GENERAL REMARKS ON ASIAN INVESTMENT IN LATIN AMERICA

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2013)
CHAPTER 9A
GENERAL REMARKS ON ASIAN INVESTMENT IN LATIN AMERICA
Oscar Benavides
Partner, Rodrigo, Elias & Medrano Abogados
Lima

OSCAR BENAVIDES, Partner, Rodrigo, Elias & Medrano, Lima

Faced with growing demand for primary products and energy consumption, in recent years Asian countries have been increasingly directing their capitals to Latin America. This tendency is reflected, for example, in the fact that Latin America has become for China the second region of destination of its investments, second only to Asia.¹

Despite the (usually enormous) cultural differences that exist between both regions and the distance that separates them, Asian investment in Latin America is growing. Between 2001 and 2011, commerce between the two regions expanded approximately 30 % every year.² Commerce multiplied by 10 between 2002 and 2012, half of it being attributable to commerce with China, which has become the most important commercial partner of Brazil, Chile, Peru and Argentina, and the second one for Costa Rica, Uruguay and Mexico.^{3 4}

By the end of 2011, Asia was Latin America's & the Caribbean's second largest trading partner after the United States, with China, Japan, the Republic of Korea and India accounting for nearly 90 % of Asia's total trade with Latin America & the Caribbean.⁵ Asia's trade with Latin America is rapidly narrowing the gap with the United States, which continues being the most relevant commercial partner for Latin American countries.⁶ Commercial ties between Latin America and Asia involved approximately US$ 442,000 million in 2011.⁷

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Despite the remarkable volume of direct Asian investments in Latin America and the Caribbean and the fact that China became in 2010 the third largest investor in Latin America (only behind the United States and the Netherlands),⁸ at the end of 2011 Asian direct investment ranked second in the region (behind European direct investment).⁹ However, the Economic Commission for Latin American and the Caribbean (CEPAL, for its acronym in Spanish) estimates that by 2015, China will become the second investor in Latin America, only behind the United States.¹⁰

Nonetheless, Latin American countries would not be making a smart move if their policies for attracting foreign investment or securing foreign markets for their exports, do not give Europe and the United States the (significant) relevance that they have in the world (Europe, the United States and Japan sum up two thirds of the world's consumption).¹¹ However, those policies might want to take into consideration that Asian and, more precisely, Chinese influence in the Latin American region, has significantly spread throughout the region in the past few years. Otherwise, why would one out of five citizens of Latin America and the Caribbean believe that China is the more influential country in the region, even more influential than Japan, India and the United States.¹²

This generalized perception may be explained by the fact that in 2000 Beijing's investment in Latin America accounted to US$ 10,000 million, in 2009 it increased to US$ 100,000 million, and by 2011 it exceeded US$ 245,000.¹³ Interestingly enough, this expansion of Chinese investment came along with the also extraordinary increase of the loans provided by China to Latin American countries.¹⁴ It is clear, in the author's view, that China has made a decision to diversify its presence in Latin America, and not only by encouraging its companies to invest in the Region. An example of the latter can be found in the offer made in 2012 by Prime Minister Wen Jiabao during a visit to the region, to make available a US$ 10,000 line of credit for supporting the construction of infrastructure projects in Latin America.¹⁵

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Nevertheless, the noticeable increase of Asian investments in Latin America (commercial exchange between India and Peru increased in 35% during 2012, when compared to 2011, reaching US$ 1,129 million)¹⁶ is not absent of controversy or concern. Even though it might be said that the involvement of China in the region has contributed to guarantee its economic stability (during the 2009 recession, while Latin American exports to the United States and Europe diminished in 26 % and 28 %, respectively, exports to China increased in 5 %), it may also be claimed that there is now an increasing economic dependency of Latin America on China (for every 1 % of increase of the Chinese gross domestic product (GDP), Latin America's GDP expands in 0.4 %; for every 10 % growth of China, Latin American exports to the Asian giant increase by 25 %).

It is also claimed that China will become (if not already) a very strong competitor for the development of Brazilian or Mexican local industries, two of the most important economic and political players in the region.¹⁷ Frictions have also been known to exist between some Chinese companies and Latin American governments, because of the former's labor and environmental policies implemented in the region.¹⁸

Is China (and other Asian economies) becoming a "threat" for the industrial expansion of Latin American economies? Only time will tell, though it is clear that in a globalized world, factors such as education, productiveness, innovation and the existence of adequate and sufficient public infrastructure, will play a very important role in each country's chances of becoming a relevant (or at least successful) economic player. Asian countries seem to be doing a fairly good job on these matters. Regretfully, the same cannot be said about Latin American countries.

While between 1980 and 2000 the productivity of Asian countries tripled, Latin American countries' productivity practically remained static.¹⁹ A similar trend is shown in terms of infrastructure:

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"In 1980, Latin American displayed a more extended road, electricity and telecommunications infrastructure than the East Asian Tigers; in 2004, however, the latter had overcome the former by a factor of three to two. (...) It has been estimated that an upgrade of Latin America's infrastructure to the level of South Korea would general annual GDP per capita increases on the order of 1.1-4-8 % and could reduce inequality by 10-20 %".²⁰

In the 1950's, Asia had a per capita income that was barely higher than Africa's, but far below Latin American countries.²¹ Today reality shows something different.

A few more examples: In 1980, Brazilian manufacturing production was larger than that of Thailand, Malaysia, South Korea, India and China, all combined. However, in 2010 Brazilian manufacturing just represented 10% of what those Asian countries produced.²² India produces more engineers and scientists that all of Latin America as a whole (according to the CEPAL, the weight of science and technology in the manufacturing production of Latin American countries is a fourth of what happens in Asian countries).²³

Nonetheless and in terms of labor productivity, Asian economies still have much do improve, if they seek to successfully compete with other major global industrial players. This is the case of labor productivity, where Asia has a third of that of the United States (however, Latin America has only an eighth).²⁴ This of course, should eclipse the fact that the transformation that Asian countries have undergone in the 20th century, from economies that were desolated after World War II, into competitive and productive economies, is nothing but stunning.

But, what are the reasons behind the (still)...