Transcript The visible hand of China in Latin America Opportunities, Challenges and Risks Javier Santiso Chief Economist & Deputy Director OECD Development Centre Central Bank of.

The visible hand of China in Latin America
Opportunities, Challenges and Risks
Javier Santiso
Chief Economist & Deputy Director
OECD Development Centre
Central Bank of Chile
Santiago de Chile  April 27th 2007
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.
2
China: extraordinary or back to normal?
China GDP (% of world total)
GDP in U$ (% of World GDP,
2005)
35
USA
30
Japan
25
Germany
20
U. Kingdom
France
15
China
10
Italy
5
Spain
2045
2001
1950
1900
1870
30
1820
20
1700
10
1600
0
1500
0
Canada
According to IMF estimates Chinese gross domestic product based on purchasing-powerparity (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.
3
The cognitive impact: The emergence of new
capitalisms. Center and Periphery rebalanced…
GDP share of world output (WEO, 2005)
Emerging
China
Asia
5.0%
9.1%
Korea&Japan
12.0%
Asia represents more than one
fifth of world output.
US
28.0%
EU
30.3%
LatAm
4.7%
4
China has doubled its GDP in 8
years…without the help of Money Doctors!
GDP in constant prices
U$ Millions
12000
10000
Brazil
China
Japan
Mexico
Korea
China
8000
6000
4000
2000
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
0
Source: Datastream (Economist Intelligence Unit)
Chinese growth rates has been higher than those observed in Brazil and Mexico
during their glorious years.
5
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.
6
Are raw material prices facing a Chinese
shock?
Commodities Prices in real terms
140
120
China?
Is China to
blame for
commodities
prices?
100
80
60
40
1900
1915
1930
1945
1960
1975
1990
2005
Source: OECD Development Centre.
Based on Oxford Latin American Economic History Database and Thomson Datastream, 2007.
7
Latin America is endowed with natural resources
and dependent on the commodities’ cycle
LATIN AMERICA'S PERCENTAGE OF
COUNTRIES' EXPORTS
Commodities
% of country's exports
Oil
100
90
80
70
60
50
40
30
20
10
0
Agriculture & other
Venezuela
Chile
Peru
Argentina
Colombia
Brazil
Latin
America
Mexico
Source: OECD Development Centre, 2007.
Based on: National Balance of Payments, 2005.
8
The stars have been lined up for Latin America:
Asia is becoming a major growth pillar
Br
M azi
or l
oc
co
Pe
r
Cy u
Co p
st rus
a
D Ric
om a
Pa inic
ra a
In gua
do y
n
G
ua es
te ia
m
Li
a
t h la
ua
Se nia
n
H eg
on a l
d
Ar u r
ge as
nt
U ina
ru
g
Co ua
lo y
m
bi
U
ga a
n
N da
or
w
Pa ay
na
m
a
I
Ec ran
u
Ve ad
o
Sa n ez r
ud ue
i A la
ra
b
Y e ia
m
en
100
90
80
70
60
50
40
30
20
10
0
Share of Agricultural and Mineral (including fuel)
goods in Total Exports - 2005
Source: World Integrated Trade Statistics (Comtrade), 2007.
9
Whereas exports with the US are stable,
countries are increasingly sensitive to China
EXPORTS TO U.S. AS PERCENTAGE OF TOTAL EXPORTS
Exports to US as % of Total
.
1995-2005
90
80
70
60
50
40
30
20
10
0
1995
Argentina
Brazil
Chile
Mexico
China
India
2005
Indonesia
Korea
Philippines
Asia
Latin America
EXPORTS TO CHINA AS PERCENTAGE OF TOTAL EXPORTS
Exports to US as % of Total
.
1995-2005
1995
25
2005
20
15
10
5
0
Argentina
Brazil
Chile
Latin America
Mexico
India
Indonesia
Korea
Philippines
Asia
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
LATIN AMERICA: EXPORTS TO CHINA AS
PERCENTAGE OF TOTAL EXPORTS
1999
2005
Chile
Peru
Argentina
Brazil
Colombia
Venezuela
Ecuador
Mexico
0
2
4
6
8
Percentage
10
12
14
Source: OECD Development Centre and UNCTAD, 2007.
11
China’s global trade integration:
a bonanza or a threat?
EMERGING MARKETS SHARE IN WORLD
OUTWARD FDI STOCK
OUTWARD FOREIGN INVESTMENT
FROM EMERGING COUNTRIES
12
600000
US Billions
500000
U$ Millions
Latin America and Caribbean
10
400000
300000
200000
100000
Asia
8
6
4
2
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
0
1980
1990
2000
2003
2004
