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Archive for Tuesday, July 21, 2009

China unlikely to top U.S. in Latin America

July 21, 2009

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The latest figures showing that China is emerging from the global crisis sooner — and more vigorously — than anticipated is triggering speculation that China will soon overtake the United States as Latin America’s top business partner. Sounds very interesting, but don’t bet on it.

Granted, speculation about China’s impending leap to becoming Latin America’s top economic partner spread like wildfire recently when Brazil — Latin America’s biggest country — announced that it will trade more with China than with the United States this year for the first time. By April, Brazil’s two-way trade with China had reached $3.2 billion, compared with $2.8 billion with the United States, according to China’s People’s Daily.

And late last week, when China’s National Bureau of Statistics announced a surprising rebound of the country’s economy, many political commentators in Latin America saw it as new evidence of China’s imminent supremacy in the region. According to the latest projections, China’s economy is likely to grow by 8 percent this year, while the U.S. economy is likely to decline by 1.5 percent.

In addition to Brazil, several Latin American and Caribbean countries, including Argentina, Chile, Peru and Cuba, already have China as one of their top trading partners, thanks to Beijing’s massive purchases of the region’s raw materials. And as China’s economy begins to grow again at pre-crisis levels — projections show that it is poised to become the world’s second-largest economy this year — such purchases are not likely to end anytime soon.

But does that mean that China will overshadow the United States as Latin America’s top economic partner?

Many economists say that’s not going to happen in their lifetimes. While China will continue to be a major Latin American economic partner, the latest trade figures have to be taken with a grain of salt because they are distorted by the sharp drop in U.S. imports due to America’s worst economic crisis since the 1930s Depression, they say.

More important, when it comes to foreign investments in the region, U.S. corporations poured $350 billion into Latin America and the Caribbean in 2007, compared to a mere $22 billion by Chinese companies. Even if China’s foreign investments — which go mainly to trains and bridges to help take raw materials to the ports — continue at present rates, it will take decades before they catch up with America’s.

In the bigger scheme of things, as an article by Minxin Pei in Foreign Policy magazine points out, recent U.S. book titles such as “When China Rules the World” and “The New Asian Hemisphere: The Irresistible Shift of Global Power to the East” may be exaggerating China’s chances of becoming the world’s dominant power player.

“Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American. The Chinese need 47 years. For Indians, the figure is 123 years,” the article says. “And Asia’s combined military budget won’t equal that of the United States for 72 years.”

Furthermore, China faces huge challenges in coming years, including a drop in exports as the world economy shrinks, an elderly population that will soar over the next decade, and rising inequality and corruption that may exacerbate social tensions, the article says.

My opinion: China will continue to play a big economic role in Latin America, and may become an even bigger economic partner if the region manages to capture even a small fraction of the 100 million Chinese that are expected to travel abroad annually by 2020.

But, as Microsoft’s founder Bill Gates told me in an interview last year, it will be decades before China catches up with America’s technological advantage. Just consider that while American inventors are issued about 92,000 patents a year in the world’s biggest intellectual property registry, Chinese inventors are issued only about 1,225 patents (less than IBM’s 3,000 patents a year.)

For the time being, the world’s most revolutionary inventions — such as the Internet — will continue coming from the United States, and Latin America will not be able to grow and reduce poverty without inserting itself in the global economy. And that will mean, politics aside, closer technological, commercial and investment ties with its crisis-ridden but still mighty northern neighbor — and that won’t be Canada.

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