Venezuelan President’s Visit to China Indicative of Growing Sino-Latin American Trade and Opportunities

On September 1, Venezuelan President Nicolas Maduro arrived to Beijing in an effort to strengthen economic ties between Venezuela and China. In his second visit this year, the Venezuelan President signed a number of deals that will strengthen cooperation in new areas beyond the current focus on the oil industry.

New Agreements and Competition

When talking about the visit, President Xi Jinping said that China was willing to make use of current financial mechanisms to develop cooperation in new areas. He added that China would be willing to help Venezuela improve its manufacturing capabilities.

The 14th China-Venezuela High-Level Joint Commission brought 300 officials and delegates from both countries. At the closing ceremony, attended by Vice-Premier Zhang Gaoli and Venezuelan President Nicolas Maduro, China and Venezuela signed a number of cooperation deals in the mining and energy sectors.

hrough these new agreements, China seeks to further develop its economic ties with the whole of Latin America, which have been growing significantly in recent years. For Venezuela, these new deals provide an opportunity to attract more Chinese investment, though the country still lags behind some of its neighbours.

During his visit to South America earlier this year, Chinese Premier Li Keqiang signed investment agreements worth US$50 billion. One of these agreements was negotiated jointly with Peruvian and Brazilian authorities to build railways to link Brazil’s Atlantic coast to ports in Peru. The project, which is likely to cost more than US$10 billion, would reduce the shipping costs of Brazilian raw materials and farm products exported to China.

Brazil-China Trade Snapshot

Brazil is currently China’s number one trade partner in Latin America, while China is both Brazil’s largest export and largest import trading partner. During Premier Li’s trip, China and Brazil signed trade agreements worth more than US$27 billion.

Speaking at a seminar with Chinese and Brazilian trade leaders during his visit, Premier Li said China would cooperate with Brazil in sectors such as automobile, steel and construction materials. He added that they would like to not only export technology, but also set up factories and help create jobs. In return, China would export beef and other competitive products from Brazil.

Peru-China Trade Snapshot

After visiting Brazil, Premier Li arrived in Peru and signed agreements covering multiple areas including trade, infrastructure and technology. China has become Peru’s biggest trading partner, aided in part by the China-Peru FTA that has been in place since 2009. The China-Peru FTA was the first package FTA between China and a Latin American country. The agreement covers 90 percent of trade in goods and enjoys zero tariffs on a stage-by-stage basis.

The FTA has helped China become the number one export destination and second largest import market for Peru since it was implemented. China-Peru trade volume reached US$14.32 billion in 2014, while Chinese investment reached US$14.24 billion by the end of 2014. Peru holds a strategic geographical position that will allow it to use its ports to link China, Brazil, and other markets in South America once the railway project is complete.

Chile-China Trade Snapshot

Following Li Keqiang’s visits to Brazil and Peru, the Chinese Premier arrived in Chile where he signed a double taxation avoidance agreement (DTA) to broaden investment opportunities for Chilean companies. Both countries also signed a Memorandum of Understanding to upgrade the 2005 FTA. The original 2005 FTA mainly covered trade and cooperation of goods. Further supplementary agreements on services trade were implemented in 2010. After Premier Li’s most recent visit, a joint working team will study the terms and conditions of the upgrade to the FTA.

Since its implementation the trade agreement has seen bilateral trade increase 4.8 times, reaching US$34.152 billion in 2014, according to Chinese customs. Additionally, it has helped China become the largest export market and the second largest import market for Chile, while Chile has become China’s third largest partner in Latin America. One area where both countries have seen increased trade is mining, where Chinese demand has driven a 26 percent increase of Chile’s exports over the last decade. A second area that has seen a big increase in trade has been wine. Chile has become China’s leading provider of bulk wine and the third largest source of bottle wine.

Argentina-China Trade Snapshot

Argentina is another country in the region that has been strengthening its ties with China through trade agreements. In July 2014, during his visit to Latin America, President Xi Jinping said that relations between both countries were reaching new horizons. During his visit, President Xi and Argentinean President Cristina Kircher signed more than 20 deals. The accords were part of a deal that exceeds US $10billion in the agricultural, energy and nuclear power sectors.

China now stands as Argentina’s second largest trading partner and is Argentina’s largest agricultural commodity importer. According to observers, this top trading partnership will be further strengthened by Chinese investment in infrastructure projects, such as the construction of hydroelectric dams. Amid its push to expand business in South America, China has invested some US$23 million in Argentinean hydrocarbons, finance, mining and agricultural exports. Bilateral trade reached US$14.84 billion in 2013, a 2.8 percent increase from the previous year.

Economic Relations Going Forward

Riccardo Benussi, International Business Advisory Associate at Dezan Shira, comments: “Economic ties between China and Latin America have been growing stronger in the past couple of years, and are only expected to increase in the years to come. Bilateral trade between China and Latin America currently stands at US$264 billion, and many countries in the region are pursuing further cooperation through multiple channels.”

In addition to negotiating a DTA, Chile has opened a pavilion in the Shanghai Pilot FTZ soon to be joined by Mexico and Brazil. The forthcoming railway connecting port cities in Brazil and Peru is expected to boost exports on a local and regional level, and is seen as yet another gateway for other South American businesses and economies to ride the advantages given by Peru’s FTA with China.

“Dezan Shira & Associates has been engaged by several South American SMEs”, Benussi continues. “We assisted them in understanding the complexities of the Chinese regulatory and financial environment, and have successfully guided them into profitable operations in the food & beverage sector as well as in sourcing strategies. China is currently the first or second biggest export destination for the majority of South American economies whom are heavily relying on export of rare earths, petroleum, heavy duty machinery and local produce such as sugar, wine, fishery, soybean and corn-based products.