Double Handshake

The Jamestown Foundation, a Washington DC think tank , has published a very good backgrounder on China and Latin America by R. Evan Ellis. Ellis is an associate with Booz Allen Hamilton and author of the forthcoming book China in Latin America: The Whats and Wherefores, to be published next month. Read his 2008 statement before the US House Committee on Foreign Affairs on China and Latin America for more proof that the guy knows his stuff.

The article begins in 2004, with Hu Jintao’s visit to Santiago, Chile for that year’s Asia-Pacific Economic Cooperation Forum (APEC) summit. Since then, China has burst onto the Latin American scene: bilateral trade has increased to US$102 billion by the end of 2007 from US$10 billion in 2000, three free trade agreements have been signed, and multi-billion dollar Chinese investment deals in commodities are now common place – as have official government visits between the two regions. China has wooed countries like Costa Rica to switch diplomatic ties away from Taiwan, and it has joined the Inter-American Development Bank. Military ties have quietly grown as well.

The article rightly points out that China and Latin America’s relationship has matured beyond simply commodities trade. Latin America has been and will remain a growing destination of Chinese manufactured goods.

As factories in the PRC produced more items and Latin American traders became more sophisticated in dealing with those factories, China has complimented its offering of labor-intensive manufactured goods such as clothing, toys and footwear with a broad selection of Chinese motorcycles, cars, heavy machinery, appliances, and consumer electronics.

But, when it comes to Latin American goods entering the Chinese market, things seem to be going less-than-swimmingly. Latin America’s retailers face the same trade balance headaches that foreign countries have had with China since the Opium Wars: What can we sell China in return for all that we buy?

Beyond commodities, select Latin American companies such as Grupo Modelo, FEMSA and GRUMA have made some progress building markets in the PRC, selling recognized brand name products to the growing Chinese middle class … Nonetheless those governments and producers have discovered that despite such efforts, traditional products such as coffee and fruits have not sold well in the PRC. In addition to issues of Chinese tastes, these perishable products and the labor required to harvest them makes them uncompetitive against closer, lower-cost producers such as the Philippines.

I’m a bit surprised to hear that the makers of Corona, Negra Modelo, Tecate and Dos Equis are making “some progress” in China given their products really suit a type of food largely absent on the mainland (ie. Mexican). On top of that, I’ll add that a friend/restaurant owner in Shanghai once told me that buying fake Coronas cost him about a third the price as real ones. His advice: Save your money and order Tsingtaos, because you never know.