To better understand such prospects, the World Bank’s Chief Economist’s Office for the region has issued a new report titled Latin America and the Caribbean’s Long-Term Growth: Made in China?
The study takes an in-depth look at the China-Latin American and Caribbean relationship, particularly as it compares to Japan’s interactions with East Asian economies from the 1970s to the 1990s.
The report concludes that China’s role in Latin America and the Caribbean (LAC) will need to adapt and evolve if it is going to have a lasting, positive impact.
“There is little evidence that China can play a role in fostering productivity growth for Latin America and the Caribbean,” according to the World Bank’s chief economist for the region, Augusto de la Torre.
“In this new context of lacklustre economic performance in the US and Europe, one key question is whether LAC can leverage its deepening connections with China and turn it into an important source of long-term growth,” he added.
De la Torre said while the golden years of the East Asian Tigers were characterised by large flows of intra-industry trade and foreign-direct investment from Japan, with significant distribution of technology and knowledge more broadly, the first decade of China relations with the region has “lacked much of that promising exchange.
“China has become the principal trading partner for some large LAC countries. Trade between China and these nations has revolved around the exchange of the region’s abundant natural resources for low-tech goods from China that are labour-intensive to produce,” he said.
“This type of trade typically limits the potential gains from technology and knowledge sharing,” he added.
“That is not to say that there have been no gains from the commodity boom in the region, the report emphasises. Some bright spots show that certain commodity sectors in LAC are benefiting from technological innovation and generating local, quality employment,” he added.
De la Torre said until these favourable conditions become more widespread, however, “it is difficult to expect that the region will finally begin narrowing the gap with advanced nations.”
He noted that LAC’s growth performance over the 20th century was “rather dismal,” with per capita income remaining largely steady at 30 per cent of the United States (US).
In contrast, he said East Asian countries saw their per capita income, which was only about 15 per cent that of the US in the 1960s, rise sharply and steadily to reach more than 70 per cent of the US by 2010.
“The very fact that the region is confronted at this stage with inflationary pressures arising from strong economic activity is a clear reminder that the region tends to bump against ‘structural speed limits’ at comparatively low growth rates,” the bank’s chief economist said.