China, Latin America to Diversify Co-op

China and Latin America， two of the fastest growing economies in the world， are increasingly important market and investment sources of each other， reshaping the global economic outlook to some extent.

However， their cooperation is too much reliant on commodities and raw materials of low added value. And that pattern proves to be unsustainable， especially amidst the ongoing economic downturn.

In order to find ways for trade and investment between the two economies to develop sustainably， thousands of industrialists， government officials， people with chambers and trade promotion organizations， gathered in Hangzhou China from October 16 to 19， to participate in the Sixth China - Latin American Business Summit. They were eyeing diversification and high added value trade and investment for a solution.

Dominated by commodities

China and Latin America trade has grown phenomenally since 2000， reporting an annual expansion rate of 20.5%. It hit $442 trillion in 2011， according to Luis Alberto Moreno， President of the Inter-American Development Bank. China takes 21% of the imports and exports of Latin America， third only to North America and Europe.

“The need from China for raw materials， food and energy has stimulated the development of Latin America to a great extent， which explains why Latin America has shown good resilience in the face of the economic crisis，” said Osvalso Rosales， Chief of International Trade and Integration Division of the Economic Commission for Latin America and the Caribbean of the United Nations.

However， 90% of the trade between the two economies is about commodities， mostly raw materials and agricultural products. China mainly import oil， iron ores， metals， agricultural products， and food， while exporting electromechanical， textile products， toys， and other light industry products. Trade imbalances and unreasonable trade structure have caused frictions from time to tome.

In order to offset its trade surplus， China has been increasing its investment in Latin America， with direct investment reaching $54 trillion in 2011. The bulk of the investment goes to the energy and infrastructure sectors.

Most of the projects brought to the summit by Latin American companies are infrastructure construction， such as Columbia’s road construction and renovation project， Argentina’s subway transformation， wind energy， and solar energy projects， Chile’s highway construction and transformation， power transmission， airport reconstruction and tourism real estate construction projects.

“We were given the contract to design and build Columbia’s G3 Coal-fired Power Station at the end of 2010， the first of its kind that Chinese companies have ever undertaken in the country. With a contract value of 1.5 billion yuan， the Station covers an area of 68.5 hectares， with an installed capacity of 185 mw，”Li Yanfei， general manager of the Overseas Engineering Company of China United Engineering Corporation， told China’s Foreign Trade. “This proves the progress Chinese companies have made in power station design， management， equipment and construction. In order to better fit into the local environment， we localize to a great extent and invest in the local community.”

To be diversified

Roaring trade between China and Latin America has witnessed a slowdown， against the backdrop of a gloomy world economy， despite the fact that the two places have maintained strong growth.

“This is a sign that trade between the two emerging economies needs to be restructured and upgraded，” said Wan Jifei， President of China Council for the Promotion of International Trade at the meeting. “It should be transformed away from reliance on industrial commodities and raw materials with low value added， to innovation， industrial upgrade and multinational business.”

His view was echoed by Alicia Barcena， Executive Secretary of the Economic Commission for Latin America and the Caribbean of the United Nations. She said that the rapid development of Chinese economy has brought the longest period of economic growth in Latin America and has helped lift a great number of people out of poverty. But amidst the new economic climate， the two sides need to have a long-term vision， and transfer the fruits of the last economic cycle into sustainable driving forces based on knowledge and technology.

China’s rapidly expanding domestic demand provides immense opportunities for Latin America to expand exports. “The Chinese people， who are getting wealthier， have more diversified demand for goods， services and brand name products. China’s imports will hit $1 trillion in five years，”said Wan Jifei. “I hope Latin American companies enter the Chinese market in an early time and bring more food， wine and other products suited to the taste of the Chinese.”

China’s urbanization drive also means great opportunities for Latin America. China’s urbanization rate is just over 50%. The urbanization process is to be accelerated. Latin American corporations can not only provide urbanization expertise， but also provide green building materials， renewable energy， waste utilization， garbage disposal products and technology.

Besides， “trade in service between the two sides account for a low proportion， compared to that between developed nations. There is huge potential for corporations of the two countries to expand trade in such services as finance， tourism， culture， software development， to name a few，” said Abulaiti Abudurexiti， Vice Chairman of the National Committee of the China People’s Political Consultative Conference.

“Giving priority to Asian nations in developing strategic relations， has become the consensus of Latin American nations，” said Barcena. She believes that by 2017， the economy of Southern nations would outweigh that of the countries in the North. And Latin America and China will be the most dynamic places. That is why such organizations as the Latin America and Caribbean States Community， and Latin America Pacific Alliance， are increasingly drawn to China.

Stronger financial support

With trade and investment between the two sides going from strength to strength， China and Latin America has gone further in the financial cooperation.

During the summit， the People’s Bank of China， which is the central bank of the country， and the InterAmerican Development Bank signed a memorandum of understanding on establishing a China， Latin America and the Caribbean co-finance fund， aimed at furthering cooperation between China and the Inter-American Development Bank， and supporting the economic and social development in Latin America and the Caribbean. Besides， three fund management companies were set up for the China - Latin American Equity Investment Platform.

Since joining the Inter-American Development Bank in 2009， China and the bank cooperated in trade financing， energy infrastructure， investment fund， small loans， personnel exchange and other areas， according to Moreno. China’s capitals have provided lasting power for the Latin American economy to grow， and at the same time have made it convenient for Chinese enterprises to invest in infrastructure projects there.

As to the RMB internationalization in Latin America， Moreno said that China has already signed or implemented currency swap agreements with Argentina， Brazil and other nations. He believes， as China continues to be the world’s economic engine and Latin America better recognizes RMB， the yuan is expected to gradually participate in the bilateral trade settlement.

The Sixth China - Latin American Business Summit was held by China Council for the Promotion of International Trade， the People’s Bank of China， Hangzhou Municipal People’s Government and the InterAmerican Development Bank. Over 1，000 people from 260 enterprises of 30 Latin American countries and 500-plus Chinese enterprises， attended the meeting. About 1，500 separate meetings were held between the enterprises， resulting in a total contract value of $10 million， and hundreds of million dollars in intentional contract value. The past five summits were held in Santiago， China Harbin， Bogota， China Chengdu， and Lima.