LLORENTE & CUENCA 08 Mar 2016 // 4:04PM GMT
Despite being rather recent, the relationship between China and Latin America has been intense. The last decade was marked by a period of great business growth and expansion that resulted in an outstanding period of prosperity for the Latin American region. This has been followed by a time marked by the financial crisis, largely due to the decline in trade exchange, which in turn translated into a significant slowdown in Latin American growth.
The analysis of these relationships identifies the major shortcomings of the economic development model that has prevailed in the region since the 19th century: an approach based on exports of raw materials. Although this kind of export has managed to provide significant income at different points in history, it is greatly limited. The relationship with China was based on this model.
The structural weaknesses of undiversified economies, whose exports lack any added value, and with an almost nonexistent local industry, output became evident when the prices of raw materials dropped due to the international situation and – more recently – the Chinese economic context.
At this point, all of these problems are more evident than ever. The proposed changes for modifying this economic model are based on economic diversification through investments in technology, knowledge, infrastructure, logistics and value-added services, resulting in a circular economy and not a solely-extractive one.
For this new stage –which calls for necessary structural reforms to establish a more competitive model– the region counts on Chinese cooperation, which in turn has expressed its commitment to updating the economic model.
Beyond fine rhetoric, only time will tell whether signed cooperation projects between China, Latin American countries and the Community of Latin American and Caribbean States (CELAC, for its Spanish acronym) will ultimately be implemented in the region. Many expectations have been placed on China, as it is the only global power that can and is willing to undertake this challenge, but the main responsibility of successfully tackling this task lies with Latin America itself.
The global importance of the Asian giant illustrates the new global order, in which the “rise of the South” has become a critical element. In recent years, significant changes have changed the global economic landscape, completely altering the traditional global order to such an extent that in this new environment, the growth rates of southern countries are much higher than those of their northern counterparts (known as “developed countries”).
However, these changes are not merely quantitative; structural modifications have also been implemented, so it seems as if the emerging countries’ important role in the global economy will not be merely circumstantial. At this point, it appears unlikely there will be a return to the past, even if much has changed. This being said, recent global economic trends have been set by the emerging economies, and leading all of these processes, we find China.
Latin America can be competitive and develop a sustainable economy even if it continues to rely on its mainly agricultural and mining-based exports. But regardless of the economic activity each country focuses on, it is essential to generate added value and ensure economic diversification. To this end, knowledge, technology and a skilled labor force are critical.
By Erich de la Fuente, Partner and CEO of U.S. operations at LLORENTE & CUENCA
Summary of the report published in Developing Ideas