China’s Investments in Latin America

Li Bin, Counselor for Economic Affairs for the Chinese Embassy in Washington, D.C., joins a panel on emerging markets

What does China’s investment situation in Latin America look like? What would be the potential risks and problems for such investments? What are the characteristics of successful market entries in emerging markets? On November 25, 2013,  a Johnson MBA course on emerging markets welcomed three experts to address such questions: Li Bin, Counselor for Economic Affairs, Chinese Embassy; Andrew Horrocks, MBA ’92, managing director and global co-head of the Transportation and Autos Group at Credit Suisse; and Vishal Ahluwalia, executive director Group Operations and head of the Outsourcing & Offshoring Group at UBS. The course is taught by Lourdes Casanova, senior lecturer of management at Johnson.

Li started the panel discussion by highlighting China’s current goals in terms of readjusting its economic structure toward a high-tech orientation, less pollution, and more efficiency. Rather than just relying on GDP and investment, China should rely more on scientific technology and human resources, Li said. He pointed out that China is “paying attention to climate change issues.” Not only is China working on energy conservation and sustainable development, but the country will also contribute 1.7 billion RMB to deal with the smog in Beijing. In addition, Li drew attention to the third planning session of the Communist Party of China Central Committee that concluded on November 12, 2013,which stressed “reforms and the relationship between the government and the market.” Specifically, the session addressed issues of reduced interference by government, approval of investment projects, and promotion of the development of a non-state owner sector.

Li then discussed China’s current investment in Latin America. By the end of last year, the National Development and Reform Commission (NDRC) reported about $70 billion cumulative investment from China to Latin America in countries such as Brazil, Peru, Venezuela, Mexico, Ecuador, Chile, Costa Rica, and Argentina, mostly centered on the resource industry. On the other hand, he expressed many concerns about China’s investment in Latin America. Changes in government policies and nationalization programs in Latin American countries [EH1] have led to huge losses for Chinese enterprises. Some local unions in Latin America have expressed protectionist voices against Chinese purchases of local companies’ shares and stakes, said Li. “This is not good for China’s financial interests.”

Language and cultural barriers, with many in Chinese enterprises speaking little Spanish and not fully understanding the local culture and local laws, have led to misunderstandings between parties. Li also pointed out that some Chinese state-owned enterprises exhibit conservative thinking and regard themselves as government officials rather than businessmen. They do not like taking risks and prefer stability. Lastly, up until now, most Chinese investments in Latin America were restricted to the oil and gas sector, which accumulated up to $23.6 billion from 1994–2010. Li hopes for “more high-tech and research and development (R&D) activities for Chinese enterprises in Latin America, in addition to investments in resources. China also needs to consider more efficient utilization of resources,” he added.

–Yuezhou Huo is marketing and communications intern at Johnson