The impact of China on Latin America and the Caribbean

Abstract

The rapid growth of China and its increased integration with the global economy is having both direct and indirect effects on the Latin American and Caribbean region. This report identifies the main channels through which China’s growth is affecting the region and undertakes a preliminary analysis of the impacts that it is having on development. The direct effects are the result of the growth of bilateral trade which increased more than five-fold in five years and, on a much more limited scale, the increase in flows of foreign direct investment between China and the region. Indirect effects have arisen from the competition which Latin America faces from Chinese exports to third markets, possible diversion of FDI from the region to China, and the impact of China on the terms of trade between primary commodities and manufactures. The growth of China represents both opportunities and challenges for the Latin American and Caribbean economies and the paper suggests where, in terms of both countries and sectors, these are concentrated. Research on the impacts of China on other developing countries is still at an early stage and there remain a number of key areas where current knowledge is limited and these are identified. Preliminary results are presented to indicate the potential impacts on growth and the balance of payments of the Latin American countries, and the possible implications for poverty reduction. Finally the paper discusses the challenges facing policymakers both in the region and in China. Keywords: China; Latin America; terms of trade; poverty