China/Latin America: China on course to be Latin America’s biggest trading partner by 2017

China on course to be Latin America’s biggest trading partner by 2017; Chinese oil company increases stake in Brazil’s energy sector; Business Summit report reveals the extent of Latin American FDI in China

China on course to be Latin America’s biggest trading partner by 2017

A study by the Economic Commission for Latin America and the Caribbean (ECLAC) has confirmed the likelihood that China will become the region’s most important trading partner in the next five years.

This forecast comes in the wake of the persistent financial problems troubling the EU, which has long been a major market for Latin America.  The decline of the EU is rapidly clearing the way for China to consolidate its economic presence in the region, and the latter is already the primary trading partner of Brazil, Peru and Chile.

ECLAC also flagged up the need to ‘balance the scales’ of the relationship between China and Latin America, which is currently characterised by high exports of raw materials from Latin America to China, and manufactured imports to Latin America from China.

The anticipated increase in Sino-Latin American trade is also part of an expected general boom in South-South trade, which economists predict will outstrip North-North trade within five years for the first time ever.

Chinese oil company increases stake in Brazil’s energy sector

Last week the Agência Nacional do Petróleo, Brazil’s National Petroleum Agency (ANP), approved the purchase of a 10% stake in five blocks, located in the offshore Espirito Santo Basin, by China’s state-owned oil company Sinochem.

This approval formalises a deal which was initiated in January 2012, when Sinochem bought the stakes from Perenco, a French oil and natural-gas company.  Details of the final deal can be viewed on ANP’s website, according to the website Energy-pedia.

The deal marks the latest step in the ever-increasing presence of Chinese companies in Brazil’s untapped and potentially lucrative oil frontier.

Sinochem is offering a multi-billion dollar development programme for these blocks as part of China’s ongoing policy to secure sufficient natural resources for the economy’s fuel needs, and to create a foothold for future trade with Latin America as a whole.

The Sinochem purchase is one of several billion-dollar deals brokered by China in order to capitalise on Brazil’s rising crude oil production.

In the last 12 months the company Sinopec paid $5.19bn for a 30% stake in the Brazilian arm of Galp Energia and $7bn for a 40% stake in the Brazilian arm of Repsol YPF.  Furthermore Sinochem acquired 40% of Statoil’s Peregrino field for $3.07bn in 2011.

Business Summit report reveals the extent of Latin American FDI in China

During the Sixth China-Latin America Business Summit last week, the Inter-American Development Bank (IADB) compiled a report detailing the amount of money Latin American companies have poured into China.

According to the report, total FDI in China is $858m, of which Brazil makes up $314m.  Argentina, Chile and Mexico follow, with approximately $50m of investments each.  Overall 85 Latin American companies have invested in China to date.

The report includes case studies of the experience of certain Latin American companies that are active in China such as Brazilian mining giant Vale, which exports about $20bn worth of iron ore to the country.

Another example given is the Mexican bread products manufacturer Bimbo, which currently has a presence in 27 Chinese cities and sales of $40m.

The IADB’s account presents the trading relationship with China as a mixed blessing for the region.  On one hand the Southern Cone countries have reaped the benefits of a boom in exports, as have Peru and Venezuela, which has led to bilateral trading surpluses for Brazil Chile and Peru.

Mexico and Central America have fared less well however, because the large proportion of manufactured imports has cancelled out any export gains.  This has led to significant trade deficits with for these countries.

China became a donor member of the IADB in 2009 and has become a noticeable financial presence in the institution.  The amount of credit given by China to Latin America thus far is greater than that of the IADB and World Bank put together.

The report was published in the hope of attracting the interest of India as a potential donor member and/or market for Latin American investment.