Dealmaking With China Amid Global Economic Uncertainty: Opportunities, Risks, and Recommendations for Latin America and the Caribbean

Date of Publication

2020 12:00 AM

Security Theme

Economic Stability

Keywords

Economic Stability, srhreports, economicstability, Economic stability, Latin America, Caribbean, COVID-19, China, exports, GDP growth, external growth driver, Chinese investments, regional economies

Description

"The COVID-19 pandemic is exerting extraordinary pressure on Latin American and Caribbean economies with reverberations that will be felt for years to come. October estimates point to a 8.1 percent contraction of regional GDP this year, accompanied by a 23 percent reduction in exports. Between January and May, Latin American and Caribbean exports to most destination mar- kets saw sharp decreases, including to the United States (-22.2 percent) and the European Union (EU) (-14.3 percent). However, China—the first major economy to recover from the pandemic—appeared to be an exception (-1.2 percent). As Latin America looks to rebuild from the pandemic, the trajec- tory of its business relationship with China will be a significant factor in shaping regional outcomes. How can Latin American economies increase their competitive position with China? Against the backdrop of an uncertain and uneven global recovery, countries in Latin America are looking to China as an external growth driver. This is not a new phenomenon caused by COVID-19—China had become the region’s second-largest trade partner in 2011.2 China is the second-largest economy in the world with a $14 trillion GDP in 2019. It has a growing middle class of more than four hundred million people who constantly demand more and better imported products and services.3 Not only is the Chinese economy a top recipient of global foreign direct investment (FDI), but it is also a net exporter of capital with significant investments overseas, including in Latin America. Although it is right to look at how China is accelerating its commercial relationships with Latin America and the Caribbean, and to understand the drivers for these growing relationships, commercial ties can also increasingly transform into a two-way street. Regional economies, while looking at the United States as an export market, should also more seriously consider how to better tap into China’s growing consumer demand. Certainly, Latin American and Caribbean countries are actively pursuing opportunities in China to grow exports and bring in investment. However, these opportuni- ties are not without challenges or risks. Exacerbating these obstacles is a highly uncertain international environment as a result of the COVID-19 pandemic, characterized by business disruptions, including travel restrictions. Thus, looking ahead, it is essential that each Latin American country design and implement a comprehensive China strat- egy involving effective coordinated planning, promotion, and risk mitigation. Such a strategy must ensure that countries better understand and respond to China’s growing com- mercial interests and engagements while safeguarding their national priorities and goals. The following pages provide practical guidance for regional governments and compa- nies interested in engaging China as part of their COVID-19 recovery, outlining the potential challenges ahead and ways to overcome them."

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Jan 1st, 12:00 AM

Dealmaking With China Amid Global Economic Uncertainty: Opportunities, Risks, and Recommendations for Latin America and the Caribbean

"The COVID-19 pandemic is exerting extraordinary pressure on Latin American and Caribbean economies with reverberations that will be felt for years to come. October estimates point to a 8.1 percent contraction of regional GDP this year, accompanied by a 23 percent reduction in exports. Between January and May, Latin American and Caribbean exports to most destination mar- kets saw sharp decreases, including to the United States (-22.2 percent) and the European Union (EU) (-14.3 percent). However, China—the first major economy to recover from the pandemic—appeared to be an exception (-1.2 percent). As Latin America looks to rebuild from the pandemic, the trajec- tory of its business relationship with China will be a significant factor in shaping regional outcomes. How can Latin American economies increase their competitive position with China? Against the backdrop of an uncertain and uneven global recovery, countries in Latin America are looking to China as an external growth driver. This is not a new phenomenon caused by COVID-19—China had become the region’s second-largest trade partner in 2011.2 China is the second-largest economy in the world with a $14 trillion GDP in 2019. It has a growing middle class of more than four hundred million people who constantly demand more and better imported products and services.3 Not only is the Chinese economy a top recipient of global foreign direct investment (FDI), but it is also a net exporter of capital with significant investments overseas, including in Latin America. Although it is right to look at how China is accelerating its commercial relationships with Latin America and the Caribbean, and to understand the drivers for these growing relationships, commercial ties can also increasingly transform into a two-way street. Regional economies, while looking at the United States as an export market, should also more seriously consider how to better tap into China’s growing consumer demand. Certainly, Latin American and Caribbean countries are actively pursuing opportunities in China to grow exports and bring in investment. However, these opportuni- ties are not without challenges or risks. Exacerbating these obstacles is a highly uncertain international environment as a result of the COVID-19 pandemic, characterized by business disruptions, including travel restrictions. Thus, looking ahead, it is essential that each Latin American country design and implement a comprehensive China strat- egy involving effective coordinated planning, promotion, and risk mitigation. Such a strategy must ensure that countries better understand and respond to China’s growing com- mercial interests and engagements while safeguarding their national priorities and goals. The following pages provide practical guidance for regional governments and compa- nies interested in engaging China as part of their COVID-19 recovery, outlining the potential challenges ahead and ways to overcome them."