respective issues is practically non-existing and insufficient. The lack of knowledge and integration of massive literature, particularly in LAC and China, on methodological issues, case studies, and analysis of the respective issues for specific countries, among other topics, of public, private and academic institutions does not only limit an explicit learning process, but also reflects poor conclusions and policy proposals and a repetition of discussions that have already taken place earlier.
  • 25 Cui and Perez (2016).
  • 26 Dussel Peters (2016); Dussel Peters et al. (2018); Gallagher (2016); Jiang (2017); Myers and Gallagher (2019); Stanley (2013); Yang (2016). For a full discussion on China’s OFDI in LAC see Dussel Peters (2014, 2019).
  • 27 ECLAC (2018).
  • 28 Idem, pp. 34-35.
  • 29 Dussel Peters (2019).
  • 30 However, in specific markets such as the United States, Chinese OFDI fell between 60% and 80%, particularly in the last quarter of 2018. See Miller (2019).
  • 31 PRC MOFCOM (2019a).
  • 32 For an analysis of the quantity and quality of employment generated by China in LAC and with four national studies and respective case studies, see Salazar-Xirinachs et al. (2018).
  • 33 Pence (2018).
  • 34 See details in Chapter 12 by Wintgens and Kellner and Chapter 13 by Mendez in this book.
  • 35 Reuters (2018).
  • 36 Dussel Peters (2018b).
  • 37 The cancelled Annual Meeting of the Boards of Governors of the Inter-American Development Bank at the end of March 2019 in Chengdu, China, is probably a good example in understanding the high level of tensions and difficulties in negotiations between the United States and China on a LAC matter, that is, the United States and other LAC countries insisting on inviting delegates of Venezuela and in representation of Juan Guaido, and China rejecting this diplomatic status.

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  • [1] Background of the LAC-China socioeconomicrelationship This part will focus on three issues that are relevant for understanding the “new triangular relationship” between LAC, China and the United States: China’s proposal
 
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