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Journal of Developing Societies

http://jds.sagepub.com Latin America and China Under Global Neoliberalism


Alex E. Fernndez Jilberto and Barbara Hogenboom Journal of Developing Societies 2007; 23; 467 DOI: 10.1177/0169796X0702300404 The online version of this article can be found at: http://jds.sagepub.com/cgi/content/abstract/23/4/467

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Latin America and China Under Global Neoliberalism


Alex E. Fernndez Jilberto
University of Amsterdam, The Netherlands

Barbara Hogenboom
Centre for Latin American Research and Documentation, The Netherlands

ABSTRACT
While China and Latin America simultaneously implemented neoliberal policies as part of a profound economic restructuring process, there are important differences in the results of their policies and economic performance. This article discusses the different development paths of Latin America and China, including their starting points, economic policies and political processes. Chinas expansion and Latin Americas liberalization have brought the two in much closer contact. Several Latin American countries are now important providers of commodities (for example, minerals, energy and soy) that China needs to keep up with the rising levels of production and consumption. As a result China is also starting to invest in these products. Some other Latin American countries have lost rather than gained from the rise of China, especially the countries that sought economic integration in the world market through the growth of maquiladoras (assembly factories for export to the United States). However, their attempts to slow down Chinas entry into the World Trade Organization (WTO) did not succeed. The article discusses the causes, effects and prospects of these different experiences with Chinas global expansion. Keywords: Latin America, China, trade, foreign direct investment, South-South relations

The rapid globalization of neoliberalism in the 1980s and 1990s has not only had a major impact on the economies, societies and politics of developing countries, but has also profoundly changed South-South relations. The relations between China and the region of Latin America and the Caribbean serve as an interesting case of the complex shifts within the global South due to global neoliberalism. Politically, the end of the global Cold War and Chinas Maoism has eased the relations between Latin America and the Peoples Republic of China as well as the latters relations with other developing countries. Especially the joint efforts of
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Brazil, China, India, South Africa and the other members of the G20 on the 2003 Cancun summit of the World Trade Organization (WTO) were remarkable. For the rst time since the start of the debt crisis in the 1980s there was a genuine South-South cooperation changing global politics and policies. Economically, Latin America and China overall gain substantially from one another in the form of South-South trade and investment. However, depending on the type of insertion in the global economy, to some Latin American countries the losses from Chinese competition are bigger than the gains from this new export destiny and source of foreign investment. In Latin America a broad debate on the effects of China on the economy and the form of insertion of Latin America in the global economy has started. The main incentives for this debate are Chinas successes in the global competition among developing countries for foreign direct investment (FDI); its transformation into a decisive (f)actor in xing international prices for commodities; its role as global point of reference in the productive strategies of large multinational companies (MNCs); and its rise as an essential component of the macroeconomic equilibrium in global markets. Various studies consider China a threat to Latin American strategies of transforming into an exporter of products of higher technological sophistication and added value. The growing sophistication of Chinese export products, together with exports from the rest of Southeast Asia, have been crowding-out Latin American and Caribbean exports in the market global (CEPAL, 2004a; Gitli and Arce, 2001; Mesquita Moreira, 2004; Oliva, 2003). According to other Latin American contributions, the competition for FDI may be tempered by deepening the deregulation of Latin Americas economies as to improve the hospitality for transnational capital, and by further stimulating an active role of the state in facilitating linkages between this foreign capital and local companies (cf. Lora, 2005). Finally, in this debate there are also more moderate and pragmatic inputs that stress the inevitability of Chinas position in the global economy and that therefore Latin America has to establish a strategy to improve the competitiveness of its regional economy in the global markets (CEPAL, 2004b, 2003; Gonzlez Garca, 2003). Using Chinas experience as an example, this last approach emphasizes the crucial role of the state in Latin American countries to maintain or broaden their economies position in global markets, and to compete successfully with Asia in general and China in particular.

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Evidently, the China Effect on Latin America and the Caribbean does not exist. Instead, this article deals with a range of effects, differing from country to country, from one economic sector to another, and with numerous (sometimes swift) changes over time. The rst part compares the process of neoliberalization of Latin America with that of China, followed by an assessment of the main economic relations between China and several Latin American countries and an analysis of the main elds of competition. The second part assesses Latin Americas involvement with Chinas entry into the WTO, including the bilateral negotiations and Chinas recognition as market economy. The nal part discusses the prospects for the relations between Latin America and China under global neoliberalism, and implications for South-South relations. China effects on Latin America At rst glance, Chinas expansion is a very positive development for Latin America and the Caribbean as trade gures show steep rise and resource-rich Latin American countries greatly benet from Chinas enormous demand for energy, minerals and other primary commodities. Yet, to several countries, the China effects also include trade competition in local and global markets, depending on their economic specialization and development strategies. With respect to FDI the effects of Chinas expansion are diverse too, involving competition for MNC investment, but also new Chinese (joint) investments, especially in the exploitation of Latin Americas natural resources. In trade relations with Latin America and the Caribbean, in the 1990s China superseded Japan, Taiwan and Hong Kong. Chinas type of export industrialization based on its traditional comparative advantages (natural resources and cheap labour) has created problems as well as opportunities for the region. While Latin America attempted to raise the added value by extending the manufacturing of its exported natural resources, the motor of Chinas growth has been in assembling intermediate products or parts imported from Asia, which are then exported to US and EU markets and also to Latin America. This regional division of productive processes (and thus labour) with other Asian economies has permitted China to rapidly diversify its manufacturing exports. China also transfers part of production to other Asian countries, thereby contributing to the regionalization of the Chinese economy and the restructuring of Asias industrial production. For MNCs, Chinas rapidly growing regional and international trade
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plays a crucial role in their global investment strategies. As part of their activities within regional industrial production in Asia, MNCs have made important technology transfers as part of their operations in China. This neutralizes much of the Latin American efforts to increase the added value of its exports, especially in the manufacturing sectors segments in which they compete with China. Moreover the practice of MNCs moving production facilities to China is harmful to other (newly) industrializing economies, such as Mexico in the case of Latin America (Gaulier et al., 2005; Lemoine and nal-Kesenci, 2002). The expanding economic relations and production networks between Latin America, China and the rest of East Asia have stimulated crossPacic cooperation and exchange. In 1989 the Asia-Pacic Economic Cooperation (APEC) was created that integrates 21 countries with a joint population of 2.5 billion inhabitants, representing almost 60 per cent of the worlds GDP and 50 per cent of international trade. Among APECs members are several Asian countries including China, Hong Kong, Japan, Singapore, South Korea and Taiwan; from Latin America (only) Chile, Mexico and Peru; and the United States and Russia. In 1994, APEC announced that it aimed to achieve free trade between its developed economies by 2010, and between all its economies by 2020. Because most Latin American and a number of Asian countries are not in the APEC, in 1998 Singapore initiated the Forum for East Asia-Latin America Cooperation (FEALAC), involving 17 Latin American and 15 East Asian countries. FEALAC holds regular meetings of government ofcials, politicians, business leaders and academics, and various economic, cultural, educational, political and scientic projects have been undertaken. With respect to bilateral relations between East Asia and Latin America, apart from China it is primarily Japan that is actively relating to Latin America. Japan and Latin America hold a long history of trade relations, investment and migration, although the Latin American crisis of the 1980s and Japans crisis in the 1990s harmed these trade and investment relations (Yeo, 2005). As a result of these trends and Chinas expansion, in the 1990s China replaced Japan as the leading Asian trade partner of Latin America and the Caribbean. Recent initiatives show that Latin America is becoming more of a priority to Japan, maybe to keep up with Chinas closer ties to the region. In September 2004, for instance, Japans Prime Minister Koizumi visited Brazil and Mexico and signed the Japan-Mexico free trade agreement.

