China, Spain, Latin America: A New Growth Axis in Global Trade
Spain, an industralized EU member with close ties to Latin America, could profit from easing the entry of Chinese firms keen to invest in and export to the Americas
SANTIAGO — The current uncertainty in international relations creates inherent new opportunities for global trade. None is more ripe than the three-way axis that includes China, Spain and Latin America/Caribbean.
The interactions among these poles offer major under-exploited potential and can be seen as a natural projection of the new Silk Road the Chinese government has envisaged to connect four continents (Asia, Oceania, Europe, and Africa).
At a glance, the poles reveal asymmetries in terms of size. In demographic terms alone, China's population of 1.38 billion more than doubles that of Latin America and the Caribbean (644 million), and is more than 30 times the population of Spain (46 million). Together the blocks constitute about 28% of the world's population. The differences of size are matched in terms of raw economic potency: China's GDP is double Latin America-Caribbean and nine times Spain's.
Xi Jinping speaks at the first China International Import Expo — Photo: Li Xueren/Xinhua/ZUMA
But the asymmetry is mitigated when we consider GDP per capita, with China's $8,827 annual GDP per head, and LAC's $9,244 well below Spain's $28,156, according to the most recent World Bank figures.
But beyond economic and demographic weight, the main opportunities and outstanding challenges for the three are in the realms of trade and productivity. The direction of trade flows in recent decades clearly indicate China's growing relevance as a market for Spanish and particularly Latin American and Caribbean exports. These multiplied by four and eight times between 2000 and 2016, while Latin America and Spain have seen a less significant increase in Chinese exports to them.
The biggest advance has taken place in the China-Latin America axis, with strong and complementary dynamics. Countries in Latin America have principally sent raw materials and metals to China, while the latter is supplying more and more technological components.
The China-Spain axis has seen moderate progress in trade, though with a more industrial profile. China is increasingly aware of a factor helping to mold economic ties in the triangle: global value chains (GVCs).
The axis is already dynamic, but there is great potential for expansion.
GVCs have been forged through waves of direct investments by Spanish firms in Latin America, and by Chinese firms in Latin America and in Spain. There has also been a timid increase in investments in China by both Latin American and Spanish firms.
Various elements help confirm Spain's role as a link in this triangular context. Firstly, it is a privileged entry port into the European Union. Secondly, its strong ties to Latin America in terms of language, history and culture and advantageous position in Latin American economies, could make it an attractive facilitator for the entry of Chinese firms through partnerships or alliances with Spanish firms settled in the region.
Thirdly, the presence of Spanish business groups in China and Latin America has given them close knowledge and extensive experience of both markets, boosting Spain's bridge-building role in the triangle. There are examples of this in sectors like energy (2010 agreement in Brazil between Spain's Repsol and China's Sinopec), finance (Banco Santander helps finance Chinese trade in Latina America), technology and telecoms (Telefónica working with Netcom and Huawei to build and buy components), or legal advice (Spanish law firms like Garrigues advise Chinese and Latin American clients in their countries).
The China-Spain-Latin American/Caribbean axis is already dynamic. But to tap into the considerable potential for growth, efforts to expand cooperation should focus on key sectors like infrastructure, renewable energy, and tourism.