Latin America Facing China

South-South Relations beyond the Washington Consensus

Alex E. Fernández Jilberto, Barbara Hogenboom, Alex E. Fernández Jilberto†, Barbara Hogenboom

• Publisher: Berghahn Books
• Year: 2010
• ISBN:
  9781845459499
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

The last quarter of the twentieth century was a period of economic crises, increasing indebtedness as well as financial instability for Latin America and most other developing countries; in contrast, China showed amazingly high growth rates during this time and has since become the third largest economy in the world. Based on several case studies, this volume assesses how China's rise – one of the most important recent changes in the global economy – is affecting Latin America's national politics, political economy and regional and international relations. Several Latin American countries benefit from China's economic growth, and China's new role in international politics has been helpful to many leftist governments' efforts in Latin America to end the Washington Consensus. The contributors to this thought provoking volume examine these and the other causes, effects and prospects of Latin America's experiences with China's global expansion from a South - South perspective.

1

Latin America and China

South-South Relations in a New Era

Alex E. Fernández Jilberto and Barbara Hogenboom

The rise of China might be the most important single event in the world’s recent economic developments. To most developing countries, the last quarter of the twentieth century was ‘dominated’ by economic crises, increasing indebtedness and financial crises, political instability and a profound shift of development model that did not produce the ‘expected’ results, but to China this period stood for quite something different: an amazingly high and continuous economic growth, an increasing budget and trade surplus, political stability, and all of this based on a profound shift of development model that produced more results than anyone had imagined. In effect, although still being a developing country, China has steadily climbed up the ladder of the world’s largest economies and now comes immediately after the ‘top three’ – the United States, Japan and Germany. This growth is based on a globalisation strategy that has rendered China a central position in global production, global trade and global finance.

Over the past few years, Latin America’s experience with China’s rapid insertion into the global economy has become an issue of great attention. With China being transformed into the so-called factory to the world, it exports numerous products that previously formed an important part of the industrial production in other developing countries, either for the local market or for export. The abundance of cheap labour in China implies strong competition for trade and foreign direct investment (FDI) to other countries. Simultaneously, Chinese demand for commodities has boomed as well, and Chinese companies have started to become a new source of FDI. Countries in South America tend to profit from these new possibilities, whereas Central America and Mexico are hit hardest by Chinese competition in their main export market: the United States. Due to these rapid and two-sided economic changes, the debate on ‘China effects’ on Latin America has often focused on the macro-economic perspective and on ‘threats versus challenges’.¹

In this volume, Latin America’s dealings with the People’s Republic of China (PRC) are studied from a South-South angle, applying an international political economy approach that includes economic as well as political and social change in Latin America. Economic developments, relations and interests are evidently central to bilateral diplomatic relations and multilateral political positions of Latin America and China. In international politics, China has come to present itself more prominently, stressing its position as a developing country and seeking new South-South alliances. For instance, China has strengthened its strategic relations with Latin America, Africa and the Middle East by establishing cooperation forums and business councils. More important than that was China’s move, soon after its entry into the World Trade Organization (WTO) in December of 2001, to line up with countries such as Brazil, India and Russia in the G20. This G20 group of more than twenty developing countries and transition economies were very critical about the proposals of the European Union and the United States for the new round of international negotiations on a broad agenda for global trade, investments, services and (intellectual) property rights (the so-called the Doha Development Round). In 2003, their joint resistance against the US and EU agenda, which in the G20’s eyes were posing too many conditions upon developing countries while insufficiently opening up their markets for agro-imports from developing countries, caused the failure of the WTO summit in Cancun. Since then, global trade negotiations have been stalled.

Apart from assessing the economic changes brought about in Latin American countries by China’s rise, the authors of this volume examine the nature of the new relations between Latin American countries and China. In addition, they discuss what the economic and political South-South shifts are doing to Latin America’s development plans and models. The aim of this book, in short, is to assess critically the important effects of China’s global economic expansion and its new political role in Latin America’s development. In our view, political economy is central to this understanding as politics and policies are as important as economic and social factors. More generally, such a joint effort by experts on (and from) Latin America can make a valuable contribution to contemporary scholarly and political debates on the actual effects of neoliberal globalisation.