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Styles of Neoliberalization The regionalization of Chinas economy shows from the ASEAN (Association of South-East Asian Nations) countries and Japan being its principal trade partners. In 2003, 54 per cent of Chinas imports and 44 per cent of its exports were from and to these countries, and 95 per cent of these consisted of manufactured products. With Latin America and rest of the global South, China maintains complementary trade relations. As shown in Figure 1, Latin American economies represent only some 3 per cent of Chinas total exports and 4 per cent of its imports, resulting in a Chinese trade decit of $11 billion in 2004 (CEPAL, 2005b). These trade patterns have given way to a debate in Latin America and the Caribbean about the possibilities to compensate for the negative effects. How can this region prot from structural (economic or policy) weaknesses of China as well as from its own comparative advantages? A critical comparative analysis of the neoliberal restructuring that started in China as well as Latin America in the late 1970s and early 1980s may help to start answering this question. Like in China, in the more orthodox Latin American cases as Chile, Argentina and Mexico, policies of economic opening were implemented by an authoritarian state that excluded any form of participation of civil society, or of an independently operating political society. In Latin America, neoliberal restructuring was either implemented by the state bureaucracy under a model of state-party authoritarianism as in Mexico by the PRI (Institutional Revolutionary Party), or under military dictatorships as in Chile (197389) and Argentina (197683). Through these bureaucracies the authoritarian state started a passive revolution in order to achieve the substitution of Keynesianism by neoliberalism, while in China Maoist economic socialism was substituted by market socialism and later on neoliberalism. The violence and thoroughness with which these economic reforms were pushed through stemmed from the idea of the necessity of refounding capitalism in an era that was polarized by social inequality and by the political and ideological dimensions of the Cold War. In Latin America, the economic liberalization reforms were largely of exogenous origin: US government pressures related to the struggle against international communism, followed by IMF and World Bank conditionalities during the debt crisis, and eventually the so-called Washington Consensus involving joint post-Cold War efforts of all three institutions. Since the late 1980s, processes of democratization allowed
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Figure 1. Composition of Chinas exports and imports, 2004 (percentages)

Source: CEPAL (2005b).

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for the compatibility of neoliberalism with democratic political regimes. For this shift it was necessary to neoliberalize the ideologies of the old populist parties that from the 1940s to the 1970s had applied Keynesian principles for economic development (Demmers, Fernndez Jilberto and Hogenboom, 2001). In the case of China, on the contrary, the implementation of neoliberal reforms was of an endogenous nature. The aim was to gradually (in time and space) restructure the economy under the control of the state party. The partial and regulated introduction of market mechanisms was to energize the planned economy and end the economic stagnation. In the rst phase (197885) this involved the association of Chinese companies with multinational conglomerates (joint ventures). In the second phase (198691) this also included an end to many restrictions to foreign capital, which from then on were authorized to participate for more than 50 per cent in associations with local companies. Starting in 1992, the centrally planned economy became subordinated to market mechanisms as instrument for assigning productive resources in the economic process. With these last reforms the political class of the Chinese state has hoped to maintain its position, thus using the economic successes of Chinas capitalism to legitimize its monopolized control over the state and political processes (see the introductory article in this issue). These different trajectories of neoliberalization show that while the Chinese state still maintains the capacity to regulate and control the process of globalization of Chinas economy, Latin Americas exogenous model of refoundation of capitalism has basically left the state as subsidiary to economic globalization. Several Latin American analysts claim that the larger intervention capacity of the Chinese state in its economys globalization is a weakness. According to this view it expresses a lack of separation between the state and the market, of which the latter is the principal agent in economic decisions and the main source of employment. Compared to countries like Chile, Mexico and Argentina, current policies in China hinder corporate governance and market discipline while its limited deregulation of the nancial sector is negative for its access to credit. Indeed, the banking system of China is dominated by only four large banks (the Bank of China, the Bank of Construction of China, the Bank of Industry and Commerce of China and the Agricultural Bank of China) since there are major restrictions on the operations of foreign banks. China has tried to deal with some of the problems with its large banks, such as in 1998 when Chinese banks were given a capital injection of $33 billion,
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in 2003 with the creation of the Banking Regulation Commission and in 2004 with a new injection of $45 billion dollars for the Bank of China and the Bank of Construction of China. Nevertheless, this situation contrasts with the extensive nancial liberalization in Latin American countries that (only) after several nancial crises have developed supervision systems by Central Banks and regulations, which are superior to those in China (Cornejo, 2005b; Lora, 2005). The consequences of Chinas rise on Latin American and the Caribbean, however, tell also another story. Mexico, Central America and the Caribbean have been negatively affected by the Chinese competition in the US market, forcing them to reformulate their still rather new insertion in global production chains. With its integration in the North American Free Trade Area (NAFTA) in 1994 Mexico had obtained important advantages in the US market for manufactured goods produced in its socalled maquiladoras. The free trade agreement between the United Stated, Central America and the Dominican Republic (CAFTA-RD) signed in 2005 is meant to provide similar advantages to these countries, especially in the US textiles market. However, it remains to be seen whether these advantages are sufcient to bring the Chinese penetration of the US markets to a halt (Dussel Peters, 2003, 2004; CEPAL, 2005b). This erce export and investment competition explains the defensive strategy of these countries in the negotiations on Chinas WTO membership, which will be discussed further on. Chile and Brazil have been more successful than Mexico and Central America in their strategies of insertion in global markets and they greatly benet from economic relations with China. Chile is one of the most neoliberalized economies of Latin America and the model with which Chile has inserted itself in the global economy consists of an extreme form of open regionalism. A free trade agreement with the United States, trade accords with the European Union and numerous trade agreements with countries in Latin America and Asia have strengthened Chiles position as exporter of goods and services as well as natural resources. Although not without difculties, Chiles relative globalization success stems from its capacity to integrate and t its production according to the exigencies of dynamic transnational production and trade networks. Together with the efciency of its services and professional capacities of its managers, Chile has turned into the commercial platform of South America (Castells, 2005; Fazio, 1999; Ffrench-Davis, 2000; Ffrench-Davis and Stallings, 2001). Brazil has followed another rather successful strategy

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of global economic reinsertion. It uses MERCOSUR as regional platform to globally launch its economy, which may be seen as an alternative to the Free Trade Agreement of the Americas that the United States had hoped to realize by 2005 (but failed due to clashing economic interests and views, in particular between Brazil and the United States). Simultaneously, Brazil furthers its economic relations with other large upcoming markets, such as China and India. For Brazil, China and India are not only counterparts in bilateral economic negotiations but also supporters in international economic negotiations such as in the WTO (Sader, 2004, 2005). Economic Relations Although to China the trade relations with Latin America and the Caribbean are relatively modest compared to those with Asia or the United States (see Figure 1), Chinas imports from Latin America have grown substantially, as shown in Figure 2. The increase of these imports from $5.4 billion in 2000 to $21.7 billion in 2004 implies an average annual growth of 42 per cent. Most of the imports come from Brazil, which with
Figure 2. Chinas import from Latin America and the Caribbean, 19902004 (in millions of US$)

Source: CEPAL (2005b).

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$8.7 billion represented 40 per cent of the regions total in 2004. Other important countries are Chile (17 per cent), Argentina (15 per cent), Mexico (10 per cent) and Peru (7 per cent) (CEPAL, 2005b). The most direct competitors of Latin America and the Caribbean on the Chinese market are ASEAN countries, although the Asian exports to China differ substantially. Of the ASEAN countries exports to China, only about one-third of the products compete with Latin American exports, while another half involves high technology products. Latin America exports consist mainly of primary products and manufactures based on natural resources, which represent respectively 46 and 30 per cent of the exports in 2004. China depends on Latin America for products like sugar and fruits, soya oil (for example, from Argentina), minerals (Brazil) and copper (Chile). In fact, Brazil, Mexico, Argentina and Chile concentrate more than 70 per cent of the regions commerce with China (see Table 1). While Latin America is providing mostly raw materials, Chinas exports to Latin America are strong in low technology products (for example, clothing and footwear). These Chinese imports threaten local production, especially in Mexico, Central America and the Caribbean. Moreover, low Chinese production costs in these sectors are harming Latin Americas chances for export production for the US and European markets, as will be discussed further along (Carrillo and Gomis, 2003; CEPAL, 2005b; Cornejo, 2005a, 2005b; Cruz Zamorano, 2005; Dussel Peters, 2003, 2004). Mexico is the country with the largest trade decit with China. The negative China effect on Mexico one of the most open economies in
Table 1. Total trade (imports plus exports) of Mexico, Brazil, Chile and Argentina with China, 19952004 (in millions of US$)
Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Mexico 542 798 1,293 1,722 2,047 3,083 4,309 6,730 9,864 15,446 Brazil 1,621 2,369 2,380 2,052 1,619 2,436 3,370 4,218 6,863 9,491 Chile 678 888 1,094 1,229 1,016 1,815 2,040 2,326 3,105 5,057 Argentina 894 1,305 1,877 1,849 1,500 1,954 2,191 1,424 3,199 4,031

Source: Cornejo (2005a).