Note: Emerging countries refer to Latin American and Asian.
Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit).
12
China’s global trade integration:
a bonanza or a threat?
FDI FROM CHINA BY INDUSTRY 2005
3000
1400
2500
1200
1000
2000
US Millions
US Millions
FDI FROM CHINA BY REGION, 2005
1500
1000
800
600
400
500
200
0
Asia
Latin
America
Africa
North
America
Europe
Oceania
0
Manufacturing
Mining
Data
Transmission,
computer
Commercial
service
Wholesale and Transportation Agriculture,
retail
construction,
others
Source: Ministry of Commerce of the People’s Republic of China, 2006.
13
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.
14
A monetary wake up call: China’s rise has
had a significant impact on exchange rates…
Argentina
Brazil
REER
Inflation (right axis)
20
Chile
REER
Inflation (right axis)
2006
2005
2004
2006
2005
2004
0
2003
5
0
2002
20
2001
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
10
40
2000
20
15
60
1999
40
20
80
1998
60
25
100
1997
80
Inflation (right axis)
120
1996
9
8
7
6
5
4
3
2
1
0
100
1995
120
1996
2003
Colombia
REER
1995
2002
0
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
40
2001
20
60
2000
40
80
1999
60
70
60
50
40
30
20
10
0
100
1998
80
Inflation (right axis)
120
1997
30
25
20
15
10
5
0
-5
100
1995
120
1996
REER
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.
15
A monetary wake up call: China’s rise has
had a significant impact on exchange rates…
Mexico
Venezuela
REER
Inflation (right axis)
Inflation (right axis)
180
160
140
120
100
80
60
40
20
0
120
100
80
60
40
20
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.
16
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
40
35
30
25
20
15
10
5
0
1995
160
140
120
100
80
60
40
20
0
1995
REER
… with striking appreciation effects in some
African countries
Angola
Cameroon
REER
Inflation (right axis)
0
1995
Senegal
Inflation (right axis)
REER
90
2006
2005
2004
2003
2002
2001
85
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
95
2000
20
100
1999
40
105
1998
60
9
8
7
6
5
4
3
2
1
0
-1
1997
80
Inflation (right axis)
110
1996
70
60
50
40
30
20
10
0
100
1995
120
1995
2006
90
2005
2
2004
95
2003
4
2002
100
2001
6
2000
105
1999
8
1998
110
1997
10
Ghana
REER
Inflation (right axis)
115
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1995
160
140
120
100
80
60
40
20
0
1996
REER
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.
17
… with striking appreciation effects in some
African countries
South Africa
Inflation (right axis)
REER
10
2006
2005
2004
2003
0
2002
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
1997
0
1996
2
1995
20
20
2001
4
40
30
2000
6
60
40
1999
8
80
50
1998
100
Inflation (right axis)
180
160
140
120
100
80
60
40
20
0
1997
10
1996
120
1995
REER
Zambia
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.
18
A trade wake up call: Is China’s trade
integration: a bonanza or a threat?
*
Asian countries competition vs. Chinese exports to
US, %
70
60
50
40
30
20
10
0
60%
Latin American countries competition* vs. Chinese
main export products
50%
40%
30%
20%
10%
0%
a
*Value of exports to US from China in same product categories as
country´s exports, as % of country´s total exports to US
Source: C.HJ.Kwan, Nomura Institute of Capital Markets
Research
*Arithmetic average of the following indexes: CC=
n
 (a
n
n
it
)
2
n
it
n
a jt
 (a
n
jt
)
2
and CS= 1 -
1
2
a
n
it
- a njt
n
n
where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in
time t.
Source: Blázquez, Rodríguez and Santiso (2006)
19
Trade competition: Exploring export
structures
ait:
Indicators for Trade competition:
1
n
n
Coefficient of Specialisation = 1 -  ait - a jt
2 n
n n
a
 it a jt
Coefficient of Conformity =
represents the share of
total exports from country i in t.
CS and CC are dispersion
measures of export composition.
If closer to 1, potential trade
competition is high.
n
 (aitn )2  (a njt )2
n
n
Indicator for market concentration:
Herfindahl
Hirschmann
Index:
HH



