angel or devil? chinese impact on latin america
DESCRIPTION
Angel or devil? Chinese impact on Latin America. Javier Santiso Chief Economist Latin America and Emerging Markets BBVA Research Department Annual Bank Conference on Development Economics (ABCDE) Amsterdam, May 23-24th 2005. INDEX. China: a new global player - PowerPoint PPT PresentationTRANSCRIPT
1
Angel or devil?
Chinese impact on Latin America
Javier Santiso
Chief Economist Latin America and Emerging Markets
BBVA Research Department
Annual Bank Conference on Development Economics (ABCDE)
Amsterdam, May 23-24th 2005
2
INDEXINDEX
China: a new global player
A positive impact on trade flows with Latin America
Two case studies: Mexico versus Brazil
Conclusion: A “blessing in disguise”?
3
Since 1978, Chinese economy has grown at a Since 1978, Chinese economy has grown at a high ratehigh rate
Economic history recalls that this situation is not new: in 1820 China represented a third of the world GDP (Maddison, 2001).
Share of world GDP (% )
2,6
3,9
6,2
4,3
012
345
67
1980 2003
China LatAmSource: BBVA, FMISource: BBVA
0
2
4
6
8
10
12
14
16
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
p
Average growth rate = 9,5%
Real GDP growth rate 1978-2006f (%)
4
Growth potential is driven by high saving and Growth potential is driven by high saving and investment rates...investment rates...
Gross domestic investment as % of GNP, 2004
05
1015
20253035404550%Gross domestic saving as % of GNP, 2004
05
10152025303540455055%
Source: BBVA, IIF
5
Source: BBVA, EIU
……low wages and competitivenesslow wages and competitiveness
Source: BBVA1 data for China until 2003; 2005-6 estimates
8,31
3,16 2,60 2,19 1,59 0,65
20,01
Wages in China are in average four times lower than in Latin America.
However, real wages grow at a significantly higher rate than in industrialised countries.
Index of average wages by countries 1980-20061
(annual, total industry, constant prices 1980 Base=1)
4080
120160200240280320360400440480520
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006e
China
USA
EMU
Mexico
Labour Costs (USD/hour) (average 1999-2002, total industry)
6
……increasingincreasing economic economic liberalisation liberalisationFDI in real terms (Billions of US dollars)
020406080
100120140
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003China Other Emerging
Source: International Institute of Finance
Total exports as % of nominal GDP, 2003
0%
20%
40%
60%
80%
100%
120%
Thaila
nd
South
Korea
China
Chile
Mexico
Venez
uela
Urugua
y
Colombia
Argen
tina
Peru
Brazil
Source: BBVA, 2004
2002 2003 2004Var. 2004
/Total 2003
Argentina 2.149 1.887 4.254 225%Chile 1.888 2.982 5.446 183%Brazil 16.590 10.144 18.166 179%Mexico 15.043 11.039 16.602 150%China 49.039 56.000 60.600 108%
Source: BBVA based on Central Banks data
FDI to 5 Emerging Countries (millions of US$)
Trade openness and FDI inflows surpass those of all Latin American countries.
7
Coastal RegionPopulation: 482 MM
GDP per cápita: $2117Share of national GDP:
58%
Interior RegionPopulation: 710 MM
GDP per cápita: $765Share of national GDP:
38%
Western RegionPopulation: 83 MM
GDP per cápita: $773Share of national GDP: 4%
China represents some 20% of the world´s
population
The middle class accounts for only 19% in
year 20031. Its weight has been
growing by 1% per annum since 1999.
1Estimate of Chinese Academy of Social Sciences. Middle class: total assets of Rmb150-300K (US$18-36K)
……and large size of its domestic marketand large size of its domestic market
8Source: BBVA, 2004
HHow ow longlong would this growth be sustainable? would this growth be sustainable?
Real GDP per cápita PPP in constant prices(US$, 2004-5 estimates)
Growth rate of GDP per cápita in China has been higher than in the golden years for L.A. main economies.
