1. 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

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). Source: OECD Development Centre Based on: International Financial Statistics and Angus Maddison, 2006.

4. 4 Emerging Asia 9.1% GDP share of world output (WEO, 2005) EU 30.3% US 28.0% Korea&Japan 12.0% China 5.0% The cognitive impact: The emergence of new capitalisms. Center and Periphery rebalanced… LatAm 4.7% 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: Datastream (Economist Intelligence Unit) China

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: OECD Development Centre. Based on Oxford Latin American Economic History Database and Thomson Datastream, 2007. Is China to blame for commodities prices?

8. 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. 9 Source: World Integrated Trade Statistics (Comtrade), 2007. The stars have been lined up for Latin America: Asia is becoming a major growth pillar

10. 10 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.

11. 11 Latin America is tackling its vulnerability to US slowdown by diversifying exports Source: OECD Development Centre and UNCTAD, 2007.

12. 12 China’s global trade integration: a bonanza or a threat? EMERGING MARKETS SHARE IN WORLD OUTWARD FDI STOCK 0 2 4 6 8 10 12 19801990200020032004 US Billions Latin America and CaribbeanAsia Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit). Note: Emerging countries refer to Latin American and Asian.

13. 13 China’s global trade integration: a bonanza or a threat? Source: Ministry of Commerce of the People ’ s Republic of China, 2006.

14. 14 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

15. 15 A monetary wake up call: China’s rise has had a significant impact on exchange rates… Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

16. 16 A monetary wake up call: China’s rise has had a significant impact on exchange rates… Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

17. 17 … with striking appreciation effects in some African countries Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

18. 18 … with striking appreciation effects in some African countries Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

19. 19 Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Bl á zquez, Rodr í guez and Santiso (2006) A trade wake up call: Is China’s trade integration: a bonanza or a threat? *Arithmetic average of the following indexes: CC= and CS= where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.   n n jt n it aa 2 1 1   n n jt n n it n n jt n it aa aa 22 )()( *Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US

20. 20 Trade competition: Exploring export structures      nn n jt n it n n jt n it n n jt n it aa aa aa 22 )()( 2 1 1 Conformity oftCoefficien tionSpecialisa oftCoefficien Indicators for Trade competition: Indicator for market concentration: 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. it: a n n p HH n j j 1 1 1 1 2              Where p ij is the market share of country j on exports of country i. Values closer to 1 indicate a high degree of product (or destination) concen- tration. Herfindahl Hirschmann Index:

21. 21 A Trade wake up call: China competes intensively with Latin America on a global level CS and CC Other Emerging - China CRI CZE ESP HUN IDN KOR PAK PHL SLV THA BGR HRV IND JPN MYS ROM RUS SGP SVK TUR USA 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC CS and CC Latin America - China ARG BRA COL MEX BOL CHL GTM HND PAN PER PRY VEN 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC CS and CC Other Emerging - India BGR CHN CRI ESP HUN JPN MYS PAK ROM RUS SLV SVK THA TUR USA 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC CS and CC Latin America - India ARG BOL BRA CHL COL GTM HND MEX PAN PER PRY VEN 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC Source: OECD Development Centre, based on WITS Database, 2007. Note: CS and CC coefficients indicate export structure’s similarity of two partner countries.

22. 22 Trade structure overlapping is more marked for African developing countries CS and CC East, Central and South Africa - India Ghana Madagascar Ethiopia Kenya Togo Malawi Sudan Cape Verde Mozambique Zimbabwe Cameroon Tanzania C.A.R Gambia 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC CS and CC North and West Africa -India Egypt Morocco Cote d'Ivoire Burundi Sudan Benin Algeria Gambia Mali Mauritius Niger Nigeria Uganda Tunisia Ghana Senegal 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC CS and CC East, Central and South Africa - China Benin Cameroon C.A.R. Gabon Gambia Kenya Madagascar Mauritius South Africa Sudan Tanzania Togo Uganda Zimbabwe 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC CS and CC North and West Africa -China Algeria Sudan Cote d'Ivoire Egypt Mali Morocco Tunisia Burkina Faso Eritrea Senegal Ghana Niger Nigeria 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00.20.40.60.8 CS CC Source: OECD Development Centre, 2007.

23. 23 Specialisation patterns have unevenly evolved in recent years Source: OECD Development Centre, 2007.

24. 24 Diversification is a concern for Latin America’s competitiveness… Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

25. 25 Productspecialisation has increased recently in the region… Product specialisation has increased recently in the region… Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

26. 26 …whereas in Africa there is a larger pool of destinations Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics.

27. 27 Source: OECD Development Centre. Based on CEPAL (2006) and World Trade Integrated Statistics. …also accompanied by a higher concentration on specific goods

28. 28 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: A wake up for reforms: The proximity to export markets

29. 29 A wake up for reforms: Infrastructure Source: OECD Development Centre, based on CG/LA database. 2007.

30. 30 Pending reforms : the upgrade of port facilities

31. 31 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?

32. 32 Another Emerging Player from Asia: India’s M&A in 2006 Source: OECD Development Centre. Based on Dealogic and local press.

33. 33 The rise on outward direct investment among emerging economies is remarkable Source: OECD Development Centre. Based on Economist Intelligence Unit, 2007.

34. 34 …helping to the fall of cost of capital Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit). * Data for 2007 is estimated and includes recent deals

35. Thank you Based on: Javier Santiso (ed.). “The Visible Hand of China in Latin America”. OECD Development Centre Studies, 2007. Javier.santiso@oecd.org