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the region has been particularly clear in Mexicos production of manufactured (assembly) goods for the local market and for export to the United States. Whereas China became Mexicos second largest trade partner in 2003 (due to massive Mexican imports of Chinese goods), in 2002 it replaced Mexico as the second largest exporter to the US market. In both cases Mexico has to compete with cheap Chinese imports. Intimately linked to this is Mexicos competition with China for foreign investment in export production (Cornejo, 2005a). In addition, Mexicos manufacturing industry has to deal with problems of illegal Chinese trade and dumping. Its economic position vis--vis China has shown Mexicos lack of an effective competitiveness strategy in a globalizing world. While in 2000 Brazil had a trade decit with China of $266 million, in the following years Brazilian exports to China increased with 60 per cent or more, resulting in a high trade surplus. Although considerably less than its exports to the United States (over 20 per cent), in 2004 Brazils exports to China valued $5.4 billion (6 per cent). Already in 2002 Brazil exported more soy (31 per cent) and iron (22 per cent) to China than to any other country. Chinese imports in Brazil are mainly electronic (media and high technology) and chemical products. The dominance of electronic and communication technologies in these imports has to do with the global production strategies of vertical specialization that are used by MNCs in this sector. Companies like Philips have some of their production processes in China, then send parts for assembly to their Brazilian factories, and either sell the end products in Brazil, or re-export them to other markets in the region. Generally, the rising trend of Brazils exports since 2000 has coincided with the devaluation of its currency, the real (Des, 2002; Lemoine and nal-Kesenci, 2002; Len, 2005; Mesquita Machado and Tinoco Ferraz, 2005; Pimentel Puga et al., 2004). Chile has basically a complementary economy to China and it is the rst Latin American country that has a free trade agreement with China. While importing Chinese manufactures like textiles, cloths, footwear, toys and electronic products, Chile exports primary commodities like agro products, cellulose, marine products, chemicals and most of all copper to China. Due to this complementarity, the Chile-China economic and political relations are friendly and the two countries have cooperated in international institutions such as the UN, the APEC and the FEALAC. Since the 1990s, trade between Chile and China increased at an enormous speed, from $91 million in 1990 to $5.1 billion in 2004. After the United States, China has become Chiles second trade associate, above traditionally important
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trade partners like Argentina, Japan and Brazil. With Chiles exports to China of $3.3 billion and Chinas exports to Chile of $1.9 billion, in 2004 Chiles trade surplus with China equalled $1.4 billion, which is rather substantial relative to the size of Chiles economy (DIRECON, 2005). This trade surplus has much to do with China being the worlds largest copper importer, consuming 20 per cent of this minerals global trade, and Chile being the worlds main producer and exporter. The National Corporation of Copper (CODELCO) and the National Mining Company (ENAMI) are responsible for one-third of the Chilean exports to China. With 80 per cent of the Chilean exports to China being minerals, Chile has beneted greatly from Chinas growing demand as well as from the related rise of world prices (Len, 2005). Because of the importance and complementarity of their trade, in 2002 China proposed to Chile to extend their economic relations. From then onwards, the countries worked on preparing a socalled third generation agreement, including not only trade and investment but also educational, environmental and cultural accords. In November of 2004, during the APEC conference in Chile, the presidents of the two countries announced the ofcial start of the free trade negotiations. One year later, during the APEC conference in Korea, the free trade agreement between Chile and China was signed. To Argentina, trade with China has shown instabilities, partly because of the sort of goods that China imports and partly because of Argentinas economic and nancial crisis of 2001 and 2002. In the 1990s, Argentina had a trade decit with China, but this changed with the crisis and Chinas rapidly growing import of Argentine products such as soya oil. For Argentina, the export of soya products to China is important, valuing $2.6 billion in 2004 (CEPAL, 2005b), while Chinese products account for 8 per cent of Argentinas imports. Since the ofcial visit of President Ernesto Kirchner to China in the summer of 2004 and the visit of the Chinese trade mission to Argentina a few months later, Argentina aims to strengthen its trade relations with China. Argentina would like to increase its export of autoparts, meat, chemical products, wines, software and information technology, while buying more capital goods and industrial products from China (Cornejo, 2005a; Oviedo, 2005). In the economic relations between the Bolivarian Republic of Venezuela and the Peoples Republic of China, oil is the main commodity. To President Hugo Chvez (since 1999) China forms an alternative to its dependency on the United States for the sales and investments in the energy sector, and between 1999 and 2004 he visited China three

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times. In 2005, China provided Venezuela a credit of $4 billion for the development of energy projects, and agreements on energy, agriculture, railroads, telecom, mining and nancial and technical assistance were ratied. Venezuelas promise to daily export 600,000 barrels of fuel oil and 1.8 metric tonnes of orimulsion for the production of electricity (CEPAL, 2005a), however, is way above the 2005 level of 68,800 barrels per day. According to Corrales (2005), there are economic, political and technical reasons for which it is unlikely that China will soon end Venezuelas dependency on exports to the United States. Economically, China seems somewhat concerned about Venezuelas stability and the changing policies on (foreign) property rights. Politically, it does not seem in Chinas interest to support Chvezs anti-US policies since they could be causing serious energy problems to its primary export market, with all kinds of implications. Technically, China lacks the type of reneries that are necessary to rene the heavy crude of Venezuela, while the transport costs would be relatively high since these shipments have to go via Africa, taking some 40 days. On the other hand, in its search for energy, China is making plans and investments in order to solve this transport obstacle. China and Venezuela want to jointly build an oil pipeline from Venezuela to the Pacic Ocean and China has recently been heavily investing in reneries. China has also favoured the rapprochement between Colombia and Venezuela. Recent Chinese investments in the future exploitation of untouched oil reserves in Colombia by the Chinese PETROCHEM have enhanced the decision to construct an oil pipeline between Colombia and Venezuela and the construction of gas pipeline from the north of Colombia to the Pacic that will be essential for the export of Venezuelan and Colombian combustibles to China. In 2005, President Chvez and his Colombian colleague lvaro Uribe signed accords to construct the gas pipeline Transguajiro that will connect Venezuelan reneries with the gas elds of Puerto Ballenas, in the Colombian Caribbean, which should be ready by the middle of 2008. These kind of Chinese direct investments are part of the overall transformation of China into the worlds sixth foreign investor in developing countries, especially to sectors of natural resources. Although mostly directed towards industrialized countries, to Latin America and the Caribbean Chinese FDI is also relevant (see the examples in Table 2). Important Chinese investments (joint ventures) were agreed on in the context of bilateral negotiations on Chinas entry into WTO, which will be reviewed further along. In general, South-South investments are
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Table 2. Chinese FDI in (Seeking) Latin American raw materials: Some examples of alliances and cooperation, 20042006 (in millions of US$)
Type M&A Copper Canada and Chile Sector Country Stake/project description Amount 5,000

Chinese rm

Foreign companies

China Minmetals Non-ferrous Metals Co. (2004) Alliance M&A Alliance Credit Petroleum and natural gas Petroleum Infrastructure Coal Venezuela Steel Brazil Petroleum Ecuador Copper Chile Investment and supply agreement

Noranda (Doa Ins de Collahuasi and Loma Bayas)

China Minmetals Non-ferrous Metals Co. (2005)

CODELCO

2,000 1,420 1,400

China National Petroleum (2005)

EnCana

Oil reserves and pipelines New plant construction Exploration of natural gas and crude oil reserves Oil drilling in several countries

Baoshan Iron and Steel (2004)

Compaia Vale do Rio Doce

Government of China (2004) (CNOOC) Alliance Loans Alliance

400

Sinopec (2004)

Petrobras

Brazil, China and others Brazil Brazil

Natural gas pipeline and export corridor New Company

Government of China (20042006)

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Yanguang Group (2005)

Vale do Rio Doce/ Itochu Corporation

Source: CEPAL (2005b, 2006).

