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Business Management

Should the US fear China's Latin America connection?

Chinese president Xi Jinping last month raised eyebrows across the world after pledging $250 billion (£162bn) of investment in Latin America over the next decade. The details are still pretty vague, as one would expect at this stage, but the signal it sends US technology companies is a combative one: “you’ve got competition now.”

The deal was announced at the first meeting of the 33-country Community of Latin American and Caribbean States (CELAC) in Beijing at the beginning of the year. It comes as part of a 2015-2019 “co-operation plan” between the two regions which Chinese foreign minister, Wang Yi said will “push forward the development of China-Latin American cooperation to an unprecedented new high,” according to CCTV.

It’s bound to include the export to China of even more energy and raw materials – commodities its populous but relatively resource scarce country desperately needs. But what about the other way? Well, thanks to the Chinese Development Bank’s deep pockets and generous lending to Latin American countries, Chinese firms have been able to secure trade routes not just for energy but also in the food, agricultural and construction sectors, according to the Washington Post.

But China is not only investing in the region to strip it bare of resources; its tech firms are increasingly seeing Latin America as a lucrative market for their own products.

Tech Americas

Telecoms infrastructure giant Huawei had a whopping 4,500 employees in the region at the last count and claims to serve more than 50 local operators. Its North Latin America director of marketing, Manuel Vexler, claimed last year that the continent was key to the company’s global growth plans. Its Shenzhen neighbour ZTE also has a big footprint in several South American countries, whilst Google rival Baidu arrived in September 2014 with a new Portuguese search engine for the Brazilian market. The Mountain View giant may be well established in Brazil but that hasn’t stopped Baidu committing 120mn reais (US$54.5mn) to a new R&D centre there within three years.

Lenovo has manufacturing plants in Brazil, as well as Taiwanese OEM/ODM Foxconn, to “avoid high import tax for electronics products,” Forrester’s Bryan Wang told me. The PC giant is also looking to flog its kit over there, having created a new Americas division in 2013. E-commerce behemoth Alibaba is also building its presence in South America – for example by translating some of its sites like AliExpress into local languages. In July last year over 12 million Brazilians browsed the site in search of bargains, a huge increase of the 1.5m uniques it got from the country a year earlier, according to the Wall Street Journal.

A spokesperson for the firm told me that it was looking for new ways to cater to Latin American customers wanting to buy directly from Chinese manufacturers and sellers. AliExpress has launched a mobile app in Portuguese for Brazilian customers, and an AliExpress Latinoamérica Facebook page designed to provide localised product promotions and customer service support. “In Latin America, we’re also encouraging small business owners to come online to sell their products around the world with the help of Alibaba.com,” the firm said.

These initiatives should come as no surprise, given e-commerce spending in Brazil, Mexico and Argentina will reach $47.3 billion (£30.7bn) by 2018, compared to $19.8 billion (£12.8bn) in 2013, according to Forrester stats cited by Nikkei.

Winners and losers

Total trade between China and Latin America has more than doubled over the past 10 years to reach a “historic high” in excess of $500 billion (£324bn) in 2014, according to thinktank the ADB Institute. Even before president Xi’s recent pledge that figure was expected to grow to at least $750 billion (£486bn) by 2020. So will the US and its technology companies be looking nervously at their southern neighbours?

Quite possibly.

“With the government funding support, Chinese companies – especially those in technology, auto, or new energy sector – may be in a better position to expand their businesses into the region at a faster pace,” Forrester’s Wang told me. “In the tech sector, companies like Xiaomi may also benefit from government support.”

This is not great news for US firms already coming up against strong government interference threatening their bottom line in the huge market of China. But the truth is they’ll have to get used to it. The new reality all over the world is that US economic and political hegemony is beginning to crack and China is at the head of the pack of nations looking to step into the gap. The example of Lenovo is particularly indicative of this shifting power balance. Not only has it passed US giant HP as the number one PC vendor in the world, but thanks to its purchase of Motorola from Google, it now has a familiar smartphone brand to sell into the Latin American market.  

Some say the best chance for the US is to start getting proactive – to accept what’s happening and find ways to capitalise. Florida, for example, has been touted for several years as a potential regional investment hub for Chinese companies looking for a springboard into South America. The Obama administration has also recently eased restrictions on US firms looking to trade with and invest in Cuba. We can only speculate whether it had one eye on China as it did so.

A much bigger loser from China’s renewed focus on South America could be its tiny southern neighbour. Taiwan is Latin America’s most proactive trade partner with five Free Trade Agreements (FTAs), according to ADB Institute. It’s unlikely China will take kindly to these, or that more countries in this region than any other recognise the sovereignty of the island it still lays claim to.

“From the past couple of years, I am sure you have seen China winning some Latin American countries back from Taiwan,” says Wang. “I think this initiative [of Xi Jinping’s] will further strengthen China's momentum there.” 

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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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