China’s Impact on Latin America An Angel or a Devil for Latin Emerging Economies?

1

China’s Impact on Latin China’s Impact on Latin AmericaAmericaAn Angel or a Devil for Latin Emerging An Angel or a Devil for Latin Emerging Economies? Economies?

ABCDE World Bank

Tokyo 29-30 May 2006

Javier SantisoChief Development Economist & Deputy Director

OECD Development Centre

2

11 The cognitive effect: new emerging capitalisms.The cognitive effect: new emerging capitalisms.

The trade effect: the dark side of the boom. The trade effect: the dark side of the boom. 22

China and India as a wake up call.China and India as a wake up call.33

3

China: extraordinary or back to normal?China: extraordinary or back to normal?

China GDP (% of world total)

0%

5%

10%

15%

20%

25%

30%

35%

1500 1600 1700 1820 1870 1900 1950 2001 2045

Source:Angus Maddison

?

2005 - GDP in US$ (% of world)

28.4

10.66.4

5.04.8

4.33.9

2.62.5

0 5 10 15 20 25 30

United StatesJapan

GermanyUnited Kingdom

FranceChina

Italy

SpainCanada

Source: IMF

According to IMF estimates Chinese gross domestic product based on purchasing-power-parity (PPP) amounts to 13.6% of 2005 world GDP (20.7% in the case of USA).

4

EmergingAsia8.0%

GDP share of world output (WEO, 2004)

EU30.7%

US29.6%

Korea&Japan12.7%

China4.2%

The cognitive impact: The emergence of The cognitive impact: The emergence of new capitalisms. Center and Periphery new capitalisms. Center and Periphery

rebalanced…rebalanced…

LatAm4.8%

Asia represents more than one fifth of world output.

5

China has doubled its GDP in 8 years…China has doubled its GDP in 8 years…without the help of Money Doctors!without the help of Money Doctors!

Chinese growth rates have been higher than those observed in Brazil and Mexico during their glorious years.

Source: based on WEO and PWT

PPP per capita GDP in constant prices

(thousand of US$, 2004-5 estimate)

0

4

8

12

16

20

24

2819

85 1

950

1988

195

3

1991

195

6

1994

195

9

1997

196

2

2000

196

5

2003

196

8

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

e

China

J apan

Korea

Brazil

Mexico

6

Asia´s growthAsia´s growth on an outward looking on an outward looking strategy: a development strategy to strategy: a development strategy to

follow.follow.

Source: IMF DOTS

… and its share in world merchandise trade has doubled in less than a decade.

China's share in world merchandise trade (%, 1980-2004)

0%

1%

2%

3%

4%

5%

6%

7%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Trade openness (X+M/GDP, 2004)

0%

50%

100%

150%

200%

250%

Mal

aysi

a

Tha

iland

Chi

na

Sou

th K

orea

Indo

nesi

a

Indi

a

Chi

le

Mex

ico

Ven

ezue

la

Uru

guay

Arg

entin

a

Col

ombi

a

Per

u

Bra

zil

Region's Average 2004

Source: WTO, National Statistics

China’s trade openness surpasses that of all Latin American countries …

7




8

Are raw material prices facing a Are raw material prices facing a Chinese shock?Chinese shock?

Source: University of Oxford

Commodities Prices in real terms

40

60

80

100

120

140

1900 1915 1930 1945 1960 1975 1990 2005

China?

Many economists are putting the blame on China and -to a lesser extent- on other emerging economies (India) of the current increase in raw material (70% in real terms).

