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Angel or devil?Chinese impact on Latin America: 

Angel or devil? Chinese impact on Latin America Javier Santiso Chief Economist Latin America and Emerging Markets BBVA Research Department Annual Bank Conference on Development Economics (ABCDE) Amsterdam, May 23-24th 2005

INDEX: 

INDEX China: a new global player A positive impact on trade flows with Latin America Two case studies: Mexico versus Brazil Conclusion: A “blessing in disguise”?

Since 1978, Chinese economy has grown at a high rate: 

Since 1978, Chinese economy has grown at a high rate Economic history recalls that this situation is not new: in 1820 China represented a third of the world GDP (Maddison, 2001). Source: BBVA Real GDP growth rate 1978-2006f (%)

Growth potential is driven by high saving and investment rates...: 

Growth potential is driven by high saving and investment rates... Source: BBVA, IIF

…low wages and competitiveness: 

Source: BBVA, EIU …low wages and competitiveness Source: BBVA 1 data for China until 2003; 2005-6 estimates Wages in China are in average four times lower than in Latin America. However, real wages grow at a significantly higher rate than in industrialised countries. Labour Costs (USD/hour) (average 1999-2002, total industry)

…increasing economic liberalisation: 

…increasing economic liberalisation Source: BBVA, 2004 Trade openness and FDI inflows surpass those of all Latin American countries.

…and large size of its domestic market: 

Coastal Region Population: 482 MM GDP per cápita: $2117 Share of national GDP: 58% Interior Region Population: 710 MM GDP per cápita: $765 Share of national GDP: 38% Western Region Population: 83 MM GDP per cápita: $773 Share of national GDP: 4% China represents some 20% of the world´s population The middle class accounts for only 19% in year 20031. Its weight has been growing by 1% per annum since 1999. 1Estimate of Chinese Academy of Social Sciences. Middle class: total assets of Rmb150-300K (US$18-36K) …and large size of its domestic market

How long would this growth be sustainable?: 

Source: BBVA, 2004 How long would this growth be sustainable? Real GDP per cápita PPP in constant prices (US$, 2004-5 estimates) Growth rate of GDP per cápita in China has been higher than in the golden years for L.A. main economies. However, Chinese high growth rate is not unusual in Asia. Real GDP per cápita PPP in constant prices (US$, 2004-5 estimates) Source: BBVA, 2004

INDEX: 

INDEX China: a new global player A positive impact on trade flows with Latin America Two case studies: Mexico versus Brazil Conclusion: A “blessing in disguise”?

Slide10: 

China´s liberalisation has heralded fair weather for Latin America... Source: BBVA countries: Argentina, Brazil, Chile, Colombia Mexico, Peru, Uruguay and Venezuela 2 until Octubre (latest data available) As of latest available data, Peru, Brazil and Argentina increased their share of total exports to China .

This trade increased mainly over recent years...: 

This trade increased mainly over recent years...

Slide12: 

What data has the study been based on? Panel data in 3D: 35 countries, 620 products and 5 years. The Chinese exporting and importing structures have been compared with the one of 15 Latin American countries (plus 16 other emerging countries non LatAm, Spain, Japan and USA). We have used the UNCTAD database that includes 620 different goods. This database using the one and three-digit Standard International Trade Classification. 1998-2002 is the period of time considered.

What is the Chinese exporting structure?: 

Exports composition to one-digit. Over recent years the exporting structure has changed, changing from one based on miscellaneous manufactured goods in 1998 to one based mainly on machinery and transport equipment in 2003. What is the Chinese exporting structure?

What is the Chinese importing structure?: 

What is the Chinese importing structure? Imports composition to one-digit. China has developed a strong intra-industry trade.

What products does China specialize in?: 

What products does China specialize in? The index measures the country's specialization index in exports according to the Balassa formula. The index compares the share of a given sector in national exports with the share of this sector in world exports. Values above 1 indicate that the country is specialized in the sector under review.

