China: Opportunities and challenges for Latin America Luis Miguel Castilla Chief Economist Corporación Andina de Fomento Punta del Este, March

China: key player in global markets Export growth 1980=100 Share in World FDI, net inflows (2003) Tariff levels and Chinese exports Share in World Exports Source: CAF, Direction of Trade Database, IMF, Global Development Indicators, Yang (2003) 0% 2% 4% 6% 8% 1980's1990's2000's China Latin America & Caribbean East Asia & Pacific

Growing trade and FDI links between China and Latin America Chinese FDI in Latin AmericaLatin American Exports to China, sectors (2003) Source: Commtrade, UN, CAF, Direction of Trade Database, IMF, World Investment Report, UNDP Fuente: Latin America´s share in Chinese total tradeChina’s share in Latin American total trade

Specialisation Index- China (2004) Specialisation Index- Latin America (2004) Complementary comparative advantages Comparative advantages China vs. Latin America Source: Commtrade, UN, CAF

1.China as a competitor 2.China as an opportunity 3.Major obstacles limiting Latin American trade with China

China as a competitor

Competition in domestic markets Latin American Imports from China, by item (2003) Labor Costs (average , total industry) Anti-dumping measures imposed by Latin America to China Latin American Trade Balance with China Source: CAF, Direction of Trade Database, IMF, WTO, UN

China as an opportunity

Higher primary good prices and export volumes Source: CAF, Commtrade, UN Average annual growth of imports by region Latin American Exports to China by price and volume

Greatest opportunity for Latin America: Natural resource exports Source: CAF, Commtrade, UN Principal Chinese Imports and their suppliers

Future scenarios: winners and losers Source: CAF, EIU

Major obstacles faced by Latin American winning sectors : Infrastructure and logistics Competitiveness Business environment Trade barriers

Infrastructure and logistics Port infrastructure quality (2005) (1 = underdeveloped, 7 = as developed as the world’s best) Custom clearance (2005) Irregular payments in exports and imports (2005) (1 = common, 7 = never occurs) Source: WEF , Enterprise Surveys World Bank

Competitiveness Source: WEF Growth Competitiveness Index (rank in a total of 117 countries)

Bureaucracy and Corruption (2005) Business climate Starting a business – Duration (2005) Investor Protection Index (2005) higher values = better investor protection Source: Doing Busines and Enterprise Surveys World Bank

Trade Barriers Chinese sanitary and fitosanitary measures notified to the WTO Average tariff and tariff peaks Source: CAF, WTO and OECD (2003)

Latin American strategy towards China: For sensitive sectors, generating greater value added and product differentiation Overcoming barriers: - Investment in infrastructure - Trade facilitation (customs) - Business climate Eliminating trading barriers that limit bilateral trade FDI attraction and technological upgrade In summary...