At the beginning of the 21st century, China is positioning itself as a world power, basing its foreign policy on its dynamic economic growth, on its goals of “peaceful development” and on its accelerated movement towards a profound process of productive and technological reconversion.
In this context, relations with Latin America and the Caribbean are of particular interest because they are markets that demand their goods and services, their manufacturers and technologies, within the framework of internationalization strategies and gains in global competitiveness. As a result, commercial, financial and investment relations with LAC have increased, with some particularities during the last decade.
Main features of Chinese investment in the region
Until 2010, Chinese foreign direct investment was mainly concentrated in sectors such as energy, mining and agriculture. But in the last ten years, FDI from Chinese companies has gained more and more weight in Latin America. Encouraged by business opportunities in Brazil, Colombia, Peru and Bolivia, Chinese companies (mostly state-owned) turned their attention to Latin America with the aim of positioning themselves not only in the extractive sectors, but also in commercial and financial services and in industrial and manufacturing production.
From the end of the 20th century to 2009, the region attracted Chinese FDI worth US$7 billion, according to ECLAC. As of 2010, there has been a significant increase, with an estimated flow of Chinese FDI approaching US$14 billion, equivalent to 11% of the total FDI received by the region. Three quarters of this amount corresponded to two acquisitions in the oil industry by Sinopec (China Petroleum & Chemical Corporation) in Brazil and by the China National Offshore Oil Corporation in Argentina.
As these indicators show, Chinese FDI was mainly linked to the need to satisfy its demand for oil and gas (energy security), natural resources and agri-food (food security principle); critical inputs to ensure their economic development, and scarce at the domestic level.
At the same time, Chinese companies are looking for new markets in Latin America and the Caribbean, TNCs have sought to improve their competitiveness, and large state-owned banks have sought to finance projects for the development of infrastructure that facilitate the flow of goods and services through improvements in bioceanic connectivity. intra-regional. In this way, loans directed, for example, by the Industrial and Commercial Bank of China, formed a dense mesh of interests that today interconnects both parties.
A new phase?
The truth is that since then, FDI channeled by Chinese state and/or private companies, as well as credits directed to infrastructure projects, have increased. Currently, Chinese investments are oriented towards the internationalization plans of state and private companies through mergers and acquisitions, company acquisitions or direct investments in Greenfield projects.
They have also diversified into sectors such as renewable energy generation, automotive production, telecommunications and the exploration of strategic minerals such as copper, lithium and niobium. According to ECLAC, investment announcements by Chinese companies in Latin America and the Caribbean by sector for 2020 include the automotive and auto parts sector (44%), the renewable energy sector (17%), the financial services sector (11%). %) and the consumer goods sector (6%). The consolidation of Chinese FDI is also reflected in the agriculture, fisheries and agrochemicals sector, logistics and transport infrastructure, with a growing share in the construction of digital infrastructure.
While investments in technology sectors are currently small-scale, Chinese technology companies are starting to have a presence in the region, linked to the development of e-commerce.
Major Chinese technology companies, which are key to the implementation of the Digital Silk Road projects, are showing a growing presence in LAC, investing in data centers, telecom networks and safe city projects; projects favored because nineteen Latin American countries signed memoranda of understanding under the Belt and Road Initiative.
According to the Chinese OFDI Monitor in LAC, investments in new projects, although at a lower level, appear to be linked to key sectors for sustainable development in the region, such as renewable energy and electric vehicles, and others focused on the economy. digital, where Chinese companies are at the forefront of global technology. These investments are usually linked to marketing or assembly activities, rather than manufacturing or research and development.
In summary, the increase in the participation of Chinese companies, in a first stage, is verified through mergers and acquisitions; while in a second stage, direct purchases or Greenfield projects emerge as indicators of investment interest in the region.
In addition to traditional sectors (energy, mining, manufacturing, agri-food), at a later stage, investments are directed to more complex manufacturing sectors in order to integrate them into local and regional value chains. Infrastructure projects are also following these trends, financially supported by Chinese state-owned banks such as the Industrial and Commercial Bank of China (ICBC), the Bank of China or the China Development Bank (CDB).
Trends indicate that investment interest from large and medium-sized Chinese public and private companies in the region will continue to deepen their commitment to technology-intensive sectors such as telecommunications, internet networks, digital platforms and e-commerce. These assumptions are confirmed by the positioning of technology companies such as Alibaba, Huawei with their AI projects, Lenovo and ZTE, among others.
