A Different Kind of Investor?: Chinese FDI in Latin America

A Different Kind of Investor?: Chinese FDI in Latin America

Gayle Allard (IE Business School, Spain)
DOI: 10.4018/978-1-4666-6224-7.ch024


After decades of limited contact, China's influence in Latin America has soared in the early part of the 21st century. China's presence in Latin America holds potential for transforming regional economies in positive and negative ways. This chapter describes Chinese Foreign Direct Investment (FDI) in Latin America, explores its implications, and tests whether Chinese FDI differs from global FDI in Latin America regarding corruption and resource intensity. It finds that Chinese FDI is more closely associated with countries that are more resource-abundant and are ranked as more corrupt. This could have negative implications for Latin American countries and their development as China expands.
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The world economy is undergoing what have been called “tectonic” shifts in recent decades. The advent of huge, fast-growing producers like China and India to the global trading system, the “awakening” of Africa, the resource boom in many developing economies, along with the protracted crisis in the developed world and the powerful underlying forces of demography and the environment, are combining to change the face of the international economy and the geopolitical scene. The sheer size and vigor of China, in particular, means that its involvement in all of these realms will probably alter the rules of the game as it transforms the economic landscape. Part of this new world can be observed in China´s heightened activity as a foreign investor in developing countries.

Latin America has experienced the rising importance of China on many levels. China’s presence there is growing rapidly in the commercial realm, as Tables 1-3 demonstrate. Although the magnitude of U.S. trade and investment with the region still dwarfs that of most other nations, China´s imports, exports and foreign direct investment (FDI) to Latin America have been growing at spectacular rates from an initially low base. Between 2000 and 2005, Chinese imports from Latin America nearly quadrupled while its exports tripled, according to IMF data. In the period between the lifting of restrictions on its textile exports (2005) and 2010, Chinese imports from the region nearly tripled again, while Chinese exports to Latin America were multiplied by 2.2. Table 1 shows how China´s phenomenal rise as a trade partner with Latin America has decimated the ratio of U.S. to Chinese exports to the region. In some countries (Argentina, Paraguay, Uruguay), Chinese exports exceeded those of the United States by 2010.

Table 1.
Chinese vs U.S. trade with Latin America
Chinese Exports to Country ($USmn)Chinese Imports from Country ($USmn)U.S. Exports to Country ($USmn)Ratio U.S. Exports/
China Exports
20002010% ∆20002010% ∆20002010% ∆20002010
Costa Rica67989137613287210815096334320236.4
Dom. Rep.15578640711117--632264992.8418.3
El Salvador33454127603--2476312626746.9

*Change calculated from 2003 (2004 for Nicaraguan exports); no trade recorded with China before that date for these countries. Source: IMF Direction of Trade Statistics.

Key Terms in this Chapter

Resource Intensity (of Exports): Is a measure of the relative weight of natural resources in total exports for a country.

Development: Economic development usually refers to a sustained process of rising living standards which involves the application of new technologies and the transition from an agriculture-based to an industry-based economy. The threshold for development is usually some level of per-capita income adjusted for purchasing power parities. However, Nobel Laureate Amartya Sen argued that development also implies better health, education and living standard outcomes; and that ultimately greater freedoms constitute both the means and the ends of development.

Chinese Foreign Direct Investment: This paper refers to outgoing Chinese foreign direct investment, or FDI. FDI refers to investments made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments are typically long-term and the investor normally acquires a significant degree of influence and control over the company into which the investment is made.

Corruption: Defined in the Oxford dictionary as dishonest or fraudulent conduct by those in power, typically involving bribery.

Governance: The World Bank defines governance as the process by which authority is conferred on rulers, by which they make the rules, and by which those rules are enforced and modified. Good governance is generally associated with democracy and good civil rights, with transparency, with the rule of law, and with efficient public services.

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