= 
n

p
j =1
1 -
2
j
1
n
1
n




Where pij is the market share of country j on
exports of country i. Values closer to 1 indicate
a high degree of product (or destination) concentration.
20
A Trade wake up call: China competes
intensively with Latin America on a global level
CS and CC Latin America - China
0.8
0.8
0.7
0.7
0.6
0.6
MEX
0.4
0.3
0.2
PAN GTM
COL
VEN BOL HND
ARG
CHLPER
PRY
0.1
0
0
0.2
0.4
0.3
BRA
0.2
0.1
0.4
CS
0.6
0
0.8
CS and CC Latin America - India
RUS
0
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.3
0.2
0
PAN BRA
GTM
MEX ARG
PER COL
CHL
PRY
0
0.2
0.4
CS
0.8
ROM TUR
BGR
CHN
SVK
THA
HUN
ESP
JPN
CRI USA
RUS
MYS
0.1
0.8
0.6
SLV
0.2
0.6
0.4
CS
PAK
0.4
0.3
VEN HNDBOL
0.1
0.2
CS and CC Other Emerging - India
0.8
CC
CC
THA
HUN
MYS KOR
USA
SGPROM
CZE
TUR
PHL
IDN
JPN BGR
CRI SVKHRV
PAK
IND
ESP
SLV
0.5
CC
0.5
CC
CS and CC Other Emerging - China
0
0
0.2
0.4
CS
0.6
0.8
Note: CS and CC
coefficients indicate
export structure’s
similarity of two
partner countries.
Source: OECD Development Centre, based on WITS Database, 2007.
21
Trade structure overlapping is more marked
for African developing countries
CS and CC North and West
Africa -China
0.8
CS and CC East, Central and South
Africa - China
0.8
Morocco
0.7
0.6
0.3
CC
CC
Eritrea
Senegal
Ghana Tunisia
Niger
Algeria
Burkina Faso
0.2
0.1
0
Uganda Tanzania
0.1
0.4
CS
0.6
0
0.8
CS and CC North and West
Africa -India
0.2
0.8
Nigeria
0.2
Algeria
0.1
Gambia
CC
Niger
0.3
Ghana
Benin Uganda
Burundi
Tunisia
Madagascar
Tanzania
0.4
Ethiopia
Ghana
Gambia
0.3
Malawi
0.2
0.1
Mali
Sudan
Sudan
0
0
0
0.2
C.A.R
Zimbabwe
Kenya
Cape Verde
0.5
Cote d'Ivoire
0.4
0.8
Mozambique
Togo
Cameroon
0.6
Egypt
Senegal
0.5
0.6
0.7
Morocco
Mauritius
0.6
0.4
CS
CS and CC East, Central and South
Africa - India
0.8
0.7
Zimbabwe
C.A.R.
Benin
Sudan
0
0.2
Togo
Kenya
Cameroon
0.2
Sudan
0
Gabon
Gambia
0.4
0.3
Cote d'Ivoire
Nigeria
Madagascar
0.5
Mali
0.4
Mauritius
0.6
Egypt
0.5
CC
South Africa
0.7
0.4
CS
0.6
0.8
0
0.2
0.4
CS
0.6
0.8
Source: OECD Development Centre, 2007.
22
Specialisation patterns have unevenly
evolved in recent years
Evolution Coefficient of Specialisation
Latin America- China
0.90
0.80
0.70
2000
CS .
0.60
2005
0.50
0.40
0.30
0.20
0.10
Venezuela
Panama
Bolivia
Chile
Uruguay
Argentina
Honduras
Colombia
Brazil
Costa Rica
Mexico
0.00
Evolution Coefficient of Specialisation
Latin America- India
0.90
0.80
0.70
2000
CS .
0.60
2005
0.50
0.40
0.30
0.20
0.10
Venezuela
Panama
Bolivia
Chile
Uruguay
Argentina
Honduras
Colombia
Brazil
Costa Rica
Mexico
0.00
Source: OECD Development Centre, 2007.
23
Diversification is a concern for Latin
America’s competitiveness…
Latin America
Herfindahl-Hirschmann Index by Destination
2005
Brazil
Argentina
Chile
Uruguay
Dominica
Guyana
Peru
Paraguay
Nicaragua
Bolivia
Colombia
Costa Rica
Panama
Ecuador
Guatemala
Honduras
Venezuela
Belize
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Mexico
HH Index
2000
Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.
24
Product specialisation has increased recently
