GBA LatAm Insights

China and Latin America post – COVID-19

Most analyst predict a spike of  Chinese economic influence in the Latin America region  during and after the pandemic. On one side, China has already committed to several infrastructure, energy and mining investment projects, but also, Latin America economies are really suffering the economic impact of COVID 19, with many companies struggling to get capital to restart operations and governments redirecting infrastructure budget to attend the health emergency.

We are also well aware that the US is really leaving the Latin America economies to deal on their own with the pandemic and its impact. And therefore, its easy to really understand why China is working hard in what analyst have called “mask diplomacy”,and why Latin American economies are opening their arms to these diplomatic efforts.

Just last month, Wang Yi, China’s chancellor offered a huge aid package to Latin America economies to help buy the Chinese vaccine. Additionally, in the past few months there have been many rounds of medical supplies donations and shipments from China. Jack Ma, Huawei, are among those offering support to Latin American countries combating the pandemic. 

For the last decade, trade and investment between China and Latin America has continuingly increased. In 2019, trade between regions reached almost $315 billion and almost $8.9 billions of investment transactions were recorded. Many countries in the region have joined the Belt and Road initiative, and continue to promote bilateral investment projects in infrastructure, energy and natural resources sectors.

However, the reality is that Belt and Road initiative is not a free trade agreement nor an investment agreement. And in that sense, in order to deepen the relations between China and LatAm countries, trade and investment agreements are the only available next step. So far, China has signed FTAs with Chile, Peru and Costa Rica, and its working towards a Panama FTA, with only Peru including investment provisions. Other countries like Mexico have signed IPPAs with China, but the provisions are outdated and do not reflect the investment potential between the two regions.

Another important consideration is that China is entering into a new economic era, with a significant shift in the country’s economic policy. Just a few weeks ago, President Xi and China’s top officers were introducing the Dual Cycle economy concept. The “Dual Circulation” model is based on the objective of improving the functioning of the both the domestic and global economic cycles, to achieve a healthy performance of the national economy. It comprises high-quality development and greater economic openness.

High quality development

  • Implementation of the social credit system
  • Increase in risk management
  • Higher standards of compliance
  • Digital transformation
  • Transparency and visibility.

Economic Openness

  • Market and FDI liberalization
  • Globalization of Chinese companies
  • Promotion of the Belt and Road initiative
  • Expansion of exports and global businesses
  • Strengthening supply chains

What can analyst expect from this new economic strategy?

At the economic policy level, it means that the focus will be on the domestic market. This means more policies to promote domestic consumption, increase domestic production, technology development and employment creation. It also means that the demand of certain products will increase: raw materials, food, inputs for high technology industries. In addition, there will be a push from the top of the country to advance in 5G, IoT, e-commerce, fintech, financial services, Artificial Intelligence, among others.

How does this new economic strategy fits with Latin America? And most important, what is the road to recovery?

First, according to the most recent forecast of the IMF, Latin America and the Caribbean can expect a GDP contraction of 9.3 percent this year, due to the lockdowns and spill overs from the rest of the world, including lower commodity prices, remittances, tourism and capital outflows. 

The IMF also projects a partial recovery in the region of 3.7 percent in 2021.

Second, on trade, the UN Economic Commission for Latin America and the Caribbean projects a steep 23% drop in trade in the region during 2020. During the first half of the year, exports to the US declined 22.2%, EU -14.3%, and within the region -23.9%. However, exports to Asia showed greater resilience, and in particular to China only fell -2%.  

Despite the pandemic, China continued purchasing products from Latin America, mainly food, raw materials, mining products, oil. Therefore, it is clear that the economic recovery for Latin American economies goes hand in hand with China and Asian economies.

However, we are witnessing a new trend in trade towards a more regional, more resilient, more stable supply chains. This trend will lead to what some experts call the Balcanization of the world economy, mainly into three productive hubs, North America, Europe and East-South East Asia. In this new scenario, regional free trade agreements will become more popular, more useful. Examples are USMCA, Pacific Alliance, CPTPP, and maybe RCEP at the end of this year.

How can we overcome the challenges posed by the regionalization of trade?

First, during theAPEC TRADE MINISTERS MEETING last meeting in May, the ministers pledged to  work towards the facilitation of the flow of essential goods and services to fight the pandemic including medicines, medical supplies and equipment, agriculture and food products, and minimise disruptions to the global supply chains. 

They also acknowledged the importance of strengthening regional connectivity by intensifying efforts to make global supply chains more resilient and less vulnerable to shocks.

But most importantly, and here is the key, the Ministers committed to harnessing the opportunities of the digital economy and technologies, enabling international business and cross border trade. 

In this sense, the way forward with China is definitively continue to deepen cooperation in infrastructure, energy and agriculture projects. But we should move forward to other new topics like digital economy and other new infrastructure, financial services, technology and research development. 

Unfortunately, most of the efforts are done by Chinese companies in Latin America: Alibaba, Tencent, and until very recently, Latin America companies and associations working on an ecommerce agenda with China. 

And here is where the GBA region is key. China is a huge and diverse country, but it is within  the GBA region were we can find a wide offer of business facilities for ecommerce: B2B platforms, B2C platforms, cross-border commerce, logistic hubs, data centres. And moreover, the ecosystem for the development and commercialization of IoT solutions, AI, robotics, Industry 4.0, fintech.  