9

Source: BBVA from original FMI and Bloomberg data; * Projection

0

1

2

3

4

5

6

7

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

0

10

20

30

40

50

60

70

Worldwide GDP growth and oil price

Price of Brent barrelin USD (right-hand side scale)

Worldwide GDP growth (in %)

The stars have been lined up for Latin The stars have been lined up for Latin America:America:

Commodity boom has been a bonanzaCommodity boom has been a bonanza

10

Venezuela 83.1%

Peru 70.7%

Chile 59.1%

Colombia 46.3%

Argentina 38.0%

Brazil 29.6%

Mexico 14.6%

Latam 31.2%

Source: BBVA

over total exports (2004)

Exports of commodities

60

70

80

90

100

110

120

130

140

150

160

170

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Source: BBVA

BBVA-MAP Index of Latin America commodity prices (100 =jan03)

TOTAL

Without oil


Commodity boom has been a bonanzaCommodity boom has been a bonanza

11

Latin America

0

10

20

30

40

50

60

70

80

90

100Ecu

ad

or

Para

gu

ay

Boliv

ia

Ven

ezu

ela

Ch

ile

Arg

en

tin

a

Uru

gu

ay

Colo

mb

ia

Peru

Ind

on

esi

a

Bra

zil

Can

ad

a

Neth

erl

an

ds

Ind

ia

Th

aila

nd

Sp

ain

Mala

ysi

a

Mexic

o

Belg

ium

UK

Fran

ce

US

Sin

gap

ore

Italy

Ch

ina

Germ

an

y

Sou

th K

ore

a

Taiw

an

Hon

g K

on

g

Jap

an

Source: WTO

Exports of agricultural, energy and minery products(in % over the total) (2003)


Asia is becoming a major growth pilarAsia is becoming a major growth pilar

12

Source: Based on domestic sources.

Figures for 2004 and 2005 are forecasts

0

1

2

3

4

5

6

7

8

9

10

1997 1999 2001 2003 2005

Growth of GDB in China

(Annual Percentage variation)

0

1

2

3

4

5

6

7

8

9

10

Chile

Arg

enti

na

Perú

Bra

sil

Uru

guay

Venezu

ela

Colo

mbia

Méxic

o

Exports to China in 2003

(Percentage of total)


China became a major trading partnerChina became a major trading partner

13

China´s strong demand for energy and China´s strong demand for energy and commodities: a bonanza or a threat?commodities: a bonanza or a threat?

Source: BBVA, Cochilco

Consumption of aluminum, 2004(estimate)

24%

22%

20%

23%

11%

North America

Western Europe

China

Other Asia

Rest of world

Consumption of nickel, 2004(estimate)

11%

38%

11%

13%

20%

7%

North America

Western Europe

China

J apan

Other Asia

Rest of world

Source: JP Morgan estimates

Source: BP

Share of total oil exports by destination region/country, 2003 (%)

28%

2%

0%

2%

26%1%

6%

12%

19%

1%

3% USA

Canada

Mexico

S. & C. America

Europe

Africa

Australasia

China

J apan

Other Asia P acific

Rest of World

Share of total copper exports by destination region/country, 2004

18%

0%

31% 9%

17%

5%

14%

6%

50%

America

Others

Europe

South Korea

China

Taiwan

J apan

Others Asian

Asia

14

Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso (2006)

China’s demand for commodities: a China’s demand for commodities: a bonanza or a threat?bonanza or a threat?

Asian countries competition* vs. Chinese exports to US, %

010203040506070

*Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US

Latin American countries competition* vs. Chinese main export products

0%

10%

20%

30%

40%

50%

60%

México

Bras

il

Colombia

Arge

ntina

Perú

Urugu

ayChil

e

Vene

zuela

*Arithmetic average of the following indexes: CC= and CS=

where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.

å --n

njt

nit aa

2

11

åå

å

n

njt

n

nit

n

njt

nit

aa

aa

22 )()(

15

Chinese commercial competition with Paraguay

7% 7%

8%

7%

6%5%

0%

2%

4%

6%

8%

10%

1998 1999 2000 2001 2002 2003

Competencia comercial china con Argentina

17% 16%18% 17%

15%13%

0%

5%

10%

15%

20%

1998 1999 2000 2001 2002 2003

Competencia comercial china con Chile

11% 11% 11% 11%10%

9%

0%

2%

4%

6%

8%

10%

12%

1998 1999 2000 2001 2002 2003

Does China compete with Latin American Does China compete with Latin American countries ?countries ?

