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China deepens Latin America ties

By James Painter
BBC Latin America analyst

Hu Jintao shakes hands with Costa Rican Foreign Affairs Minister Bruno Stagno
China has increased diplomacy and investment in Costa Rica in recent years

China's President Hu Jintao has not been to Latin America since 2005.

But his presence at the Apec summit taking place in Lima this weekend, and his visits to Costa Rica and Cuba, have highlighted China's deepening engagement with the region.

But what exactly is China's interest in Latin America?

President Hu's last visit to an Apec summit in Latin America in November 2004 prompted a flurry of excitement about China's booming economic involvement in the region.

Mr Hu was famously quoted as saying he expected $100bn (66bn) of Chinese investment in Latin America in the following 10 years.

The Chinese government later corrected this to $100bn in bilateral trade, not investment. That figure was reached sooner than expected last year, and represents a remarkable jump from $13bn (8.6bn) in 2000.

It still amounts to much less than trade with the US ($560bn) or the EU ($250bn), but the trend is significant. China is buying more and more Latin American commodities like oil, minerals and soya.

Brazilian soy bean farm
China is purchasing more Latin American commodities like soya

"China now wants to show it is a responsible stakeholder in the region," says Dan Erikson, a specialist in China-Latin American relations from the Inter-American Dialogue.

"It has the image in Latin America of being 'mercantilist', or only interested in taking out commodities. Now it wants to show it is interested in Latin America's longer-term development."

Crucial partner

China launched its first ever policy paper on Latin America earlier this month. While the document was short on specifics, it aimed to show the world it was serious about the region. It had previously released similar policy papers on the EU in 2003 and Africa in 2006.

As a sign of its long-term intent, analysts point to new free trade agreements (FTAs) between China and individual Latin American countries:

  • Chile was the first non-Asian country to sign an FTA with China in 2005
  • Peru and China this week successfully concluded talks on a free trade deal
  • And a third bilateral deal between Costa Rica and China is under negotiation.

Trade relations have certainly boomed for some Latin American countries since the last Hu Jintao visit. For two of the three Latin American members of Apec, Peru and Chile, China has become a crucial trading partner.

China and Cuba signed agreements in Cuba
China and Cuba signed agreements on economical and technical cooperation

According to UN figures, in 2007 nearly 40% of Chile's exports went to the Asia-Pacific region, mostly China. For Peru, the figure was 19%.

The Peruvian government is keen to deepen trading relations, partly in the hope that China's continued economic growth can help it survive the global recession.

Deputy Foreign Minister Gonzalo Gutierrez described President Hu's visit to Peru - the first ever by a Chinese president - as "of the utmost importance".

However, for Mexico, Latin America's third Apec member, the relative importance of Asia-Pacific remains low (about 3% of its exports) because of Mexico's close ties with the US economy. And the trade that does exist is very much in China's favour.

In 2007 Mexico ran a $28bn trade deficit with China.

"For every $30 of Chinese goods that Mexico imports, Mexico only exports $1 of Mexican goods to China," says Mr Erikson.

Infrastructure

Some Latin American governments complain privately about the low level of Chinese direct foreign investment in the region, which is far less than that of the US or the EU. The official figure is more than $20bn, but critics say much of this goes into offshore tax havens.

According to figures from the Chinese embassy in Washington in early 2008 only about $2bn is direct investment in extractive industries like oil and minerals.

"Investment in infrastructure for example," says Mr Erikson, "has been very disappointing."

Osvaldo Rosales, from the UN's Economic Commission for Latin America and the Caribbean (ECLAC) , told the BBC there was a "huge asymmetry between the increasing level of trade between China and Latin America and the low level of Chinese investment".

But he blames Latin American governments for the lack of properly evaluated investment projects for China to invest in.

Football reward

Analysts say that despite some unease about China's close relations with Cuba and Venezuela, Washington is not unduly concerned about China's growing influence and presence in Latin America.

President Hu Jintao (left) and Preident Alan Garcia (right) travel through Lima on 19 November
President Hu was given a warm welcome by his Peruvian host

President Hu's visit to Cuba was more about trade and meeting Raul Castro than cocking a snook at the US.

Cuba is also a major ally in a region that usually has diplomatic relations with Taiwan. Eleven of the remaining 23 countries that still recognise Taiwan are found in Central America and the Caribbean.

Eyebrows were raised when Hu Jintao chose to go to Costa Rica rather than say, Brazil, China's largest trading partner in Latin America. But Costa Rica was being rewarded with a presidential visit (and a new football stadium) for its decision last year to recognise China. It is the only Central American country to do so.

Even though China is obviously keen to enter into oil agreements with Venezuela, it has shown it does not want to be drawn into any tension between President Hugo Chavez and the US government.

Washington apparently did not object to China becoming a board member of the Inter-American Development Bank and having observer status at the Organisation of American States (OAS).

"So far, it is widely accepted that China trying to act in the region with self-restraint and prudence," Gonzalo Paz, a lecturer at George Washington University, wrote recently.

"The deepening economic crisis will undoubtedly have an important influence on how the next stage develops."



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