Sino – Latin American
Economic RelationsMain take-aways
Alicia García-Herrero
Chief Economist of Emerging Markets
BBVA Research
Beijing, May 2012
Outline
1.
Putting the book in context:• How relevant are the two regions?• far with Sino–Latin American economic
relations?
2.
Quick overview to book chapters• Brazil -
China
• Mexico - China
Page 2
How relevant are the two regions?
Page 3
The new global economic order will be Asian and specially Chinese• Emerging Asian economies to contribute close to 58% to global growth in next 10 years
• China is the highest contributor with almost 30% of global growth
Contribution to World economic growth by region between 2011-2021 (%)
Source: BBVA Research and IMF WEO
10.5
Latin America
Africa Australia + New Zealand
North America
Asia (ex.Japan)
Japan
7.8
6.0
4.1
Eastern Europe
57.91.8
1.0
5.8
Western Europe
Middle East
5.0
Page 4
Latin America is not irrelevant, even for China• Brazil and Mexico also world class players
• Brazil will contribute to global growth nearly double Japan. Mexico more than Germany.
• Argentina more than Canada, Colombia close to France. Peru and Chile more than ItalyCurrent economic size* and incremental GDP** 2011 –
2021(billion USD, adjusted by PPP)*
Current size is indicated by the size of the circle as well as the number below the country’s name ** Incremental GDP is found in the number inside the circleSource: BBVA Research and IMF WEO
Page 5
176 165 165
Brazil2,247
United Kingdom2,213
Hong Kong344
Singapore308
Canada1,367
Argentina700
Australia899
Germany3,039
Japan4,311
Mexico1,628
Saudi Arabia665 France
2,173 Spain1,385
Colombia461 South Africa
543
Peru296 Chile
275
Italy1,791
1,137
741
514456
358 347 345 343 341 322
236 229
415
198134
0
200
400
600
800
1,000
1,200
1,400
Incr
emen
tal G
DP
PP
P 2
011
-20
21 (b
illio
n U
SD)
LATAM Emerging EconomiesG6 EconomiesOther Economies
Latin American relevance more dependent on Asia,
particularly China
Page 6
Page 7
Trade between Asia and Latin America has grown nine times in last 20 years
0
20
40
60
80
100
120
140
160
1990 2000 2010
LATAM to Asia Asia to LATAM
Trade flows between Asia and LATAM 7(billion USD) Source: BBVA Research and COMTRADE
Page 8
In 2010 the three countries accounted for 84% of total exports to LATAM (114 billion USD)
Brazil and Chile
accounted for 66% of total exports to Asia which added up to 84
billion USD. Argentina, Mexico and Peru played a minor role
China is the key trading partner but also Korea and Japan are relevant
Trade flows Asia to LATAM: the big players2010
China50%
Korea18%
Japan16%
Rest of Asia16%
Trade flows LATAM to Asia: the big players2010
Brazil41%
Chile25%
Mexico14%
Rest of LATAM20%
Page 9
China top trading partner… but not only for exports, also for imports!
China’s ranking as trade partner in Latin AmericaSource: BBVA Research and COMTRADE
Country
Export to China Import from China
2000 2010 2000 2010
Argentina 6 2 4 2
Brazil 12 1 11 2
Chile 4 1 4 1
Colombia 36 2 9 2
Mexico 19 3 6 2
Peru 2 1 9 2
Venezuela 35 7 18 2
LATAM exports concentrated on commodities: iron ore, soybean, copper, paper and food for animalsAsian exports are manufactured goods, also medium and high value added ones like motor vehicles, communication devices and electronic devices.
Page 10
Comparative advantage behind trade patterns
Trade flows Asia to LATAM: commodities2010
Machinery, other than
electric17%
others47%
Electrical machinery,
apparatus and appliances
21%
Transport equipment
15%
Trade flows LATAM to Asia: commodities2010
Metalliferous ores and metal
scrap35%
Non ferrous metals13%
other commodities
42%
Oil seeds, oil nuts and oil kernels
10%
The book: 1. Seven theme chapters 2. Two case studies
Brazil Mexico
Page 11
Book thematical chapters
1.
