China's trade with Latin America set to outpace EU within two years
By 2016 China will surpass the euro zone as Latin America's second-largest trading partner
Latin America's trade with China will surpass that of the continent with Europe in two years, according to a United Nations study, with some predicting it will eventually eclipse its trade with the United States.
Chinese investment in the continent's energy and infrastructure sectors is rising rapidly, with more than US$550 billion of infrastructure projects in the market.
A study by the United Nations Economic Commission for Latin America and the Caribbean predicts China will surpass the European Union as Latin America's second-largest trading partner in 2016. Some estimates forecast that in 15 years, China will overtake the US to become Latin America's largest trade partner, according to an article by Peter Hakim and Margaret Myers in China Policy Review, a magazine of the State Council.
Trade between China and Latin America grew 8 per cent to US$255.5 billion in 2012, faster than the 6.2 per cent growth of the continent's trade with the US, according to the International Monetary Fund.
China is already the biggest trading partner of Brazil, Chile and Peru. Its trade with Brazil grew 10 per cent last year to US$83.3 billion, according to the Brazilian Ministry of Commerce.
China has been Mexico's second-largest trading partner, behind the US, since 2003. From 2002 to 2012, trade between China and Mexico, the second-largest South American economy, rose 823 per cent, said Alicia Buenrostro Massieu, Mexico's consul general to Hong Kong.
"Our concentration and interdependence with the US is huge," Massieu said. "It is important to diversify our relations."
In 2012, trade between Mexico and China grew 7.6 per cent to US$62.66 billion, according to official Mexican data. That year, Mexico imported US$56.94 billion of goods from China and exported US$5.72 billion to China, creating a trade deficit of US$51.22 billion.
"That's a huge trade deficit," Massieu said.
Mexico had been pushing hard to gain access to the Chinese market for Mexican products such as food, she said.
Rough spots have also emerged in the China-Brazil relationship, according to the paper by Hakim and Myers.
"Many in Brazil are concerned that Chinese industrial exports are cutting into Brazil's market share worldwide and making inroads into Brazilian markets," they wrote. "Brazil is troubled about the prospect that China's manufactured exports may lead to a shrinking of Brazil's industrial sector.
"China is worried about Brazil's protectionist policies in certain sectors. A reinterpretation of Brazil's land ownership laws in 2010 seemed directed at Chinese investors, as was a recent tax on motor vehicle imports."
Hayle Gadelha, the head of the trade and investment promotion office at the Brazilian embassy in China, said that in such a big economic relationship "it's normal that some frictions come up".
"There are some problems related to the embargo of Brazilian beef in the Chinese market and to permission for Brazilian aviation firms to manufacture airplanes in China, but these and other minor issues are being discussed by the two governments," he said.
Chinese investment in Chile, previously small, is rising sharply. Chile's government received investment applications totalling more than US$200 million from Chinese companies in 2012, positioning China for the first time as one of the 10 largest sources of investment applications in the country, according to the Chile Investment Review, a Chilean government publication.
Investment applications from Chinese firms in Chile jumped sixfold last year to US$1.25 billion, it said.
Meanwhile, Mexico and Brazil are planning a combined US$550 billion of infrastructure projects in the coming years. Mexican President Enrique Pena Nieto announced last year that his government expected to see more than US$300 billion in public and private spending on infrastructure in Mexico between 2013 and 2018.
Mexico and China were discussing the creation of a joint fund for investment in infrastructure in Mexico, including ports, highways, railways and airports, Massieu said, with the size of the fund still under discussion.
The infrastructure fund was looking at Chinese involvement in high-speed railway and water projects in Mexico, she said.
Chinese companies had been increasing their participation in Brazilian infrastructure and energy projects, after the Brazilian government launched a programme in 2012 that envisaged spending of US$250 billion on roads, ports, railway lines, airports and energy projects in the next decade, Gadelha said.
The year 2010 represented a turning point in Chinese investment in Brazil, with more than US$13 billion invested by Chinese firms, mainly in mining and energy, 20 times the amount invested in the three previous years, he said.
Recently, Brazil had experienced a new wave of Chinese investments focused on services and infrastructure, Gadelha said.
In October last year, an international consortium including Chinese state oil majors China National Petroleum Corp (CNPC) and CNOOC won the rights to develop the huge Libra oilfield in Brazil, which has an estimated 8 billion to 12 billion recoverable barrels. In November, PetroChina, a subsidiary of CNPC, acquired Petrobras Energia Peru, a Peruvian subsidiary of Brazilian energy giant Petrobras, for US$2.6 billion.
Massieu said China had also shown active interest in Mexican energy projects.
The Mexican government was currently liberalising its state-dominated energy sector.
"The biggest reform is the energy reform," Massieu said. "The energy sector will remain in the hands of the state, but foreign investments will be allowed in production and refining of oil. By the end of this year, we will see investments from China and other countries in Mexican energy."