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becoming more important, while FDI to developing countries as a share of total FDI has increased signicantly from 17 per cent in 1995 to 30 per cent in 2004. This last tendency is a direct result from the ongoing transnationalization of Asia, Latin America and the other developing countries. This diversication of FDI may have important implications for the ongoing transnationalization of large Latin American companies, in particular economic groups and conglomerates. In 2004, the total sales of the 25 largest multilatinas equalled $130 billion, and the sales of these (mainly Mexican and Brazilian) conglomerates are growing as compared to those of foreign companies in the region. In the manufacturing sector in 2003, for the rst time the sales of foreign MNCs were lower than the sales of the multilatinas, respectively 48 and 51 per cent (CEPAL, 2005a; Fernndez Jilberto and Hogenboom, 2004). Competition for Markets and Investments At the start of the 20th century, Latin America and China are both important recipients of foreign direct investment. From 2001 to 2004, China received $202 billion and Latin America $258 billion, but compared to the FDI of 1999, Latin Americas inow decreased whereas ows to China increased. In 2004, China was the rst developing country recipient of FDI, with 10 per cent of global investments and 31 per cent of the FDI to developing countries (CEPAL, 2005a). As number one destination of FDI to developing countries, China received $62 billion that year, whereas Latin American and Caribbean countries in total received $69 billion (see Figure 3). Between China and Latin America there are substantial differences in the role and the impact of FDI on the economy. To accelerate its economic growth, China has greatly diversied and expanded its export markets, assigning an important role to local companies. Although recently transnational companies have gained terrain in China, in the rst phase of its neoliberal policies (19781985) local companies beneted directly from the growing foreign investment (UNCTAD, 2005). The Chinese state has actively used diverse instruments to prot from all the effects of the productive development generated by FDI, such as capacitating local human resources, transfers of technology and the development of production chains. The policy of the Chinese state has been explicitly designed to favour productive foreign investments that strengthen Chinas industrial and technological development in order to process exports and later on
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Figure 3. Distribution of net FDI inows in China and Latin American and the Caribbean, 19902004 (in billions of US$)

Source: CEPAL (2005a) and UNCTAD (2005). Note: *Annual averages.

to create new industrial zones, linked to centres for research on national development (Daz Vzquez, 2003). Contrary to Chinas broad policy spectrum, in Latin America privatization was central to neoliberal restructuring. This gave way to a process of substantial economic concentration in economic groups and conglomerates. While temporarily attracting large sums of FDI and being protable to both Latin American and transnational companies, privatization together with policies of liberalization and deregulation did not bring about the envisioned development and modernization of the region. Aimed at helping major private companies to take over the role of state companies as the motor for economic growth, this strategy failed because little was done to deal with Latin Americas weaknesses in infrastructure, human resources and technological development. Moreover, rather than stimulating entrepreneurship, the massive support of the public sector for big business and the close relations between technocrats and important entrepreneurs during as well as after privatization gave way to the creation of a new oligarchy. With their globalized assets and capital, this

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new oligarchy has limited interest in the development of the domestic economy (Fernndez Jilberto and Hogenboom, 2004, 2007). Although the economies of Latin America and the Caribbean have recovered since 2004, there is a general fear in the region that the China effect is causing the displacement of foreign investment. While this fear has been partly refuted by several studies showing that most ows to China are differently motivated than those to Latin America (IDB, 2005; Lora, 2005), in the case of Colombia and Mexico there has been a signicant negative China effect from 1995 to 2001 time of a global FDI boom and the nearing of Chinas WTO membership. These two countries would have attracted more foreign investment if it were not for China to suck away global capital: a $100 million increase of Chinese inward FDI reduced Colombian and Mexican inward FDI by $84 and $29 million, respectively (Garca-Herrero and Santabrbara, 2005). Mexicos experience since 2000 demonstrates that the reason for this negative China effect is competition in similar sectors of manufacturing. Between 2000 and 2003, Mexicos maquiladora sector, one of its most important export manufacturing sectors since the 1990s, experienced a crisis resulting in a loss of almost 230,000 jobs. One-third of the production that left Mexico moved to China. Like Central America and the Caribbean have done more recently (and contrary to Argentina, Brazil and Chile), since the 1980s Mexico has concentrated its exports in chains of global subcontracting (outsourcing) for the US market. Since the late 1990s, however, China is swiftly replacing Mexico on several points of these global production chains. For instance, in 2003, China took over Mexicos primary position in the US market of processors, equalling a loss of 21,000 jobs and $500 million investments. As many as 12 of Mexicos main 20 export sectors to the United States compete with China, such as textiles, footwear and clothing as well as industrial machinery, televisions and video players. Chinas WTO membership reduced the NAFTA-based preferential advantages of Mexico in the US market, and in 2003 China replaced Mexico as the second largest source of US imports (after Canada) a position that Mexico had taken over two years earlier from Japan. Cheap Chinese products and aggressive Chinese policies to attract foreign investments caused a process of industrial South-South delocalization that harmed Mexicos maquiladora industry and several large MNCs moved production facilities away, including technological plants of NEC, ON Semiconductor, Sony and Kodak. Further restructuring of Mexicos participation in

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global production networks (according to the ideology of the Washington Consensus) and diversication of its global trade seem to be the only structural alternatives for Mexico to deal with the China effect (CEPAL, 2004a; Dussel Peters and Xue Dong, 2005; La Jornada, 9 May 2005). Latin America has generally been disfavoured by the compatibility of the Chinese economy with the traditional business strategies of transnational companies. These strategies give priority to investments in regions that successfully combine the existence of a large internal market, low labour costs, abundant natural resources and stimulus for investments with a high technological component. Compared to Latin America China is in better conditions to satisfy the priorities of transnational investments due to the combination of economic strategies that are based in the search for nancial means to exploit natural resources, formulating the necessary policies to assure the efciency of the size of the market, applying a high technological development and offering its abundant labour at low cost (CEPAL, 2004b). The latter is Chinas largest competitive advantage as compared to Latin America as it possesses a labour market of 712 million workers who on average hourly cost $0.61 instead of the $2 in Mexico. In the manufacturing sector labour costs in China are 3.7 times lower than in South Americas poorest country, Bolivia, and 12.5 times lower than in Chile. In the clothing sector the labour costs in Guatemala are three times those of China, and in Costa Rica more than 12 times higher (Gutirrez, 2003; Shafaeddin, 2002). As a result, China is favourably competing with Latin America in the labour intensive segments of the international markets. Transnational companies investing in Latin America and in the Caribbean have implemented two different strategies. In the case of Mexico and the Caribbean, these investments have come dominantly from the US, and the US companies have established an international system of integrated production in the manufacturing sector. As a result, the international competitiveness of this region has risen as can be deduced from its participation in global exports, but this has not stimulated the integration of the economy nor technology transference, human resource capacity or local business development (CEPAL, 2004a). In South America, in turn, a large part of FDI is by European MNCs in the service sector and the exploitation of natural resources, resulting partly from the many privatizations and economic deregulation of the 1980s. The international competitiveness of this sub region has been improved by the modernization

