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Special> Xi Visits Americas> Opinion
UPDATED: December 19, 2011 NO. 51 DECEMBER 22, 2011
Latin Lessons
Integration presents challenges and opportunities for Chinese companies in Latin America

With a combined gross domestic product surpassing $5 trillion and a population of 560 million, the CELAC is possibly the third-largest economic powerhouse in the world. The impetus of the strong consensus of Latin American countries to establish such a community lies in the following four elements: First, the pressing international situation. With the competition intensifying worldwide, the regional and sub-regional integration trend became more obvious. Latin America as a whole is neither competitive with Europe or America nor regional organizations such as the African Union and the ASEAN. An integrated Latin America is the cry of all Latin American states. Second, after the international financial crisis, U.S. and EU economic and political power is in decline while the newly emerging countries are on the rise. The global power structure is being reshuffled. Therefore, as the developing region with the strongest economic power on average, Latin American countries hope to promote their overall influence. Third, Latin America is one of the earliest regions to start its regional integration process. The CELAC can be seen as building on existing inter-regional bodies and experiments. These include the Rio Group, the Union of South American Nations, Andean Community, Caribbean Community and the South American Community of Nations. The varieties of regional integration organizations and cooperative mechanisms have laid a solid foundation for the formation of the CELAC. And a blue print for the CELAC was previously released at the Cancun summit of the Rio Group and Latin American and Caribbean States in Mexico in February 2010. Fourth, the left-wing force played a leading role in the Latin American integration process. With similar development models and governing philosophy, some left-wing leaders such as Venezuelan President Hugo Chavez and former Brazilian President Luiz Inacio Lula da Silva worked together to promote regional integration based on regional cooperation on resources, finance and infrastructure.

Opportunity or challenge

In recent years, the political, economic and cultural relations between China and Latin American countries have developed rapidly. China has established strategic partnerships with Latin American countries such as Brazil, Mexico, Argentina, Venezuela and Peru. Chile, Peru and Costa Rica have signed free trade agreements with China, now one of the major trade partners and investors in the region. China also has become the largest trade partner and export customer of Brazil, Chile and Peru, as well as the largest investor in countries such as Brazil. Generally speaking, China and Latin American countries have closely interconnected with each other. And if a united Latin American market were formed in the future with unified access standards, unified currency, united central bank and abolishing internal customs, the cost of China's investment and trade with the region would be highly cut with efficiency greatly promoted. Then trade cooperation between China and the region would have greater potential for development.

However, over the years, the major cooperation model between China and Latin American countries is not "one-to-many" but a bilateral cooperation model. The reasons are, on one hand, integration organizations in the region were varied and complex before the establishment of the CELAC. So adopting the "one-to-many" trade model would have been more complicated. On the other hand, except for the South American Common Market, which includes Brazil, Argentina, Uruguay and Paraguay, exercising unified tariffs, there is no other regional organization with strict exclusive mechanisms that could affect China's trade relations with the region.

But with the further integration of Latin America, it may possibly implement common external tariffs like the European Union. Then Chinese enterprises would probably be confronted with a more complicated situation. Chinese products could be under more pressure regionally. Large enterprises in Brazil, Argentina, Chile and Mexico such as Petrobras, Vale de Rio Doce, ODEBRECH, CODELCO, and Telefonos de Mexico have already become market leaders in many industries in the region. They are an important potential driving force of regional integration and also beneficiaries of the integration as it will provide a huge market for their development. With great strength, those multinational giants may bring unavoidable and enormous pressure of competition for Chinese enterprises after the establishment of the CELAC.

In addition, the United States and European countries will not sit watching China's rise in Latin America. When the relationship between China and Latin American countries began to boom in 2003, the U.S. and European media started to play up the "China threat theory" and "China's neocolonialism" in the region. Only after several years did Western countries begin to believe that China had no military or political ambitions in Latin America. And some Western enterprises also began to cooperate with Chinese enterprises in developing the Latin American market. Making use of the distribution networks, information and resource support from Western enterprises is also an effective way for Chinese enterprises to enter the Latin American market.

China will no doubt have more business opportunities with the establishment of the Community of Latin American and Caribbean States. However, the potential challenges brought by the new regional organization are also asking for more precautions. 

The author is an associate research fellow with the China Institutes of Contemporary International Relations

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