Latin America and the Asian giants

Latin America and the Caribbean have not fully capitalized on the new Asia-Pacific development hub; especially China and India, which require natural resources and are potential markets for emerging economies in the Americas. The region, as a potential market, has not yet been tapped, according to Osvaldo Rosales and Mikio Kuruyama in their report entitled Latin America meets China and India: Prospects and challenges in trade and investment (published in Spanish).

The two researchers prepared the report for the UN’s Economic Commission for Latin America and the Caribbean (ECLAC). The authors argue that a persistent focus on Europe and the United States has prevented Latin America and the Caribbean from noticing all available opportunities in the major Asian markets.

India and China: The axis of the world’s economy

China and India, after more than a decade of steady development, have succeeded in becoming the most dynamic economies in the world. Their success has been based on strong investment and trade liberalization, with huge populations supplying the most manpower on earth.

As such, Rosales and Kuruyama emphasize that "the high forecasted growth for China and India will maintain these countries in their role as the most important hub of the global economy in the coming years. This, in turn, offers Latin America and the Caribbean as a market for their export products with immense potential." So far our region has not taken of this situation, whereas it has failed to develop links or invest in increased penetration in these markets.

India and China involve different development models, which require separate analysis techniques. For example, the report notes that in China "the industrial sector has been the engine of growth and has increased the share of services in GDP, while agriculture has declined. The dynamism of the Chinese export sector is their budget surpluses."

India has different characteristics. Its pervasive use of English, as a former British colony, gives it competitive advantages. "The Indian economy has been marked by a major structural change: the percentage of its GDP from services has increased, while the agricultural sector has clearly diminished. It is projected that India will maintain its pace of growth in the coming years and that the service sector will remain the engine of economic development. As for the manufacturing sector, its role in India is less dominant than in China and increases in productivity much less pronounced."

Therefore, China must supply its industry with more raw materials. For its part, India is a market where there are more opportunities to sell products. And in this respect, the report makes a relevant comment. "Another important difference between China and India is that Indian trade is less open than that of the Chinese. While China has lower linear tariffs, India still has pockets of protectionism, especially in the agricultural sector. "

Trade with Latin America and the Caribbean

Our region has worked diligently in sending its resources to the two giants, especially China. It has become "a major consumer of raw materials, minerals, energy and, to some extent, food and industrial products."

Consequently, trade has grown considerably in recent years. There are some caveats in the sub-regions of South America, however. "While South America has surpluses, Mexico and Central America have increasingly larger trade deficits. On the other hand, the structure of exports from Latin America and the Caribbean to China and India is characterized by a concentration in natural resources and manufactured goods based on natural resources, in sharp contrast with the structure of Latin American trade, which has a pronounced percentage of medium-technology products."

Rosales and Kuriyama indicate that Mexico, former home to many US companies, is witnessing the exit of same to China or India, even as their trade deficits with Asia increase. Chile’s free market strategy focused on the Asia-Pacific region has enabled it to establish strong trade ties, thereby becoming the country that has best managed the new scenario.

The authors propose that Latin America and the Caribbean is form alliances to achieve long-term contracts for the supply of commodities. At the same time, the region’s industry should fully incorporate itself into international value chains, where they can participate in the global manufacturing network of parts and components or the provision of services to businesses worldwide.

The authors conclude that “there is no” Great Wall of China which interposes itself between the strengthening of economic ties with the Asia-Pacific and increased regional integration. On the contrary, “with the right policies and political will from both sides, it is possible to build a dynamic complementarity between the two strategic options."