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the rise of china - latin america perspective

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Organised by the Victoria Institure for Links with Latin America, the day-long seminar will discuss the remarkable growth in China’s global impact and how this is affecting policy directions and economic trends in Latin America and New Zealand. The seminar is supported by the New Zealand Ministry of Foreign Affairs and Trade, and the embassies of Argentina, Brazil, Chile and Mexico.

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the rise of china - latin america perspective

  1. 1. TRADE AND ECONOMIC DEVELOPMENT IN LATIN AMERICA Luiz Calado, PhD 6th December 2013
  2. 2. 1. China, LA-TAM and NZ: a broad range of opportunities and similarities. 2. China and the world today: What do we have to learn from them? 3. What is the order of the day: BRAiN Goals – São Paulo as a financial HUB for Latin America 4. Future in business in Brazil: space for all SUMMARY
  3. 3. Reading List • "Reputation Economics - Why Who You Know Is Worth More Than What You Have - Joshua Klein • Every Nation for Itself: Winners and Losers in a G- Zero World – Ian Bremmer • Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy – Usha Havey • DEPOIS DA CRISE: A CHINA NO CENTRO DO MUNDO? Luiz Carlos Bresser-Pereira
  4. 4. NZ GDP per capita 116% HIGHER NZ HDI (2011) 26% HIGHER BILATERAL MAP
  5. 5. Bilateral Trade Brazil – New Zealand
  6. 6. Brazil Trade Balance with New Zealand
  7. 7. FAR AWAY, BUT TOGETHER IN A LOT OF SIMILARITIES. RELATIONSHIP BASED ON COMMON VALUES SUCH AS RULE OF LAW, DEMOCRACY, HUMAN RIGHTS, SOCIAL JUSTICE AND INTERNATIONAL PEACE. BOTH GOVERNMENTS PLANS TO RAISE PRODUCTIVITY GROWTH AND DEVELOP INFRASTRUCTURE. GDP DIVISION BY SECTORS
  8. 8. THE REASONS WHY IT IS NOT HOW IT COULD BE: LACK OF COMPLEMENTARITY POSSIBLE SOLUTION? EXPORTS DIVERSIFICATION • Acai (BZ fruits) • Meat • Oil • Aircrafts • Soccer players POSSIBLE SOLUTIONS? Improve AIR and naval transport to LOWER the shipping. Investing in exchange of services at a distance and technological products and manufactured products with higher added value. ASIAN ORIENTATION LACK OF SCALE POSSIBLE SOLUTIONS? Focus on SME
  9. 9. BRAZIL NEW ZEALANDWHAT ARE OUR AGREEMENTS AND WHICH OPPORTUNITIES WE HAVE? RESEARCH AND PROTECTION IN AREAS OF ENVIROMENTAL PROTECTION SUMMER JOBS PROGRAMME MUTUAL VISA EXEMPTION ON COMMUM INTEREST AGREEMENT TECHNICAL COOPERATION AND PROCEDURES ON SANITARY AND PHYTOSANITARY ISSUES AGREEMENT IN AIR SERVICES COMMERCIAL EXCHANGE AND SCIENTIFIC, TECHNOLOGICAL, INDUSTRIAL AND ECONOMIC COOPERATION INVESTMENT IN BUILDING BRICKS TO INNOVATION COOPERATION TO BOOST CO- DEVELOPEMENT IN STRATEGIC AREAS CATALISE ACADEMIC AND TALENTS EXCHANGE BETWEEN BZ and NZ RESIDENTS: MORE COOPERATION BETWEEN UNIVERSITIES, COMPANIES, TRANSVERSAL OPPORTUNITIES SUSTAINED BY TECHNOLOGICAL, INDUSTRIAL AND ECONOMIC AGREEMNET AND COMMOM INTEREST PLUS THE INTERNATION ACADEMIC AND BUSINESS MOBILITY BETWEEN BOTH ECONOMIES
  10. 10. • Ambassador Eduardo Gradilone – New Zealand can be a connection hub to China • Joint Ventures in Agriculture and related technologies (EMBRAPA) • Biofuel & Renewable Energy • Environmental Issues • Investment in Infraestructure • Education • Culture & Sports Investments and Partnership Opportunities
