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Sino-Latin cultural differences make investors wary

Fecha:2010/04/23 Autor:Wu Baiyi et al.

Editor’s Note: Chinese President Hu Jintao visited Brazil Thursday and signed the Joint Action Plan from 2010 to 2014 between China and Brazil, outlining the development plans in the coming five years. The Economic Commission for Latin America and the Caribbean (ECLAC) also issued a report indicating that China will become the second biggest export destination for Latin America and the Caribbean. The following is an interview between Global Times (GT) reporter Wu Mian and Wu Baiyi (Wu), deputy director of Institute of Latin American Studies, Chinese Academy of Social Science, and Osvaldo Rosales (Rosales), director of International Trade and Integration Division, ECLAC, on the opportunities and challenges in the relationship between China and Latin America and Caribbean.

GT: What are the current economic relations between China and Latin America like?

Wu: The economic models of China and Latin America are highly complementary. Latin America still has the advantages of low-cost raw materials, which has helped it to survive the economic crisis and revive its development.

China will soon become the second largest export destination for Latin America, and we are delighted about that. The cooperation between the two should be built on fair and mutually beneficial ground.

According to our statistics, imports from China contributes to around 6 percent of the general economic growth in Latin America. This provides great support to the stability and natural growth of the economic index in Latin America.

Rosales: The current trends show the progressive importance of China in international trade flows, not only with Latin America, but also in the global arena.

China has allowed Latin America to maintain its export flows, basically commodities associated to natural resources, particularly during the recent global economic crisis.

Notwithstanding that Latin America was better prepared to handle a crisis this time thanks to good institutional governance and fiscal and monetary policies, China provided critical support in maintaining its levels of demand.

GT: In what areas can China and Latin America cooperate further?

Wu: China is developing a multifaceted relationship with Latin America, and energy cooperation is taking a more and more significant role. China is now getting more involved in setting oil prices through investing in the crude oil market and gaining firmer control of the price. In this field, cooperation with Venezuela is crucially important.

Energy is another promising area for the Sino-Latin American cooperation to develop. Take Brazil. China and Brazil sign a Joint Action Plan every five years. President Hu signed the documents for 2010 to 2014 during his visit to Brasilia last week.

Besides the conventional advantages of having cheap raw material, Brazil has very advanced aviation technology. In alternative energy, Brazil has also developed advanced techniques to producing ethanol from sugar cane, which can be adapted to China’s Guangdong and Guangxi where sugar cane is a major crop.

In Caribbean countries, cooperation has a different emphasis. In order to combat the fatigued economy after the global crisis, China has signed agreements with Caribbean countries to develop tourism.

Rosales: There is a range of areas for further cooperation, particularly in infrastructure development and production value chain insertion, areas in which China has vast experience.

Energy is crucial for China in order to sustain its economic development, and Latin America is a good source of both conventional and new energy, such as hydrocarbons and biofuels.

However, Latin America is not only rich as a source of energy. There are other natural resources that can also be further exploited in a sustainable way.

GT: What are the obstacles in Sino- Latin American relations? Does the imbalance between export and investment cause discontent in Latin America?

Rosales: Latin America has based its development on the exploitation and further export of its natural resources. However, this approach limits the possibilities of sustained economic develop-ment for the region.

In order to add value to Latin America’s exports, more investment is needed in areas such as infrastructure, which will make the region more competitive from the logistics, distribution and communications point of view.

Being part of intra-industry production and supply chains provides the opportunity for Latin America to leave behind the dependence on the exploitation of natural resources.

Wu: I think we should work on communication at the grass-roots level. Even though the growth of trade has contributed greatly to the economy to both parties, there is discontent that investments between China and Latin America didn’t really grow with the volume of trade.

There are many reasons for this phenomenon. Geographically, it is much more economical for Chinese investors to build their factories within China or in nearby Asian countries. In addition to shared similar cultures and values, management costs are lower as well.

The culture and social norms in Latin America can be very different from what Chinese investors expect.

The iron project ran by Capital Iron and Steel Co in Peru received great obstruction from local environmental protection groups as well as running into payment issues, all of which overwhelmed the investors’ confidence in running factories there.

Also, the culture in Latin America is quite different from China’s. Latin Americans pay more attention to their personal happiness, while most Chinese value efficiency more.

From the point of view of the Chinese investors, hiring Chinese workers means fewer holidays, since they won’t need that much time for recreation, due to the language barrier and different social habits, less payment, for their accommodation and food are included in the contract, and higher quality work, for the workers would be more concentrated in their job and finish the orders on time.

This creates great dissatisfaction locally, because the investment doesn’t contribute to local employment. If this problem is not solved well, it can cause a lot of conflict.

GT: How can we alleviate such tensions?

Rosales: In November 2008, China released a policy white paper on its relations with Latin America, which set the basis of China’s view regarding how to approach and engage with the region, through actions in different areas, including trade and cooperation.

It is time for Latin America to act jointly in responding to this initiative announced by China, including what priority areas should be addressed and tackled with China for mutual benefit.

Tensions should not be taken as structural problems, since they are rather particular situations of mainly trade conflicts, for which a full set of settlement and resolution mechanisms exist.

Wu: We should increase the communication on all levels. Governments need to talk more, scholars need to hold more discussions, and grass-roots exchanges should be encouraged. Only by getting to know each other can we find out the common interests and the appropriate way to cooperate.

We need to make use of existing mechanisms, such as the bilateral commissions between China and the Latin American countries and the joint agreements such as the Joint Action Plan between China and Brazil.

Latin America is getting more important in China’s foreign policy agenda.

As both parties develop, their interactions with the world gets more complicated. Challenges lie with opportunities in all kinds of cooperation.

By working together, China and Latin America can serve the developing countries better in the international arena. We have already achieved success in gaining more votes in IMF decision-making, and we should keep on doing so.

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