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of the infrastructure and services used by the export sector, but its sustainability has been negatively affected by the economic crisis of Brazil and Argentina. Due to the effects of the Asian crisis that materialized in Latin America in 1998, China was able to recover more effectively as its countercyclical policies permitted a rapid macroeconomic stability (CEPAL, 1998; IDB, 2005). The shifts in FDI and export production have affected the world market share of exports from China vis--vis those from Latin American and the Caribbean. From 1990 to 2002, Chinas world market shares in all products rose, increasing its total share from 2 to 6 per cent. Above all, rises were seen in the share of China in low technology (from 5 to 15 per cent) and high technology (from less than 1 to 7 per cent) manufacturing. Meanwhile the world market share of Latin American exports did increase from 4 to 6 per cent, but mainly as a catch-up from the lost decade of the 1980s. Its world market share in primary products was surprisingly stable for such a resource-rich region: 12.4 per cent in 1990 and 12.7 per cent in 2002. Most of Latin Americas growing world market share in medium technology (from 1.8 to 5.2 per cent) and high technology (from 0.6 to 3.7 per cent) manufacturing was due to the expansion of Mexico, which in 2002 was a larger exporter of manufactured products than the rest of the regions 17 countries all together (respectively 3 and 1.9 per cent of world market share). Simultaneously, as we have seen, the similarities between Mexicos and Chinas technological trade development have a very negative China effect on Mexicos maquila sector (Lall and Weiss, 2004). A real revaluation of the Yuan (compared to the dollar) would help Latin America in its competition for markets and investment with China, but apart from China this also depends more on an international resolution of the nancial disequilibrium of the global economy and in particular the current trade decit of United States. However, the devaluation of the Yuan in July of 2005 from 8.30 to 8.11 Yuan to the dollar had little effect on Latin Americas competitiveness, partly because Latin America has a marginal position in the asymmetry created by the new monetary system, Bretton Wood II. This system has helped the United States to become the largest consumer of Chinese products and China to become the rst provider of nance to the United States. Asian economies use an articially xed exchange rate to the dollar, stimulating investments in their region and exports towards industrialized countries. As a result, the current account decit of the industrialized countries is growing, as are the colossal nancial reserves of China and other Asian economies.
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The international reserves of China in 2004 valued $610 billion, equalling 37 per cent of the countrys GDP. The fact that China has been in particular acquiring massive amounts of US treasury bonds has provoked a large global supply of dollars. By doing so, China contributes to processes that negatively affects the rentability of these bonds, and in turn to low interest rate in the United States and the global economy (CEPII, 2003, 2004a, 2004b). All in all, to Latin America Chinas economic expansion is, thus, a mixed blessing. The transformation of China into a determining factor for the rise of international prices of primary commodities and natural resource-based manufactures has favoured the income from imports of Latin America. According to the World Bank (2004), the combination of the low dollar and Chinese demand pushing up prices has in the total of developing countries added an extra 1.1 per cent growth of GDP from 2001 to 2004. Nevertheless, in the Chinese market of primary and manufactured products, which represent 70 per cent of Latin America exports to China, this region is competing with the ASEAN countries. Meanwhile, Chinese imports to Latin America create unfavourable conditions for Latin American producers of manufactures. Given the low costs of production in China, Latin American products are replaced by Chinese products both in local and global markets. While the massive Chinese demand especially of Latin American minerals and food products have so far resulted in a trade balance that is favourable to Latin America, the competitiveness of manufacturing in Latin America and the Caribbean vis--vis China is in great need of improvement. In addition, the competitiveness of Latin America may be favoured if China is to comply rigorously with all WTO compromises, which would translate into higher prices of its products. Latin America and Chinas Entry into WTO In 1986, the Peoples Republic of China solicited admission to General Agreement on Tariffs and Trade (GATT). This started a 15-year process of multilateral and bilateral negotiations that ended in 2001 with the entry of China into GATTs successor: the WTO. In the multilateral negotiations the totality of the GATT/WTO members, including the Latin American and Caribbean countries, determined the terms and conditions of the accession of China. In the bilateral negotiations China had to negotiate the conditions and compromises of mutual market access with each of the members. Government ofcials discussed the tariffs on industrial and

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agricultural products, and the obligations that China had to meet with respect to its internal market and access of foreign providers of services. Later on the bilateral negotiations were protocolized and multilaterized, enabling China to be recognized as most favoured nation. This whole process culminated in the WTO Ministerial Conference in Doha, Qatar, on 10 November 2001, when the member states approved the terms of Chinas accession. In the context of these GATT/WTO negotiations, since the early 1990s China has been actively intensifying its diplomatic relations with Latin America. This is a politically interesting development as it contrasts with Chinas previous international isolation, while taking place in a time of US and EU embargos on weapon sales to China because of the repression of the Tiananmen Square protests in 1989. Since 1990, China has attended the annual meetings with foreign affairs ministers of the countries of the Group of Rio (a permanent regional consultation mechanism), mainly to search for joint positions in international institutions. In 1991, China became a permanent observer of the Interamerican Development Bank and in 1994 of the Latin American Integration Association ALADI. In 1998, the Peoples Bank of China became a member of the Caribbean Development Bank. Moreover, China has established mechanisms of permanent dialogue with MERCOSUR and with the Caribbean Community and Common Market (CARICOM), and in 2004 it became a permanent observer of the Organization of American States (OAS) and of the Latin American Parliament. In addition, China signed more than one hundred agreements with Latin American countries on scientic and technological cooperation, ranging from satellites industry to agriculture (Cornejo, 2005b; Gutirrez, 2003: 23). Bilateral Negotiations with China For Latin America and the Caribbean, the bilateral negotiations with China were heterogeneous, contradictory and polemic because of the various potential economic effects of Chinas full membership of WTO. Generally, to Latin American countries the Chinese entry into WTO (as its rise in the global economy) meant a confrontation with three inevitable trade processes: the possibility to benet from new export opportunities to the Chinese market; the necessity to deal with the competition with more Chinese imports; and the Chinese competition in segments of the international market to which they are exporting similar products. Although
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the region as a whole accepted to grant China the status of most favoured nation, especially Mexico and Argentina resisted this. Mexico negotiated with China until September of 2001 and was the last Latin American country to put terms on its entry. Together with Mexico, the last Latin American countries that signed the accords for Chinas accession to WTO were Venezuela, Bolivia, Costa Rica, Guatemala and Ecuador. The long negotiations of Mexico with China had to do with the strong Chinese competition on the US market of labour intensive products. Mexican exports for a long time have been predominantly directed towards the US, and this trade dependency has only increased with Mexicos entry into the NAFTA in 1994, so that almost 90 per cent of Mexican exports are to the US market. Mexican entrepreneurs were very critical of the bilateral negotiations with China and feared for major problems with unfair Chinese trade competition. They therefore demanded the inclusion of a clause that for two decades would deny China the right to call for WTO mechanisms of dispute settlement in case Mexico was to apply compensatory and protective tariffs against Chinese products. In the nal bilateral accords their demand for such a guarantee against unfair competition was watered down to a moratorium until 2008. Indeed Mexico has used this clause to apply compensation tariffs ranging from 800 to 1000 per cent on Chinese products in the sectors of tools, toys and textiles (CEPAL, 2004a; Cornejo, 2005a; Dussel Peters, 2003; Len, 2005). Argentina bilaterally negotiated Chinas entry into WTO from 1994 to 2000. One of the reasons of this long process was the Chinese resistance against Argentine tariffs on agro products from China. In the end China allowed Argentina to apply tariffs on 60 products of which 36 were agricultural, including meat, sh, fruit, vegetable oil, soy and grains (CARI, 2004). Argentina also beneted from a series of worldwide quotas that China accepted in negotiations with other countries on products like wheat, corn and wool. With the export of manufactures and natural resources Argentina expected signicant benets (the service sector was excluded from the Argentine-Chinese negotiations), but like Brazil and Chile it foresaw serious problems with its agricultural exports due to Chinas stringent (phyto-) sanitary controls, and to the tariffs, quotas or non-tariff barriers related to its policy of food security. Other issues were the likely displacement of Argentine production due to Chinese competition and Chinas relations with MERCOSUR that might erode the preferential tariffs for Argentine products to the Brazilian market. Like Mexico, Argentina used a defensive policy in its negotiations with China as shows

