Steady progress in economic and trade cooperation between China and Latin America

Recently, the latest expectations released by international institutions have shown that in the context of insufficient global effective demand, the overall economic growth trend in Latin America this year is relatively weak. The World Bank and the Inter-American Development Bank have both lowered their expectations to 1.6%. The Economic Commission for Latin America and the Caribbean (ECLAC) slightly raised its expectations, but also pointed out that the region will continue to follow the low growth path of recent years. In this context, China Latin America economic and trade cooperation is still steadily advancing, which provides assistance for Latin American countries to resolve economic difficulties and promote sustainable economic development.

The external environment is complex and ever-changing

Institutions such as the Economic Commission for Latin America and the Caribbean predict that from an external perspective, the international development environment faced by the Latin American region in 2024 will still be relatively complex, especially with global economic and trade growth far below historical averages.

"Latin American countries, especially South American countries, have a high dependence on exports of primary products and natural resources, making them particularly vulnerable to the impact of global economic cycles and fluctuations in commodity prices." Yue Yunxia, Deputy Director of the Latin American Institute of the Chinese Academy of Social Sciences, said that in 2023, with the decline in commodity prices, Latin American export revenue has significantly decreased; Since the beginning of this year, the overall prices of commodities have remained stable, but in the context of global slowdown and insufficient effective demand, Latin American economic and trade growth still lacks vitality. Especially major oil and gas exporting countries in Latin America such as Bolivia, Colombia, and Ecuador, as well as major agricultural product exporting countries in Latin America such as Chile and Uruguay, have been greatly affected. For example, Bolivia's export value in 2023 was 10.911 billion US dollars, a year-on-year decrease of 20%; The export volume continued to decline from January to February this year, a decrease of 22.7% compared to the same period in 2023. Among them, natural gas exports decreased by 26.3%, and gold exports decreased by 77.6%.

"With the continuous expansion of the new energy vehicle market, the global demand for lithium ore continues to increase; Latin America has become a major exporter in the world by virtue of its rich lithium ore resources. However, the lithium price will fall by more than 75% in 2023, and the current decline may not be over." Bu Shaohua, deputy director of the Latin American and Caribbean Institute of the Chinese Academy of International Studies, said that this will also bring new challenges and uncertainties to the economic and trade recovery of Latin America.

In addition, ECLAC pointed out that the escalating geopolitical tensions are causing a sharp reshaping of the global value chain. More and more restrictive trade measures, as well as unilateralism and protectionist policies adopted by some major economies, will have an impact on global industrial and supply chains, including Latin American countries.

Limited policy adjustment space

Since 2023, the overall inflation level in Latin America has shown a downward trend, but the hidden concerns that may lead to a rebound in inflation remain unresolved, and the macroeconomic policy space of Latin American countries is still limited.

For example, the Bank of Mexico announced its first interest rate cut in March of this year, following the start of a rate hike cycle in 2021, and expected inflation levels to continue to decline. However, in April, the country's inflation rate rebounded again, and the Bank of Mexico recently announced that borrowing costs would remain unchanged, eliminating the possibility of a second consecutive interest rate cut.

Bu Shaohua said that the aggressive interest rate increase policy of the Federal Reserve is one of the main reasons for the high inflation rate of major economies in Latin America. The current outlook for the Federal Reserve's interest rate cut policy is unclear, and the US dollar remains strong. In this situation, it is difficult for inflation levels in Latin American countries to recover to pre pandemic levels in a short period of time.

"The current round of inflation in Latin American countries belongs to input inflation. The intensification of the global geopolitical crisis and the rise in commodity prices may delay the time for major central banks to lower policy interest rates, and the risk of inflation in Latin America remains high." Yue Yunxia said that in this situation, Latin American countries will have to lean towards adopting contractionary monetary policies, which is not conducive to stimulating economic recovery; The high interest rates in the United States and Europe will further increase the debt burden of Latin American countries and intensify the pressure on fiscal balance.

ECLAC pointed out that the region is currently trapped in a structural trap of low growth, severe poverty, and high inequality, and it also lacks strong and effective governance models and capabilities.

"The epidemic has intensified the internal development problems that already exist in Latin America, and the employment quality under the background of low growth is worrying. The working class will be in a more vulnerable state, with lower average wages and social security levels, which cannot stimulate the consumption potential of the internal market in Latin America. At the same time, it is not conducive to the development of education and talent cultivation, and it is difficult to improve total factor productivity, making it more difficult for Latin America to complete industrial upgrading," said Sun Yanfeng, Executive Director of the Latin America Research Institute of the China Institute of Modern International Relations.

China Latin America cooperation adds vitality

The report of ECLAC points out that the Latin American region must improve its capital accumulation and utilization models, focus on emerging areas such as infrastructure, telecommunications, and digitalization, and take an important step in strengthening industrial infrastructure and promoting innovation to achieve more sustainable and inclusive economic growth.

Sun Yanfeng stated that Latin America is currently in a critical period of industrialization or re industrialization, but its supporting infrastructure construction has a long history of arrears and a large gap, which has become a major bottleneck restricting the economic and social development of Latin America. It is also one of the factors that Latin America has been unable to overcome the "middle-income trap" for a long time. Infrastructure construction and equipment manufacturing are precisely China's strengths, and there are many points of convergence in economic cooperation with Latin America.

Currently, China is injecting momentum into the transformation and development of Latin America. Data shows that in 2023, the trade volume between China and Latin America exceeded 489 billion US dollars, a year-on-year increase of 1.1%. At the same time, the joint construction of the "the Belt and Road" between China and Latin America has continued to go deep and solid. In Bolivia, Chinese enterprises have built over 2000 kilometers of roads in recent years; In Uruguay, the transmission network built by Chinese enterprises spans across five provinces in northern Ukraine... Both China and Latin America have continuously made significant breakthroughs in infrastructure construction.

The financial links between China and Latin America are becoming increasingly diverse, with special infrastructure loans, preferential loans, and cooperation funds operating well. More and more Latin American countries are joining the Asian Infrastructure Investment Bank and the New Development Bank. "Currently, China's investment structure in Latin America is rapidly improving and upgrading." Yue Yunxia said that China is investing in multiple emerging fields such as information and communication technology, renewable energy, and key minerals in Latin America, and the value chains of the two sides' industrial chains are more deeply integrated; However, it should be noted that the extension of the cooperation chain also increases the external environmental challenges faced. In the next step, both sides must maintain stable, transparent, and sustainable cooperation, and focus on strengthening the institutionalization of cooperation.

"2024 will be a year of rapid growth in China Latin America cooperation." Bu Shaohua said that from the perspective of bilateral cooperation, the foreign ministers of Argentina, Bolivia and Peru visited China and sought Chinese investment, market and technology in succession; At the level of sub regional cooperation, the fourth China Caribbean Economic and Trade Cooperation Forum will be held in Hainan in September this year to promote overall cooperation between China and Caribbean countries; From the perspective of international cooperation, Brazil serves as the rotating chair of the Group of 20 (G20), Peru will host the 2024 Asia Pacific Economic Cooperation (APEC) Leaders' Informal Meeting, and will also promote economic and trade cooperation with China on a larger scale. I believe that economic and trade exchanges between China and Latin America will further deepen, helping Latin American countries achieve industrial development and diversified exports, and also bringing new vitality to global economic recovery and South South cooperation. (Economic Daily reporter Yang Xiaolin)