Angel or Devil? China's Trade Impact on Latin American Emerging Markets

Abstract

This Working Paper is part of a major initiative from the Development Centre to study the impact of the "Asian Drivers" (China and India) on other developing countries in Africa, Asia and Latin America.This process culminated in the March 2006 conference organised by the OECD Development Centre that brought together experts from OECD and non-OECD countries.China's economic boom is a major global change.That the emergence of China is not new, is underlined by Angus Maddison in his seminal works for the Development Centre 1 .At the beginning of the 19th Century China still represented nearly a third of world GDP before losing ground.Over the past decade, however, the Middle Kingdom has experienced accelerated expansion.While this emergence is perceived both as a threat to and as an opportunity by other developing countries, in the Latin American context China looks more like a "trade angel" and a "helping hand" as well as being an outlet for huge amounts of commodities from the region.China's trade impact on Latin America is positive, both directly, through a boom of exports and indirectly, through better terms of trade.The emergence of China, this paper makes plain, is also a challenge for Latin American countries.It reinforces the urgent case for more reforms, in particular in the area of infrastructure, to maintain the continent's comparative advantage.For those that are benefiting from the Chinese boom, the major policy challenge will be to capitalise on the Chinese windfall without being pushed into to a raw materials corner and to remain integrated in the value chain of global production.This paper presents empirical and detailed evidence of the trade impact of China on Latin America, and finds that it is one of the regions that stands to benefit most from the emergence of this new global player.The authors emphasise the need for the region to capitalise on this windfall in a more active way.If this opportunity for Latin America is to be seized and the region is to draw the maximum benefits from its traditional endowments, its economies will need to move more actively and rapidly towards more value-added industries and avoid mere dependence on raw materials exports.

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