However, Chinese high growth rate is not unusual in Asia.
0123456789
10
1985
195
0
1988
195
3
1991
195
6
1994
195
9
1997
196
2
2000
196
5
2003
196
8
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
e
Brazil
China
Mexico
Real GDP per cápita PPP in constant prices(US$, 2004-5 estimates)
0
4
8
12
16
20
24
28
1985
195
0
1989
195
4
1993
195
8
1997
196
2
2001
196
6
2005
197
0
1974
1978
1982
1986
1990
1994
1998
2002
China
J apan
South Korea
Source: BBVA, 2004
9
INDEXINDEX
China: a new global player
A positive impact on trade flows with Latin America
Two case studies: Mexico versus Brazil
Conclusion: A “blessing in disguise”?
10
China´s liberalisation has heralded fair China´s liberalisation has heralded fair weather for Latin America...weather for Latin America...
Latin America´s1 exports to China in constant prices, 1970-20042
(in billions of US$, base year=1995)
0
10
20
30
40
50
60
70
80
90
100
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Source: BBVA
countries: Argentina, Brazil, Chile, Colombia Mexico, Peru, Uruguay and Venezuela 2 until Octubre (latest data available)
Trade of goods with China by country(as % of total trade)
0%
2%
4%
6%
8%
10%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Argentina
Brasil
Chile
México
Perú
Uruguay
Source: BBVA based on ALADI
As of latest available data, Peru, Brazil and Argentina increased their share of total exports to China .
11
This trade increased mainly over recent This trade increased mainly over recent years...years...
Exports (no. of times) Imports (no. of times)Argentina 43,62 -0,76Venezuela 19,46 7,66Colombia 9,67 2,36Brasil 5,38 2,83Mexico 4,62 6,39Chile 4,49 1,75Peru 4,48 3,63Uruguay 1,51 11,70
Exports (% ) Imports (% )Peru 54,73% 21,01%Uruguay 21,42% 7,03%Argentina 20,01% 23,73%Chile 17,80% 2,23%Venezuela 17,09% 16,59%Brasil 7,45% 39,73%Mexico 5,81% 11,08%Colombia 2,29% -35,15%* until October (latest data available)Source: BBVA based on ALADI database
Trade with China 1998-2004* (growth rate)
Trade with China in 2004* (growth rate)
12
What data has the study been based on?What data has the study been based on?
Panel data in 3D: 35 countries, 620 products and 5 years.
The Chinese exporting and importing structures have been compared with the one of 15 Latin American countries (plus 16 other emerging countries non LatAm, Spain, Japan and USA).
We have used the UNCTAD database that includes 620 different goods.
This database using the one and three-digit Standard International Trade Classification.
1998-2002 is the period of time considered.
13
Exports composition to one-digit.
Over recent years the exporting structure has changed, changing from one based on miscellaneous manufactured goods in 1998 to one based mainly on machinery and transport equipment in 2003.
Exports 1998 1999 2000 2001 2002 2003Machinery & transport equipment 28,0 31,1 34,2 36,8 40,3 44,0Miscellaneous manufactured goods 37,3 36,2 33,7 31,9 30,2 28,1Manufactured goods 16,0 15,3 15,4 14,8 14,5 14,0Chemicals products 5,4 5,1 4,6 4,7 4,5 4,2Food & animals 5,8 5,4 4,9 4,8 4,5 4,0Mineral fuel & lubricants 2,8 2,3 3,1 3,1 2,6 2,5Commodities 2,1 2,1 1,9 1,9 1,8 1,6Crude material (ex. Food&fuel) 1,7 1,8 1,6 1,4 1,2 1,0Beverages & tobacco 0,5 0,4 0,3 0,3 0,3 0,2Animal & vegetable oil/fat/wax 0,4 0,3 0,3 0,3 0,2 0,2Source: BBVA, Intracen 2003
What is the Chinese exporting structure?What is the Chinese exporting structure?
14
What is the Chinese importing structure?What is the Chinese importing structure?
Imports composition to one-digit.
