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What China's Economic Slowdown Means for Latin America

A looming slowdown in the Chinese economy promises trouble for China's economic partners in Latin America, especially commodity exporters.

 The growing relationship between China and Latin America is on display this week as Chinese Foreign Minister Wang Yi tours the region in a trip that will wrap up April 26. 

Wang is visiting Cuba, Venezuela, Brazil and Argentina to discuss bilateral financing and trade deals.

China's slowing economy and potential for domestic economic instability threatens to sharply lower demand for key commodities exported by Latin American countries. 

Particularly vulnerable are countries such as Brazil, Peru and Chile that have seen China rise in importance as an export destination.

Video Transcript: 

Karen Hooper: Hi, my name is Karen Hooper and I'm here with Rodger Baker, the vice president of East Asia analysis, and we're here to discuss the foreign minister of China's trip to Latin America. He's visiting Cuba, Venezuela, Argentina and Brazil, and brings up a lot of questions about the growing role of China in terms of a trade partner with Latin America, also as an important investor for a range of Latin American countries and also companies.
Rodger, tell me a little bit about China's strategic interests in Latin America. How does it view the region, what is the foreign minister really looking to achieve on a visit like this?
Rodger Baker: Well as the Chinese look at Latin America, Latin America is probably the most recent of Chinese investment targets, places where they're interested in going. They first focused on Southeast Asia, they focused very heavily on Africa, because in Africa in particular they've had a strategic advantage; they haven't had a lot of competition, particularly in countries that in the past many of the Western countries had reasons not to invest in or not to go in there.
Latin America has been a little more tricky for the Chinese. They look at the area as significant for minerals, food products, agriculture, things of that sort, as a potential marketplace, also as a place to both sell and produce low-end goods. But at the same time they keep a very cautious eye on the United States. As the Chinese have expanded their activities politically, in the maritime realm, in the military realm, throughout East Asia, even into the Indian Ocean Basin, the U.S. has certainly raised a lot of attention about what the Chinese activities are, and the Chinese are very cautious as to just how far they can step in a place like Latin America.
Karen: It seems to really stand out that the United States hasn't -- there have been a few statements concerned about Chinese involvement in Latin America -- but it hasn't really seemed to do anything very strong to try to discourage Chinese involvement. I think part of that has to do with the fact that South America in particular is largely (despite the Monroe Doctrine) left to run its own affairs. Brazil is a very powerful regional player, and certainly the Chinese have been very involved with Brazil in terms of getting a lot of Brazil's iron exports, a lot of the soybean exports out of Brazil, and then also investing quite a bit, including in manufacturing in Brazil. So the Chinese seem to be building partnerships where the United States is not present, and this is particularly true in Venezuela, where we see a very close financial relationship between China and the Venezuelan government in terms of China securing promises of oil deliveries and then promising financial aid up front.
How much can China sustain that going forward if we're looking at instability in Venezuela, if we're looking at instability in the region in general -- what keeps China there in the long haul, after this last few years of major investment?
Rodger: For the Chinese -- particularly in Venezuela -- the Chinese have somewhat of a difficult position there. They've only recently been involved in bringing out particularly the heavy end of Venezuelan oil products, and that's required the Chinese to have to think about building dedicated refineries for these products, things of that sort. So the Chinese were cautious with the amount of investment they put in there. They're also uncertain of whether or not the Venezuelan oil company's going to be able to maintain its production, even get the oil out of the ground, be able to supply it and supply it to its multiple end users.
So I think that although we see China putting money into Venezuela, they're not necessarily as free with that money as they have been in some other places. They're a little more concerned about their potential return on investment. I think the Chinese are certainly going to be trying to have discussions with the various elements within the opposition, they'll have discussions very quietly with maybe the Venezuelan military, with the Venezuelan government, just to ensure that whatever potential changes come down the road in Venezuela, coming out of this potential transition or political instability, that their interests remain protected and remain preserved. This has kind of been the pattern that they do in many countries around the world, but it's not always the easiest thing for them to be able to follow through with.
A question I would ask from the perspective of Latin America is how is China perceived? So we've seen that in some of the other places in which they are heavily invested -- in Southeast Asia, we've seen it emerge in Africa -- that China is starting to shift from being perceived as a relatively benign entity that's coming in primarily for economic relationships that the local governments can at least gain from, to seeing China as potentially not a whole lot different than the old Western imperialists. Has that sense started to come out in Latin America, or are the Latin American governments being able to manage the Chinese in a different manner?
Karen: So the biggest concern in most Latin American countries is competition from cheap Chinese goods that puts manufacturers locally out of business. This is particularly true in Brazil and in Mexico where there is a substantial industrial manufacturing base. But Latin American countries as opposed to many African countries have pretty strong governments in terms of regulating business deals and ensuring that the kinds of labor disputes that you get in Africa don't necessarily come up with that kind of frequency in Latin America because there are very, very strong requirements on hiring locals -- this is particularly true in Brazil -- that make it hard for foreign companies to come in and bring all of the labor with them and then potentially have political ramifications at home. Labor groups are very, very strong in Latin America, and because they are democratic governments that are largely responsible to the popular will, there is a great deal of concern as they look at potential partnerships to not threaten public opinion and not threaten the popularity of those governments.
Rodger: I guess the final issue is how dependent are the Latin American countries becoming on China as a market? So as we see the Chinese growth rate slow, you know, a 1 percent or 2 percent change in Chinese consumption patterns can have a tremendous impact on key export partners.
Karen: To a certain extent it depends on where those industries go. So if shipbuilding still continues to be a very strong industry but it goes to a different country, then iron exports from Brazil can shift away from China. But a slowdown overall that affects global consumption of these kinds of commodities is definitely going to hit Latin American countries --particularly Brazil, also Chile, also Peru -- that really rely on these metals exports to China right now to supply China's infrastructure development and also industrial production.
Well thank you very much Rodger that was very interesting. Thank you very much for joining us as well, please check out our website at, where we will continue to cover this issue.

Read more: Conversation: Examining China's Strategic Interests in Latin America | Stratfor
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