The thematic chapter takes a close look at one sector critical for development in Latin America, taking into account the strategic challenges and opportunities the region will have in the future. This year’s Latin American Economic Outlook analyses in depth the economic linkages between China’s current transformation and Latin America’s development model.
China’s new normal: What does it mean for Latin America?
China’s deep socio-economic transformation poses challenges and opens opportunities for Latin America’s development. China is implementing an ambitious development agenda to maintain a leading role in the world economy and avoid the middle-income trap. The so-called “new normal” implies a growth transition characterised by greater domestic consumption, demographic ageing, the consolidation of an urban middle class and a shift towards skill- and technology-intensive industries.
According to OECD/ECLAC/CAF projections, by 2030 average growth in both metals and fossil fuels exports could fall from 16% in the 2000s to 4%, and food exports from 12% to 3%. At the same time, China’s re-composition of consumption will open new prospects for Latin American exports, especially in the food industry, services and tourism. To improve Latin America’s participation in GVCs, countries should upgrade their agricultural sector as well as knowledge- and technology-intensive services.
By 2030, over 200 million Chinese will have attained tertiary education, more than doubling the number in Latin America (90 million).
Designing a truly effective strategy in education, skills and innovation will be essential to keep up with China’s strengthening of its human capital. Indeed, 1 in 2 Chinese tertiary students is enrolled in science- and technology-related studies, compared to only 1 in 5 Latin American students.
Since 2010, Chinese loans to Latin America reached USD 94 billion, making China the largest lender to the region.
Deepening financial ties is the next step towards strengthening the partnership with China. Since 2010, China has had a strong presence as both a lender and investor in the region. Direct investment has targeted telecommunications, electricity, green technologies and land purchases. In the future, these initiatives are likely to persist given China’s long-term financial strategy, expanding to other sectors including manufacturing, scientific and technological innovation. They should be matched by transparency and regulation.
Regional trade agreements and platforms can reinforce Latin America’s integration strategy with China.
China’s willingness to strengthen ties with Latin America calls for setting up a co-ordination mechanism for dialogue. Existing platforms, such as Mercosur and the Pacific Alliance, could play this role by channelling the benefits towards important objectives, such as intraregional infrastructure. They can also help strengthen behind-the-border disciplines in critical areas for integration, including adherence to international regulatory standards.
Building a win-win partnership requires a co-ordinated effort. China can benefit from its relationship with Latin America by maintaining a reliable trading partner and an attractive destination for diversifying its outward investment. Yet Latin America requires better regulations and a stronger commitment to environmental sustainability, transparency and good governance to fully benefit from this partnership. While China needs to understand Latin America’s development challenges, the region is to adapt now to maximise these opportunities in the future.