After a decade of record Latin American exports to China, which helped the region grow significantly despite the recent global recession, there are signs that the honeymoon may be coming to an end.
Growing numbers of Latin American business leaders and trade experts are complaining that China is buying almost exclusively raw materials from the region, while refusing to purchase more sophisticated — and expensive — Latin American goods, thus preventing the region from having more diversified economies.
In addition, Chinese companies are bringing dubious business practices to the region, exploiting workers and destroying the environment, they say.
A recent column by former Brazilian diplomat Rubens Barbosa in the daily O Estado de Sao Paulo, says that along with an increase in trade and investments, Chinese companies in developing countries are bringing “an everything-goes culture, which includes even physical violence in labor relations.”
Citing an article in The Economist on China’s investments in Africa, Barbosa says that China “is destroying parks and forests in search of mineral and agricultural resources, and routinely violates the most elementary labor laws. Roads and hospitals built by the Chinese are badly finished, among other things because their construction companies pay bribes to local officials.”
Until now, Chinese companies had a big advantage in developing countries: their presence was not seen with suspicion, or hostility. But that’s changing, he Unfortunately, some South American governments have been fooling their populations by claiming that their recent growth was due to novel economic policies, rather than by a Chinese buying spree that may not last forever. says.
Barbosa, who served as ambassador to Washington during the Luiz Inacio Lula de Silva government and now heads the foreign trade council of Brazil’s powerful FIESP industrialists federation, said Brazilian executives working for Chinese firms are also complaining about “long work days, frequent overtime, teleconferences in the wee hours, and production goals that are unrealistic and non-negotiable.”
As a result, 42 percent of Brazilian executives working for Chinese firms quit their jobs in their first year, he said, quoting a story in the daily Folha de Sao Paulo. Barbosa concluded that China’s business practices “should be followed with attention” by government authorities, labor unions and business associations.
Almost simultaneously, a new study by the United Nations Commission for Latin America and the Caribbean (ECLAC), “Overview of Latin America’s insertion in the world economy,” shows that 87 percent of Latin America’s exports to Asia — mainly China — are raw materials, while only 13 percent are manufactured goods.
By comparison, 60 percent of Latin America’s exports to the United States are manufactured goods, and the remaining 40 percent raw materials, the study says. Clearly, one of the main pending assignments for China-dependent Latin American commodity exporting countries is to diversify their exports to China, so that they are not vulnerable to sudden price drops, it says.
“China’s demand for Latin American raw materials will continue, but at a slower pace, because the Chinese economy is slowing down,” ECLAC Executive Director Alicia Barcena told me. “We must try to go beyond exporting raw materials.”
Arturo Valenzuela, who headed the U.S. State Department’s Western Hemisphere department until last month, told me in another interview that many Latin American countries are beginning to see the United States as a more promising business partner than China.
“China is not willing to buy more sophisticated goods, such as processed soybeans, and at the same time wants to sell its sophisticated goods to the region,” he said. “That asymmetry is complicating Latin America’s situation.”
He added, “On the other hand, the United States wants to create value chains, where all sides benefit, as is the case with the auto industry in Mexico, the United States and Canada. That’s what’s most beneficial for societies, because these value chains require better education. That’s the way countries will advance, not selling raw materials.”
My opinion: China’s emergence as a major buyer of Latin American commodities has been a blessing for the region, but it has also become a problem, in that it has distracted countries from the urgent task of diversifying their exports, and producing more sophisticated goods.
Unfortunately, some South American governments have been fooling their populations by claiming that their recent growth was due to novel economic policies, rather than by a Chinese buying spree that may not last forever. Hopefully, a more realistic view will help countries seek more mature trade ties with China, which would greatly benefit the region.