China has developed a strong intra-industry trade.
Imports 1998 1999 2000 2001 2002 2003Machinery & transport equipment 38,8 40,5 40,3 42,3 45,3 45,9Manufactured goods 22,5 21,2 19,0 17,7 17,2 16,2Chemicals products 13,8 13,8 12,7 12,4 12,3 11,1Miscellaneous manufactured goods 7,8 7,3 6,1 7,7 7,6 8,6Crude material (ex. Food&fuel) 7,5 7,6 8,8 9,0 7,6 8,2Mineral fuel & lubricants 4,9 5,5 9,2 7,2 6,6 7,1Food & animals 2,7 2,2 2,1 2,0 1,8 1,4Commodities 1,1 1,5 1,4 1,3 1,2 1,0Animal & vegetable oil/fat/wax 0,6 0,4 0,2 0,1 0,2 0,3Beverages & tobacco 0,1 0,1 0,2 0,2 0,1 0,1Source: BBVA, Intracen 2003
15
What products does China specialize in?What products does China specialize in?
Specialisation Index (Balassa) ChinaWood products 0.46Leather products 4.53Chemicals 0.50Processed food 0.60Textiles 2.48Minerals 0.27
Basic manufactures 1.03Non-electronic machinery 0.49Fresh food 0.83
Miscellaneous manufacturing 1.73Transport Equipment 0.27Clothing 4.16Electronic components 1.05IT & Consumer electronics 1.72
Source: BBVA
The index measures the country's specialization index in exports according to the Balassa formula.
The index compares the share of a given sector in national exports with the share of this sector in world exports. Values above 1 indicate that the country is specialized in the sector under review.
16
Chinese commercial competition with Paraguay
7% 7%
8%
7%6%
5%
0%
2%
4%
6%
8%
10%
1998 1999 2000 2001 2002 2003
Competencia comercial china con Argentina
17% 16%18% 17%
15%13%
0%
5%
10%
15%
20%
1998 1999 2000 2001 2002 2003
Competencia comercial china con Chile11% 11% 11% 11%
10%9%
0%
2%
4%
6%
8%
10%
12%
1998 1999 2000 2001 2002 2003
Does China compite with Latin American countries ?
Chinese commercial competition with Uruguay19%
17% 16% 16%
13% 13%
0%
5%
10%
15%
20%
1998 1999 2000 2001 2002 2003
Source: Blázquez, Rodríguez and Santiso, BBVA (2005)
17
Does China compite with Latin American countries ?
Source: Blázquez, Rodríguez and Santiso, BBVA (2005)
Chinese commercial competition with Costa Rica
31%26%
28%33% 36%
31%
0%
10%
20%
30%
40%
1998 1999 2000 2001 2002 2003
Chinese commercial competition with El Salvador
21%23% 23%
27% 26%24%
0%
10%
20%
30%
1998 1999 2000 2001 2002 2003
Chinese commercial competition with Guatemala
16%15% 16%
17%
16%
18%
13%
14%
15%
16%
17%
18%
19%
1998 1999 2000 2001 2002 2003
Chinese commercial competition with Panama
12% 11% 11% 11%10%
8%
0%
2%4%
6%
8%
10%12%
14%
1998 1999 2000 2001 2002 2003
18
Does China compite with Latin American countries ?
Source: Blázquez, Rodríguez and Santiso, BBVA (2005)
Chinese commercial competition with Bolivia
11% 12% 11% 11%
8% 8%
0%2%
4%6%8%
10%
12%14%
1998 1999 2000 2001 2002 2003
Chinese commercial competition with Colombia
19%
16%19%
21%19% 18%
0%
5%
10%
15%
20%
25%
1998 1999 2000 2001 2002 2003
Chinese commercial competition with Peru17%
16%17% 17%
15%13%
0%
5%
10%
15%
20%
1998 1999 2000 2001 2002 2003
Chinese commercial competition with Venezuela11%
8%
9%8%
7%6%
0%
2%
4%
6%
8%
10%
12%
1998 1999 2000 2001 2002 2003
19
What indexes of competition have we used?What indexes of competition have we used?
