Towards a new partnership with China

222 Pages·2015·2.129 MB·English

by  OECD

Latin American Economic
Outlook 2016
TOWARDS A NEW PARTNERSHIP WITH CHINA
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Foreword
The Latin American Economic Outlook analyses issues related to Latin America’s
economic and social development. Ever since the first edition was launched at the
17th Ibero-American Summit of Heads of State and Government in November 2007 in
Santiago (Chile), the report has offered a comparison of Latin American performance
with that of other countries and regions in the world, sharing experiences and good
practices with the region’s public officials.
Since 2011, the report has been published in conjunction with the United Nations
Economic Commission for Latin America and the Caribbean (ECLAC) and has tied in
with the economic theme of the annual Ibero-American Summit organised by the Ibero-
American governments and Ibero-American General Secretariat (SEGIB). In 2013, CAF
– Development Bank of Latin America joined the team of authors. This edition was
released at the CAF Annual Directors’ meeting in Montevideo (Uruguay) in November
2015 and at the SEGIB Summit of Foreign Affairs Ministers held in Cartagena (Colombia)
in December 2015.
Each edition includes a macroeconomic analysis and explores how the global context
influences the region’s economy. This report also includes a chapter that analyses the role
of China and Latin America in the process of shifting wealth as well as a chapter on the
growing trade linkages between Latin America and China. Finally, the report includes a
chapter that discusses the trends in the relationship between China and Latin America,
given the changing patterns of China’s development strategy. All chapters analyse and
make recommendations about the region’s challenges and priorities regarding economic
development and structural policies.
This ninth edition focuses on the growing bond between China and Latin America
in a context where the world’s economic centre of gravity has shifted away from OECD
economies towards emerging economies during the past two decades, a phenomenon
called shifting wealth. It provides in-depth analysis of where Latin America stands with
China and where ties have evolved well beyond trade. These inputs will contribute to
understanding the upcoming challenges and opportunities for Latin America, so as
to adopt specific reforms to boost inclusive growth and build a mutually beneficial
partnership with China.
LATIN AMERICAN ECONOMIC OUTLOOK 2016 © OECD/UNITED NATIONS/CAF 2015 3

Acknowledgements
This report was jointly produced by the Economic Commission for Latin America and
the Caribbean (ECLAC), CAF – Development Bank of Latin America, and the Development
Centre of the Organisation for Economic Co-operation and Development (OECD).
For this edition, the contribution to this report of the Development Centre was led
by Ángel Melguizo, Head of the Latin America and Caribbean Unit, with support from
Rolando Avendaño and José Ramon Perea, under the guidance of Mario Pezzini, the
Director of the OECD Development Centre. ECLAC’s contribution was led by Economic
Affairs Officer, Sebastián Rovira, and that of CAF Development Bank of Latin America
by Senior Economist, Adriana Arreaza. Production of this report was co-ordinated by
Rolando Avendaño.
This report benefited from the research, drafting and fruitful collaboration between
many authors across these organisations, including: Adriana Arreaza (CAF), Rolando
Avendaño (OECD), Carolina Camacho (CAF), Paula Cerutti (OECD), Pauline Charousset
(OECD), Abelardo Daza (CAF), Guillermo Díaz (CAF), José Duran (ECLAC), Ariel Gruver
(OECD), Anna Jankowska (OECD), Sammy Libos (OECD), David Lopez (OECD), Ricardo
Martner (ECLAC), Ángel Melguizo (OECD), Nanno Mulder (ECLAC), Juan Obach (OECD),
José René Orozco (OECD), Sebastián Nieto-Parra (OECD), Andrea Pellandra (ECLAC),
Nicole Perelmuter (CAF), José Ramón Perea (World Bank, former OECD), Daniela Trucco
(ECLAC), Juan Vazquez Zamora (OECD), Dayna Zaclicever (ECLAC). Special thanks go
as well to external experts for providing boxes on a range of topics including Ignacio
Bartesaghi (Latin America-Asia Pacific Observatory), Juan Blyde (IDB), Cui Shoujun
(Renmin University of China), Jeff Dayton-Johnson (Middlebury Institute of International
Studies at Monterey), Chris Garroway (UNCTAD), Helmut Reisen (ShiftingWealth
Consulting, former OECD), Amelia Santos (UNCTAD) and Carol Wise (University of
Southern California). The OECD Development Centre is especially thankful to Margaret
Myers (from the Inter-American Dialogue) for her close collaboration in the preparation
of this report. The Centre is also grateful to Peilin Liu (Development Research Center of
the State Council of the People’s Republic of China) for his involvement in the project.