  11. 11. BRA>CHI U$ 41.3 BI - 17% OF TOTAL BRA X BRA>NZ U$ 62 Mi Animal,vegetable fats and oils, cleavage products, etc Coffee, tea, mate and spices Products of animal origin, nes CHI>NZ U$ 3,9 Bi - 0,2% of total CHI X Machinery, nuclear reactors, boilers, etc Electrical, electronic equipment Articles of apparel, accessories, knit or cr CHI >BRA U$ 33,5 Bi - 1,6% of total CHI X Electrical, electronic equipment Machinery, nuclear reactors, boilers, etc Optical, photo, technical, medical, etc apparatus NZ>CHI U$ 5 Bi - 14,9% Dairy products, eggs, honey, edible animal product nes Wood and articles of wood, wood charcoal Meat and edible meat offal NZ>BRA U$ 65 Mi Miscellaneous chemical products Machinery, nuclear reactors, boilers, etc Albuminoids, modified starches, glues, enzymes CHI | BRA | NZ - TRADE FLOWS 2012
  12. 12. China 12% Brazil 1% New Zealand 0% Others (228 countries) 87% COUNTRY TOP #3 EXPORTS % CHINA USA 17.20% Hong Kong 15.80% Japan 7.40% BRAZIL China 17.00% USA 11.10% Argentina 7.40% NEW ZELAND Australia 21.40% China 14.90% USA 9.20% WORLD TOTAL EXPORTS (2012) % TOP #3 EXPORTING COUNTRIES *In some ways, Chinese influence in New Zealand has grown faster and more strongly than anywhere else in the world. ANALYSIS OF THE TRADE FLOWS
  13. 13. EVERY WEEK ON THE NEWS WE HEAR ABOUT CHINA: BEST PRACTICES OF CHINA AND HOW BRAZIL AND NEW ZELAND CAN TAKE ADVANTAGES OF THAT… GEOPOLITICS UN ‘ MEMBER OF SECURITY BOARD ATOMIC POWER CONTROL OF INTERNET TRANSITION TO MARKET ECONOMICS GDP GROWTH U.S. TREASURY SECURITIES HAS OVERPASSED JAPAN AS 3RD BIGGER ECONOMY TRADE | INVESTMENTS | PRODUCTS 30 YEARS AFTER 1979 REFORMS EMERGED AS A MAJOR GLOBAL ECONOMIC AND TRADE POWER
  14. 14. The Chinese government has maintained an active policy of boosting trade and investment ties around the world, especially with countries in Asia. To that end, China has entered into a number of regional and bilateral trade agreements, or is in the process of doing so. China currently has free trade agreements (FTAs) with ASEAN, Chile, Costa Rica, Peru, Hong Kong, Macau, New Zealand, Pakistan, and Singapore. China is currently in the process of negotiating FTAs with other countries CHINA’S REGIONAL AND BILATERAL FREE TRADE AGREEMENTS
  15. 15. From 2008 to 2010 - China spent 91 billions in acquisiton (emerging Asia, Latin America, Africa) to secure long term subsidised suplies of oil, gas, metals, minerals and other commodities that China needs. Source: The Dragons are on the Move: Five Steps to Maximizing Value from Natural Resources M&A, ACCENTURE 2013 CHINESE INVESTMENT OVERSEAS
  16. 16. CHINA, BRAZIL & LATAM The Chinese exports profile during the 80’s was basically products intense in LABOUR CAPITAL with VERY LOW UNIT COST. THE GROW OF THE TRADE FLOW THAT, IN THE PERIOD OF 2002-2012 GREW FROM US$ 4,1B TO US$ 75,5 a year WITH AN AVERAGE GROWTH RATE OF 38,8%. SINCE 2009, CHINA IS THE LARGEST BRAZIL’S COMMERCIAL PARTNER. A fundamental instability: bilateral trade agreement has shown an imbalance of a high concentration in few products. The problem is not the export of commodities itself, but the