China slowdown not a threat to LatAm, experts say

China slowdown not a threat to LatAm, experts say

Asia China Economy & Policy Corporate & Sovereign Strategy

  Lima's Port of Callao
Source: Daniel Angello
Leading Chinese officials have dismissed dire predictions of the impact on Latin exports and economies of China’s slowing growth and an end to the commodities super-cycle, arguing instead that a “rebalancing” will lead to fresh trade an investment opportunities.

Addressing a LatinFinance forum in Beijing Tuesday, experts insisted that a drop in China’s growth rate from 10% to 7% of GDP – a development that has alarmed many Latin commodity exporters – will not undermine the trade dynamic between the two regions, fuelled over the past decade by China’s rapid expansion.

Zhu Hongjie, vice president of the Export-Import Bank of China, said: “Both [China and Latin America] face the pressure of slowing growth in the world, and both need to transform their economies and explore new opportunities.”

As China rebalances its growth model to favor domestic consumption-led growth, new opportunities will arise for Latin America to provide products and services to the country, leading to trade that is “more balanced and stable,” Zhu told the LatinFinance Latin America China Investors Forum.

The two regions must “standardize” their relationship, Zhu said, with more Chinese investment in equities and debt investment that go beyond the buyer and seller credits and export facilities that have so far characterized the relationship.

Trade volume between LatAm and China stood at $261 billion last year, Zhu said. Though slowing, the Chinese economy is still growing at a healthy rate and state-led companies will invest $500 billion globally over the next five years, he added. Chinese FDI in Latin America reached $15 billion in 2012.

The comments came as new data showed a weakening in global trade was already taking a toll on Latin America. The Economic Commission for Latin America and the Caribbean (ECLAC) said in a report Tuesday that regional export values were expected to grow by just 1.5% in 2013, roughly on par with the 1.4% growth the year before. At 2.5% in 2013, the report noted that world trade volumes would expand more slowly than global GDP for a second year running – a development not seen since the 1980s.

Investors nevertheless sounded an upbeat note in Beijing on continued Chinese demand for natural resources. Liu Juming, deputy head of overseas investment for Citic-Prudential Fund Management said: “Economic growth is not as fast as before, but it remains above a certain standard. It is still at a very high level. I am very confident in the demand for raw materials.”

Cheng Zeyu, deputy general manager for risk management at the Export-Import Bank of China, said that although the commodities super-cylce had turned, China’s baseline economic expansion was still provided formidable support for natural resources.

“There is not a commodity super-cycle anymore, but if we take a look at China's economic volume – even though growth is decreasing from 10% to 7% – there is a huge basis,” Cheng said. “The demand from commodities from Latin America is still very prosperous.”

Bernardo Guillamon, manager of the office of outreach and partnerships at the IDB, said trade would become increasingly diversified, with more opportunities for value-added exports beyond raw materials. This would brighten prospects for mid-sized companies, he added.

The Mexican growth story and potential reform leaves room for more trade between China and Mexico, Guillamon said. Central America should expand, too, following the lead of Costa Rica.

“In the last 10 years China has been a buyer of commodities, but now because of the change in China's industries, we will need other products” Cheng said.

A consensus emerged among experts that the relationship between China and Latin America had matured in recent years, with far deeper understanding of cultural aspects of trade and investment. But they acknowledged that a lack of trust had been a challenge, given concerns in Latin America over China’s role as a raw materials extractor rather than a true business partner.

Zhu said however that rather than posing a threat to the region, China had been important for Latin American growth. With complimentary economies, a deepening of trade ties will bring benefits for both regions, he said.

“There is no fundamental conflict of interest between China and Latin America,” Zhu said. LF