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from its rigorous antidumping policy to Chinese imports, particularly in machineries, metal industry and transport. Between 1995 and 2004, Argentina made 31 antidumping investigations against China of which 24 concluded that sanctions should be applied, although not all were necessarily materialized (Girado, 2003; Gutirrez, 2001; IDB, 2005). Chinas most privileged Latin American associate is Brazil. During the visit of Li Ruihuans (chairman of the National Committee of the Chinese Peoples Political Consultative Conference, CPPCC) to Brazil in 1993 the Chinese government dened its relations with Brazil as a strategic alliance. In Chinas classication of diplomatic relation this implies that the two countries can form the basis of an international alliance to achieve more than just global trade rules, in particular to improve developing economies access to the US and EU markets. Of all Latin America countries Brazil has also put the most efforts in intensifying its economic relations with China and the two countries have been cooperating in several high technology projects. Already in 1988 the countries started preparations that resulted in the creation of the China-Brazil company Earth Resources Satellites Projects (CBERS), which in 1999 and 2003 constructed two satellites that provide information on (new sources of) natural resources and the environment. An alliance between Brazils AVIBRAS and Chinas Great Wall Industrial Corporation materialized in the International Satellite Communication (INSCOM) company. In 2002, the Brazilian aeronautic company Embraer and the Chinese Air Company (aviation) established a joint programme. In addition, there is extensive cooperation in the elds of biotechnology, information technology, pharmaceuticals and new materials, and Brazil has promised to export uranium to China in return for Chinese funding for its nuclear programme, including the enrichment of uranium (CEPAL, 2004b; Gutirrez, 2003; Lei, 2004; Mesquita Machado and Tinoco Ferraz, 2005). Brazil supported Chinas entry into WTO from early onwards because it was convinced that the economic benets would not only involve investments but even more so the opening of an important alternative market that could compensate for the negative effects of US and European protectionism. Recently, under President Lula da Silva (since 2003), Brazil has extended its international political project by strengthening its relations with China, India and Russia. In May 2004, Lula visited China in order to consolidate their strategic alliance on trade, technological development and defence. As a result of this visit the National Development Bank of Brazil reached an accord with the Chinese investment agency CTIC on
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easing the nance of mixed Chinese-Brazilian companies from the two countries. Also the mining company Vale do Rio Doce signed association agreements with Baoshan Iron and Steel and other the Chinese companies to produce iron and aluminium in the North East of Brazil (see Table 2). With the Chinese rm Yanguang this Brazilian company agreed to invest in oil products for export to third markets. And the state companies Petrobras and Sinopec started to jointly explore and produce oil in Africa and the Middle East (Cornejo, 2005a; Mesquita Machado and Tinoco Ferraz, 2005). Chile accepted the accession of China to WTO in 1999. This early yes stemmed from Chiles strategy of a dynamic open regionalism mentioned earlier. Interestingly, Chile was also the rst South American country to establish diplomatic relations with the Peoples Republic of China, shortly after the start of Salvador Allendes presidency in 1970 (in Latin America as a whole this was only preceded by Cuba in 1960). Currently, with its accumulated experience in establishing trade agreements, Chile realizes that good relations and especially a trade agreement with China would not only increase its access to the Chinese market but would equally provide benets in the economies with which China has already established accords. Even more so, Chile aims to achieve a privileged position in attracting Chinese FDI, in particular in its mining sector. Chile (like Peru) has beneted substantially from the rising Chinese demand of copper, which has provoked higher prices. In 2005, a leading Chinese metal company, Minmetals Non-ferrous Metal Co., and the worlds largest producer of copper, Chiles CODELCO, established a strategic alliance to meet the growing Chinese need for this mineral and exploit the Chilean reserves (see Table 2). Latin American Recognition of China as Market Economy The rst years of Chinas WTO membership (since the end of 2001) have not been without disputes and differences with Latin America. Many of the problems have surged from the competition for third markets, above all the United States, and from the competition of Chinese products in the internal Latin American markets, while also the protection of Chinas internal market has been an issue. Not only Argentina presented important antidumping claims against China; even Brazil Chinas strategic ally in the region had presented 11 claims for antidumping against Chinese products by mid 2005. Essentially these claims concern Chinas failure

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to comply with its promise to eliminate the different treatment and dual pricing of goods produced for the internal market compared to goods destined for exportation. This policy is considered as the major source of Chinese dumping, which harms the competitiveness of Latin American economies. To protect their economy from this unfair competition from China, until 2016 members of WTO are entitled to use the so-called nonmarket economy (NME) methodology towards Chinese products. This is not a new phenomenon in the global economic relations with China: since 1995 this country has seen the highest number of claims on not following the international economic norms, mainly due to its complex economic transition from socialism to neoliberalism. In the agricultural sector, Chinas market socialism still allows for many state companies, subsidies and import tariffs. In the WTO accords on agriculture and cattle that China signed it agreed to limit the subsidies on agricultural exports to 8.5 per cent, while the import tariffs would be lowered to 15.6 per cent in 2004. Whereas countries such as Argentina and Chile have experienced difculties in exporting agricultural products to China (largely due to dubious non-tariffs barriers like sanitary and phytosanitary rules), Latin Americas agro exports to China more than quintupled between 1999 and 2003, increasing from $495 million to almost $2.8 billion (CEPAL, 2005b; OMC, 2004). Since 2005, China has to follow all WTO commitments as established in the multilateral and bilateral accords, and despite some trade conicts China has insisted on its compliance and on the WTO principles of equal trade, free competition and unprejudiced trade. China aims to soon become ofcially recognized as market economy (instead of NME) by as many countries as possible, but especially by its main export partner: the United States (US-China trade ows reached $219 billion in 2004). While to China this recognition should help to reduce the number of antidumping claims, it could also be in the interest of Latin America as it would probably raise the prices of Chinese products, thus improving the competitiveness of Latin American products. Chinas advantages have to do with international antidumping rules: Article VI authorizes WTO members to use prices in so-called surrogate markets in order to determine the normal value of the goods and service of economies like China that do not follow market rules (usually Mexico, Turkey and India are used as referee countries). To the United States and the European Union, this article provides a means (of power) to diminish the competitiveness of the Chinese economy. The United States has established a series of
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criteria to determine the market condition of an economy including the convertibility of ones currency, rights of association between local and foreign capital, state control on companies and freedom of the market. The European Union decided to apply the condition of transition economy to China, stating that China has not yet sufciently limited the inuence of the government in the functioning of state companies, while it lacks an effective legal framework for corporate activities, such as on bankruptcies, the protection of private property, and the convertibility of capital (CEPAL, 2005b). A large share of Latin America and the Caribbean has chosen a more pragmatic approach, and in 2004 Brazil, Chile, Argentina, Venezuela, Peru and several Caribbean countries decided to grant China the status of market economy. Important for this decision was that such recognition does not impede the application of a exible mechanism of anti-dumping claims. Another reason was the ASEAN countries recognition of China as market economy, which was improving the trade possibilities of these Asian countries with China. Other countries, however, have acted with less pragmatism. For example, MERCOSUR was unable to reach a joint consensus on the recognition of China as market economy because of the opposition of Paraguay. As a result of its anti-communist stand during the dictatorship of Alfredo Stroessner (195489), in 1957 Paraguay had recognized Taiwan, Republic of China, which has been unacceptable to China. One of the priorities of President Hu Jintaos visit to the region in 2004 was to achieve the recognition of China as market economy by MERCOSUR as a whole, but in the end China only signed bilateral accords on this with Argentina, Brazil and Chile, whereas Uruguay postponed a decision because of its presidential elections (Oviedo, 2005). Apart from Paraguay also the diplomatic relations of some Central American and Caribbean countries with Taiwan complicate the relations with the Peoples Republic of China. Since the early 1970s, when China was accepted and Taiwan was expelled as member of the United Nations, and as part of its One China policy, China demands from countries to end diplomatic relations with Taiwan before establishing economic relations of any sort with China. In the 1990s, this requirement has been softened in the case of developing countries and turned into an approach that China calls economic diplomacy. Yet China and Taiwan continue their competition for diplomatic relations with as many countries as possible, which has had some curious effects. In return for $100 million Taiwanese support,