We want to see if the exports of Latin American countries coincides with Chinese export, i.e. if a potential cost exists.
Coefficient of conformity =
n
njt
n
nit
n
njt
nit
aa
aa
22 )()(
Coefficient of specialisation =
Where ajt y ait are the share of good “n” over the total exports of country j e i in time t (where j is China)
n
njt
nit aa
211
20
With the exception of Mexico, China does With the exception of Mexico, China does not compete with Latin Americanot compete with Latin America
Countries less harmed by the Chinese competition
Countries most harmed by the Chinese competition
CS CC CIParaguay 0.10 0.04 0.07Venezuela 0.11 0.08 0.10Bolivia 0.14 0.08 0.11Chile 0.16 0.06 0.11Panama 0.14 0.09 0.11Russia 0.17 0.08 0.12Honduras 0.18 0.08 0.13Guatemala 0.23 0.10 0.16Uruguay 0.21 0.12 0.17Peru 0.22 0.12 0.17Argentina 0.22 0.12 0.17Colombia 0.25 0.15 0.20El Salvador 0.31 0.19 0.25Brazil 0.32 0.25 0.28Costa Rica 0.32 0.26 0.29
Source: BBVA (2005)
CS CC CISingapore 0.41 0.46 0.43USA 0.44 0.44 0.44Malaysia 0.43 0.48 0.46Poland 0.46 0.45 0.46Korea 0.47 0.49 0.48Turkey 0.46 0.52 0.49Mexico 0.50 0.50 0.50Rumania 0.46 0.59 0.52Hungary 0.52 0.57 0.55Thailand 0.55 0.59 0.57
Source: BBVA (2005)
Among the 15 countries less harmed by Chinese competition, there are 14 Latin American countries.
21
INDEXINDEX
China: a new global player
A positive impact on trade flows with Latin America
Two case studies: Mexico versus Brazil
Conclusion: A “blessing in disguise”?
22
Mexico: Global competition with ChinaMexico: Global competition with China
Chinese trade competition
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.0 0.1 0.2 0.3 0.4 0.5 0.6CS
CC
Mexico
Brazil
Source: BBVA
Colombia
VenezuelaChile
ArgentinaPeru
Chinese trade competition
0.200.250.300.350.400.450.500.550.600.65
0.30 0.35 0.40 0.45 0.50 0.55 0.60CS
CC
Mexico
Hungary
Thailand
Spain
Czech R.Poland
Source: BBVA
USA
Japan
23
Mexico: The dragon attacks?Mexico: The dragon attacks?
Chinese competition with Mexico has been increasing until 2003 (latest data available).
Chinese commercial competition with Mexico
49%
51%52%
54% 54%
52%
46%
48%
50%
52%
54%
56%
1998 1999 2000 2001 2002 2003Source: Blázquez, Rodríguez and Santiso, BBVA (2005)
24
Competition of exports to the US marketCompetition of exports to the US market
Share of US total imports (%)
2,5%
4,5%
6,5%
8,5%
10,5%
12,5%
14,5%
16,5%
18,5%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
/7
Japan
China
Source: BBVA based on BEA
Canada
Chinese exports to the US grew in 2002 and 2003 at an annual rate of 26% vs. 2% for Mexican exports.
Although it is not clear that China has gained market share at the expense of Mexico exclusively.
Share of US total imports (%)
2,5%
4,5%
6,5%
8,5%
10,5%
12,5%
14,5%
16,5%
18,5%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
/7
México
China
Source: BBVA based on BEA
25
What could Mexico do?What could Mexico do?
Nominal rate Estimated PPA USA Mexico1990-1995 3.64 3.67 3.45 3.4 19.21996-1999 8.55 8.48 7.93 2.3 22.22000-2004 10.11 11.58 10.82 2.5 6.02005-2008f 12.41 11.59 2.5 3.9
Long term Inflation
A passive adjustment: Depreciation of nominal exchange MEXICAN PESO
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
ObservedEstimated
PPA average 1990-2004
Source: BBVA
12,20
26
11,700 Km
• Lower Transportation and Communication Costs• Access to Regional Preferential Trade Agreements (FTAs)• Short Delivery Time
Mexico´s competitive edge may be greatest on time-sensitive exports. Proximity to US implies Latin America can use inexpensive transport by land, rather than ocean shipment.