In this chapter, we introduce the theme of the nature and meaning of the new relations between Latin America and China. After a short overview of the global and South-South dimensions of the rise of China, we look into some of the relations between Latin America and China. Examples from Brazil, Chile, Mexico and some other countries illustrate how the mix of economic and political interests has transformed South-South relations. Next, we review how the context of neoliberal globalisation has affected these new relations, resulting in both South-South trade and South-South competition. We then compare the economic liberalisation strategies of Latin America with those of China, which leads us to the debate on the role of the state in development. The question as to what extent Latin America has been moving out of the reach of the Washington Consensus and whether the Beijing Consensus may be coming to replace it will be left for the concluding chapter of this book. At the end of this introduction, we will present the order of the rest of the book.

China: The Number One in Globalisation

China’s rapid economic expansion has impressed the world. At the beginning of the twenty-first century, China has become the third largest importing as well as exporting country, the third largest economy in the world (after the United States and Japan), and one of the top three destinations of foreign direct investment. In the period of 1985 to 2000, the figures of its increasing world export market share show that China has profited more from globalisation than any other country. China achieved an average annual export growth of 4.5 per cent, while the second and third country on this list achieved no more than 1.8 per cent (the United States) and 1.1 per cent (Korea). From 1980 to 2000, its annual growth of real GDP was even more spectacular, with an average of 10 per cent. Over this period, developing countries on average only grew 3 per cent (UNCTAD 2005b, 2004, 2003, 2002).

China has become a central place for production, investment, import and export, which are all heavily tied up in China’s role as ‘the factory to the world’. Between 1980 and 2003, China’s share in world trade increased more than fivefold: its exports rose from 0.9 to 5.8 per cent and its imports rose from 1.0 to 5.4 per cent (UNCTAD 2005b: 133). And this trend is ongoing. The effects on the global system can be compared to those of the English industrial revolution in the second half of the nineteenth century, the development of the western part of the United States at the end of that century and Japan’s industrialisation after WWII (Morrison and Brown-Humes 2005).

With its rapid economic growth and expanding export production, China has become a major consumer of natural resources and commodities, many of which originate from other developing countries. China has become the world’s largest importer of several important commodities, such as iron ore. In 2004, China consumed 40 per cent of the world’s coal, 25 per cent of nickel and 14 per cent of aluminium. This massive Chinese demand has contributed to rising metal prices since 2004. In 2005, the IMF metal price index rose by 26 per cent (another 7 per cent increase was expected for 2006). With energy prices rising 39 per cent, this contributed to an overall 29 per cent increase (in dollar terms) of the IMF commodities and energy prices index in 2005. This process is evidently beneficial to the exporting developing countries, as they had suffered from years of low world prices and related worsening terms of trade. The metal price level in 2006, for instance, was about twice as high as the average price level of the 1980s and 1990s (IMF 2006: 54–63).

The Chinese contribution to rising world demand and prices of oil and other hydrocarbons deserves special attention. Internationally, it is the second largest consumer of energy, after the United States. This is partly because of its enormous economic activity, but is also a result of the notorious lack of energy efficiency in the production processes taking place in China. Only two decades ago, China was the largest oil exporter of East Asia, but now China is instead importing massive amounts of oil. Since 2003, China is the world’s second country in the importation of oil and is responsible for 31 per cent of the global growth of oil demand. The Middle East accounts for 45 per cent of the oil imported by China, and 29 per cent comes from Africa (Zweig and Bi 2005). Due to the economic and political importance of energy, this development is of major concern in industrialised countries. To developing countries with large reserves of hydrocarbons, on the contrary, Chinese demand and investment, and rising world market energy prices have been an economic blessing.