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in 1990 Nicaragua ended its diplomatic relations with China, and in 2006 Nicaragua even signed a free trade agreement with Taiwan. Also the Central American countries of Guatemala, El Salvador, Honduras, Panama and Belize, as well as the Dominican Republic, diplomatically recognize Taiwan. Between 1998 and 2004, Taiwan supported Central America with $240 million for various development projects (Cornejo, 2005a, 2005b; Domnguez, 2006). Costa Rica, however, decided in June 2007 to swap its friendship with Taiwan for relations with the Peoples Republic of China. The acceptance of China as market economy by Chinas main Latin American markets Brazil, Chile and Argentina was awarded with additional deals. Agreements were signed with Brazil on investments by China Southern Airlines in the joint fabrication of aeroplanes and various agreements on information technology and the nancial sector, and investments in infrastructure, energy, natural gas, biotechnology and minerals. For Chile, recognizing China as market economy was benecial for its tourist sector, for solving phytosanitary conicts over Chilean exports to China, and in particular for Chiles copper exports. Chinas spectacularly increasing demand pushed the international copper price up, helping the Chilean economy to achieve a growth rate of close to 6 per cent in the year 2005. And to Argentina China promised that its Argentine imports were to rise from the $2.5 billion in 2004 to as much as $6.5 billion in 2009 (Oviedo, 2005). Concluding Remarks With the neoliberal reforms implemented by Deng Xiaoping, as of 1978, China started to strengthen its relations with Latin America and the Caribbean. In the beginning, due to the political situation of the region, relations were established with several neoliberal military dictatorships. China abandoned its political strategy of expanding Maoism to Latin America, as was previously done by creating Red Flag or Revolutionary Communist Parties, the most sad and infamous expression of which was the Sendero Luminoso (Shining Path) in Peru. The Latin American version of Maoism had clearly expressed the ideological inuence of the cultural revolution and Chinas critique on social imperialism, Soviet communism and communist parties, thereby contributing to ideological and political division of Latin American during the Cold War.

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Chinas neoliberalization, however, brought a denite end to its international ideological agenda. Central to Chinas modern foreign policies is the strategy of the Four Nos. Light years away from its international Maoist policies, Chinas doctrine is nowadays based on: no hegemonism, no power politics, no arms races and no military alliances. This strategic doctrine proclaimed by the Chinese President Hu Jintao (since 2003) forms part of Chinas global policy to favour its economic development and integration in global neoliberalism. In Latin America, this doctrine is seen as positive for improving international cooperation, strengthening mutual condence, preventing international confrontations and thereby being positive for multilateralism. The strategy of the Four Nos has also been at the basis Chinas so-called asymmetric diplomacy, which privileges certain bilateral relations while China is simultaneously participating actively in processes of economic regionalization and globalization. This approach has some parallels with Latin American strategies of open regionalism, involving a broad economic opening and new bilateral free trade agreements together with forms of economic regionalization like NAFTA or MERCOSUR. The fact that Brazil deepened its relations with China without waiting for a joint MERCOSUR agenda towards China illustrates that the new South-South relations may come at a cost for regionalization processes. As part of the new South-South relations in a (postCold War) multipolar world, Brazil and China, together with India and Russia, have become strategic allies. This was enabled by the changes that President Lula Da Silva made in Brazils foreign policies. Both Brazil and China aim to improve their economies added value and the international prices for primary and manufactured products, prioritizing investments that involve technology transfers. Their new collaboration in the Group of 20 within the WTO has had important results in the trade negotiations of the Doha Round. In this group of developing countries, Brazil, India and China played key roles in the degree of inuence achieved by the Group of 20, especially on agricultural issues. In the fth ministerial summit of the WTO in Cancun, Mexico in September of 2003, the Group of 20 rejected the joint proposal of the European Union and the United States, proposing instead to eliminate US and EU agro-subsidies. Also in the WTO negotiations on services, intellectual property and investments Brazil and China have by and large had coinciding agendas, following from several similar interests.

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Although these new South-South relations are an unexpected development in the era of global neoliberalism, evidently the other side of the coin of similar economic interests is competition. Even Latin American countries that so far have not been threatened by the China effect, like Brazil, in the longer term may well face some serious problems as future efforts for technological upgrading are likely to meet a major competitive threat by China. Compared to China, Latin America and the Caribbean will remain a high wage region, which can only be offset by high levels of technological competence or skill. Together with the relatively weak position of Latin Americas global production networks (except for Mexico and Central America) there is thus reason for concern about the regions competitive position in the world economy. Lall and Weiss (2004) stress the striking tendency in the bilateral trade between China and Latin America and the Caribbean (LAC) of the latter specializing in exporting primary products and importing manufactures. The patterns of the two regions are almost a classic textbook illustration of trade between developing and industrialized regions, in which Latin America strengthens its specialization in primary products and processes resources while China does the reverse.
What is surprising is that LAC is the richer region, with a longer history of modern industrialization, higher human resources, more FDI per capita and with more liberal trade and investment regimes. The result is arguably a massive downgrading of comparative advantage in a dynamic sense, surprising for such a relatively industrialized region (Lall and Weiss, 2004: 23).

In the end, then, the rise of China is forcing Latin America and the Caribbean to once again reconsider its two main models of development: that of Mexico and Central America, focussing on assembly industries for the US market that create low-wage, unskilled labour; and that of countries like Brazil, Chile and Argentina, expanding resource-based industry that make these activities more capital intensive yet provide little jobs. Despite the differences, [b]oth types of activity have relatively low domesticvalue-added content, and neither provides the kind of transformation of the domestic production and export pattern that would allow trade to become an engine of growth (UNCTAD, 2003: 141). From Mexicos recent problems one might easily conclude that maquiladoras are not the road to modernization, at least not in a liberalized world economy in which China is able to offer massive amounts of similar products at a lower price.

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However, the economic growth achieved by some other Latin American countries largely based on providing primary products to industrialized as well as rapidly industrializing countries may not bring about much propoor development either. Since the years of economic wonders in this region (the 1940s to 1960s), the puzzle of how to end dependency and achieve sustainable high growth rates has not been solved. Rather than bringing quick and easy solutions to this puzzle, Chinas current and ongoing economic wonder is triggering new regional debates on the possibilities for development under global neoliberalism and on how to reform economic policies, regional integration and the global economic system REFERENCES
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CEPII (2004b) Spculations sur le yuan, Lettres du Centre D tudes Prospectives et DInformations Internationales, 234: 14. Cornejo, R. (2005a) Amrica Latina ante el Crecimiento Econmico de China, VI Reunin de la Red de Estudios de Amrica Latina y el Caribe sobre AsiaPacco. Buenos Aires: Redealap / Banco Interamericano de Desarrollo. Cornejo, R. (2005b) Amrica Latina en la perspectiva de China, in Xulio Rios (ed.) Poltica exterior de China. La diplomacia de una potencia emergente. Barcelona: Ediciones Bellaterra. Corrales, J. (2005) Looking for and Alternative Market for Venezuelan oil: Will China help?, Working Paper, Amherst College (15 September). Cruz Zamorano, A.R. (2005) China: Competencia Comercial con Mxico y Centroamrica, Comercio Exterior 55(3): 28189. Demmers, J., Fernndez Jilberto, A.E. and Hogenboom, B. (eds) (2001) Miraculous Metamorphoses. The Neoliberalization of Latin American Populism. London: Zeds Books. Des, S. (2002) Comptitivit-Prix et Htrognit des changes Extrieurs Chinois, conomie Internationale 92: 4166. Daz Vzquez, J. (2003) China en la OMC: Repercusin en los Pases en Desarrollo, Centro de Investigaciones de Economa Internacional, Universidad de la Habana (Febrero). DIRECON (2005) Informe de las Conclusiones del Estudio Conjunto de Factibilidad de un Tratado de Libre Comercio entre Chile y China, Santiago: Direccin General de Relaciones Econmicas Internacionales (Ministerio de Relaciones Exteriores de Chile). Domnguez, J.I. (2006) Chinas Relations with Latin America: Shared Gains, Asymmetric Hopes, Working Paper, Inter-American Dialogue (June). Dussel Peters, E. (2003) Ser maquila o no ser maquilla, es esa la pregunta?, Comercio exterior 53(4): 32836. Dussel Peters, E. (2004) La Competitividad de la Industria Maquiladora de Exportacin en Honduras. Condiciones y retos ante el CAFTA. Mxico: CEPAL. Dussel Peters, E. and Xue Dong, L. (2005) Oportunidades y Retos Econmicos de China para Mxico y Centroamrica. Mxico: CEPAL. Fazio, Hugo (1999) El Tigre Chileno y la Crisis de los Dragones Asiticos. Santiago: Editorial LOM. Fernndez Jilberto, A.E. and Hogenboom, B. (eds) (2004) Latin American Conglomerates and Economic Groups under Globalization, Special Issue of Journal of Developing Societies 20(34). Journal of Developing Societies 23, 4 (2007): 467501