HIGH CONCENTRATION OF BRAZILIAN EXPORTS (C4 above 80%), as opposed to a RELATIVE DIVERSIFICATION OF IMPORTS FROM CHINA. The 4 larger exported Brazilian products are: Iron, Soybean, Oil and Cellulose WHAT DOES IT MEAN FOR BRAZIL? AN OPPORTUNITY TO RE-BALANCE ITS ECONOMIC RELATIONS: TRADE FLOWS DIVERSIFICATION AND EXPANSION OF FDI KEY FACTS: • CHINA IS AN IMPORTANT IMPORTER OF NATURAL RESOURCES • CHINA IS NOW ONE OF THE MOST IMPORTANT BUYERS OF COMMODITIES LIKE OIL, MINERALS AND METALS. • THE EXPORTS FROM LATIN AMERICA TO CHINA TRIPLED FROM 2000 TO 2007. • THE TRADE VOLUME AND CHINA'S DIRECT INVESTMENT IN LATIN AMERICA INCREASED FROM 621 MILLION USD IN 2001 TO 44 BILLION USD IN 2010 As we saw today, Chinese imports include cars, smartphones, and the country even compete in the high speed trains market
  17. 17. CHALLENGES AHEAD FOR CHINA For China’s Communist Party leadership, a growing economy is its main source of political legitimacy. However, every year numerous protests occur in China over a number of issues, including POLLUTION, GOVERNMENT CORRUPTION, AND LAND SEIZURES.
  18. 18. Questions raised over ‘China fever’ From Financial Times, Nov 28th Corporate filings in Hong Kong show that Ms Shiu (Chinese Investor) changed her Chinese name after a 2008 ruling by a Hong Kong court that declared her bankrupt for failure to pay a loan. Several companies registered under her former name have been dissolved on the Chinese mainland, including one in Jiangyin, and the address of Sam Wa’s headquarters in Beijing turns out to be a closely guarded military hotel that does not allow outsiders to enter. “There are a lot of governments and companies in the west that are starved of capital, and so when the promise of Chinese billions comes along they tend to get ‘China fever’. Unfortunately it can sometimes be fatal,” says James McGregor, chairman for greater China at Apco Worldwide and author of the book No Ancient Wisdom, No Followers. • “In China you need to do due diligence on investors.” • Ms Shiu declined interview requests and did not respond to a list of emailed questions. CHALLENGES AHEAD FOR CHINA
  19. 19. Pop: 198 million GDP pc: $12,100 PPP HDI: 0.730 (85th) GINI: o.52 (17th) Pop: 41 million GDP pc: $11,585 HDI: 0.811 (45th) GINI: 0.46 (36th) Pop: 30 million GDP pc: $12,700 HDI: 0.748 (71th) GINI: 0.39 (69th) Pop: 114 million GDP pc: $15,600 PPP HDI: 0.775 (61st) GINI: 0.48 (25th) Pop: 47 million GDP pc: $10,900 PPP HDI: 0.791 (91st ) GINI: 0.58 (8th) Pop: 30 million GDP pc: $10,900 HDI: 0.741 (77th) GINI: 0.46 (34th) Pop: 17 million GDP pc: $18,700 HDI: 0.819 (40th) GINI: 0.52 (15th) AN OVERVIEW OF LATAM
  20. 20. Results of different trade strategies in: Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. Latin America is being divided according to trading models Trade has played a key role in defining development TRADE AND ECONOMIC DEVELOPMENT IN LATIN AMERICA • Peru, Colombia and Chile: fast ( strong minerals export) • Argentina and Venezuela: Recovered fast this year • Mexico & Brazil : recovering from crisis OVERVIEW RECENT ECONOMIC GROWTH • Mercosur and South America • Energy integration – Gasodutes, oils, eletricity, transmition lines • Infrastructure integration (railway links into pacif trade routes) • Incresing BNDES presence in latin america BRASIL’S ROLE