in the region…
Latin America
Herfindahl-Hirschmann Index by Product
2005
Brazil
Costa Rica
Latin
America
Argentina
Honduras
Mexico
Nicaragua
Uruguay
Colombia
Guatemala
Peru
Guyana
Bolivia
Chile
Paraguay
Panama
Belize
T. and
Tobago
Dominica
Ecuador
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Venezuela
HH Index
2001
Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.
25
…whereas in Africa there is a larger pool of
destinations
Africa
Herfindahl-Hirschmann Index by Destination
2005
South Africa
Tanzania
Cote
d'Ivoire
Senegal
Morocco
Mauritius
Tunisia
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Mozambique
HH Index
2000
Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.
26
…also accompanied by a higher concentration
on specific goods
Africa
Herfindahl-Hirschmann Index by Product
2005
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Angola
Chad
Nigeria
Congo
Mali
Niger
Mozambique
Algeria
Comoros
Zambia
Cen. Af.
Cameroon
Congo,
Ghana
Gambia
Namibia
Côte
Senegal
Zimbabwe
Kenya
Tanzania
Egypt
South Africa
Tunisia
Morocco
HH Index
2001
Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.
27
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.
28
A wake up for reforms: Infrastructure
Competitiveness and Infrastructure Rankings
in Latin America
90
80
70
Competitiveness
Transport
Electricity
Water
60
50
40
30
20
10
0
Chile
Colombia
Mexico
Brazil
Argentina Venezuela
Peru
Ecuador
Source: OECD Development Centre, based on CG/LA database. 2007.
29
Pending reforms : the upgrade of port
facilities
Container Handling Charges
Cargo
Mandatory
Handing
Price
Fixed
Cooperative
Median
Port
Country
World
CMPCH
LSU
Services
Restriction
Agreements Agreements
Clearance Efficiency Crime Index
Bank
Index
Index
Index
Index
Index
Index
time (Days) Index (1-7)
(1-7)
Singapore
1
0.38
0
0.33
2
6.76
6.72
US$/TEU
117
NA
NA
Hong Kong
0
0.25
0
0
NA
6.38
5.46
NA
NA
NA
Taiwan
0.5
0
0
0
NA
5.18
4.49
140
163
NA
Japan
0.75
0.13
0.89
1
NA
5.16
5.16
250
202
NA
Malaysia
0
0.25
0
0.38
7
4.95
5.76
75
NA
NA
Spain
0
0.06
1
0
4
4.88
6.08
200
105
NA
0
0
0
NA
4.12
5.22
NA
NA
Korea
0.38
NA
0.5
0
0.38
4
3.98
5.12
93
NA
Thailand
0.63
NA
Argentina
0
0
1
7
3.81
4.52
NA
139
NA
0.13
0
0
0
NA
3.81
5.02
NA
NA
Vietnam
0.5
NA
Chile
0
0.43
1
3
3.76
6.05
100
NA
0.25
202
China
0.5
0
0
0
7
3.49
4.44
NA
110
NA
Indonesia
1
0
0.38
5
3.41
4.06
NA
NA
0.06
NA
Mexico
0.5
0
1
4
3.34
2.61
NA
NA
0.38
NA
Venezuela
0
0
1
1
11
3.28
3.63
NA
NA
NA
El Salvador
0
0
0
1
4
2.95
2.3
NA
NA
61
Brazil
0.5
0.75
0
1
10
2.92
4.45
328
292
NA
0
0.5
1
7
2.88
3.32
NA
142
NA
Peru
0.5
0
0
0
1
NA
2.79
4.28
NA
NA
NA
India
0.5
0
0
0.38
7
2.79
3.51
118
NA
NA
Philippines
Ecuador
0
0
0.43
1
15
2.63
3.65
NA
139
NA
Costa Rica
0
0
0
1
4
2.46
3.28
NA
NA
68
Colombia
0.5
0.13
0.5
1
7
2.26
1.88
NA
NA
NA
Bolivia
NA
NA
NA
NA
9.5
1.61
4.38
NA
NA
NA
0
0
0
1
5
NA
NA
NA
NA
NA
Uruguay
NA: Not Available
Source: Data for the first 4 columns was kindly provided by Carsten Fink, Aaditya Mattoo, and Ileana Cristina Neagu* (2002).
30
Conclusions: A Watch List