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Fernndez Jilberto, A.E. and Hogenboom, B. (2007) Latin American Conglomerates in the Neoliberal Era: The Politics of Economic Concentration in Chile and Mexico, in Alex E. Fernndez Jilberto and Barbara Hogenboom (eds) Big Business and Economic Development: Conglomerates and Economic Groups in Developing Countries and Transition Economies under Globalisation, pp. 128. London: Routledge. Ffrench-Davis, R. (2000) Entre el Neoliberalismo y el Crecimiento con Equidad. Tres Dcadas de Poltica Econmica en Chile. Santiago: Dolmen. Ffrench-Davis, Ricardo and Stallings, B. (2001) Reformas, Crecimiento y Polticas sociales en Chile desde 1973. Santiago: CEPAL/Lom. Garca-Herrero, A. and Santabrbara, D. (2005) Does China have an Impact on Foreign Direct Investment to Latin America?, Documentos de Trabajo no. 0517, Banco de Espaa. Gaulier, G., Lemoine, F. and nal-Kesenci, D. (2005) Chinas Integration in East Asia: Production Sharing, FDI and High-Tech Trade, Working Paper No. 200509. Paris: CEPII. Gitli, E. and Arce, R. (2001) El Ingreso de China a la OMC y su impacto sobre los pases de la cuenca del Caribe, Revista de la CEPAL 74: 87107. Girado, G. (2003) Comercio Argentina/Asia Pacco. Una Carrera de Obstculos. Buenos Aires: Corregidor. Gonzlez Garca, J. (2003) China: Reforma Econmica y Apertura Externa. Transformacin, efectos y desafos. Mxico: El Colegio de Mxico. Gutirrez, H. (2001) Las relaciones de China y Amrica Latina: Perspectivas desde Argentina, Brasil y Chile, Integracin y Comercio 5(14): 75116. Gutirrez, H. (2003) Oportunidades y desafos de los vnculos econmicos de China y Amrica Latina el Caribes, Serie Comercio Internacional 42, Santiago: CEPAL. IDB (2005) The Emergence of China: Opportunities and Challenges for Latin America and the Caribbean. Washington: Inter-American Development Bank. Lall, S. and Weiss, J. (2004) Peoples Republic of Chinas Competitive Threat to Latin America: An Analysis for 19902002, ADB Institute Discussion Paper No. 14, Tokyo: Asian Development Bank Institute. Lei, W. (2004) China: un mercado estratgico para as exportaces brasileiras. Rio de Janiero: BNDES. Lemoine, F. and nal-Kesenci, D. (2002) Chine: Spcialisation Internationale et Rattrapage Technologique, conomie Internationale 92: 1140. Len, J.L. (2005) La Relacin Econmica China-Amrica Latina Expresiones y Causas de dos Trayectorias Distintas, VI Reunin de la Red de Estudios

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de Amrica Latina y el Caribe sobre Asia-Pacco, Buenos Aires: Redealap/ Banco Interamericano de Desarrollo. Lora, E. (2005) Debe Amrica Latina Temerle a La China?, Departamento de Investigacin, Documento de Trabajo 536, Banco Interamericano de Desarrollo, Washington D.C. Mesquita Moreira, M. (2004) Fear of China: Is there a Future for Manufacturing in Latin America?, LAEBA Annual Conference, Beijing. Mesquita Machado, J.B. and Tinoco Ferraz, G. (2005) Comrcio Externo da China e Efeitos sobre as Exportaes Brasileiras. Brasil: CEPAL/IPEA. Oliva, C. (2003) Inversiones en Amrica Latina: La Insercin Regional de los Grupos Econmicos Chinos, Buenos Aires (mimeo). OMC (2004) Informe al Consejo del Comercio de Mercancas sobre el Examen de Transicin de China, Comit de Agricultura, Organizacin Mundial de Comercio (3 de noviembre). Oviedo, E. (2005) Crisis del Multilateralismo y Auge de la Diplomacia Bilateral en la Relacin MERCOSUR-China, VI Reunin de la Red de Estudios de Amrica Latina y el Caribe sobre Asia-Pacco, Buenos Aires: Redealap/ Banco Interamericano de Desarrollo. Pimentel Puga, F., de Castro, L.B., Rocha Ferreira, F. and Machado Nascimento, M. (2004) O Comrcio Brasil-China: Situao Atual e Potencialidades de Crescimento, Textos para Discusso 104, Rio de Janeiro: Banco Nacional de Desenvolvimento Econmico e Social. Sader, E. (2004) La Venganza de la Historia. Hegemona y Contra-hegemona en la Construccin de un Nuevo Mundo Posible, Buenos Aires: CLACSO. Sader, E. (2005) Taking Lulas Measure, New Left Review 33: 5980. Shafaeddin, S. (2002) The Impact of Chinas Accession to WTO on the Exports of Developing Countries, Discussion Papers No. 160, United Nations Conference on Trade and Development. UNCTAD (2003) Trade and Development Report 2003. New York: United Nations. UNCTAD (2005) Informe sobre las Inversiones en el Mundo 2004. El giro hacia los servicios. Nueva York y Ginebra: Naciones Unidas. World Bank (2004) Global Economic Prospects 2005: Trade, Regionalism and Development 2005. Washington D.C.: World Bank. Yeo, G. (2005) Re-encounter of Latin America and Asia, Speech by Singapore Minister for Foreign Affairs at the Annual Conference of the Council of the Americas, Washington D.C. (3 May).

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Alex E. Fernndez Jilberto is senior lecturer in International Relations at the University of Amsterdam. He has published various articles and books on the political economy of Latin America and developing countries in general. His most recent publications include the co-edited volumes Big Business and Economic Development: Conglomerates and Economic Groups in Developing Countries and Transition Economies (with Barbara Hogenboom, Routledge, 2007), Latin American Conglomerates and Economic Groups under Globalization (with Barbara Hogenboom, a special double issue of the Journal of Developing Societies, 20(34), 2004), Good Governance in the Era of Global Neoliberalism: Conict and depolitisation in Latin America, Eastern Europe, Asia and Africa (with Jolle Demmers and Barbara Hogenboom, Routledge, 2004), Labour Relations in Development (with Marieke Riethof, Routledge, 2002), Miraculous Metamorphoses: The Neoliberalization of Latin American Populism (with Jolle Demmers and Barbara Hogenboom, Zed Books, 2001), Regionalization and Globalization in the Modern World Economy: Perspectives on the Third World and Transitional Economies (with Andr Mommen, Routledge, 1998). Address: Department of Political Science, University of Amsterdam, O.Z. Achterburgwal 237, 1012 DL Amsterdam, The Netherlands. [email: fernandezjilberto@pscw.uva.nl] Barbara Hogenboom is lecturer in Political Science at the Centre for Latin American Research and Documentation (CEDLA) in Amsterdam. She writes on transnational politics, globalization processes, and political and economic development in Mexico and Latin America. Among her recent publications are various co-edited volumes, including Big Business and Economic Development: Conglomerates and Economic Groups in Developing Countries and Transition Economies (with Alex E. Fernndez Jilberto, Routledge, 2007), Latin American Conglomerates and Economic Groups under Globalization (with Alex E. Fernndez Jilberto, a special double issue of the Journal of Developing Societies, 20( 34), 2004), Good Governance in the Era of Global Neoliberalism: Conict and depolitisation in Latin America, Eastern Europe, Asia and Africa (with Jolle Demmers and Alex E. Fernndez Jilberto, Routledge, 2004), Miraculous Metamorphoses: The Neoliberalization of Latin American Populism (with Jolle Demmers and Alex E. Fernndez Jilberto, Zed Books, 2001)

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and the monograph Mexico and the NAFTA Environment Debate: The Transnational Politics of Economic Integration (International Books, 1998). Address: Centre for Latin American Research and Documentation, Keizersgracht 395397, 1016 EK Amsterdam, The Netherlands. [email: b.b.hogenboom@cedla.nl]

Journal of Developing Societies 23, 4 (2007): 467501

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