angel or devil? chinese impact on latin america

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

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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 Presentation

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Page 1: Angel or devil? Chinese impact on Latin America

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

Page 2: Angel or devil? Chinese impact on Latin America

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”?

Page 3: Angel or devil? Chinese impact on Latin America

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 (%)

Page 4: Angel or devil? Chinese impact on Latin America

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

Page 5: Angel or devil? Chinese impact on Latin America

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)

Page 6: Angel or devil? Chinese impact on Latin America

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.

Page 7: Angel or devil? Chinese impact on Latin America

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

Page 8: Angel or devil? Chinese impact on Latin America

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

Page 9: Angel or devil? Chinese impact on Latin America

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”?

Page 10: Angel or devil? Chinese impact on Latin America

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 .

Page 11: Angel or devil? Chinese impact on Latin America

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)

Page 12: Angel or devil? Chinese impact on Latin America

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.

Page 13: Angel or devil? Chinese impact on Latin America

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?

Page 14: Angel or devil? Chinese impact on Latin America

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

Page 15: Angel or devil? Chinese impact on Latin America

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.

Page 16: Angel or devil? Chinese impact on Latin America

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)

Page 17: Angel or devil? Chinese impact on Latin America

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

Page 18: Angel or devil? Chinese impact on Latin America

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

Page 19: Angel or devil? Chinese impact on Latin America

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

Page 20: Angel or devil? Chinese impact on Latin America

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.

Page 21: Angel or devil? Chinese impact on Latin America

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”?

Page 22: Angel or devil? Chinese impact on Latin America

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

Page 23: Angel or devil? Chinese impact on Latin America

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)

Page 24: Angel or devil? Chinese impact on Latin America

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

Page 25: Angel or devil? Chinese impact on Latin America

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

Page 26: Angel or devil? Chinese impact on Latin America

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?

Page 27: Angel or devil? Chinese impact on Latin America

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?

Page 28: Angel or devil? Chinese impact on Latin America

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)

Page 29: Angel or devil? Chinese impact on Latin America

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

Page 30: Angel or devil? Chinese impact on Latin America

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

Page 31: Angel or devil? Chinese impact on Latin America

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”?

Page 32: Angel or devil? Chinese impact on Latin America

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

Page 33: Angel or devil? Chinese impact on Latin America

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

Page 34: Angel or devil? Chinese impact on Latin America

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

Page 35: Angel or devil? Chinese impact on Latin America

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