China And Latin America: Economic And Trade Cooperation In The Next Ten Years

Economic and Trade Cooperation in the Next 10 Years

Hongling Zhao, Zhenxing Su

• Publisher: WSPC
• Year: 2017
• eBook ISBN: 9789813202306
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

The international financial crisis in 2008 marked the beginning of important changes in the international economic system. The emerging market economies are increasingly becoming a driving force for the global economic growth. Under such circumstances, the Sino–Latin American economic and trade cooperation has entered a new period of historical opportunity. Based on the economic development trend and the adjustment of policy, this book explores the prospect for Sino–Latin American economic and trade cooperation. It tracks the development path for this cooperation in the next 10 years by analyzing resource endowment, industrial structure, economic system, development pattern, basic economic policy, economic environment, economic and trade relations between China and Latin America.

Contents:

• Reform and Development of the Latin–American Economy
• Economic Trend of Argentina and the Sino–Argentine Economic and Trade Relations
• Brazilian Economy and the Sino–Brazilian Economic and Trade Relations
• Economic Trend of Chile and the Policy Choice of the Sino–Chilean Economic and Trade Cooperation
• Economic Policy Adjustment of Mexico and the Prospect of the Sino–Mexican Economic and Trade Cooperation
• Economic Characteristics of Peru and the Sino–Peruvian Economic and Trade Cooperation
• Economic Reform of Venezuela and the Sino–Venezuelan Economic and Trade Relations
• Study on the Economic Openness of the Latin American Countries
• Review of the Sino–Latin American Economic and Trade Cooperation since the Beginning of the 21st Century
• Opportunities and Challenges of the Sino–Latin American Economic and Trade Cooperation
• Continuing to Deepen the Cooperation and Realizing Common Development

Readership: Policymakers, professionals, academics, undergraduate and graduate students interested in China-Latin American Economic Relations and Trade Cooperation.Keywords:China;Latin America;Economic Cooperation;Trade Cooperation;International TradeReview: Key Features:

• Features solid argumentation and substantial evidences
• Contains historical materials, analyses current situation and predicts the future trends of relationship between China and Latin America

Chapter 1

Reform and Development of the Latin-American Economy

SU Zhenxing

During the more-than-10-year period since the beginning of the 21^st century, the economic situation in Latin America and the Caribbean region (hereinafter referred to as “Latin America” or “Latin-American region”) has changed greatly. The main changes are: (1) The economic reform led by the new liberalism has come to an end, and the economic reform has entered a new period of reflection and policy adjustment; (2) The economic recession and down-turn over 20 years has finally ended, and the economy entered a new growth period; (3) The pragmatic principle has gradually become the basic guiding ideology of Latin-American countries to develop their economic policies. The author believes that the three changes above will help us have an overall understanding of the basic features of the change of the economic situation in Latin America over the past 10 years, and make a basic judgment about the evolving economic tendency of the following 10 years. The basic structure of this chapter consists of four sections — the first three sections deal with the above three major changes respectively, and the last section focuses on how the Latin-American countries should continue to change the way of their economic growth.

Section 1The Economic Reform Entering the Policy Adjustment Period

The economic reforms in Latin America led by the new liberalism started in the middle of 1970s, lasted for about 25 years, and ended at the turn of the century; hence the economic reforms entered a new period of policy adjustment. How had this change happened? What influence will this change have on the evolution of the Latin-American economic situation? In order to answer these two key questions, a series of related issues need to be analyzed.

I.Main Achievements and Failures in the Early Stage of the Reforms

There are different opinions as to the main achievements accomplished in the Latin-American economic reforms led by the neoliberalism. The author believes that the reforms beginning from the 1970s were the result of historic development. Regardless of the many mistakes in the process of neoliberal reform, there is no doubt that there have been some basic achievements.

1.The Reforms Have Transformed the Latin-American Development Mode from the Inward into the Outward Mode

The development mode of import substitution industrialization pursued by Latin-American countries in the 1970s has lost vitality — a structural crisis had occurred in the development, which was sharpened by the eruption of the debt crisis in the early 1980s. Therefore, there was no way out without reforms. The transformation from the inward development mode to the outward development mode was realized through removing tariff and non-tariff barriers and slashing the national economic functions. In order to better participate in international competition, Latin-American countries had selected two “production specialization modes”: “On the one hand, in the last 20 years, the Southern Cone countries, particularly Argentina, Chile, Brazil, and Uruguay have played a more important role in the processing industry of primary products in the production of a wide range of industrial-use natural resources (such as iron and steel, petroleum industry products, non-ferrous metals, fish meal, vegetable oil, pulp, and paper). On the other hand, in Mexico and Mid-American States, the production specialization patterns have shifted decisively into the ‘customers’ industries (such as computer, audio–visual equipment, TV sets and clothing industries)”.¹ The case of the Caribbean countries is more complicated. They can roughly be divided into three categories: the first one is in customer industries, such as the Dominican Republic; the second is resource processing industries, such as Belize, Trinidad and Tobago, Barbados, Suriname, and the third category is mainly engaged in tourism and offshore financial industry.