Africa and Latin America: Out of the Value-Chain Game?

The share of China’s total exports produced by foreigners has risen sharply,
from 32% to 60% between 2000 and 2005.

Foreign outsourcing is becoming a major driver of India’s and China’s high
tech exports, both countries moving up quickly in the value added ladder.

In 2005 for example, of China’s top 100 exporters, 53 were foreign
companies and all were electronics/information technology companies.

After China: India?
31
Another Emerging Player from Asia:
India’s M&A in 2006
Target
Nationality
Corus
Oil & Gas Assets (Campos Basin)
Omnimex de Colombia
Oil & Gas Assets (Brazil)
Greater Nile Petroleum (25%)
Glaceau (30%)
Shell Development Angola
Oil & Gas Assets (Syria)
Betapharm Arzneimittel
Hansen Transmissions
Eve Holding
Terapia
Total
UK/NL
Brazil
Colombia
Brazil
Sudan
US
Angola
Syria
Germany
Belgium
Belgium
Rumania
Acquirer
Tata Group
Oil & Natural Gas
Oil & Natural Gas
ONGC Videsh
Oil & Natural Gas
Tata tea
Oil & Natural Gas
Oil & Natural Gas
Dr Reddy's Lab
Suzlon Energy
Suzlon Energy
Ranbaxy
RECENT INDIAN INVESTMENTS 2006
Deal Value ($m)
Corp
Corp: China Group
Corp
Corp
Corp: China Group
7700
1670
850
820
783
677
600
581
572
562
548
324
15687
RECENT INDIAN INVESTMENTS
(EXCLUDING CORUS-TATA DEAL)
9%
26%
22%
US
Europe
Latin America
Africa
13%
US
Europe
Latin America
Africa
4%
22%
61%
43%
Source: OECD Development Centre. Based on Dealogic and local press.
32
The rise on outward direct investment
among emerging economies is remarkable
Outward Foreign Investment by country
1999-2007
U$ Millions
30000
25000
Brazil
China
20000
India
Russia
15000
10000
5000
2007
2007
2006
2005
2004
2003
2002
2001
2000
-5000
1999
0
Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.
33
…helping to the fall of cost of capital
Total LatAm outward FDI vs LatAm spreads
US$ millions
Outward FDI
Spreads
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
500
450
400
350
300
250
200
150
100
50
0
2003
2004
2005
2006
2007
* Data for 2007 is
estimated and
includes recent deals
Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit).
34
Thank you
Based on:
Javier Santiso (ed.). “The
Visible Hand of China in Latin
America”. OECD Development
Centre Studies, 2007.
[email protected]