Latin America and China’s ‘Community of Shared Destiny’

Xi Jinping and Dilma Rousseff (Source: Reuters)

Xi Jinping and Dilma Rousseff

The Chinese president’s recent tour of Latin America highlights how this is now one of the most important relations in global politics.

Chinese President Xi Jinping’s recent visit to Brazil, Argentina, Venezuela, and Cuba, illustrates that from both economic and political viewpoints the relation of Latin America and China has become one of the most important in the world.

Although Xi Jinping specifically used the words “community of shared destiny” to describe China’s relations with Brazil, in reality the term applies to the relation between China and the entire Latin American continent.

At an economic level one of the key bases for the importance of their relationship is that Latin America and China are now regions of the developing world with similar development levels. Adjusting for different price levels – technically calculating using World Bank parity purchasing powers (PPPs) – Latin America’s per capita GDP in 2013 was slightly under $15,000 and China’s was $12,000. Both were much higher than South Asia’s $5,000 or sub-Saharan Africa’s $3,400.

Latin America and China are at significantly higher levels of economic development than other major regions of the developing world meaning they have more sectors for cooperation.

That Latin America and China are both at significantly higher levels of economic development than other major regions of the developing world means they have more sectors for trade and cooperation. This helps keep trade between Latin America as a whole and China almost exactly in balance – a situation which continued into 2013.

This overall trade balance, however, does not mean that key issues in the trade relation of Latin America and China do not have to be addressed. Manufacturing exports from China to Latin America remain much more developed than those in the opposite direction. China’s rapid growth in the last decade played a major role in helping most Latin American countries develop, by creating high demand and high prices for their energy and other commodity exports, but over the longer run it is vital for Latin America to develop its manufacturing exports to China. China’s recent purchase of $3.2bn of aircraft from Brazil’s Embraer is an example of the development required. This issue, however, links to key strategic questions of Latin America’s own development in which relations with China can be beneficial.

A key advantage of China compared to any individual Latin American economy is the much greater size of its market, and therefore its potential to create huge advantages for economies of scale and geographical specialization in different economic sectors. China’s GDP in 2013 was $9.2 trillion compared to Brazil’s $2.2 trillion, at current exchange rates. China’s economy is sufficiently large that it can compete, in terms of potential efficiency, with the economies of the EU and U.S. China’s $16.4 trillion economy is already almost the same size as the $16.8 trillion economy of the US or $17.4 trillion of the EU, measured in PPPs. No individual Latin American economy can match that scale and therefore efficiency. Only Latin America’s economy as a whole can begin to achieve that.

This means that the strategic question of Latin American integration is linked with its relation to China. For Latin America to develop relations firmly based on equality with China, the continent as a whole has to relate to China. Simple numbers dictate this. China has approximately twice Latin America’s population, and its economy is approximately twice as large as Latin America’s, no matter how it is measured – in current exchange rates Latin America’s GDP is $5.6 trillion and China’s $9.2 trillion, and in PPPs China’s GDP is $16.2 trillion and Latin America’s $8.5 trillion.

China’s rapid growth played a major role in helping most Latin American countries develop, by creating high demand for their commodities but over the longer run it is vital Latin America develops its manufacturing exports to China.

If relations are only between one Latin American country and China, it is objectively difficult to keep them balanced. Closer Latin American integration clearly fits with the continent’s own internal needs, but it also creates a basis in which equality of relations with China will be more easily maintained.

Latin American integration can fit in with China’s own strengths. A large part of China’s extraordinary economic development, more than 9% a year economic growth for over 35 years, is due to huge infrastructure investments. From 1992-2011 China spent an average 8.5% of GDP a year on infrastructure. The reason for the high efficiency of China’s industries is not only investment in individual factories but in highly efficient transport, power supply, information technology systems etc. Therefore, as China’s wages rapidly grow its industries are still able to maintain a substantial competitive edge due to far superior infrastructure support.

China has already developed infrastructure projects as a key way of ensuring Asia’s economic integration. Latin America’s economic integration, similarly, cannot be achieved without large scale integrated infrastructure links. China’s huge financial resources – the world’s largest foreign exchange reserves and an economy generating over $4 trillion a year for capital investment compared to only $2 trillion in the US – makes it the world’s strongest economy to aid and participate in such development.

Furthermore, in infrastructure China’s capabilities reach beyond finance – its sale of ultra high voltage transmission lines to Brazil, for example, is important in aiding developing the hydro-electric power potential of the Amazon. Discussions between Brazil, Peru, and China on the development of a transcontinental railway indicate the scope of what is possible. On a smaller scale China is lending $2.1bn to Argentina for railway development, and $4.7bn for dam and power construction.

This interlinks with the importance for Latin America of the establishment of the $50bn BRICS development bank and the $100bn BRICS contingency fund. U.S. dominance of the IMF resulted in its being bypassed for the financing of the expansion of developing economies, and for overcoming short term economic problems. Instead, the IMF was used to impose policies that served U.S. interests and blocked economic the growth of countries receiving loans. Latin American countries, as well as those in Asia, experienced this.

China’s loan and aid policy has been radically different from that of the IMF. China has not imposed economic policy conditions on countries receiving its loans. China merely requires that its loans be repaid. But the policies to be pursued to ensure loan repayment was not specified but left to the country concerned – an entirely different approach from that of the IMF. The BRICS development bank and contingency fund is therefore potentially extremely important not only for long term growth but for allowing Latin America to avoid experiences as seen in the lost decade of the 1980s.

The BRICS development bank is extremely important not only for long term growth but for allowing Latin America to avoid such experiences as seen in the lost decade of the 1980s.

Finally, if the advantages for Latin America are evident, what are the advantages for China? After all, for any relation to be stable it has to be, in Chinese terminology, “win-win.” The answer is not only reciprocal trade and investment but the security Latin America can help bring to China’s economy.

China is sufficiently strong militarily that not even U.S. neo-con circles advocate a war with it. But China is dependent on extremely internationalized sources of supply and markets – China has already overtaken the U.S. as the world’s largest goods trading nation. Therefore, if the US wishes to weaken China, it can attempt this by cutting off sources of supply or access to markets. The sanctions implemented by the U.S. against countries such as Iran can directly put pressure on China’s economy.

Working at a Chinese think tank, and having had the privilege of participating in several economic discussions with Venezuela’s former President Chavez, and current President Maduro, I therefore know first-hand the significance that progressive Latin American governments place on their relations with China and vice-versa.

China, as a major state, has to maintain stable economic relations with all Latin America countries regardless of their political orientation. China was able to develop some relations with Latin American countries even during previous periods of right-wing dominance in the continent’s politics. But such right-wing regimes were closely linked to the U.S. and therefore cannot be relied upon to resist U.S. pressure for economic actions that harm China. The present governments of Latin America, with friendly relations with China, therefore provide a far more stable basis for ensuring the security of China’s trade relations. In turn, strong economic relations with China aid the policies of Latin America’s progressive governments.

It is for this reason that the political and economic aspects of Latin America-China interactions are interconnected. It also explains why they have developed into one of the world’s most important relations.

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