[A-List] China: growing influence in Lating America

["Michael Keaney" <michael.keaney@xxxxxx>]

Beijing's growing profile in Latin America
By Richard Lapper
Financial Times: March 9 2005

Chinese hunger for strategic raw materials, coupled with high-profile visits
by Chinese leaders, has sharply raised Beijing's profile in Latin American
capitals.

China has also promised, against a background of rapidly increasing trade,
up to $50bn (?37bn, £26bn) of investment in roads, ports and other
infrastructure, not least to facilitate exports of the commodities feeding
its rapid growth.

Unlike Japanese companies, which made small investments in the region
principally to establish "listening posts" to monitor producers and
competitors, China is intent on controlling assets and exerting political
influence.

"When the Chinese make a decision to start up a strategic relationship,
there are obviously going to be strategic implications," says Riordan Roett,
of John Hopkins University in Washington.

Sales by Brazil, Argentina, Peru and Chile of copper, iron ore and soya,
needed for China's food industry, helped boost Latin American sales to China
last year 45 per cent to $21.7bn. Overall, bilateral trade has more than
quadrupled in the past four years. So far, these inflows have been
relatively modest and progress has been slow.

Two of the biggest projects joint ventures in iron ore and aluminium with
CVRD, Brazil's giant iron ore miner have yet to get off the drawing board,
for example. But analysts say the top-down structure of decision-making in
China and the sheer scale of Chinese demand makes further expansion
inevitable.

"The Chinese decided all this seven or eight years ago," says Michelle
Billig, analyst with the PIRA energy group in New York. "This is a big
undertaking that has not happened overnight."

In addition, Beijing has shown it is keen to reinforce economic interest
with diplomatic and political pressure, in line with its concept of the
"peaceful rising", a Chinese version of "soft power".

China's relationship with Brazil is pivotal. The two countries have formed
an alliance in the World Trade Organisation.

Beijing is supporting Brazil's bid to become a permanent member of the
United Nations Security Council.

China, in turn, can expect Brazilian backing for its application to join the
Inter-American Development Bank. Membership, which could be announced after
an IADB conference next month in Okinawa, Japan, would give Chinese
companies privileged access to infrastructure and other projects financed by
the bank.

On a lesser scale, China is advancing its diplomatic influence in the north
of the region, one of the few areas of the world where Taiwan's nationalist
government is still recognised.

Two tiny island states, Grenada and Dominica, have both opted to recognise
China rather than Taiwan in exchange for sizeable aid packages.

China has signalled an interest in regional stability by sending a
contingent of policemen to Haiti, who will patrol the streets alongside
colleagues from Brazil, Argentina and Chile but not the US.

David Jessop, director of the Caribbean Council in London, says that many
Caribbean leaders have welcomed Chinese interest, partly because their
region has been afforded a low priority by traditional allies in Europe and
North America. "The region needs such a serious global player to understand
its concerns."

The inevitability and weight of Chinese involvement is giving rise to some
concerns. Mexico and countries such as the Dominican Republic and Honduras
have been hit by fierce competition from China in sectors such as textiles
and electronics.

Now industrialists in countries such as Brazil and Argentina that have
benefited most from Chinese demand for raw materials are beginning to worry
about the speed of Chinese penetration in their own domestic market in
sectors such as toys.

Brazilian business leaders have criticised President Luiz Inácio Lula da
Silva for agreeing to consider China a "market economy", a decision that
under the rules of the WTO greatly reduces the government's scope to protect
local industry against cheap imports.

Rubens Barbosa, a São Paulo consultant, says China's exports to Brazil are
growing at three times the rate of Brazilian exports to China. Brazil also
remains heavily dependent on sales in two products iron ore and soya.

If trade continues to develop at such a rate, Brazil's trade surplus with
China could vanish this year. "It is a dangerous and uncomfortable
concentration. Our exports are based much more on the expansion of Chinese
demand than on our competitiveness," says Mr Barbosa.

Evan Ellis, associate with Booz Allen Hamilton, in Washington, warns that
unless Latin American industry is able to respond to a competitive threat
from China, it will find itself focusing on extractive industries that
create fewer jobs and add less value.