Chinese commercial competition with Uruguay19%

17% 16% 16%

13% 13%

0%

5%

10%

15%

20%

1998 1999 2000 2001 2002 2003

Source: Blázquez, Rodríguez and Santiso, OECD Development Centre (2006)

16


Chinese commercial competition with Costa Rica

31%

26%28%

33%36%

31%

0%

10%

20%

30%

40%

1998 1999 2000 2001 2002 2003

Chinese commercial competition with El Salvador

21%23% 23%

27%26%

24%

0%

10%

20%

30%

1998 1999 2000 2001 2002 2003

Chinese commercial competition with Guatemala

16%15%

16%

17%

16%

18%

13%

14%

15%

16%

17%

18%

19%

1998 1999 2000 2001 2002 2003

Chinese commercial competition with Panama

12% 11% 11% 11%

10%

8%

0%

2%

4%

6%

8%

10%

12%

14%

1998 1999 2000 2001 2002 2003


17


Chinese commercial competition with Bolivia

11%12% 11% 11%

8% 8%

0%

2%

4%

6%

8%

10%

12%

14%

1998 1999 2000 2001 2002 2003

Chinese commercial competition with Colombia

19%

16%

19%

21%

19% 18%

0%

5%

10%

15%

20%

25%

1998 1999 2000 2001 2002 2003

Chinese commercial competition with Peru17%

16%17% 17%

15%13%

0%

5%

10%

15%

20%

1998 1999 2000 2001 2002 2003

Chinese commercial competition with Venezuela11%

8%

9%8%

7%6%

0%

2%

4%

6%

8%

10%

12%

1998 1999 2000 2001 2002 2003


18

China has become a major destination China has become a major destination of Brazilian exports: The bonanza.of Brazilian exports: The bonanza.

Source: SECEXSource: BBVA

Trade Balance with China

574

966

2.385

1.729 1.694

0

500

1000

1500

2000

2500

3000

2001 2002 2003 2004 2005p

US$ millions

Major countries of destination of Brazilian exports

United States 22,6% 1º United States 21,1%Argentina 11,2% 2º Argentina 7,6%

Netherlands 5,4% 3º Netherlands 6,1%Germany 5,3% 4º China 5,6%Japan 4,6% 5º Germany 4,2%Italy 3,8% 6º Mexico 4,1%

Belgium 3,8% 7º Italy 3,0% United Kingdom 3,0% 8º Japan 2,9%

France 2,5% 9º Chile 2,6%Spain 2,4% 10º France 2,3%Mexico 2,2% 11º United Kingdom 2,2%Chile 1,9% 12º Spain 2,1%

Russia 1,6% 13º Belgium 2,0%Paraguay 1,6% 14º Russia 1,7%China 1,4% 15º Venezuela 1,5%

1999 2004

19

Brazilian exports of primary products: Brazilian exports of primary products: more is not better (Dutch disease and more is not better (Dutch disease and

monopsony).monopsony).

0.05

0.06

0.07

0.08

0.09

0.10

0.11

0.12

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Herfindahl-Hirschmann Concentration Index ofBrazilian exports by country of destination

more

con

cen

trati

on

less

con

cen

trati

on

Source: BBVA and Bradesco

Herfindahl-Hirschmann Concentration Index of Brazilian exports by industry, 1990-2003

0,00

0,02

0,04

0,06

0,08

0,10

0,12

0,14

0,16

0,18

0,20

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

Source: WTO.

+ c

on

cen

trati

on

+ d

ivers

ific

ati

on

20




21

China competes intensively with China competes intensively with Mexico on a global levelMexico on a global level

Chinese trade competition with Latin America

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.0 0.1 0.2 0.3 0.4 0.5 0.6

Mexico

Brazil

Colombia

VenezuelaChile

ArgentinaPeru

Costa Rica

Chinese global trade competition

0.2

0.3

0.4

0.5

0.6

0.7

0.30 0.35 0.40 0.45 0.50 0.55 0.60

Mexico

ThailandHungary

USA Czech R.