Does China compite with Latin American countries ? : 

Does China compite with Latin American countries ? Source: Blázquez, Rodríguez and Santiso, BBVA (2005)

Does China compite with Latin American countries ? : 

Does China compite with Latin American countries ? Source: Blázquez, Rodríguez and Santiso, BBVA (2005)

Does China compite with Latin American countries ? : 

Does China compite with Latin American countries ? Source: Blázquez, Rodríguez and Santiso, BBVA (2005)

What indexes of competition have we used?: 

What indexes of competition have we used? We want to see if the exports of Latin American countries coincides with Chinese export, i.e. if a potential cost exists. Coefficient of conformity = Coefficient of specialisation = Where ajt y ait are the share of good “n” over the total exports of country j e i in time t (where j is China)

With the exception of Mexico, China does not compete with Latin America: 

With the exception of Mexico, China does not compete with Latin America Countries less harmed by the Chinese competition Countries most harmed by the Chinese competition Among the 15 countries less harmed by Chinese competition, there are 14 Latin American countries.

INDEX: 

INDEX China: a new global player A positive impact on trade flows with Latin America Two case studies: Mexico versus Brazil Conclusion: A “blessing in disguise”?

Mexico: Global competition with China: 

Mexico: Global competition with China

Mexico: The dragon attacks?: 

Mexico: The dragon attacks? Chinese competition with Mexico has been increasing until 2003 (latest data available).

Competition of exports to the US market: 

Competition of exports to the US market Chinese exports to the US grew in 2002 and 2003 at an annual rate of 26% vs. 2% for Mexican exports. Although it is not clear that China has gained market share at the expense of Mexico exclusively.

What could Mexico do?: 

What could Mexico do? A passive adjustment: Depreciation of nominal exchange 12,20

What could Mexico do?: 

11,700 Km Lower Transportation and Communication Costs Access to Regional Preferential Trade Agreements (FTAs) Short Delivery Time Mexico´s competitive edge may be greatest on time-sensitive exports. Proximity to US implies Latin America can use inexpensive transport by land, rather than ocean shipment. Ocean shipping times 24 DAYS 160 Km 4 DAYS Advantages of Mexico´s Geographical Location: What could Mexico do?

What could Mexico do?: 

What could Mexico do?

Brazil: an intermediate point: 

Brazil: an intermediate point Brazil has the third highest competition level with China, although in a decreasing trend.

Brazil: an intermediate point: 

Fuente: SECEX Fuente: BBVA Brazil: an intermediate point Brazil maintains recurrent trade surplus with China, which has become its fourth largest export market.

Brazil: an intermediate point: 

0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 ene-89 ene-90 ene-91 ene-92 ene-93 ene-94 ene-95 ene-96 ene-97 ene-98 ene-99 ene-00 ene-01 ene-02 ene-03 ene-04 Herfindahl-Hirschmann Index for Brazilian exports by country of destination more concentration more diversificationn Source: BBVA Brazil is diversifying its exports by country of destination to reduce geographical dependence. Brazil: an intermediate point However, the composition of Brazilian exports by sectors has barely changed.

INDEX: 

INDEX China: a new global player A positive impact on trade flows with Latin America Two case studies: Mexico versus Brazil Conclusion: A “blessing in disguise”?

Chinese booming demand of metals and other commodities: 

Source: BBVA, World Metal Statistics Chinese booming demand of metals and other commodities

Chinese booming demand of metals and other commodities: 

In 2003, Chinese imports of nickel were duplicated, those of copper increased 15%, of soybean 70% and of crude 30%. In addition, China consumed 50% of world cement, 30% of coal and 36% of steel. China has become the greater consumer of copper, tin, zinc, platinum, steel and iron. Chinese booming demand of metals and other commodities

A “blessing in disguise” for Latin America?: 

BBVA-MAP Latam index monitors the trading prices of commodities in the region. A “blessing in disguise” for Latin America? Primary products account for more than a third of Latin America exports, except for Mexico and Brazil: risk of “Dutch disease”?

Angel or devil?Chinese impact on Latin America: 

Angel or devil? Chinese impact on Latin America Javier Santiso Chief Economist Latin America and Emerging Markets BBVA Research Department Annual Bank Conference on Development Economics (ABCDE) Amsterdam, May 23-24th 2005