GBA LatAm Mexico Outlook 2020

According to the most recent World Investment Report of the United Nations Conference on Trade and Development (UNCTAD), Mexico is one of the top developing nations in which to invest.  If your firm is currently analyzing new markets in which to commit production resources, GBA LatAm would like to share some information to help you consider why investing in Mexico is a good option.
If you would like to learn more about Mexico’s economy, trade and investment, please contact us 
contact@gbalatamtradeandinvestment.com

根据联合国贸易和发展会议(UNCTAD)最新的《世界投资报告》,墨西哥是最吸引投资的国家之一。 如果您的公司当前正在分析用于生产资源的新市场,GBA LatAm希望分享一些信息,以帮助您考虑为什么在墨西哥投资是一个不错的选择。
如果您想了解有关墨西哥经济,贸易和投资的更多信息,请联系我们 
contact@gbalatamtradeandinvestment.com

Acerca del Modelo Económico de “Circulación Dual” en la Economía China

El modelo económico de “circulación dual” prioritaria la “circulación interna” para promover la demanda domestica, que sera suplementada por la “circulación externa”.

La semana pasada en la reunión del Politburó, los principales líderes de China definieron la estrategia económica que el país seguirá durante el segundo semestre del año y en los años sucesivos. Durante esta cumbre, se hizo un llamado a implementar medidas para impulsar la demanda domestica y asegurar que el país alcance un desarrollo de alta calidad en medio del complicado ambiente a nivel global.

Por otra parte, se hizo énfasis en la propuesta del modelo económico llamado “circulación dual”. Este modelo de crecimiento priorizará la “circulación interna” para promover la demanda domestica, que será suplementada por la “circulación externa”. De acuerdo a las autoridades chinas, esto significa que el crecimiento del país dependerá del desarrollo económico tanto nacional como internacional, en donde el ciclo interno será el pilar principal.

En esta nueva visión, las autoridades chinas han dejado en claro que China dependerá más del consumo interno y de las tecnologías locales, con el objetivo de promover un crecimiento sostenible a mediano plazo, y diluir el impacto en la economía que han tenido el COVID-19 y conflicto comercial con los Estados Unidos.

Sin embargo, desde nuestra perspectiva China enfrenta varios obstáculos que le permitan alcanzar un mercado interno sostenible y reducir su dependencia de las exportaciones y la inversión gubernamental. 

En primer lugar, China es una economía emergente con una marcada desigualdad. Más de 1.1 mil millones de personas no son consideradas clase media, esto es, viven con menos de 2,000 yuanes al mes, lo que limita su consumo a productos esenciales. Además, el COVID-19 ha dejado a un gran número de desempleados y hogares endeudados, mismos que tomarán varios meses en recuperarse. En este sentido, la recuperación del ritmo de crecimiento del consumo será lenta, y es probable que empiece a notarse hasta el año 2021.

Por otra parte, en el caso de la industria exportadora, la mayoría de las fábricas chinas depende de la demanda extranjera para sobrevivir. Por lo que una transición hacia el mercado interno requiere de reducir las importaciones para poder impulsar el consumo de productos nacionales, o de lo contrario, se intensificaría la competencia, se reducirían los precios, y se empujaría a la quiebra a empresas con menor capacidad. 

Recientemente el país ha anunciado planes de inversión gubernamental en infraestructura tecnológica, como medida para incentivar el empleo y el desarrollo tecnológico del país. Sin embargo, este tipo de intervenciones desincentivan la participación de la iniciativa privada en los sectores tecnología e infraestructura, y mantienen el modelo de “inversión en infraestructura” muy empleado en la economía china para incentivar el consumo interno.

Analistas esperan que esta estrategia sea la prioridad del gobierno para el 14 Plan Quinquenal (2012-2021), documento que se discutirá durante el conclave del Partido Comunista en octubre de este año. Sin embargo, aun queda por conocer qué políticas económicas a nivel nacional se impulsarán en el Plan, y de qué forma China redefinirá la iniciativa Franja y Ruta (OBOR) y las negociaciones actuales con sus diversos socios comerciales para lograr el objetivo de impulsar el modelo de “circulación dual”.

Si desea conocer mas sobre la economía y el comercio en China, no dude en ponerse en contacto con nosotros contact@gbalatamtradeandinvestment.com

Mexico Investment Profile

  

Mexico is the fifteenth economy in the world and the second-largest in Latin America.

The country is a free market with a GDP of 1.2 trillion USD consisting of highly diversified and modern industries and significant amounts of private investment. 

Mexico has 12 free trade agreements (FTAs) with 46 countries, including the USA, EU, Japan, and the Pacific Alliance (Colombia, Peru and Chile); 32 Investment Protection Agreements, and 9 Economic Partnership Agreements within the framework of the Latin America Integration Association. 

Main exports include manufactures (81.2%), fuels and mining products (8.3%), agricultural products (8.1%) from a total of 450 billion USD. Main export destinations are the USA (76.5%), European Union (4.7%), Canada (3.1%) and China (1.6%).

Download our report here.