The launch of the report was co-ordinated and organised by Rita Da Costa and Ana
Gonzalez, who also provided administrative support throughout its elaboration.
The content of the report was also enriched by constructive feedback received
during the Experts’ Meeting which took place in Paris on 1 July, 2015. We are particularly
grateful to the experts who joined us for this rich discussion as well as to those who
sent us their comments including José Antonio Ardavin (OECD), Jens Arnold (OECD),
Ignacio Bartesaghi (ALADI and Latin America-Asia Pacific Observatory), Thomas
Bonschab (TiNC International GmbH), Melody Chang (OECD), Mario Cimoli (ECLAC),
Cui Shoujun (Renmin University of China), Carl Dahlman (OECD), Christian Daude
(OECD), Jeff Dayton-Johnson (Middlebury Institute of International Studies at Monterey),
Enrique Dussel Peters (UNAM), Robert Ford (OECD), Sonsoles Gallego (Bank of Spain),
Nicola Harrington (OECD), Irène Hors (OECD), Rhys Jenkins (University of East Anglia),
Przemyslaw Kowalski (OECD), Peilin Liu (Development Research Center of the State
Council of the People’s Republic of China), Alexandre Kolev (OECD), Kui-Wai Li (City
University of Hong Kong), Andrés López (University of Buenos Aires), Anu Madgavkar
(McKinsey Global Institute), Alvaro Méndez (LSE), Nanno Mulder (ECLAC), Margaret Myers
(Inter-American Dialogue), Mauro Pisu (OECD), Carlos Quenan (Institut des Amériques),
Annalisa Primi (OECD), Helmut Reisen (ShiftingWealth Consulting), Federico Poli (former
SEGIB), Juan Ruiz (BBVA Research), Amelia Santos (UNCTAD), Kensuke Tanaka (OECD),
Daniel Titelman (ECLAC), Jingjing Xia (OECD) and Juan Yermo (OECD) .
LATIN AMERICAN ECONOMIC OUTLOOK 2016 © OECD/UNITED NATIONS/CAF 2015 5
ACKNOWLEDGEMENTS
The country notes also benefited from constructive scrutiny and verification by
delegations to the Governing Board of the OECD Development Centre from Chile and
Mexico as well as the Embassies in France of Argentina, Brazil, Colombia, Costa Rica, the
Dominican Republic, Panama, Peru and Uruguay.
The OECD Development Centre would also like to express its sincere gratitude to
the Chilean Ministry of Finance, the Chilean Ministry of Foreign Affairs, the Spanish
Ministry of Foreign Affairs and Cooperation, the Swiss Development Agency, the CAF
and the Office of Outreach and Partnerships (ORP) at the Inter-American Development
Bank for their financial backing of the Latin American Economic Outlook. The Centre is also
grateful to the Ibero-American General Secretariat (SEGIB) and its Secretary-General,
Rebeca Grynspan, for their continued support to the report.
Finally, many thanks go to the Publications and Communications Unit of the OECD
Development Centre for their steadfast patience and expedient work on the production
of this report and associated materials. In particular, a special thanks to Aida Buendía,
Delphine Grandrieux, Vanda Legrandgérard, Louise Schets and Bochra Kriout (Media
Relations). We also appreciate the support received from the OECD Public Affairs and
Communication Directorate, including that of Anne-Lise Prigent and Laurence Gerrer-
Thomas. The authors also sincerely appreciate the editing activities undertaken by
Wanda Ollis and Colm Foy, and translation services provided by Yolanda Bravo Vergel
and Lidia García de Vicuña.