Next to its imports of fuels, minerals and metals, China imports large quantities of manufactures and agricultural products from developing countries. Much of this South-South trade seems to be concentrated in East Asia, but the figures are somewhat misleading since they include the large trade flows between China and Hong Kong (China), which functions as China’s transhipment port. In reality, large quantities of agricultural raw materials and food for the Chinese market arrive from other parts of the world, such as, for example, soy from Latin America. Similarly, as part of East Asian production sharing, manufactures from these countries arrive in Hong Kong for further assembling or manufacturing in China. The so-called triangular trade involves China importing intermediate products from more advances economies, such as Japan and South Korea. With the cheaper labour of Chinese workers, these inputs are then further assembled into products that are exported to the United States and Europe. As a result, in 2004, China replaced the United States as Japan’s main trade partner (UNCTAD 2005b: 130–41).

China’s massive imports are closely related to the remarkable growth of export production in China, as well as to the attraction of enormous flows of foreign direct investment. A large share of these imports serves as input for its exports (e.g., from 1985 to 2000, the value of Chinese exports increased from $26 billion to $249 billion). Together with high levels of public investment, foreign direct investment (implying the entry and expansion of transnational companies) in China has been crucial for the growth and modernisation of exports. From 1985 to 2000, FDI inflows rose from $2 billion to $41 billion, and in 2006, foreign direct investment to China was $69.5 billion (UNCTAD 2005b; FDI Stat 2008). Thus, China is not only the biggest developing country recipient of FDI, but also globally, it comes third place, after the United States and the United Kingdom.

Transnational companies (TNCs) have played a key role in the expanding Chinese production for the world market, and even more so in the changing composition of Chinese exports. In the period from 1985 to 2000, the share of primary products and resource-based manufactures decreased from 49 to 12 per cent, whereas the share of high technology products rose from 3 to 22 per cent. Between 1989 and 2001, the share of TNCs in Chinese exports rose from 9 to 50 per cent. The exports by these companies are predominantly made up of manufactured goods (90 per cent), such as machinery and equipment. There is also a large FDI component in technology intensive products: 91 per cent in electronic circuits; 85 per cent in automatic data processing machines; and 96 per cent in mobile phones (all in 2000). Apart from US and European companies, in China there is a large number of TNCs originating from Asia, mainly South Korea, Japan, Hong Kong, Taiwan and Singapore (UNCTAD 2002: 161–66; 2005a: 2–3). To other developing countries, China thus is a competitor in export manufacturing, which includes competition in foreign direct investment as well as export markets. In Latin America, as elsewhere, the issue of China’s expansion is also about ‘the future “spaces” open for the development of industrial exports in a liberalised world in which PRC is pre-empting many markets for products that developing countries can export’ (Lall and Weiss 2004: 23).

While China is a big shark in the sea of foreign capital, many developing countries are profiting from the fact that Chinese investments abroad have grown substantially, reaching $21 billion in 2006. China has become the world’s sixth largest foreign investor in developing countries; this growing Chinese FDI is primarily driven by its growing demand for natural resources. Of the top 50 non-financial TNCs from developing countries in 2004, seven were Chinese: CITIC Group (no. 5), China Ocean Shipping Co. (no. 8), China State Construction Engineering Corporation (no. 19), China National Petroleum Corporation (no. 24), Sinochem Corporation (no. 28), TCL Corporation (no. 44) and China National Offshore Oil Corporation (CNOOC, no. 47). Compared to the list for 1993, which does not contain one single Chinese company, this is a noticeable change. CITIC and CNOOC are majority-owned by the Chinese state, and most of the other Chinese TNCs are also controlled by the state. Their rise is the result of the government’s determination to create China’s own ‘global champions’, which are internationally competitive while operating under state control (Jiang 2007; The Economist 3 September 2005: 53–54; UNCTAD 2006: 283, 1995: 30–31).