  21. 21. RISE OF CHINA AS TRADE PARTNER AND INDUSTRIAL CAPTULATION It is imposible to compete without the same subsidies and labour conditions – Protectionism to preserve industry or free trade to increase access to increase commodity exports? Is it safe to not apply anti-dumping? – Mercosur/WTO or trade agreements? – Adjust China’s increasing influence? ISSUES BRAZIL’S CROSSROAD
  22. 22. WHAT HAS BEEN CHINA DOING TO SUSTAIN ITS GROWTH? The Chinese Economy: Reform and Innovation For Sustained and Healthy Development “[…] We took a host of innovative policies and measures with a holistic approach to pursue steady growth, conduct structural readjustment and promote reform, which served to ensure a smooth economic performance. First, keeping the macro economic policy stable with consideration given to both immediate and long-term needs […] We are implementing the strategy of innovation-driven development at a faster pace, aggressively promoting technological innovation and deep integration of science and technology with the economy and building a social environment friendly to innovation and business start-up activities. Changes call for innovation and innovation leads to progress.[…]” PISA SCALES IN READING, MATHS & SCIENCE #1 GROSS CAPITAL FORMATION, %GPD #2 FIRMS OFFERING FORMAL TRAINING, % OF FIRMS #1 KNOWLEDGE CREATION #3 KNOWLEDGE IMPACT #2 CREATIVE GOOD EXPORTS #1 DOMESTIC RESIDENT PATENT PPP$ GDP #1 Speech by Li Keqiang at the World Economic Forum Annual Meeting of the New Champions 2013: CHINA is the GLOBAL TOP #5 IN: INVESTMENT IN THE BASE OF THE ECONOMY > KNOWLEDGE DRIVEN DEVELOPMENT Available at: http://www.fmprc.gov.cn/eng/wjdt/zyjh/t1075946.shtml
  23. 23. CHINA AND NEW ZELAND HAVE SHOWN THE IMPORTANCE OF INVESTING IN INNOVATION… … CAN IMPACT DIRECTLY IN THE ECONOMY GOVERNMENT INSTITUTIONS NZ #3 BRAZIL #95 CHINA #113 GLOBAL INNOVATION INDEX NZ #17 CHINA #35 BRAZIL #64 HUMAN CAPITAL & RESEARCH NZ #16 CHINA #36 BRAZIL #75 INFRASTRUCTURE NZ #26 CHINA #44 BRAZIL #51 MKT SOPHISTICATION NZ #12 CHINA #35 BRAZIL #76 CREATIVE OUTPUTS NZ #13 BRAZIL #72 CHINA #96 KNOWLEDGE & TECNOLOGY OUTPUTS CHINA #2 NZ #29 BRAZIL #67 BUSINESS SOPHISTICATION NZ #28 CHINA #33 BRAZIL #42
  24. 24. • Those figures reflects that Brazilians does not register patents – • Clips – airplane - Wristwatch – Showers > are Brazilian inventions • Biodiesel • Government efforts to improve it – Science without borders
  25. 25. BRAZIL: THE COUNTRY OF THE FUTURE The future is bright and if Brazil continues to reduce barriers, entrepreneurship can be an engine to maintain the momentum the country has experienced. FORBES, OUT 2013 New entrepreneurship index, Endeavor Entrepreneurship as desirable career choice: 10% Vs 6.4 Level of new entrepreneurs Levels of unemployment over the last few years have hovered around the historical record low (currently circa 5%). http://www.endeavor.org.br/ppp/observatorio_do_empreendedorismo.swf