6 LATIN AMERICAN ECONOMIC OUTLOOK 2016 © OECD/UNITED NATIONS/CAF 2015
Table of contents
Foreword ...................................................................................................................................................................................................3
Acknowledgements ...........................................................................................................................................................................5
Acronyms and abbreviations ....................................................................................................................................................11
Editorial ....................................................................................................................................................................................................15
Executive summary .........................................................................................................................................................................17
Chapter 1. Towards a partnership for development between Latin America and China 19
References .......................................................................................................................................................................................32
Chapter 2. Macroeconomic prospects for Latin America ........................................................................................35
China: A game-changer for macro prospects in Latin America and the Caribbean? .....................36
Macroeconomic trends in Latin America: Looking for potential .................................................................41
China’s demand shocks effects on Latin America: Much ado about something? .............................55
Actions for the short term and beyond ........................................................................................................................61
References .......................................................................................................................................................................................63
Chapter 3. Shifting wealth, China’s new normal and Latin America ............................................................65
The role of China and Latin America in shifting wealth I ................................................................................66
Towards shifting wealth II: The role of China ..........................................................................................................72
China, Latin America and the middle-income trap: An exploratory analysis ....................................80
Concluding remarks ..................................................................................................................................................................84
Notes ...................................................................................................................................................................................................85
References .......................................................................................................................................................................................86
Chapter 4. Trends and opportunities in trade between China and Latin America ..............................91
Is low bilateral trade growth here to stay? .................................................................................................................92
Manufactured imports from China and their implications for regional competitiveness ..........98
Global and bilateral linkages between Latin America and China ............................................................105
Notes ................................................................................................................................................................................................128
References ....................................................................................................................................................................................130
Chapter 5. Future trends and scenarios for a Latin America-China Partnership ...............................133
Latin America’s structural challenges and the way forward ......................................................................134
Identifying the trade effects of China’s new normal in Latin America ................................................135
China’s rebalancing and Latin American exports ..............................................................................................135
Structural transformation and skills ..........................................................................................................................143
Financial and investment channels: Lending and firm internationalisation ..................................149
China´s new role in global governance ......................................................................................................................160
Policy responses for the long term: China and Latin America’s development path .....................162
Notes ................................................................................................................................................................................................171
References ....................................................................................................................................................................................173
Annex 5.A1. China’s rebalancing and impact on Latin American exports .........................................176
Empirical strategy ...................................................................................................................................................................176
Cluster analysis .........................................................................................................................................................................176
Notes ................................................................................................................................................................................................184
References ....................................................................................................................................................................................184
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TABLE OF CONTENTS
Country notes
Argentina ..............................................................................................................................................186
Brazil ......................................................................................................................................................189
Chile .......................................................................................................................................................193
Colombia ...............................................................................................................................................196
Costa Rica .............................................................................................................................................199
Dominican Republic ............................................................................................................................202
Mexico ...................................................................................................................................................205
Panama .................................................................................................................................................208
Peru ........................................................................................................................................................211
Uruguay .................................................................................................................................................214
Methodological note ...........................................................................................................................217
Figures
1.1. Global value chains in Latin America and China .....................................................................21
1.2. Evading the middle-income trap in Latin America ..................................................................23
1.3. Projections for Latin American exports to China, by clusters of countries, 2010-30 ..........25
1.4. Skill projections in Latin America and China, 2013-30 ............................................................27
1.5. Loans to Latin America from China and from selected multilateral organisations ...........30
