China’s economic engagement with Latin America has become more significant in recent years, with bilateral trade increasing 22 times from 2000 to 2014, transforming China into the region’s second largest trading partner.2 China expects its investments in Latin America to rise from 110 billion USD in 2014 to 250 billion USD in the next decade. Chinese investments in the region are in a range of economic sectors, including housing, telecommunications, energy, and transportation infrastructure.
China now seeks to move up the value chain in its engagement with Latin America, and hence has begun investing in higher-value projects including e-commerce, high-speed rail, and industrial parks. Such cooperation is expected to expand bilateral trade to 500 billion USD in the next decade, up from 264 billion USD in 2014. Such diversification of trade and investment is needed. 3 75% of Latin America’s exports to China in 2013 consisted of 5 key commodities, and 90% of China’s investments in the region were in mining and petroleum extraction.4 This concentration of investments is an artifact of China’s pattern of investment in Latin America during its “old normal” period of double-digit growth, when Chinese firms focused on Latin America’s extractive industries, especially minerals and energy.5 Such concentrated focus on extraction poses the threat of market failure, so China’s shift in the “new normal” towards diversification is healthy for its partner economies in Latin America.