2.The Reform Has Enabled Latin-American Countries to Have Achieved the Transition from the State-led Economy into the Market Economy

The neoliberal economic reform in Latin America focused on the realization of the market, privatization, and financial liberalization. Although it is recognized that the general direction to the transition to a market economy is correct, in fact, the so-called “market” reform had gone too far — not only was the macro-economic function of the state excessively weakened, but also the opportunity to adjust the industrial structure was missed. “After 30 years of trade and financial liberalization, we have not been able to achieve the success of a structural reform. On the contrary, something has gone wrong with our past structural reforms: too much emphasis has been put on the market so that the structural differences of the country have been exacerbated”.²

3.The Malignant Inflation of the Late Half of the 1980s and the Early Half of the 1990s Has Been Eliminated

As is shown in Table 1.1, from 1987 to 1994, the average inflation across the region had remained at a three or four-digit number, and it tended to ease in 1995 as a whole. In this process, the Brazilian implementation of the “Real Plan” was successful. The practice of the “exchange rate anchor” or “Currency Board System” in other countries had caused a lot of negative consequences, and a few countries had adopted the practice of “dollarization”.

Table 1.1 Consumer Price Index in the Latin-American Region (Selected High-inflation Countries) (Changes: December the Year Before–December the Next Year)

Source: CEPAL, Balance Preliminar de las Economia de America Latina y el Caribe, 1995, p. 51.

4.The Enterprises Had Been Improved Efficiently Having Been Restructured

Latin-American businesses experienced a major reshuffle and a big restructuring in the reform process. First, the rapid market opening made local companies unable to resist the fierce competition of foreign goods. For example, in Chile, in the early period of the reform a tide of bankrupt enterprises occurred: in 1976, the number was 132, in 1979, it was 332, and in the first 10 months of 1980, there were 350 bankrupt enterprises. The second is the phenomenon of “de-industrialization”. Between 1980 and 2009, the Latin-American manufacturing output in gross domestic product (GDP) changed from 27.8% to 15.3%, going down 12.5 points (see Figure 1.1). In this backdrop, many manufacturing industries declined significantly so that a number of related businesses could not continue to survive. The third is the privatization of state enterprises. Between 1990 and 1999, the total revenue of privatization of Latin-American state-owned enterprises was $177 billion, accounting for 56% of revenue over the same period of privatization in developing countries.³ After the restructuring, in order to face the fierce market competition, the enterprises generally increased their investments, updated their production equipments, and improved their management and operation so that their production efficiencies were generally improved.

The author believes that the main mistakes of the neoliberal economic reform in Latin America are in the following three aspects: Firstly, too much emphasis was put on the market and liberalization; secondly, the relationship between the economic reform and economic growth was not well dealt with, and thirdly, social justice and social stability were ignored.

Figure 1.1 Manufacturing Production of Latin-American Countries^a in GDP (1980–2009)

Note: ^aMeans Caribbean countries are excluded. The economy of 1980–1990 was calculated on the basis of the constant dollar price of 1980; the data of 1991–2009 came from the Statistical Yearbook of Latin America 2010 (on the calculation of constant dollar price in 2000).

Source: CEPAL, America Latina y el Caribe: Series Historicas de Estadisticas Economicas 1950–2008, 2009; CEPAL, Anuario Estadistico de America Latina y el Caribe, 2010.

The mistake of neoliberalism in dealing with the relationship between the state and the market is the result of the domination of its theoretical idea of laissez-faire rather than simply a matter of a methodological issue. In the process of economic reform in Latin America, the laissez-faire ideology of neoliberalism can be understood in two ways. First, the state intervention in the economy rose to a height of ideology to be criticized — the state intervention is totalitarian, and the market is omnipotent. Second, the economic reforms in Latin America, although known as “structural reforms”, in fact put almost all of the energy on the market-oriented reforms. The industrial structures of Latin-American countries not only failed to make any substantial adjustments, but experienced a process of “de-industrialization” up to 20 years. In its choice of the so-called “production specialization mode”, the neoliberalism publicly aired “The best industrial policy is no industrial policy”, advocating that Latin-American countries should choose their “production specialization mode” on the basis of their static comparative advantage of natural resources and labor resources.

