China and Mercosur: Latin America's Global Emergence and Influence

A frequently discussed topic in global emerging markets is the “new Silk Road”, a complex economic web that links Latin America, Africa, the Middle East and Asia.  Although the BRIC (Brazil, Russia, India, and China) nations still dominate this web, more players have been emerging. particularly in Latin America. As an example, trade between China and Chile, China’s second largest trading partner in Latin America, reached a record $17.7 billion dollars in 2009, while China's trade volume with Venezeula grew to $7.2 billion.
Trade between Latin America and China is expected to expand.  According to a recent report by the Economic Commission for Latin America and the Caribbean (ECLAC), “China may be the second world destination of the region's exports, buying 19.3% of its total exports in 2020, up from 7.6% in 2009.” The report also predicts that “China could surpass the European Union and the United States by 2020 as origin of the region's imports.”

The relationship between the Chinese and Latin America has not been without its share of tension. One extreme example is that of the Shougang iron ore mine in Peru, one of China’s earliest forays into Latin America. Upon arriving in 1992, the Chinese were viewed favorably by local workers, but this quickly changed, as the workers began to believe “they were being exploited to help build the new China, but without seeing any of the rewards for doing so.” Although tensions between workers and their Chinese managers at the mine continue to run high, Shougang plans to increase its investment in Peru by $1 billion in the next five years.

China’s investments in Latin America have had ripple effects in other parts of the world. Brazil’s Vale SA, helped by growing commodities demand from China and a currency that has doubled against the dollar since 2003, made natural resource investments in Africa that include a $1.3 billion coal mine in Mozambique, and copper projects in both Zambia and the Democratic Republic of Congo. Additionally, the company agreed to pay $2.5 billion for iron ore deposits in Guinea, including assets the country confiscated from the Rio Tinto Group.

Although the BRIC nations, especially China, are primary catalysts in the creation of the “new Silk Road”, other less visible alliances also are shaping global emerging markets.  Consider Mercosur, South America’s largest trading bloc and the world’s fourth-largest behind NAFTA, the EU, and ASEAN. Mercosur recently signed a free trade agreement with Egypt and is currently negotiating pacts with Jordan, Morocco and the Gulf Cooperation Council (GCC), which includes gulf states such as Saudi Arabia and Qatar. Mercosur also is working to ratify a “south-south” trade agreement with the South African Customs Union (SACU), whose members include Namibia, Botswana, Lesotho, South Africa and Swaziland. Mercosur’s members include Argentina, Brazil, Paraguay, and Uruguay, while its associate members include Chile, Bolivia, Colombia, Ecuador, and Peru.

There is no question as to the significance of the “new Silk Road”, but the importance of less publicized trading blocs and alliances cannot be discounted. Should cases like the Shougang mine and concerns over product dumping turn Latin American public opinion against China, Mercosur members may decide to place more focus on the alliances they have negotiated in Africa and the Middle East.