As Chinese President Xi Jinping concludes his trip to Latin America and the Caribbean (LAC), including Mexico, it is worth probing the trip for what it can reveal about Beijing’s future in the region and beyond.
Mr. Xi visited Trinidad and Tobago, Costa Rica, and Mexico – countries that are important in their own way. Trinidad and Tobago is a pearl in the Caribbean for its steady economic development and oil and gas reserves, which have made the country a regional petroleum hub. Costa Rica is one of the world’s oldest democracies, a key player in renewable energy, and is considered a success story in a troubled neighborhood. Mexico has the second largest economy in Latin America with an attractive oil industry that could be improved and opened through reforms. Taken together, these countries offer what China is looking for: a stable and reliable source of energy to fuel its own economy.
Beyond securing resources, Mr. Xi may also be using this trip as a PR opportunity to improve China’s image in the developing world. While Beijing emphasizes its “peaceful rise” in geopolitics, it is also trying to fight the perception that China’s size and stature in the world economy are crowding out other emerging countries, and dominating its smaller partners. With this Latin American tour, Mr. Xi was hoping to demonstrate that states of any size or condition can have a harmonious relationship with China.
Despite these good intentions, China’s economic ties with Latin America are complicated by the fact that their economies are not entirely complementary. While Chinese trade and investment with Latin American countries have grown rapidly over the past several years, the rise in Sino-LAC business has also been accompanied by significant competition between both sides. China’s demand for commodities has benefitted Latin American countries and firms that export resources ranging from soy beans to oil. On the other hand, the sheer scale and competitiveness of Chinese industry has put pressure on manufacturers across Latin America.
Mexico in particular has been bearing the brunt of Chinese manufacturing competitiveness both in its primary export market, the U.S., and at home. Added to that is the pressure of a large trade deficit in which Mexico imported Chinese goods valued at US$57 billion while only exporting US$5.7 billion to China itself last year.
Despite a chill in relations between China and Mexico in recent years, both countries have new leaders in Xi Jinping and Enrique Peña Nieto who have signaled their intention to reset relations. With Mr. Peña Nieto’s visit to China in April and Mr. Xi’s trip to Mexico about to end, both sides appear to be interested in finding areas where they can cooperate for both sides’ benefits and downplaying competition. For instance, if Mr. Peña Nieto is able to make needed reforms in Mexico’s oil industry, China could become a big investor and consumer in that field. Additionally, both leaders have signed agreements in mining and infrastructure, agreed to China purchasing US$1 billion worth of Mexican goods, and opened the Chinese market to Mexican pork and tequila.
Still, while Chinese investment in the infrastructure and industries that focus on the extraction of natural resources and pledges to import more from other countries are good, but they cannot completely paper over the difficulties Mexico has encountered in competing with Chinese manufacturing. For example, while it is true that Mexico has regained competitiveness and market share vis-à-vis China as a result of exogenous factors, this trend alone might not guarantee long-term survival. In 2003, both countries made two million cars per year – today, China produces 20 million while Mexico only makes 2.5 million. Additionally, Latin American countries’ hopes of moving into high-end manufacturing could be dashed by China’s desire to do the same.
This does not mean that the good intentions between China and Latin America are doomed to be overshadowed by zero-sum competition for market share. Chinese cooperation gives LAC countries the opportunity to address other sources of growth and development, such as improving domestic governance and strengthening regional integration. Rather than looking inward, initiatives like the Pacific Alliance could leverage Latin America’s proximity to the United States or ties to Europe as a new base from which to assemble and export Chinese goods. Alternatively, LAC countries could become part of a broader value chain where their trade with China in finished goods declines relative to trade in intermediate goods. In other words, Latin American states could join countries like Taiwan and South Korea in supplying China with components for the production of finished products.
While competition between China and Latin America will not go away anytime soon, Xi Jinping’s visit to the region and a greater willingness to cooperate from both sides show that economic rivalry can be managed to a certain extent. Whether Mr. Xi’s visit is the prelude to a new era of enhanced ties or a rehash of Beijing’s previous policies to secure more sources of energy in the region will depend not just on good will, but also on how leaders can develop creative solutions that extend benefits to as many parties as possible. As Sino-Latin American relations continue to evolve, many in the Americas should expect more developments to come from across the Pacific.
Sebastian Sarmiento-Saher is an editorial assistant at The Diplomat.