The economic reform in Latin America in the 1970s was still in the pilot period of individual countries (Chile), and started the gradual expansion in the region after the outbreak of the debt crisis in the 1980s. In the context of the debt crisis, the difficulty of dealing with the relationship between the economic reform and economic growth had been very difficult; however, the governments had always stressed to accelerate the reform while ignoring how to protect growth. Many actions of the reform directly hurt the economic growth, for example, the rapid market opening led to a large number of enterprise bankruptcy, the use of “exchange rate anchor” or “Currency Board System” to counter inflation, resulting in a substantial appreciation of the currency, directly damaging the exports, and so on. After experiencing the “lost 10 years” in the 1980s, the economy of the Latin-American region began to have just a little improvement when a series of financial crises occurred. Between 1998 and 2002, another “lost 5 years” continued. As a result, the Latin-American region has experienced over 20 years of economic recession and depression from the 1980s. “In fact, in some Latin-American countries, this low-growth phase is as long as 25 years… 25 years of low growth caused up to 30% of the potential GDP losses”.⁴

The problem of social injustice and rich–poor differentiation has long existed in Latin-American countries, and it turned more serious with the distress and economic downturn of the debt crisis of the 1980s. In 1990, the poverty rate hit the historical record of 48.3%. Neoliberals believe that as long as the economy grows, social problems will naturally dissolve. However, not only has the low economic growth been a long period in the countries, but many reforms are still increasing the rich–poor divide in the society. Thus, throughout the 1990s to the early 21^st century, high unemployment continued, poverty rate was staying more than 40%, the absolute number of poor population increased, and growing social conflicts and the Indian Movement flourished. Between 1997 and 2001, seven Latin-American presidents had been ousted. In particular, the outbreak of the economic crisis of 2001 in Argentina triggered a sharp political crisis and a massive social protest.

II.The Rise of the Left-wing Party and Its Influence

The chaotic situation in the 1990s in Latin America, as described above, had created the necessary conditions for the growth of the left-wing party. The left-wing political parties of Latin America raised the banner of anti-neoliberalism, put forward the slogan of “Another world is possible”, and won its foundation of the growing mass through the “St. Paul Forum” and the “World Social Forum” to expand its political influence. The “Fifth Republic Movement” led by Chavez in 1998 won the Venezuelan general election, starting the left-wing political power in Latin America at the turn of the century. In just a few years, a large number of left-wing parties in many of the Middle- and South-American countries became the ruling parties so that a new political landscape appeared in Latin America. The author believes that if the rise of the left-wing parties had been ignored, it would be difficult to fully observe and understand the current situation in Latin America, especially the new changes in the economic and social affairs.

Although the left-wing governments in Latin America are divided into radical and moderate in terms of their political overtones, not a single leftist government negated the main achievements of the early reforms, such as adhering to the opening policy and the implementation of market economy. A few countries focused the nationalization policy on the fields of oil and gas resources. Land reforms in Brazil, Venezuela and other countries were mainly carried out through the collection of the “idle” lands and the allocation of them to peasants so that the spontaneous “Land Grabbing Movement” of the landless peasants was eased. The leftist governments have advocated social equality and inclusive development, repositioned the state functions under the conditions of market economy, and restored the state macro-adjustment functions and the need to develop national industrial development planning and to implement positive industrial policies. They have emphasized the important responsibility of the state to improve the income distribution and provision of social services in the country so as to achieve the inclusive development. In fact, both in the ruling left-wing countries and in other Latin-American countries, these ideas have gradually become the dominant ideology. This indicates that the neoliberal influence in Latin America has basically subsided in the last 10 years. The author believes that in the Latin-American region the change in the mainstream concept of development is a fundamental change.

Latin-American leftist governments generally pursued an active social policy, increased government transfer pa...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Preface
• About the Editor
• About the Translator
• List of Contributors
• Contents
• Chapter 1 Reform and Development of the Latin-American Economy
• Chapter 2 Economic Trend of Argentina and the Sino-Argentine Economic and Trade Relations
• Chapter 3 Brazilian Economy and the Sino-Brazilian Economic and Trade Relations
• Chapter 4 Economic Trend of Chile and the Policy Choice of the Sino-Chilean Economic and Trade Cooperation
• Chapter 5 Economic Policy Adjustment of Mexico and the Prospect of the Sino-Mexican Economic and Trade Cooperation
• Chapter 6 Economic Characteristics of Peru and the Sino-Peruvian Economic and Trade Cooperation
• Chapter 7 Economic Reform of Venezuela and the Sino-Venezuelan Economic and Trade Relations
• Chapter 8 Study on the Economic Openness of the Latin-American Countries
• Chapter 9 Review of the Sino-Latin American Economic and Trade Cooperation since the Beginning of the 21st Century
• Chapter 10 Opportunities and Challenges of the Sino-Latin American Economic and Trade Cooperation
• Chapter 11 Continuing to Deepen the Cooperation and Realizing Common Development
• Bibliography
• Index