Dragon among the Iguanas

• Author: Anthony Elson
• Position: teaches at Duke and Johns Hopkins Universities and the author of Globalization and Development: Why East Asia Surged Ahead and Latin America Fell Behind.

During a visit to Latin America in July 2014, Chinese President Xi Jinping described the relationship between his country and the region as a “community of shared destiny.” But China is the one that seems to be shaping that destiny.Â

With the opening of China’s economy following its accession to the World Trade Organization in 2001, the country has rapidly assumed a leading role in trade and foreign direct investment in the global economy. In 2012, it became the largest trading nation in the world, and in 2013 it became the second largest recipient of foreign direct investment after the United States and the third largest source of outward investment after the United States and Japan.Â

As part of its enormous expansion in global trade and investment activity since the turn of the century, China has significantly increased its economic and financial ties with Latin America. These initiatives by China have not been unique to Latin America; they are part of China’s more general “going out” strategy to establish trade and financial links with a number of developing areas of the south—in Africa and central and southeast Asia, as well as in Latin America.Â

The importance of this growing South-South relationship for China and Brazil was also manifest during Xi’s 2014 visit, when new lending arrangements for developing economies by the BRICS alliance—Brazil, Russia, India, China, and South Africa—were formalized in Fortaleza, Brazil.Â

Closer ties

Bilateral trade between China and Latin America has grown exponentially since the early 2000s—from $12 billion in 2000 to $289 billion in 2013 (see chart). While there has been a growing imbalance between the two trading partners in favor of China over this period, this bilateral trade has also been asymmetrical in that China is a much more important trading partner for Latin America than the other way around. China is now the second largest source of Latin America’s imports (after the United States) and the third largest destination of its exports (after the United States and the European Union).Â

Latin America’s exports to China are almost entirely primary commodities (hydrocarbons, copper, iron ore, soybeans). China’s demand for these goods is one reason for the significant terms-of-trade gains Latin America enjoyed in the five years before the 2008–09 global financial crisis. These gains and the attendant growth in export volumes provided a significant boost to the region’s real GDP and income growth over that of the preceding decade.Â

China’s imports from Latin America reflect the country’s substantial demand for raw materials to support development. Its imports from the region are highly...