  26. 26. GOVERNMENT (FEDERAL AND STATE) SPENDITURES ON SCIENCE, TECHNOLOGY AND INNOVATION IN 2013 ESTIMATED TO BE AROUND $31 BILLION (USD), AN INCREASE OF 8% FROM 2012 THE IMPACT AND QUALITY OF BRAZILIAN RESEARCH IS OF A WORLD-CLASS STANDARD IN MANY AREAS, CITATIONS ARE THREE TIMES GREATER THAN THE WORLD AVERAGE IN SECTORS SUCH AS: BRAZIL: THE COUNTRY OF THE FUTURE – INNOVATION AND ENTREPRENEURSHIP GOV POLICIES AGRICULTURAL SCIENCES PLANT AND ANIMAL SCIENCE ENVIRONMENT AND ECOLOGY BIOLOGY AND BIOCHEMISTRY BROAD RANGE OF OPPORTUNITIES FOR COOPERATION WITH: ACADEMIA, PRIVATE SECTOR, R&D, TRADE, KNOWLEGDE IMPACT, EXCHANGE, ETC
  27. 27. The recent crisis have shown that the world as we knew is under several changes 04/30/11 01/07/12
  28. 28. And it’s a fact that Brazil has reached a higher level 1999 2009 GDP per capita (US$) 3,414.77 FDI (US$ billion) 28.6 Average years of schooling 5.8 Child mortality rate 28.37 GDP per capita (US$ - 2011) 12,969 +470% FDI (2011, US$ billion) 66,7 +133% Average years of schooling 7.2 +24% Child mortality rate (2008) 17.56 -38% Source: UNCTADStat, IPEA
  29. 29. Latin America has also improved significantly Source: UNCTADStat, IPEA 1999 2009 GDP / capita: +84% FDI1: + 53% In 10 years 1 2010
  30. 30. Latin American financial services market is relatively small but has great potential N. America Asia - Pac. EMEA Latin Am. Value (US$ T, 2011) % of ww. 2006-2011 CAGR Market Cap. (US$)2 Mutual fund AUM (US$)3 Banking assets (US$)1 Insurance premium (US$)4 Penetration over GDP (20115) LatAm is still a small market… …with large potential N. America Asia - Pac. EMEA Latin Am. N. America Asia - Pac. EMEA Latin Am. N. America Asia - Pac. EMEA Latin Am. …but growing faster… 2.2 12.9 14.7 17.6 37% 31% 27% 5% 10% -6% 4% -4% 1.1 7.3 2.9 12.4 52% 12% 31% 5% 18% -1% 4% 2% 68% 242% 164% 105%16% 31% 50% 3% 20% 5% 15% 4% 0.2 1.8 1.4 1.3 29% 30% 38% 3% 17% 3% 10% 1% 3.5 57.8 34.0 17.7 3% 7% 7% 8% 41% 51% 70% 104% 26% 34% 15% 74%
  31. 31. But to continue growing, LatAm will need funding The only effective solution is to strengthen the capital markets Banks Capital Markets Government Multilateral organizations For example: Brazil needs $300 billion per year to grow GDP by 5% But most traditional funding sources are currently very limited: Basel III Fiscal Austerity Limited Capacity
  32. 32. CAUSES OF CHINA’S ECONOMIC GROWTH ECONOMISTS GENERALLY ATTRIBUTE MUCH OF CHINA’S RAPID ECONOMIC GROWTH TO TWO MAIN FACTORS: 1. LARGE-SCALE CAPITAL INVESTMENT (FINANCED BY LARGE DOMESTIC SAVINGS AND FOREIGN INVESTMENT) 2. RAPID PRODUCTIVITY GROWTH. 10TH QUINQUENAL PLAN Unemployment bellow 5% | Inflation bellow target
  33. 33. It’s time for a more integrated network of investment and business hubs with global projection Chicago Boston New York San Francisco Miami Qatar Bahrain Dubai Mumbai Tokyo Hong Kong Shanghai Singapore Sydney OMX Helsinki London Oslo Stockholm Tallinn Riga Vilnius Moscow Brussels Kopenhagen Reykjavik Euronext Madrid Frankfurt Zurich/Geneva Dublin Lux. MilanLisbon Amsterdam Paris Abu Dhabi Europe Middle East Asia USA and Canada Toronto 51 12 33 22 86 Multilatinas in South America and Mexico 29 20 21 7 9 CHLBRA OTHARGMEX
  34. 34. 76.5 74 27 25.7 14.8 3.5 71 Electricity Others* Logistic Railways Ports Airports Highways Total Infrastructure Investment Estimate: USD 221.7 billion over the next four years (2014-2017) Source: BNDES. Exchange rate: USD 1 = BRL 2,30 * Telecom and water and sewerage.
