The visible hand of China in Latin America Opportunities, Challenges and Risks

1
The visible hand of China in Latin
AmericaOpportunities, Challenges and Risks

• Javier Santiso
• Chief Economist Deputy Director
• OECD Development Centre

London Business School London ? June 2007
2
1
The cognitive effect new emerging capitalisms.
2
The trade effect the dark side of the boom.
3
China and India as a wake up call.
3
China extraordinary or back to normal?
According to IMF estimates Chinese gross domestic
product based on purchasing-power-parity (PPP)
amounts to 13.6 of 2005 world GDP (20.7 in the
case of USA).
Source OECD Development Centre Based on
International Financial Statistics and Angus
Maddison, 2006.
4
The cognitive impact The emergence of new
capitalisms. Center and Periphery rebalanced
GDP share of world output (WEO, 2005)
Emerging Asia 9.1
China 5.0
Asia represents more than one fifth of world
output.
5
China has doubled its GDP in 8 yearswithout the
help of Money Doctors!
China
Source Datastream (Economist Intelligence Unit)
Chinese growth rates has been higher than those
observed in Brazil and Mexico during their
glorious years.
6
1
The cognitive effect new emerging capitalisms.
2
The trade effect the dark side of the boom.
3
China and India as a wake up call.
7
Are raw material prices facing a Chinese shock?
Is China to blame for commodities prices?
Source OECD Development Centre. Based on Oxford
Latin American Economic History Database and
Thomson Datastream, 2007.
8
Latin America is endowed with natural resources
and dependent on the commodities cycle
Source OECD Development Centre, 2007. Based on
National Balance of Payments, 2005.
9
Whereas exports with the US are stable, countries
are increasingly sensitive to China
Source OECD Development Centre, based on IMF
Trade Statistics, and OECD Trade Directorate,
2007.
10
Latin America is tackling its vulnerability to US
slowdown by diversifying exports
Source OECD Development Centre and UNCTAD, 2007.
11
1
The cognitive effect new emerging capitalisms.
2
The trade effect the dark side of the boom.
3
China and India as a wake up call.
12
A trade wake up call Is Chinas trade
integration a bonanza or a threat?
Source C.HJ.Kwan, Nomura Institute of Capital
Markets Research
Source Blázquez, Rodríguez and Santiso (2006)
13
Diversification is a concern for Latin Americas
competitiveness
Source OECD Development Centre. Based on CEPAL
(2006) and World Trade Integrated Statistics.
14
Product specialisation has increased recently in
the region
Source OECD Development Centre. Based on CEPAL
(2006) and World Trade Integrated Statistics.
15
A wake up for reforms The proximity to export
markets
Mexico benefits from its geographic proximity to
its major export markets

• Lower transport and communication costs
• Access to FTA
• Just-in-time delivery

24 Days
4 Days
160 Km
11,700 Km
Shipping time
Mexico is more competitive in manufacturing more
sophisticated products which require frequent
communication with the client or supplier and
short reaction times.
16
Pending reforms the upgrade of port facilities
17
Conclusions A Watch List

• Africa and Latin America Out of the Value-Chain
  Game?
• The share of Chinas total exports produced by
  foreigners has risen sharply, from 32 to 60
  between 2000 and 2005.
• Foreign outsourcing is becoming a major driver of
  Indias and Chinas high tech exports, both
  countries moving up quickly in the value added
  ladder.
• In 2005 for example, of Chinas top 100
  exporters, 53 were foreign companies and all were
  electronics/information technology companies.
• After China India?

18
Another Emerging Player from Asia Indias MA
in 2006
Source OECD Development Centre. Based on
Dealogic and local press.
19
The rise on outward direct investment among
emerging economies is remarkable
Source OECD Development Centre. Based on
Economist Intelligence Unit, 2007.
20
helping to the fall of cost of capital
Data for 2007 is estimated and includes recent
deals
Source OECD Development Centre 2007, based on
Thomson Datastream (Economist Intelligence Unit).
21
Thank you

• Based on
• Javier Santiso (ed.). The Visible Hand of China
  in Latin America. OECD Development Centre
  Studies, 2007.
• Javier.santiso_at_oecd.org