Ocean shipping times
24 DAYS
160 Km4 DAYS
Advantages of Mexico´s Geographical Location:
What could Mexico do?What could Mexico do?
27
World Bank
US$/TEU
CMPCH Index
LSU Index
Singapore 1 0.38 0 0.33 2 6.76 6.72 117 NA NAHong Kong 0 0.25 0 0 NA 6.38 5.46 NA NA NATaiwan 0.5 0 0 0 NA 5.18 4.49 140 163 NAJapan 0.75 0.13 0.89 1 NA 5.16 5.16 250 202 NAMalaysia 0 0.25 0 0.38 7 4.95 5.76 75 NA NASpain 0 0.06 1 0 4 4.88 6.08 200 105 NAKorea 0 0.38 0 0 NA 4.12 5.22 NA NA NAThailand 0.5 0.63 0 0.38 4 3.98 5.12 93 NA NAArgentina 0 0.13 0 1 7 3.81 4.52 NA 139 NAVietnam 0 0 0 0.5 NA 3.81 5.02 NA NA NAChile 0 0.25 0.43 1 3 3.76 6.05 202 100 NAChina 0.5 0 0 0 7 3.49 4.44 110 NA NAIndonesia 1 0.06 0 0.38 5 3.41 4.06 NA NA NAMexico 0.5 0.38 0 1 4 3.34 2.61 NA NA NAVenezuela 0 0 1 1 11 3.28 3.63 NA NA NAEl Salvador 0 0 0 1 4 2.95 2.3 NA NA 61Brazil 0.5 0.75 0 1 10 2.92 4.45 328 292 NAPeru 0.5 0 0.5 1 7 2.88 3.32 NA 142 NAIndia 0 0 0 1 NA 2.79 4.28 NA NA NAPhilippines 0.5 0 0 0.38 7 2.79 3.51 118 NA NAEcuador 0 0 0.43 1 15 2.63 3.65 NA 139 NACosta Rica 0 0 0 1 4 2.46 3.28 NA NA 68Colombia 0.5 0.13 0.5 1 7 2.26 1.88 NA NA NABolivia NA NA NA NA 9.5 1.61 4.38 NA NA NAUruguay 0 0 0 1 5 NA NA NA NA NANA: Not AvailableSource: Data for the first 4 columns was kindly provided by Carsten Fink, Aaditya Mattoo, and Ileana Cristina Neagu* (2002).
Container Handling ChargesCooperative
Agreements Index
Median Clearance time (Days)
Port Efficiency Index (1-7)
Crime Index (1-7)Country
Cargo Handing
Restriction Index
Mandatory Services
Index
Price Fixed Agreements
Index
What could Mexico do?What could Mexico do?
28
Brazil: an intermediate pointBrazil: an intermediate point
Brazil has the third highest competition level with China, although in a decreasing trend.
Chinese commercial competition with Brazil
25%27%
30% 30%
28%
25%
22%
24%
26%
28%
30%
32%
1998 1999 2000 2001 2002 2003
Source: Blázquez, Rodríguez and Santiso, BBVA (2005)
29
Fuente: SECEXFuente: BBVA
Brazil: an intermediate pointBrazil: an intermediate point
Brazil maintains recurrent trade surplus with China, which has become its fourth largest export market.