  35. 35. 36 Non-exhaustive examples of potential goals Integrating Latin American markets and stock exchanges Attracting more listed companies, both Brazilian and international Increasing financial education and investor sophistication Allowing broader and more international investment options in the funds industry Developing and regulating new derivatives / futures products Latin America's financial markets must be more varied, liquid and sophisticated
  36. 36. THIS IS WHAT BRAiN WANT TO SEE IN A NEAR FUTURE... Chicago Qatar Bahrain Dubai Mumbai Tóquio Hong Kong Xangai Cingapura Sidnei Helsinki Londres Oslo Estocolmo Tallinn Riga Vilnius Moscou Bruxelas Copenhague Reykjavík Madri Frankfurt Zurique/Genebra Dublin Lux. MilãoLisboa Amsterdã Paris Abu Dhabi Toronto Miami São Paulo Santiago Bogotá Lima Cidade do México São Francisco ...WITH THE MAIN PROPOSE OF LEVERAGING BRAZIL (AND LATAM) AS A FINANCIAL HUB Boston Nova Iorque
  37. 37. WHAT HAS BRAiN BEEN DOING TO BOOST BRASIL TO BECOME A HUB IN LATAM? Chile Colômbia México Peru Integración financiera en América Latina: realidades, desafíos y propuestas estratégicas Letters of LATAM’S Regulatories agents
  38. 38. BEST - Brazilian Excellence in Securities Transactions 175 178 181 183 183 183 185 189 121 122 125 129 127 126 130 116 100 110 120 130 140 150 160 170 180 190 200 2007 2008 2009 2010 2011 2012 2013 2014 POSIÇÃO DO BRASIL NO RANKING NOS ULTIMOS ANOS. Doing Business Report WB – The evolution of Brazil BRAiN’s MAINS ACTIONS AND PROJECTS
  39. 39. BRAZIL AT A GLANCE : THE IMPORTANCE OF FINANCIAL INDUSTRY IN BRAZIL
  40. 40. CHINESE BANKING SYSTEM speech at Stanford ‘ may 2013 The Banking System China’s banking system is largely controlled by the central government, which attempts to ensure that capital (credit) flows to industries deemed by the government to be essential to China’s economic development. SOEs are believed to receive preferential credit treatment by government banks, while private firms must often pay higher interest rates or obtain credit elsewhere Strengthen regulation and supervisory oversight, especially in areas exhibiting rapid growth such as trusts and wealth management products. To be sure, China has plenty of banks and insurers. But many of them are state-sponsored relics of its communist past. Many U.S. firms find it difficult to do business in China because rules and regulations are generally not consistent or transparent, contracts are not easily enforced, and intellectual property rights are not protected (due to the lack of an independent judicial system).
  41. 41. BRAZIL AT A GLANCE: SECURITY
  42. 42. Middle Class • Last Decade + 40 million Brazilians • Last three years + 14 million BRazilians
  43. 43. BRAZIL AT A GLANCE: OPPORTUNITIES Both the FIFA World Cup and the Olympics are opportunities to increase recognition of the New Zealand brand in Brazil as well as to build people-to-people linkages. It is a particularly relevant for the international education and tourism industries.
  44. 44. Waste Land received unanimously positive reviews as "an uplifting portrait of the power of art and the dignity of the human spirit." Waste Land is a feature documentary film that premiered at the 2010 Sundance Film Festival and went on to be nominated for the Oscar for Best Documentary Feature at the 83rd Annual Academy Awards, as well as win over 50 other film awards including the International Documentary Association's Best Documentary Award.
  45. 45. BRAiN welcomes all interested in participating in future strategic dialogues or working groups created to enhance connectivity of latin america LUIZ CALADO, PhD Interested parties should contact lcalado@brainbrasil.org

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