Alt+0 to show this section, Tab to navigate forward, Shift+Tab key to navigate backward, Enter to access link, and Esc to reset

Menu

04 Dec 2013

South-South ties deepen

Ben Laidler

by Ben Laidler

Head of Research, Americas, HSBC

South-South ties deepen

China has become a key investor in large Latin American sectors such as energy, mining and infrastructure

China’s companies are going global. Faced with tougher domestic competition and slow growth in the developed world, Chinese firms are exploring new markets, acquiring advanced technology and securing much-needed raw materials. The result has been a spectacular rise in China’s outbound direct investment, and Latin America is the largest recipient outside Asia.

Chinese development banks have lent more to LatAm than the IMF, World Bank and Inter-American Development Bank combined

The booming trade relationship between LatAm and China is part of the commercial connections between Asian nations and Southern Hemisphere countries dubbed ‘South-South’ trade. But it has moved beyond simple exports to Chinese bank lending and direct investment through acquisitions and start-ups.

The increased Chinese involvement comes at a time when Europe’s outbound investment – historically the largest source for LatAm – has been under pressure. European companies have been selling non-core assets, with more than 20 divestments in recent years realising over USD30 billion.

China, already the largest export destination for Brazil, Chile and Peru, has become a key investor in large Latin American sectors such as energy, mining and infrastructure. Ten state-owned enterprises account for 65 per cent of China’s USD84 billion investment in LatAm in the last nine years.

The South-South trade

  • China is the main export destination for Brazil, Chile, and Peru
  • China could become the largest trade destination for Latin America by 2030, surpassing the US
  • Chinese outbound direct investment has increased 15 fold in ten years, of which nearly 20 per cent went to Latin America
  • China’s companies are seeking new markets abroad and raw materials at home
  • Ten Chinese companies account for two-thirds of Chinese investment in LatAm
  • China is now one of the largest investors in LatAm mining, energy and infrastructure

Chinese development banks have lent more to LatAm than the IMF, World Bank and Inter-American Development Bank combined. The USD85 billion of lending since 2005 – dominated by just two banks – has focused on infrastructure, mining and energy in only four countries – Venezuela, Brazil, Argentina and Ecuador. This tends to make the transactions large and important. But as trade grows, China’s major commercial banks are also likely to increase their presence in the region.

Energy companies in China have been significant investors in Argentina, Brazil and Colombia, bringing financial strength, as well as securing valuable resources, while seeking to develop deep-water know-how. Its mining companies have also been big investors in Peru’s copper and Brazil’s iron-ore industries, as they seek security of supply.

Further Chinese involvement in Brazilian oil auctions is expected as well as investment in Brazil’s electricity sector. Chinese carmakers have captured up to 23 per cent of sales in smaller LatAm countries and even more in many truck and motorcycle markets: now they are building capacity in Brazil equal to 10 per cent of the market.

However, Latin American companies are only just beginning to invest in China. While LatAm outbound direct investment has increased 30-fold in the last two decades, 70 per cent was within the region. Although China has invested USD28 billion in Brazil since 2005, Brazil has invested just USD300 million in China.

This research was first published on 20 November 2013.
Disclaimer

Related content

The new global trade map

11 Nov 2013

Fifteen years ago China’s growth was led by exports, mainly to Western…