Possibility of economic cooperation beyond resource and manufacturing complementarity. Masahiro Kawai and Fan Zhai (ADBI)
2.
Determinants of trade between two
Rolando Avendaño and Javier Santiso (OECD)
3.
Is India the next big thing for Latin America?:
China and India’s trade. Anthoni Estevadeordal, Mauricio Mésquita Moreira, Christian Volpe Martincus and Juan S. Blyde (IADB)
Page 12
4.
Production sharing in Latin America and East Asia. K.C. Fung, Alicia García-Herrero and Alan K. F. Siu BBVA & HKU)
5.
Financial access of SMEs in Latin America: lessons for China. Jing Gao (CASS)
Book thematical chapters
Page 13
6. The Latin America experience in pension system reform: coverage, fiscal issues and possible implications for China. Daniel Titelman, Cecilia Vera and Esteban Pérez Caldentey (CEPAL)
7.
A comparison of Chinese outward direct investment with its regional peers: Japan, South Korea and Taiwan. K.C. Fung, Alicia García-Herrero, Ya-Lan Liu and Alan K. F. Siu (BBVA & HKU)
Book thematical chapters
Page 14
• The impact of the emergence of China on Brazilian international trade
Enestor Dos Santos and Zoledad Zignago (BBVA)
Case Studies
Page 15
Looking at the technological dimension of the dataset we show that Brazil (increasingly) exports to China products with lower technological content and (increasingly) imports products with higher technological content.
Will China’s emergence de-industrialize Brazil?
Brazilian Exports to China by Technology-Content (share of total exports; in %)
2 2
1710
29
12
43
55
921
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2007
HT MT LT PP RBSource: BACI
Brazilian Imports from China by Technology-Content (share of total exports; in %)
2535
34
32
3022
5 1
5 10
0%
20%
40%
60%
80%
100%
1994 2007
HT MT LT PP RBSource: BACI
Page 16
Incorporating the “quality”
dimension (intra-industry international trade and, thereby, competition in a process of vertical differentiation and quality
upgrading.
The quality dimension reveals that both countries export to each
other basically low-quality goods (i.e. products whose unit value are in the lower range of world’s distribution of unit-
values for the product).
More than technology: looking at quality
Brazilian Exports to China by Quality Segment (share of total exports; in %)
10 15
46
19
45
67
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2007High Medium LowSource: BACI
Brazilian Imports from China by Quality Segment (share of total exports; in %)
16 19
1818
66 63
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2007High Medium LowSource: BACI
Page 17
The overlapping in exports is limited and degree of competition relatively small. Furthermore, countries increased their advantage in the products
in which they already had advantage in 1994 and lost advantage in the sectors in which
they had small advantage in producing in 1994: Lots of persistance!
More specialization and in line with comparative advantages
Brazil and China: Dispersion of Revealed Comparative Advantage by Products
(2007)
-25,00
-20,00
-15,00
-10,00
-5,00
0,00
5,00
10,00
15,00
20,00
-15,
00
-10,
00
-5,0
0
0,00
5,00
10,0
0
15,0
0
20,0
0
China
Bra
zil
Comparative Advantage:Brazil (no) - China (yes)
Comparative Advantage: Brazil (yes) - China (yes)
Comparative Advantage: Brazil (no) - China (no)
Comparative Advantage: Brazil (yes) - China (no)
Brazil and China: Dispersion of Revealed Comparative Advantage by Products
(1994)
-10,00
-8,00
-6,00
-4,00
-2,00
0,00
2,00
4,00
6,00
8,00
10,00
-8,0
0
-6,0
0
-4,0
0
-2,0
0
0,00
2,00
4,00
6,00
8,00
10,0
0
China
Bra
zil
Comparative Advantage: Brazil (yes) - China (no)
Comparative Advantage: Brazil (no) - China (yes)
Comparative Advantage: Brazil (yes) - China (yes)
Comparative Advantage: Brazil (no) - China (no)
Page 18
Brazilian exports of high technological content and high quality
increased more than the average and more than low technological and low quality exports in the last years. Overall, the emergence of China has been supporting a displacement of Brazilian exports not only towards natural based products but also to goods with higher quality
and higher technological content.
