Ties good, but could be better

China and Latin American countries have deepened their economic ties over the past decade. According to China's statistics, two-way trade increased from $15 billion in 2001 to more than $ 200 billion in 2011, and Chinese investment in the region grew from $4.6 billion in 2003 to $43.9 billion in 2010. But there is still plenty of room for improvement.

China and Latin America both have benefited from their deepening economic ties. Latin American countries now get higher prices for their raw materials thanks to growing Chinese demand. In return, Latin Americans get inexpensive China-made goods. A steady supply of raw materials from Latin America has helped China's burgeoning economy and expanded the market for its finished products. In fact, China has already become the biggest trade partner of countries like Peru, Chile and Brazil.

While many developed countries are battling with low growth or even recession, China and Latin America nations experience robust growth. They are middle-income countries with a growing middle class, where internal demand is playing a bigger role in fueling economic growth. China and Latin American countries, however, need to strengthen their trade, investment and other economic ties, and expand their people-to-people exchanges.

Chile, Costa Rica and Peru already have bilateral trade agreements with China. But to increase trade, more Latin American countries have to sign similar agreements with China, and seek investment treaties to protect investment on both sides. Regional schemes, like the Asia-Pacific Economic Cooperation forum, which China and some Latin American countries are part of, and the Forum for East Asia-Latin America Cooperation, which has China and most of the Latin American countries as members, should be put to maximum use for even better results.

Perhaps in the not so distant future it is possible to see a Latin America-China summit on the lines of the Africa-China and ASEAN-China summits to bring leaders on both sides closer. After all, China's participation in the Inter-American Development Bank to help finance development projects in infrastructure and other fields is very much appreciated by Latin American countries.

The fact, however, is that some factors still obstruct the development of stronger economic ties between China and Latin America. For one, Chinese and Latin Americans lack proper knowledge of each other's language and culture, and thus temperaments. For business to increase, businesspeople on the two sides have to have a better understanding of their differences. Confucius Institutes are playing an important role in spreading Chinese language and culture in many Latin American countries. But Chinese people, too, should have knowledge of the languages and cultures of Latin America, to ensure which governments of the region should make greater efforts.

Increasing people-to-people exchanges, from the students to the highest level, is also necessary to help Chinese companies better understand Latin America and have a good relationship with the communities there.

Also, China has to diversify its investment from the primary sector to the manufacturing sector to make more value added goods in the region. The domestic markets of Latin American countries are growing and many of them have a host of preferential trade agreements with North American and European countries. Chinese companies could take advantage of these agreements to make goods for those markets.

Latin American countries now sell mainly primary goods to China and buy manufactured products from it. China should continue opening up its market and Latin American companies should endeavor to sell more of their products to China to establish a more symmetric trade pattern, which would benefit both sides greatly.

It takes a long time for people to travel from China to Latin American countries and vice-versa, with the dearth of direct flights making matters worse. So China and the region's countries should start more direct flights and simplify the visa procedures to promote business trips and tourism.

To continue their economic growth and become high-income economies, China and Latin American countries should develop their own technologies and produce more added value products. This will reduce their dependence on advanced countries, and perhaps more importantly, help increase the salaries of their workforce. The two sides should also upgrade their educational systems by increasing the number of top class universities that can produce talents with mastery of the most advanced technologies. Besides, they should take urgent steps to reduce the growing income gap to ensure that everyone shares the fruits of economic growth.

China, on its part, should address the imbalance between consumption and investment, and take measures to increase consumption as a proportion of aggregate demand by raising workers' wages, increasing social service facilities and expenditure - to improve social security - and allow a gradual revaluation of the yuan. And Latin American countries should make greater efforts to increase social mobility in areas where indigenous people still face social and economic discrimination.

The author is a professor of economics at San Marcos National University in Lima, Peru.

(China Daily 02/10/2012 page9)