Spain

Poland

Japan

Source: Blázquez, Rodríguez and Santiso (2006)

22

11,700 Km

• Lower transport and communication costs • Access to FTA• Just-in-time delivery

Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or

supplier and short reaction times.

Shipping time

24 Days

160 Km

4 Days

Mexico benefits from its geographic proximity to its major export markets:

Mexico’sMexico’s competitive advantage: competitive advantage: proximity to export marketsproximity to export markets

23

World Bank

US$/TEU

CMPCH Index

LSU Index

Singapore 1 0.38 0 0.33 2 6.76 6.72 117 NA NAHong Kong 0 0.25 0 0 NA 6.38 5.46 NA NA NATaiwan 0.5 0 0 0 NA 5.18 4.49 140 163 NAJapan 0.75 0.13 0.89 1 NA 5.16 5.16 250 202 NAMalaysia 0 0.25 0 0.38 7 4.95 5.76 75 NA NASpain 0 0.06 1 0 4 4.88 6.08 200 105 NAKorea 0 0.38 0 0 NA 4.12 5.22 NA NA NAThailand 0.5 0.63 0 0.38 4 3.98 5.12 93 NA NAArgentina 0 0.13 0 1 7 3.81 4.52 NA 139 NAVietnam 0 0 0 0.5 NA 3.81 5.02 NA NA NAChile 0 0.25 0.43 1 3 3.76 6.05 202 100 NAChina 0.5 0 0 0 7 3.49 4.44 110 NA NAIndonesia 1 0.06 0 0.38 5 3.41 4.06 NA NA NAMexico 0.5 0.38 0 1 4 3.34 2.61 NA NA NAVenezuela 0 0 1 1 11 3.28 3.63 NA NA NAEl Salvador 0 0 0 1 4 2.95 2.3 NA NA 61Brazil 0.5 0.75 0 1 10 2.92 4.45 328 292 NAPeru 0.5 0 0.5 1 7 2.88 3.32 NA 142 NAIndia 0 0 0 1 NA 2.79 4.28 NA NA NAPhilippines 0.5 0 0 0.38 7 2.79 3.51 118 NA NAEcuador 0 0 0.43 1 15 2.63 3.65 NA 139 NACosta Rica 0 0 0 1 4 2.46 3.28 NA NA 68Colombia 0.5 0.13 0.5 1 7 2.26 1.88 NA NA NABolivia NA NA NA NA 9.5 1.61 4.38 NA NA NAUruguay 0 0 0 1 5 NA NA NA NA NA

NA: Not AvailableSource: Data for the first 4 columns was kindly provided by Carsten Fink, Aaditya Mattoo, and Ileana Cristina Neagu* (2002).

Container Handling ChargesCooperative Agreements

Index

Median Clearance

time (Days)

Port Efficiency Index (1-7)

Crime Index (1-7)Country

Cargo Handing

Restriction Index

Mandatory Services

Index

Price Fixed Agreements

Index

Pending reforms : the upgrade of port Pending reforms : the upgrade of port facilitiesfacilities

24

Conclusions: A Watch ListConclusions: A Watch List

Africa and Latin America: Out of the Value-Chain Game?

The share of China’s total exports produced by foreigners has risen sharply, from 32% to 60% between 2000 and 2005.

Foreign outsourcing is becoming a major driver of India’s and China’s high tech exports, both countries moving up quickly in the value added ladder.

In 2005 for example, of China’s top 100 exporters, 53 were foreign companies and all were electronics/information technology companies.

25

Thank youThank you

Based on

Jorge Blázquez, Javier Rodríguez and Javier Santiso, “Angel or Devil? Chinese Trade Impact on Latin American Emerging Markets”, OECD Development Centre, Working Paper, May 2006.

Documents

China’s Impact on Latin America An Angel or a Devil for Latin Emerging Economies?