Weak evidence of deindustrialization
Brazilian Exports by Technology-Content(share of total exports; in %)
4 9
3031
17 11
22 24
28 25
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2007
HT MT LT PP RBSource: BACI
Brazilian Exports by Quality Segment(share of total exports; in %)
18 21
38 38
44 42
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2007High Medium LowSource: BACI
Page 19
• China and Mexico in the US market: challenges and opportunities
Cecilia Posadas Pérez BBVA Bancomer
Page 20
Case Studies
China & Mexico: Trade Outlook
China & Mexico are two of the world’s most important emerging markets•
Mexico has higher income per capita, but China is quickly catching up due to its faster economic growth
China & México: GDP per capita in 2010(thousands of dollars)Source: Haver analytics
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
China Mexico
GDP per Capitas PPP USD
0
2
4
6
8
10
12
China Mexico
Average Real GDP grow th 2000-2010
China & México: Average real GDP growth between 2000 and 2010 (Annual % change)Source: Haver analytics
Page 21
China & Mexico: Trade Outlook
China & Mexico are two of the world’s most important emerging markets•
Industry, manufacturing in particular is an important part of both economies, however services are more important in Mexico.
China: Value Added by Sector(% of GDP)Source: Haver analytics
Mexico: Value Added by Sector(% of GDP)Source: Haver analytics
4%
18%
17%61%
Primary Manufacturing Rest of Industry Services
10%
32%
12%
46%
Primary Manufacturing Rest of Industry Services
Page 22
China & Mexico: Trade Outlook Trade between China & México has increased during the last 10 years •
Trade between them accounted for 8.3% of Mexico’s foreign trade in 2010
•
Mexico imported 33.2 billion and exported 3.5 billion to/from China in 2010
•
The trade is balance favors China considerably
Mexico: Foreign merchandise trade (exports+imports)(Billions of USD)Source: INEGI
Mexico: exports, imports & trade balance with China(Billions of USD)Source: INEGI
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
Balance Right Axis Exports Imports Serie5
0
100000
200000
300000
400000
500000
600000
700000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
100000
200000
300000
400000
500000
600000
700000
Total USA China Page 23
China & Mexico: Trade Outlook About 50% of Mexico’s imports from China are electric components probably used in the production of more sophisticated products for re-exportation.
Source: ECLAC year 2010
16.8
8.6
5.4
4 .5
3 .4
3 .02 .8
2 .52 .2
51.0
P arts, and accesso ries fo r teleco munacatiuo n apparatusP arts, nes o f and accesso ries fo r generato rs and turbinesTelevis io n, radio -bro adcasting; transm itters, etcCo mplete digital data pro cessing machinesOptical instruments and apparatusP eripheral units, including co ntro l and adapting unitsChildren's to ys, indo o r games, etcOther electric po wer machinery, parts, nesElectro nic m icro circuitsRest Page 24
China & Mexico: Trade Outlook
China & Mexico are important recipients of FDI•
Together they accounted for 8.5% and 1.5% of the total FDI in the world
•
However despite signing a mutual investment protection agreement in 2009, flows towards each other remain small.
China & Mexico: Foreign Direct Investment Inflows(Billions of USD)Source: SE & UNCTAD
Mexico: FDI Inflows from China(Billions of USD)Source: INEGI
0
20000
40000
60000
80000
100000
120000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Mexico China
-5
0
5
10
15
20
25
30
35
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-5
0
5
10
15
20
25
30
35
From China Right axis
Page 25
China & Mexico: Trade Outlook
In contrast with Mexico's main exports to the US, Chinese products tend to gain Comparative Advantage•
China has consistently gained Comparative Advantages in the main
Mexican exports to the US, while in Mexico the ratio of products with competitive advantage has remained relatively constant.
