1. China: Angel or Devil for Latin America? Opportunities, Challenges and Risks Javier Santiso Chief Economist & Deputy Director OECD Development Centre Conference of Business Economists Washington February 8th and 9th 2007

2. 2 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

3. 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).

4. 4 Emerging Asia 8.0% GDP share of world output (WEO, 2004) EU 30.7% US 29.6% Korea&Japan 12.7% China 4.2% The cognitive impact: The emergence of new capitalisms. Center and Periphery rebalanced… LatAm 4.8% Asia represents more than one fifth of world output.

5. 5 China has doubled its GDP in 8 years…without the help of Money Doctors! Chinese growth rates has been higher than those observed in Brazil and Mexico during their glorious years. Source: based on WEO and PWT PPP per capita GDP in constant prices (thousand of US$, 2004-5 estimate)

6. 6 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

7. 7 Are raw material prices facing a Chinese shock? Source: University of Oxford Many economist are putting the blame on China and -to a lesser extent- on other emerging economies (India) of the current increase in raw material (70% in real terms).

8. 8 Latin America is endowed with natural resources and dependent on commodity markets Source: World Development indicators, 2006. Net Commodity Exports, 2004 (% GDP)

9. 9 Latin America continues to be highly dependent on the commodities’ cycle Source: OECD Development Centre Based on: National Balance of Payments, 2005.

10. 10 Venezuela 83.1% Peru 70.7% Chile 59.1% Colombia 46.3% Argentina 38.0% Brazil 29.6% Mexico 14.6% Latam31.2% Source: BBVA over total exports (2004) Exports of commodities 60 70 80 90 100 110 120 130 140 150 160 170 1996199719981999200020012002200320042005 Source: BBVA BBVA-MAP Index of Latin America commodity prices (100 =jan03) TOTAL Without oil The stars have been lined up for Latin America: Commodity boom has been a bonanza

11. 11 Latin America 0 10 20 30 40 50 60 70 80 90 100 Ecuador Paraguay Bolivia Venezuela Chile Argentina Uruguay Colombia Peru Indonesia Brazil Canada Netherlands India Thailand Spain Malaysia Mexico Belgium UK France US Singapore Italy China Germany South Korea Taiwan Hong Kong Japan Source: WTO Exports of agricultural, energy and minery products (in % over the total) (2003) The stars have been lined up for Latin America: Asia is becoming a major growth pillar

12. 12 Whereas exports with the US are stable, countries are increasingly sensitive to China Source: IMF Trade Statistics, and OECD Trade Directorate, 2005.

13. 13 Latin America is tackling its vulnerability to US slowdown by diversifying exports Source: OECD Development Centre and UNCTAD, 2005

14. 14 Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso (2006) China’s global trade integration: a bonanza or a threat?

15. 15 China’s global trade integration: a bonanza or a threat? Source: UNCTAD, OECD Trade Statistics, 2005.

16. 16 China’s global trade integration: a bonanza or a threat? Source: Ministry of Commerce of the People ’ s Republic of China, 2006.

17. 17 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

18. 18 China competes intensively with Mexico on a global level Source: Blázquez, Rodríguez and Santiso (2006)

19. 19 11,700 Km Lower transport and communication costs Access to FTA Just-in-time delivery Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or supplier and short reaction times. Shipping time 24 Days 160 Km 4 Days Mexico benefits from its geographic proximity to its major export markets: Mexico’s competitive advantage: proximity to export markets

20. 20 Pending reforms : the upgrade of port facilities

21. 21 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?

22. 22 Another Emerging Player from Asia: India’s M&A in 2006 Source: OECD Development Centre. Based on Dealogic and local press.

23. Thank you Based on Jorge Blázquez, Javier Rodríguez and Javier Santiso, “Angel or Devil? Chinese Trade Impact on Latin American Emerging Markets”, OECD Development Centre, Working Paper, June 2006. Javier Santiso: 33 1 45 24 82 90 Javier.santiso@oecd.org