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In 2006, when Eike Batista opened Rio de Janeiro’s finest Chinese restaurant, his fortune barely made the Forbes rich list. Now, the Brazilian oil and mining magnate is the world’s eighth richest man.

Mr Batista’s estimated $30bn fortune has grown alongside Brazil’s rising trade links with China. It is also a testament to Mr Batista’s business nous that his Rio de Janeiro eatery has become a handy place to entertain his Chinese business partners. Latin America, like Rio de Janeiro’s dining scene, has changed – and it is largely thanks to China.

Bric partners: Dilma Rousseff, Brazil’s president, and Hu Jintao, her Chinese counterpart

A region once known for instability has sailed through the global financial crisis. Poverty is falling, the middle classes booming, and asset markets bubbling. This is due to a spectacular expansion of commodity- based trade. Over the past decade, fast-growing emerging countries, be they in Asia, India or Africa, have shown a near insatiable demand for the commodities that Latin America has in such abundance, whether Argentine soya, Brazilian iron ore, Chilean copper or Peruvian gold.

The change has been rapid: in 1999, trade between Latin America and China was a mere $8bn. By 2009, according to UN figures, it had grown 16 times to $130bn. By comparison, bilateral trade with the US rose by just a half over the same period.

Less well appreciated is how intra-Latin American trade has grown over the same period. During the colonial years, neighbouring countries were more likely to trade with Europe than each other. Now, growing business and infrastructure links are bridging Latin America’s huge geographical obstacles – its vast forests and giant mountain ranges – knitting the region’s economies together.

If anything, the pace of change has increased since the global financial crisis. Developed markets remain mired in sluggish growth and high debt. Meanwhile, emerging economies are surging ahead; they now account for three-quarters of global economic growth, according to the Inter- American Development Bank (IADB).

The rising middle classes of the emerging world are behind this shift. They aspire to own the same homes and cars, and eat the same foods, as their peers in the developed world. As a result, their economies have a higher propensity to consume the commodities that Latin America produces.
The effects of this shift are illustrated by the emblematic cases of Brazil and Mexico. In 2006, before the financial crisis erupted, 9 per cent of Brazil’s exports went to the other Bric countries – Russia, India and China. By 2009 that had almost doubled to 17 per cent. As a result, the Brazilian economy boomed.

Mexico has had a very different experience because its economy has closer ties to the industrialised world, especially the US. Indeed, Bric exports still account for only 3 per cent of its total. Furthermore, manufactured goods rather than commodities play a larger role in the Mexican economy.
China, therefore, is more of an economic competitor than a complement. As a result, suggests an IADB study “One Region; Two Speeds?”, Mexico’s economy has grown at half Brazil’s pace.

China’s increasing role in a region that the US has long viewed as its backyard, is a geopolitical worry for Washington. That China is now the largest trading partner of both Brazil and Chile has added to a sense of US relative decline.
“China is a very good counterweight to the US,” says a senior Brazilian diplomat. “It doesn’t take the moral high ground. More importantly, it is far away.”
This has prompted a US charm offensive in a region it can no longer afford to ignore. Yet it would be wrong to overstate China’s growing role.
Bilateral US trade with the region was $486bn in 2009, almost four times China’s total. Apart from energy, the two countries also still largely seek different goods. China imports commodities such as Chilean copper to make things.

The US economy, by contrast, is more dedicated to services. There is the potential for a healthy north-south balance.

Nor has the south eclipsed the north as a source of capital. When Brazilian investment bank BTG Pactual raised $1.8bn last year, chief executive André Esteves looked to the sovereign wealth funds of Asia and the Middle East for funding. However, some 90 per cent of the foreign direct investment flowing into Mexico and Brazil, the region’s two biggest economies, still comes from industrialised countries, according to the IADB.

Many in the region also believe that China’s growing presence comes with a cost, as cheap Chinese imports harm local industry. More Mexican sombreros and Brazilian bikinis, for example, are now made in China than in either Mexico or Brazil.

Although government criticism of China remains muted in public, diplomatic tensions over China’s undervalued currency are growing.
Indeed, such concerns point to a central question for Latin America. Can it turn the past decade’s commodity-fed boom in “south-to-south” trade into sustained growth?
The history of the continent, after all, is littered with spectacular commodity booms and busts – as displayed so eloquently in the decayed grandeur and wasted opulence of Guatemala’s faded cochineal haciendas, or Brazilian rubber farms.

The first requirement is for countries to save more by squirrelling away some of their commodity windfalls into offshore funds such as Chile’s sovereign wealth fund. Encouragingly, Brazil, Colombia and Peru are setting up similar schemes.

There is also an urgent need to increase productivity, so that Latin American economies can move up the value chain and beyond the production of raw goods. Among many things, that means better education to create a more skilled workforce. Finally, although rising fast, intra-regional trade still needs to grow. At the moment, it accounts for a fifth of total Latin American trade; in Asia it accounts for half.

The hardware of regional integration – bridges, railways and roads – is developing apace. But the software of regional trade agreements remains bugged by tariff disagreements, in spite of the often high political rhetoric that accompanies them.

A case in point is the Mercosur trade bloc, which groups Argentina, Brazil, Paraguay, Uruguay and – unlikely pending addition – Venezuela. In the past decade, trade within Mercosur has grown less than among countries outside it, or even between individual Mercosur members and other Latin American countries.

A proposed “deep integration” pact between the fast-growing and market-led economies of Chile, Peru, Colombia – and perhaps Mexico – shows more promise. With a combined gross domestic product of $1,600bn, it would also be a regional counterweight to Brazil.
The boom in “south-south” trade has altered the region’s geopolitical landscape. It has also helped lift millions out of poverty. But rising prosperity has its downside.

Building roads through the Amazonian interior can open new markets. But it also raises pristine forests and brings wildcat mining.
Illegal mining has turned the Madre de Dios region into Peru’s second largest gold producing province, but it has also tripled mercury levels in Amazonian waterways.

Then there is drug trafficking. While cocaine use in the developed world has been falling since 2004, Latin American consumption has increased and now accounts for a fifth of the $88bn a year market.

The rise of the south has seen the emerging world adopt many of the habits of the north – with a large number of good, but also some unwelcome, consequences.

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