2.1. Economic growth outlook by groups of economies ..................................................................37
2.2. Impact of China over economic growth in developing countries ..........................................38
2.3. Portfolio flows to emerging markets and global risk aversion ...............................................39
2.4. Selected commodity prices ..........................................................................................................40
2.5. An illustration of the cyclical position of selected Latin American and Caribbean
economies .......................................................................................................................................42
2.6. GDP growth in Latin America and demand component’s contribution ................................43
2.7. Duration and amplitude of investment contraction cycles in selected economies
in Latin America and the Caribbean .......................................................................................... 44
2.8. Investment rates in selected economies in Latin America and the world .......................... 45
2.9. Contribution to real GDP growth in Latin America and the Caribbean and selected
groups of economies ..................................................................................................................... 46
2.10. Trends in output growth in selected economies in Latin America .......................................47
2.11. Inflation rate and targets in selected economies in Latin America ......................................49
2.12. Exchange rate in relation to USD in selected economies in Latin America .........................49
2.13. Fiscal impulse and output gap in selected economies in Latin America..............................51
2.14. Public debt in selected economies in Latin America ................................................................52
2.15. Fiscal stance in selected economies in Latin America ............................................................53
2.16. Current account deficit and capital flows in selected economies in Latin America ..........54
2.17. Non-financial corporate sector securitised debt in selected economies
in Latin America .............................................................................................................................55
2.18. GDP growth and inflation rates: Hard-landing versus a soft-landing scenario in China .....56
2.19. Commodity prices and interest rates: Hard-landing versus a soft-landing
scenario in China ...........................................................................................................................57
2.20. GDP growth in selected Latin American countries: Hard-landing versus a soft-landing
scenario in China ...........................................................................................................................58
2.21. Exchange rates in selected Latin American countries: Hard-landing versus
a soft-landing scenario in China .................................................................................................59
2.22. Inflation in selected Latin American countries: Hard-landing versus a soft-landing
scenario in China ...........................................................................................................................60
8 LATIN AMERICAN ECONOMIC OUTLOOK 2016 © OECD/UNITED NATIONS/CAF 2015
TABLE OF CONTENTS
3.1. Contribution to global growth, by areas ....................................................................................67
3.2. Catch-up cycle ................................................................................................................................68
3.3. Middle-sectors population (income between USD 4 and USD 50 PPP)
vs per capita GDP ...............................................................................................................................................................69
3.4. Diversification in export industries, selected emerging economies .................................... 70
3.5. Investment ratio vs. industry value added ................................................................................72
3.6. Old and young dependency rates (2015 and 2030) ....................................................................74
3.7. Index of capabilities vs. manufacturing share of exports in selected economies
(2000-13) ..........................................................................................................................................76
3.8. Spending on R&D ...........................................................................................................................76
3.9. Evading the middle-income trap (selected countries) .............................................................81
3.10. Middle-income trap determinants: China and Latin American upper-middle income
vs average high-income country ................................................................................................ 83
4.1. Value of goods trade between Latin America and China, 2000-14 .........................................92
4.2. Structure of Latin American trade with the world and China by technological
intensity, 2013 ................................................................................................................................ 94
4.3. Latin American exports to China by product, 2000-13 ............................................................94
4.4. Agricultural trade between Latin America and China, 2000-13 .............................................96
4.5. China’s shares of agricultural imports from selected partners, 2000-14 ..............................97
4.6. Composition of Latin American agricultural exports to China..............................................97
4.7. Chinese and world import penetration of manufacturing,
selected countries and years ......................................................................................................100
4.8. Import market shares in the United States and Latin America, 2000-14 ............................101
4.9. Evolution of the Index of Competitive Threat for Latin American countries, 2000-13 .....103
4.10. Index of Competitive Threat in the US Market in 2013:
China vs Central America ...........................................................................................................103
4.11. Brazilian and Chinese exports to the US in selected industries ..........................................104
4.12. Mexican and Chinese exports to the US in selected industries ...........................................105
4.13. Share of foreign value added by industry of Chinese final demand, 2011 .........................107
4.14. Share of intra-regional trade in intermediate and final goods, selected regions, 2011 ...109
4.15. Backward and forward GVC participation in selected regions and countries,
2000 and 2011 ................................................................................................................................110
4.16. Trade in intermediates in Latin America and China, by broad sector
composition, 2011 ........................................................................................................................112
4.17. Backward participation in GVCs in Latin America and China, 2011 ...................................113
4.18. Forward participation in GVCs in Latin America and China, 2011 ......................................113
4.19. Country shares of China’s backward linkages with Latin America, 2000 and 2011..........114
4.20. Intra-regional and Chinese share in Latin American GVC linkages, 2000 and 2011 .........115
4.21. Exports of agriculture, mining and basic metals to China, as a share of exports
in intermediate goods .................................................................................................................116
4.22. Latin American exports in intermediates by destination region and broad sector
composition, 2000 and 2011 .......................................................................................................118
4.23. Network of parent companies and vertically linked FDI worldwide ...................................120
4.24. Destination regions of Latin American gross exports of intermediate services, 2011 .....121
4.25. Latin American gross exports of intermediate services to China and the world,
by sectors, 2011 .............................................................................................................................122
4.26. Latin American exports of computer and R&D services, 2011 .............................................122
5.1. Projections for Latin American exports to China 2014-30, by clusters of countries .........138
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