The Impact of China's Global Economic Expansion on Latin America

The increased competitiveness of China and its expanded presence in world markets present both challenges and opportunities for other developing economies. For some of these economies China poses a threat to their exports to developed country markets and a competitor for foreign direct investment. For others, China's growth has created market opportunities because of its need for raw materials and energy, with positive effects on their terms of trade and export earnings.

One of the developing regions where China's expansion is having a significant impact is Latin America. A decade ago trade between China and the region was limited but this has changed dramatically. Between 1999 and 2004 China's imports from Latin America increased seven-fold while its exports to the region more than tripled. Chinese firms are also beginning to invest in the region, particularly in natural resource projects. These growing economic links have been reflected at the political level with the first visit by a Chinese President to the region last year while a number of Latin American leaders have been to Beijing.

The research will analyse the implications of the rise of China and the shift of global industrial activity to East Asia for economic development in Latin America. What will be the consequences of the increased economic significance of resource-scarce East Asia for Latin America? How will different Latin American countries be affected by the changing global distribution of economic activity?

In order to answer these questions the project will look first of all at the factors which have led to the growing impact of China on the economies of the region. Since the extent and nature of trade and investment links with China varies between different countries in Latin America, one objective of the research is to explain these variations. How significant is geography in determining trade flows with China? What role is played by political factors? Does the existence of a local Chinese community promote trade and investment?

A second set of questions relates to the importance of different types of economic linkages with China. Some countries, such as Argentina and Chile are now significant exporters to China. Others, most notably Mexico, are concerned about competition from China in their export markets. Most of the economies of the region face increased competition from Chinese goods in their domestic markets although again the extent of, and responses to, such competition differs between countries. Some Latin American countries are now beginning to attract Chinese investment, while others fear that they are losing out because foreign investment from the developed world is being diverted to China.

After an overall analysis of the impact of China on eighteen Latin American countries, the project will include more detailed studies of the impact of China on its four main trading partners in Latin America / Argentina, Brazil, Chile and Mexico. These case studies will trace through the impacts of changing economic relations with China on the exports, imports, terms of trade, structure of production and employment in each country. They will also include studies of particular sectors for which the growth of China has been particularly significant.

The research will have practical application in terms of identifying the challenges and opportunities facing the Latin American countries as a result of the growing economic presence of China and providing a basis for policies to meet them. Methodologically it will develop improved indicators for analysing the extent of competition from China which could prove useful in research on other countries. It will also be novel in applying value chain analysis to studying the impacts of China on other developing countries.