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ON THE RIGHT: Development of institutions the weak link


ON THE RIGHT: Development of institutions the weak link

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CHINA’S INCREASING INTERNATIONAL REACH is reshaping the global order with a burst of activity from Africa to Latin America and the Caribbean. Today, China is a global economic giant. Since 2012, it took the reins as the third largest source of overseas foreign direct investment (FDI). The country is also the world’s largest exporter, and, in the last decade, the most dynamic importer.

Its currency, the renminbi, trades in the world’s financial centres and exchanges in bilateral trade between a number of countries. China is also leaving a cultural footprint. Confucius Institutes operate across the world to teach Mandarin as well as to educate locals on China’s cultural activities.

This increasingly global strategy seeks to assert presence in countries critical to China’s long term strategic interests. Latin America and the Caribbean is increasingly a focus of China’s engagement. Even after several centuries of connection in immigration and trade, a substantively new, and deeper, relationship has emerged since 2000.

Expectations are that this new relationship will continue to intensify in the short to medium term. The Latin America and the Caribbean-China relationship is rapidly and dynamically evolving in terms of trade and, more recently, in Chinese FDI and loans. The institutional capability of both sides, including the Chinese, to deepen and improve knowledge of their counterpart is extremely weak: institutions are generally far behind the recent economic dynamism.

This is a severe impediment to furthering the relationship since neither China or any Latin American and Cairbbean country has extensively evaluated the relationship. Similar to other regions’ experiences, Latin America and the Caribbean has so far been unable to understand and systematically respond to the implications of China’s active public sector abroad and its ability to propose packages – including turnkey projects and a mix of services – like no other country in the world.

Whether or not the public versus private ownership of Chinese firms plays a critical role in the success of the investments, recipient countries have to develop strategies to address the potential implications of public ownership. Latin America and the Caribbean countries have largely yet to develop a detailed short, medium or long term cooperation agenda vis-a-vis China.

Without such a plan, it will be a challenge to develop a model of Sino-Latin relations at the regional level.

China’s increasing regional influence is creating important new areas of engagement in energy, trade, investments, and particularly, in infrastructure. Recently announced projects could change the economic landscape. Expectations are extremely high, despite a lack of precedents either in China or in Latin America and the Caribbean for these kind of projects. Yet while China is systematically and clearly illustrating its strategy towards Latin America and the Caribbean, the region lacks the investment and commitment to develop its own understand of China’s political system, trade, investment and education initiatives. This makes bilateral understanding difficult.

As a result, the errors of Chinese investments, the performance of terms of trade, and other elements of the relationship, often accumulate, with little deliberate response. This needs to change.

The Atlantic Council is a think tank based in the United States.