•
Chinese products are more competitive as its growing share in the US market suggests
0
10
20
30
40
50
60
2000
2001
2002
2003
2004
2005
2006
2007
2008
MéxicoChina
Products with IVCR higher than one(% of the main non-oil exports from Mexico)
0
2
4
6
8
10
12
14
2000
2001
2002
2003
2004
2005
2006
2007
2008
MexicoChina
Share in the US market(% of total)
Page 26
What China means so far for MX
•
Important Chinese competition in the US market, particularly since it joined the WTO.
•
Mexico has not been the most affected country with the arrival of China US trade. Canada has done even worse.
•
Around 40% of the non-oil exports of Mexico have lost comparative advantage between 2005-
2008 in relation to 2005-2008
•
In contrast, among the Mexican products with higher share in the
US market, China has gained advantage consistently since 2001.
•
The combination of this phenomena is correlated with the stagnancy of the Mexican market share an the raise in China's
•
In some products (29 out of 38), the loss of comparative advantage is directly linked to China's gain.
•
In determined products of sectors like road vehicles, optical instruments and mechanical devices, among others, Mexico doesn't appear to have Chinese competition.
•
In contrast, determined products like toys, textile and plastic sectors, the comparative advantage is without doubt Chinese.
•
A third group of products are those where the advantage for one
or the other is significant but weak. Among this we highlight Mexico's reduction and/or China's raise in TV's, electrical conductors, telephone devices, etc.
Page 27
A more positive view on Mexico-China relation
Page 28
Complementary schemes
FDI
Intra-industry trade
Closeness
Transport costs
Inventories (Just in Time)
Add value (complementary schemes)
In order to attract FDI, Latin American countries still has much work to do in improving their institutions and infrastructure
Latin America is and will continue to be an important market for China/HK (export diversification and provision of services).
Mexico as a regional production hub with investment from ChinaLATAM should exploit its geographical proximity to the US market
and competitive advantages to attract China’s FDI;
thus Mexico can become a not obvious winner in this relationship
Page 29
Infrastructure for trade is key
The challenge for LATAM is to identify sectors and products where distance and time are key competitive assets. In order to capitalize on these sectors improvements on infrastructure should come first
Infrastructure for Trade in Latin America Source: OECD Development Centre, 2008, based on CGLA Infrastructure Database on Global Infrastructure Competitiveness (2006) and World Economic Forum (2005) data
0
1
2
3
4
5
6
7
USA
Chi
na
Pana
ma
Arge
ntin
a
Mex
ico
Ecua
dor
Col
ombi
a
Braz
il
Cos
ta R
ica
Low
Hig
h
Ports Railw ays
Page 30
Although there are challenges Mexico is a great opportunity within Latam
• Its macroeconomic situation is among the soundest
• It is less dependent on Asia and, thus, a better diversification
of
risks
• Infrastructure projects are huge and interesting enough
• Mexico should take advantage of its geographic location. Becoming a hub for Chinese FDI is the easiest way to be part of the new value chain.
Page 31
Overall, opportunities for LATAM: beyond commodity exports
• Huge increase in middle cass in China and higher consumption to GDP will bring about huge demand for consumer products (and not only commodities)
• China will use FDI to cover some of the demand of the rest of the world in a decentralized way as Japan and Korea did. Huge opportunitiy for countries with large demand or access to large markets: Mexico –
much less engaged with China so far -
should not
miss this opportunity!
• Finally China also has the financing muscle to help Latam finance its huge infrastructure needs.
Page 32
Sino – Latin American
Economic RelationsMain take-aways
Alicia García-Herrero
Chief
Economist
of
Emerging
Markets
BBVA Research
Beijing, May 2012