Taken together, to developing countries, China’s success in the globalised markets has several faces. With regard to merchandise trade, China has definitely won the race of other parts of the South: between 1980 and 2003, while China increased its share of world exports from 0.9 to 5.8 per cent, Latin America’s share decreased from 5.5 to 5.0 per cent. China’s imports, however, have equally risen and China has become the leading importing country in South-South trade (UNCTAD 2005b: 133, 141). To developing countries that depend upon the export of a small number of commodities, this diversification of export markets, the rising world market prices and Chinese investments have all been economically beneficial. Conversely, developing countries that compete with China in export manufacturing have seen trade and investment being negatively affected by China’s success. In addition, cheap Chinese imports have been hurting local manufacturing companies that produce for the internal market, especially small and medium-sized companies.

Latin America’s New Relations with China

As of 1978, with the liberalisation reforms implemented by Deng Xiaoping, China started to strengthen its relations with Latin America and the Caribbean. In the beginning, due to the political situation of the region, relations were established with several neoliberal military dictatorships. China abandoned its political strategy of expanding Maoism to Latin America, which was previously done by creating Red Flag or Revolutionary Communist Parties, the most tragic and infamous expression of which was the Sendero Luminoso (Shining Path) in Peru. The Latin American version of Maoism had clearly expressed the ideological influence of the ‘cultural revolution’ and China’s critique on ‘social imperialism’, Soviet communism and communist parties, thereby contributing to the ideological and political division of Latin America during the Cold War.

China’s economic liberalisation, however, brought a definite end to its international ideological agenda. Central to China’s modern foreign policies is the strategy of the ‘Four No’s’. Light years away from its international Maoist policies, China’s doctrine is nowadays based on: no hegemonism, no power politics, no arms races and no military alliances. This strategic doctrine proclaimed by the Chinese President Hu Jintao (since 2003) forms part of China’s global policy to favour its economic development and integration in global neoliberalism. In Latin America, this doctrine is seen as positive for improving international cooperation, strengthening mutual confidence, preventing international confrontations and thereby being positive for multilateralism as well. The strategy of the Four No’s has also been at the basis of China’s so-called asymmetric diplomacy, which gives privileges to certain bilateral relations while China is simultaneously participating actively in processes of economic regionalisation and globalisation. This approach has some parallels with Latin American strategies of open regionalism, involving a broad economic opening and new bilateral free trade agreements together with forms of economic regionalisation, such as NAFTA or MERCOSUR. The fact that Brazil deepened its relations with China without waiting for a joint MERCOSUR agenda toward China illustrates that the new South-South relations may come at a cost for regionalisation processes.

As part of the new South-South relations in a (post-Cold War) multipolar world, Brazil and China, together with India and Russia, have become strategic allies. This was enabled by the changes that President Lula da Silva made in Brazil’s foreign policies. Both Brazil and China aim to improve their economies’ added value and the international prices for primary and manufactured products, by prioritising investments involving technology transfers. As already mentioned, their new G20 collaboration in WTO negotiations has had a major impact on the Doha Round. Brazil, India and China played key roles in the group’s effective resistance against industrialised countries, especially on agricultural issues. They rejected the joint EU and US proposal and instead proposed to eliminate US and EU agro-subsidies. In the WTO negotiations on services, intellectual property and investments, Brazil and China also have, by and large, coinciding agendas.

Since the 1990s, China has rapidly become important to the Latin American economies. China imports Latin American products such as sugar and fruits, soya oil (e.g., from Argentina), minerals (Brazil) and copper (Chile). Generally, China’s expansion has been economically positive for the region. Trade figures show steep rises and resource-rich Latin American countries have greatly benefited from China’s enormous demand for energy, minerals and other primary commodities, including benefiting from its effects on world market prices. Although to China, trade with Latin America is relatively modest, its imports from the region substantially have grown. As shown in Figure 1.1 below, in 2007, China’s import from Latin America equalled $51 billion, which is more than six times as much as in 2002! The increase of Latin American exports to China, from $5.4 billion in 2000 to $21.7 billion in 2004, imp...