PRC-Latin America Economic Cooperation: Going beyond Resource and Manufacturing Complementarity

Abstract

Despite the rapid development of economic interaction between the People’s Republic of China (PRC) and Latin American and Caribbean (LAC) countries, their trade and investment ties are still in their very early stages, and the complementarity of factor endowments dominates their bilateral trade pattern. By examining the determinants of trade performance of the PRC and LAC economies, and simulating alternative scenarios for their economic opening and cooperation, we argue that the PRC and LAC economies need to move beyond their traditional focus on resource complementarity to more dynamic, foreign direct investment (FDI)-based intra-industry trade. Policies that encourage deep economic integration would help Latin American firms integrate into the value chains of global production, and enable Chinese and other East Asian firms to have greater and more stable access to resources and markets. Further liberalization of trade, FDI regimes, and regulatory policies should be of high priority for most LAC countries, while the PRC and other East Asian economies could make a great contribution to trade ties by investing in manufacturing sectors and infrastructure in Latin America.