The costs of ignoring China

According to Mexican economist Enrique Dussel Peters, China is fast becoming the FC Barcelona of international trade and it is crucial that its Latin American partners understand it. Interview. Español Português

Enrique Dussel Peters Robert Soutar
28 December 2016

China-Latin America expert Enrique Dussel Peters (image: UNAM).

Long before it became fashionable, Mexican economist Enrique Dussel Peters began researching China’s trade and investment relationship with Latin America, finding a substantial body of work dating back some 30 years.

Today, new observers are drawn to the subject in part by political elites’ grandiose declarations of South-South partnerships backed by growing trade and huge finance packages. But the media, academics and politicians are encouraged to look at existing analyses of the drivers and actors behind the numbers and, by doing so, avoid costly misunderstandings.

For Dussel Peters, who coordinates the Latin America-China Academic Network (RED ALC-China) from the National Autonomous University of Mexico (UNAM), understanding the makeup of China’s unique public sector is critical. And not just for those Mexican businesspeople and politicians left scratching their heads as to why three major infrastructure deals backed by the Chinese, including the infamous Mexico City-Querétaro bullet train, have fallen through in recent years. Other Latin American institutions underfunding research into China or approaching it from the study of manifold Asia-Latin America relations, would do well to look beyond grand – and unhelpful – narratives.

Dussel Peters speaks about the costs of not understanding the nexus of public sector relations within China, its environmental footprint in Mexico, and why it is fast becoming the FC Barcelona of international trade.

Robert Soutar: You have been looking at China-Latin America relations for nearly 20 years. The subject is becoming increasingly popular, but there are many misconceptions. What is the biggest mistake people make on this topic?

Enrique Dussel Peters: First, you do not have to reinvent the wheel. People in China and Latin America have been studying this for 40 years - in Mexico, in Brazil, Argentina, Peru you will find work on his topic, and also in China. You simply have to start reading results of these analyses. Second, there is some romanticism regarding the Latin America and China relationship. Yes, this is a South-South relationship and you would somehow expect that, for whatever reason, it should be different from the US- or European-Latin America relationship. I would say China is not the South, China is not the North: China has conditions and structures from both the South and the North. Quoting our Chinese friends: “We have Chinese characteristics and we are different”. Categorizing China in terms of its relationships with the South is simply not useful. I would also say that – note the irony and the criticism – when it is functional for China to be part of the G77, it is an underdeveloped country. When it is useful, however, it is part of the G20, the G8, the G5 and even the G2. What China is in 2016 requires a lot of work and a lot of understanding. And if you think it is can be explained by one more indicator in the World Bank’s list of 600 world development indicators, then you are lost.

DC: How useful do you think the triangular China-Latin America-US approach is, and how will it be affected by the election of Donald Trump?

EDP: I completely agree with this perspective. In our network we have been discussing this new triangle – which is not only economic, but also political and cultural –, not only as regards the US-Mexico-China relationship, but also the relationship between US-Japan-China and others. The increasing presence of China is seriously questioning historical bilateral ties. A fantastic element in Trump’s protectionist argument is that the declining share of US exports to Latin America between 2001 and 2014 meant the loss of 840.000 jobs annually in the US. But nobody cared about it. They were more concerned about the arms China was providing Venezuela. This is a very critical topic that you cannot analyse simplistically. There are very powerful forces in the US. We have witnessed Trump’s criticism of Ford, for example, but there are thousands of other firms participating in this triangular relationship. You cannot just tell Ford that, as from tomorrow, it cannot invest outside the US. Remember that since the Second World War the US has been the main exporter of capital worldwide. You cannot put an end to this in a week. If you want to impose tariffs of 45% in the US, you will have to pay substantially higher prices for consumer goods in the US. Welcome to an interesting discussion…

RS: China’s rapid growth has created an environmental crisis: air, water and soil pollution entail big economic and social costs. How well understood is this as a driver for its growing economic engagement overseas?

EDP: I do believe that this is one of the drivers of China’s foreign direct investment, trade and infrastructure building, but it’s not the only one. There are also macroeconomic factors – huge reserves invested in US bonds or in Latin America, hoping for high returns. But there is also the acquisition of technology, or research and development, such as Lenovo or automobiles and buying patents, for example. There are very aggressive upgrading policies, so it is not just environment. The environmental issues involve transferring the footprint to other parts of the world, there is no question about that. But I would highlight that China, contrary to Japan, the US and other countries, is extremely pragmatic. Chinese public firms can be very different when investing in Japan or in Mexico. They do not systematically abide by low standards, they are perfectly capable of implementing very high or very low standards. It all depends on the host country. Transnational corporations in Japan, the US and Germany know that not having intra-firm standards can be very expensive, and so they apply them. If a scandal breaks in Zambia, it will cost you more than the 10 cents you are saving by operating in Zambia.

RS: In Mexico, three big infrastructure projects have been cancelled. Was the lack of understanding of China a factor in this?

EDP: Yes, of course. I do not think that Mexico’s public and private sectors have a sufficient understanding of China’s public sector and its implications – not only in Mexico, but also in Brazil and Argentina and many other countries. The cancellation of one infrastructure project results in an overall freeze of the bilateral relationship. And then, from the Mexican side, they are surprised. How is it possible that they did not foresee this? The China Railway Construction Cooperation is a public firm. As a matter of fact, it is a central government state-owned enterprise. Cancelling a project that is part of China’s One Belt-One Road strategy has immediate effects at all levels. It should come as no surprise.

RS: There was an environmental factor with the Dragon Mart retail complex. It was argued by lawyers that it would damage sensitive ecosystems…

EDP: I believe there may be an important environmental factor, but I am neither an engineer nor a specialist. What I can assure you of is that is if this was a German, Swiss or UK project, it would have gone through. I know the region in Cancún – Tulum is a lovely place. But Spanish and European tourist firms have destroyed the region. They destroyed the coral reefs and nobody cared. There are NGOs working on it and it is important to acknowledge their work, but in this case there was clearly an anti-Chinese sentiment – and it was not even a Chinese investment. If you look at the proposal - and you can find it on our website -, the project is 90% Mexican capital and 10% Chinese capital.

RS: Where does this anti-Chinese sentiment come from?

EDP: This widespread anti-Chinese sentiment comes from ignorance and its origin is the lack of investment in public and private and academic institutions. Despite the massive dynamism in trade and investment and infrastructure projects, both business organizations and the public sector have very limited institutions at their disposal. There is a Latin America-Asia institute, but I am very critical of it. Latin America and the Caribbean add up to 42 countries, and Asia has 30. If you multiply 30 by 40, this gives you 1.200 – then, for five topics, you will have 6.000 discussions. And you only have two people in charge of the institute. It is a joke. The result is ignorance, lack of investment and, to be honest, racism.

RS: Many in China see Mexico as a competitor for the share of exports going to the US market. How does this affect the relationship?  

EDF: Fifty years ago, there was some competition in segments of value-added chains between Mexico and China: textiles, electronics and auto parts. But this is no more. Now the two countries are in different leagues. To give you an example: today, China’s share of exports to the US in spinning, textiles and garments is 40%; Mexico’s is 5%. There is no competition. 15 years ago, there was a tie at 10%. Moreover, you have nylon socks and silk socks - they are different. Someone who is not familiar with this would say: “socks are socks”. But you have different production lines, different machinery. They have nothing in common. It is like comparing a bicycle to a car. You might say: “they are both good at transporting people”. But it is like Zacatepec, a second-division football team from Mexico, playing against Barcelona. If they lose 15-0, they will have done very well. This is the game today.

This article was published previously by Diálogo Chino.

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