Brazilian trade surplus with China
574
966
2.385
1.729 1.694
0
500
1000
1500
2000
2500
3000
2001 2002 2003 2004 2005e
millions of US$
United States 22,6% 1º United States 21,1%Argentina 11,2% 2º Argentina 7,6%Netherlands 5,4% 3º Netherlands 6,1%Germany 5,3% 4º China 5,6%Japan 4,6% 5º Germany 4,2%Italy 3,8% 6º Mexico 4,1%Belgium 3,8% 7º Italy 3,0%United Kingdom 3,0% 8º Japan 2,9%France 2,5% 9º Chile 2,6%Spain 2,4% 10º France 2,3%Mexico 2,2% 11º United Kingdom 2,2%Chile 1,9% 12º Spaim 2,1%Russia 1,6% 13º Belgium 2,0%Paraguay 1,6% 14º Russia 1,7%China 1,4% 15º Venezuela 1,5%
1999 2004Destination of Brazilian exports by country
30
0.05
0.06
0.07
0.08
0.09
0.10
0.11
0.12
ene-
89
ene-
90
ene-
91
ene-
92
ene-
93
ene-
94
ene-
95
ene-
96
ene-
97
ene-
98
ene-
99
ene-
00
ene-
01
ene-
02
ene-
03
ene-
04
Herfindahl-Hirschmann Index for Brazilian exports by country of destination
mor
eco
ncen
tratio
nm
ore
dive
rsifi
catio
nn
Source: BBVA
Brazil is diversifying its exports by country of destination to reduce geographical dependence.
Brazil: an intermediate pointBrazil: an intermediate point
However, the composition of Brazilian exports by sectors has barely changed.
Herf indahl-Hirschmann index of diversif ication for Brazilian exports by sectors, 1990-2003
0,000,020,040,060,080,100,120,140,160,180,20
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: BBVA based on WTO
-+
dive
rsific
atio
n
31
INDEXINDEX
China: a new global player
A positive impact on trade flows with Latin America
Two case studies: Mexico versus Brazil
Conclusion: A “blessing in disguise”?
32Source: BBVA, World Metal Statistics
Aluminium: consumption 1994 (% of total)
NAFTA31%
China8%
Rest37%
European Union24%
Aluminium: consumption 2003 (% of total)
NAFTA24%
China19%
Rest36%
EuropeanUnion21%
Copper: consumption 1994 (% of total)
NAFTA27%
China7%
EuropeanUnion28%Rest
38%
Copper: consumption 2003 (% of total)
NAFTA19%
China20%
EuropeanUnion23%Rest
38%
Chinese booming demand of metals and Chinese booming demand of metals and other commoditiesother commodities
33
In 2003, Chinese imports of nickel were duplicated, those of copper increased 15%, of soybean 70% and of crude 30%. In addition, China consumed 50% of world cement, 30% of coal and 36% of steel.China has become the greater consumer of copper, tin, zinc, platinum, steel and iron.
Chinese booming demand of metals and Chinese booming demand of metals and other commoditiesother commodities
Zinc: consumption 1994 (% of total)
NAFTA20%
China11%
Rest42%
EuropeanUnion27%
Source: BBVA
Zinc: consumption 2003 (% of total)
NAFTA16%China
21%
Rest39%
EuropeanUnion24%
Source: BBVA
34
2004*
Venezuela 83.1%
Peru 70.7%
Chile 59.1%
Colombia 46.3%
Argentina 38.0%
Brazil 29.6%
Mexico 14.6%
Latam 31.2%* data until Octuber
Source: BBVA based on national statistics
Total exports Exports of commodities/
BBVA-MAP Latam index monitors the trading prices of commodities in the region.
A “blessing in disguise” for Latin America?A “blessing in disguise” for Latin America?
Primary products account for more than a third of Latin America exports, except for Mexico and Brazil: risk of “Dutch disease”?
-1%
0%
1%
2%
3%
4%
5%
6%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
-30%
-20%
-10%
0%
10%
20%
30%GDP and BBVA-MAP Latam
Source: BBVA
GDP growth rate
BBVA-MAP growth rate
Correlation = 0,65
35
Angel or devil?
Chinese impact on Latin America
Javier Santiso
Chief Economist Latin America and Emerging Markets
BBVA Research Department
Annual Bank Conference on Development Economics (ABCDE)
Amsterdam, May 23-24th 2005