Tag Archives: China

China Plans $2 Billion Latin American Investment via IADB

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China Invests via IADBAccording to a recent report by Reuters, China plans on investing roughly $2 billion to back various projects in Latin America and the Caribbean, both in the public and private sector. As an intermediary for China’s funding, Inter-American Development Bank (IADB) will execute the projects, according to a statement released by the organization this past Saturday.

By all accounts, the Chinese contribution is a substantial one, with the People’s Bank of China planning to co-finance up to $500 million in IADB public sector loans, and as much as $1.5 billion in private sector credit. According to the IADB, this will all become available over the next three to six years, stating that the ultimate goal of the fund will be to “alleviate poverty and boost competitiveness.”

On their side of the deal, China has already invested tens of billions of dollars into countries such as Mexico and Argentina over the last ten years, as well as investing into a number other projects in the region. Their primary goal has been to acquire strategic assets or companies in valuable regional sectors like as minerals, energy companies, and even food products. This new injection of capital comes as great news for IADB, which looks to use it as a stepping-stone to help bridge the poverty gap, as well as stimulate an already growing regional economy.

This past March, the IADB along with China’s export-import bank announced a joint $1 billion dollar investment fund for the region to be used for public and private sector investments, demonstrating a clear desire to connect with various prominent institutions all across the continent. Using March’s investment as a blueprint, both parties are confident that this latest round of investment will not only be fruitful for them, but also help build an economic foundation for the region that will pay dividends for many years to come.

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Why China Needs Latin America

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China’s dominance in production is far from breaking news for anyone involved in global business. But with a slowing economy in both Europe and North America, recent overall demand for Chinese goods has become stagnant, and has even dropped substantially over the past two years. That is not the case in Latin America, however, where demand for Chinese goods is steadily growing, and shows no signs of slowing down. Trade numbers are up by nearly 15% across the region, and forecasters are predicting similar growth over the next few years to come.

Latin American Demand Keeps Chinese Trade High, Despite Economy

According to China’s General Administration of Customs, global year-on-year exports dropped from 21.1% in 2011, to 7.3% in 2012. Likewise, China’s foreign trade rate increased by only 5.8% in 2012, a number which makes up only half of their anticipated target rate for the same time period. These low numbers were directly contributed to the European debt crisis, as the European Union is China’s chief trade partner. As a result, China has had to focus on increasing trade in other markets to help bolster the numbers.

The market that has been most successful, as of now, has been Latin America; specifically Chile, Peru, Mexico, and Brazil. In the same time span last year, China increased its foreign trade with the region at a rate of 12-15%. Yang Wanming, the Chinese ambassador to Chile, has called this increase “remarkable”, and with good reason. Chile has had a free trade agreement with China since 2006, and the two countries have a bilateral trade value of USD $34 billion, a figure that’s nearly doubled over the past ten years.

What Do Latin American Markets Have to Offer?

For the most part, Latin America as a whole is a good market economy, and is ideal for trade due to many of its countries’ forecasted growth potential. With Peru, Brazil, and Chile all expecting 4-6% growth in the next five years, it’s important that China and other countries begin to build positive trade relationships now. The purchasing power in the region is at its highest, and the demand for foreign cars, electronics, and consumer goods is surging at an unprecedented rate.

According to Wanming, “Three years ago, we didn’t see any Chinese cars in the streets of Chile. But now, Chinese carmakers hold a 12 per cent share of the market. It’s an amazing exchange, isn’t it?” Likewise, in Brazil, forecasters expect trade value with China to surge as high as USD $80 billion in 2013. The formula, in both cases, is that regional consumer spending power is high enough to merit the steady importation of goods. And with little to no trade restrictions in these countries the potential for foreign imports is seemingly limitless.
The growing Latin American demand for foreign goods and services is a good indication of regional economic development. Mutilatinas and LatAm Multinationals have accelerated this growth, and with it, the demand of the consumer. By expanding homegrown businesses and jobs, these companies have also helped create a great demand. A demand that leads to revenue for foreign companies willing to take on the market in Latin America.

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