China and Latin America–A Changing Relationship

Dr. Scott MacDonald's picture

During the early years of the 21st century Chinese multinational companies (MNCs) actively engaged in Latin America. An abundance of natural resources and a growing Latin American middle class fit China’s needs for essential raw materials and a growing Latin American middle class fit the Asian country’s need for overseas markets. In turn, Latin America was able to diversify export markets for its oil, copper and soybeans.

This helped fuel strong economic growth, while Chinese foreign direct investment helped improve regional infrastructure. China also provided a number of Latin American and Caribbean governments the option of reducing past economic dependency on the United States. For China, the expansion of trade and investment linkages provided an opportunity to penetrate a region traditionally perceived as Washington’s “backyard.” Along these lines, in January 2015 President Xi Jinping pledged $250 billion in Chinese investment in Latin America over the next 10 years, some of which is expected to go into Brazil’s recently proposed railroad that would link the Atlantic and Pacific Oceans via Peru. But now comes the hard part for Chinese MNCs and policymakers – Latin America’s economic prospects have dimmed and there is a growing crisis in confidence throughout the region. According to the International Monetary Fund, real GDP growth for Latin America and the Caribbean is expected to slip from a poor 1.3% in 2014 to 0.9% in 2015, before recovering to a still anemic 2.0% in 2016. Interest rates in the United States are set to go up sometime in 2015, which in the past has caused economic turmoil south of the border. Corruption scandals are causing social turmoil in Argentina, Brazil and Mexico, while Venezuela’s mismanaged economy is heading toward collapse. China has invested in Latin America, but it now will be tested as to the sustainability of its commitment.