With power comes responsibility | UHY International

With power comes responsibility | UHY International:

Beijing is making its mark in Latin America.

In 2000, China was the seventh-largest export market for Latin America and accounted for less than 2% of the region's exports. Today, China accounts for 10% of Latin America's exports and is the leading export destination for Brazil and Chile. 

But that's not the whole picture. The United States and Europe remain Latin America's most important trading partners (as shown in the barchart below). And, China's rise, albeit significant, should be put in the context of a broader shift towards a world in which emerging markets have greater economic weight.

Moreover, the US remains a key provider of remittances to Latin America — accounting for 75% of the USD 60 billion the region received in 2008 — and so is a critical source of foreign exchange for many countries in the region.

Closer examination also reveals that there is a marked difference between China's importance as an export market for the Latin America region as a whole – predominantly focused on natural resources – and as an export market for Mexico, whose export products often compete with China's output.
 

But, overall, there is no question that investment into Latin America from China is increasing at a record pace. China is now the third-largest external investor in the region, behind the US and the Netherlands. 

According to the United Nations Economic Commission for Latin America, China’s foreign direct investment in Latin America reached USD 15.3 billion in 2010 and USD 22.7 billion in 2011, up from much lower levels in each of the previous nine years.

Global market implications

So what are the global market implications of China's emergence in Latin America? Significant as it is for the region’s economic prospects, China’s emergence is only one aspect of the way in which emerging economies are rapidly reshaping the global economy.

Already, in purchasing power parity terms, four of the seven largest global economies — Brazil, Russia, India and China — are 'developing' countries. According to projections by the US' Carnegie Endowment for International Peace (in its Juggernaut report on how emerging economies are reshaping globalisation), Mexico will join the world’s top seven economies by 2030 and Indonesia by 2050. 

By then, the US will be the only currently advanced country to rank among the world's seven largest economies. 

At the same time, China will become the centre of world trade, representing by far the largest trading partner for most countries. Its share of world trade will reach 24% by 2050, up from about 10% today.
 

Opportunities for Latin America 

The rise of emerging economies, including China, will create major opportunities for Latin American countries. Today, about 40 per cent of Latin America’s exports go to developing countries, including China; this figure will surge as developing countries’ share of world exports more than double from 30% in 2006 to 69% in 2050. 

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