56 The European Financial Review February – March 2013 Global Economy China and Latin America: Connected and Competing By Kayla Chen & Xiangming Chen The Global Rise of China The rise of China has stolen more headlines than any other global issue these days, stirring up questions about what China’s growing prominence really means, and how – more than why – it affects the world. While the rise of previous global powers took decades, if not centuries, China’s rise has been spectacularly fast and furious, considering the tremen- dous economic prowess it has gained over a relatively short period of time. Accounting for approximately 2 percent of the world’s total GDP around 1980, China holds almost 15 percent of world GDP in purchasing power parity today. From a longer historical perspective, however, China has yet to regain its dominant status in the world economy back in 1840 when it accounted for about a third of world GDP – the largest among all countries at the time – before its protracted economic decline in the aftermath of the two Opium Wars. As China’s share of the world economy has grown larger, its integration with global trade has also accelerated. According to the Chinese government’s statistics, 1 China’s share of global trade rose from 4.7 percent in 2002 to 10.2 percent in 2011, with its export share of the global total growing from 5 percent to 10.4 percent. This rapid ascent has moved China from fourth to first on the list of top trading nations. With an annual growth rate of 21.8 percent since 2002, China moved up from being the sixth largest importer in 2002 to the second in 2009, and stayed there through 2012, only behind the United States. Because China’s speed and intensity of economic growth and global integration over the last three decades is historically unprecedented, it is expected to encounter both concerns and competition from other emerging economies, mainly in Asia and Latin America. From Old Allies to New Partners Looking from the 1960s to the present, there has been both continuity and change in China’s relations and position with other developing countries. As a member of the old Third World camp, China preached and practiced the ideology of socialist, independent development with very limited interna- tional trade. At the same time, China provided development assistance to a number of African and Latin American coun- tries that shared that ideology, such as Tanzania and Chile, whose socialist government under Allende was the first in Latin America to recognize China in 1970 (although trade between the two countries began as early as 1961). Between 1970 and 1975, China put up $500 million to build the Tanzania-Zambia Railway, the largest single foreign-aid project undertaken by China at the time. As part of this largely ideologically driven project, China invited hundreds of railroad engineers from both countries to Beijing for training. The irony at the time was that many of these engineers were the sons of govern- ment elites whom China treated as its “socialist brethren.” Fast-forward to the first decade of the 21 st century, and China has expanded its small and ideologically imbued pres- ence into considerably larger and market-oriented developing economies in Asia, Africa and Latin America. China not only has expanded trade and investment ties with many of these economies, but also intensified efforts to target valuable com- modities like oil, gas, metals and minerals. While continuing to provide development assistance, often involving a larger amount of resources to poor developing countries, China has become a more powerful trader and investor, with a voracious appetite for natural resources that are in short supply at home. Relative to its interests in acquiring oil and gas in Central Asia and parts of Africa, China’s economic relations with, and interests in, Latin America are more varied and complex. The Emerging China-Latin America Nexus Trade between China and Latin American countries has grown exponentially over the past decade. Although Sino- Latin American trade continues to remain a relatively small share of their respective global trade, growth has exceeded many expectations. From 2000 to 2009, annual trade between China and Latin American countries grew more than 1,200 percent, from $10 billion to $130 billion, according to United Nations statistics. 2 China has emerged as the largest export destination for Brazil, Chile and Peru and the second largest export destina- tion for Argentina, Costa Rica and Cuba. Overall trade with Latin America is mainly driven by China’s need to fuel its expanding economy and to feed its 1.34 billion people. Brazil, Chile, Peru and Argentina – more than half of the Mercosur