Sunday, October 21, 2012

Latin American investment in China

During the sixth China- Latin America Business summit in Hangzhou in October 17-18, the Inter American Development Bank (BID) brought out a report on Latin American investment in China. 

BID starts the report saying, " it is difficult to make a meaningful statement about Latin America’s economic future without mentioning China". page13image42600

The report is useful for Indian companies and policy makers interested in attracting FDI from Latin America, although the amount that can be expected might not be substantial. 
According to the BID report, the total Latin American FDI in China is 858 million dollars of which the share of Brazil is 314 million, Argentina-58 million, Mexico – 48 and Chile – 47 . There are 85 Latin American companies which have invested in China.

The BID report has given short but interesting case studies of the entry strategy and experience of the following companies which have invested in China
- Techint, the Argentine steel tube company ( turnover 24 billion dollars) has set up a plant to produce for local market as well as for exports.
- Vale, the Brazilian mining giant which exports around 20 billion dollars of iron ore to China, has some local plants for pelletisation.
- Bimbo , the Mexican bread and bakery products maker (the third largest in the world with a global turnover of  11 billion dollars ) has become one of the top ten bread suppliers in China with a presence in 27 Chinese cities with sales of 40 million dollars
- Gruma (Grupo Masecho) of Mexico, the maker of tortillas and other food products ( global turnover 4.6 billion dollars) has significant investment in China.
- Weg, the Brazilian electrical motors company with a turnover of 3.6 billion dollars has a unit in China employing 620 Chinese staff.
- Stefanini, the largest Brazilian IT company with a turnover of 400 million dollars is well established in China
- Concha y Toro, the Chilean winery with a turnover of 872 million dollars is aggressively marketing its wines in Chinapage13image42760
Trade highlights of the the BID report 
 - Trade between China and Latin America has increased at an annual average rate of 25% since 2000, reaching $236 billion in 2011 
- The Southern Cone countries, along with Peru and Venezuela, have enjoyed booming exports to China, leading to bilateral trade surpluses in the cases of Brazil, Chile, and Peru. For Mexico and Central America, however, manufacturing imports from China have swamped any gain in exports, resulting in considerable trade deficits with China.
- The composition of Latin America's exports to China - Iron ore 26%, Soya beans – 19%,  copper –21% and Petroleum crude 9 %page13image41088
China has become a member of BID and has become the mover and shaker within the organization with its enormous financial clout. The Chinese credit to Latin America is much more than the credit being given by BID and World Bank together. 

BID is very keen to have India as a member. The President of BID Mr Luis Moreno visited India in 2011, met the Indian policy makers and expressed interest in India's membership. While the Indian Ministries of External Affairs and Commerce realize the strategic importance of membership, the Finance Ministry is dragging its feet saying that the amount of subscription is high. They need to see the long term opportunities for our companies to get projects and contracts which are possible through BID membership.. 

There is only a limited window of opportunity for India to become a member of BID by purchasing the left over shares of an East European country which broke into pieces. BID does not offer new shares, under pressure from the existing members who do not want competition. Even in the case of China, they were blackballed by USA for a year and finally the Chinese managed to force themselves in. I hope the Indian policy makers will move quickly to become BID member and will not miss the last window of opportunity.

The Indian chambers of Commerce and Industry as well as the Government of India should also consider organizing regular business summits with Latin America as the Chinese have done for the sixth time this year with over 1100 companies. India should seek the collaboration of BID, ECLAC and other regional organisations and banks of Latin America who would be willing.

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