Remarks by Angel Gurría,
19 March 2016
Beijing, People's Republic of China
(As prepared for delivery)
Excellencies, Distinguished Guests, Ladies and Gentlemen:
I am honoured to launch the Latin American Economic Outlook 2016 in the company of so many of the OECD’s friends in China.
This year’s Outlook, jointly produced by the OECD’s Development Centre in partnership with CAF (Development Bank of Latin America) and UNECLAC (United Nations Economic Commission for Latin America and the Caribbean), focuses specifically on China and Latin America as development partners in transition. China’s Development Research Centre of the State Council provided key contributions to this report, for which I thank them.
The Outlook builds on two decades of fruitful co-operation between the OECD and China, crowned by last year’s visit of Premier Li Keqiang to the OECD and China’s historic decision to join our Development Centre. And our partnership is intensifying – the OECD is advancing in our agreed joint work program and actively supporting China’s 2016 G20 Presidency.
Despite their geographic distance, China and Latin America are closely connected through trade and financial ties.
In the past 15 years, trade between China and Latin America has grown 22-fold. China is now the region’s second largest import source and third largest export destination, and the largest trading partner of Brazil, Chile and Peru.
Trade between the LAC region and China is largely inter-industry: commodities in exchange for manufactures. Commodities accounted for 73% of Latin America’s exports to China in 2014. While China’s demand for commodities is decreasing and is expected to smooth considerably by 2030, new trade demands by China’s emerging middle class in the food, energy, services and tourism sectors, will certainly arise.
Chinese lending remains one of the most important sources of external financing in Latin America and the Caribbean. Between 2010 and 2014, China alone lent the region 94 billion US dollars, compared to 156 billion U.S. dollars lent by the World Bank, CAF and the Inter-American Development Bank combined. And in 2015, when Latin America entered recession, Chinese lending to the region reached 29 billion US dollars, the second-highest year on record.
China also invests strategically in Latin America — mainly in transport infrastructure, energy and telecommunications. By 2025, accumulated investment is projected to reach 250 billion U.S. dollars. This represents a huge level of investment!
This is all the more remarkable when you consider that only 25 years ago, China and Latin America were in a similar position. In the first half of the 1990s, they were each contributing about 10% to global growth. But here their paths diverged. In the last five years alone, China’s contribution to global growth was 5 times higher than Latin America’s (29% contribution to global growth compared to 6%)! Indeed, growth in Latin America has been faltering since 2010. Last year, GDP contracted by a negative 0.4 percent, and this year the region is expected to continue to struggle and again grow below the level of OECD economies.
In China, recent trends show the country’s economic growth gradually declining to 6.2 percent by 2017. But far from being a sign of weakness, this development signals a deep socioeconomic transformation in China. A transformation to a more consumption-led and services backed economy, catalysed by an emerging urban middle class.
These changing circumstances call for new strategies. In the face of low growth in Latin America and China’s deep socioeconomic transformation, we have a real opportunity to redefine the partnership.
The Outlook advances several ways in which Latin American economies can respond to what many are calling China’s “new normal”:
First, the region needs to explore a new set of productive development policies to participate more fully in global value chains and boost economic diversification. Massive investments in skills are critical for the success of these policies. By 2030, 220 million Chinese will have attained tertiary education, more than double the number in Latin America, making China the main provider of tertiary-educated people in the world.
And it’s not just about numbers, it’s about what skills are being developed. Half of China’s students in tertiary education study science, technology, engineering and mathematics, compared to only 1 in 5 students in Latin America. This puts China in a better position to capture value-added segments of global value chains, producing more sophisticated goods.
Second, to benefit from global value chains, Latin America needs to optimise financing flows to close the infrastructure gap and innovate. Innovation capital in Latin America is far lower than in the OECD. And the region’s inclusive growth is still harmed by low‑quality and highly unequal access to energy and transport infrastructure.
Third, Latin America needs to advance its integration agenda. This means building on existing trade agreements and regional platforms, such as CARICOM, Central American Common Market, Mercosur and the Pacific Alliance, to benefit from higher integration in global value chains and a stronger combined purchasing and exporting power vis-à-vis China.
In these ways, Latin America can tell China it is open for business, investment and trade. And China can maintain Latin America as a sound market for its exports, a reliable source of commodities, and an attractive destination for diversifying its outward investment. Together, China and Latin American can grow their opportunities in harmony. And “Harmony, as Confucius said, is something to be cherished”.
Ladies and Gentlemen:
Latin America and China are well-positioned to keep strengthening their relationship. At the OECD we stand ready to help. Through our convening power, through our partnerships, through our expertise, exemplified by this Outlook, the OECD is committed to helping China and Latin America forge a more prosperous, inclusive and sustainable future.