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Economy

Latin America, A Perfect Fit For China's Global Trade Strategy

Peru, in particular, has had a key role since 1992, when it became the site of China's first foreign investment. China also likes the fact that Lima puts so few 'controls' on commerce.

A Peruvian miner at the Toromocho Project, run by Chinese owners.
A Peruvian miner at the Toromocho Project, run by Chinese owners.
America Economia

SANTIAGO — When China began opening its economy in 1979, approximately 30% of its population lived in cities. Today, urban areas are home to half the population. The demographic shift, involving some 350 million internal migrants, is not only unprecedented — it is still going strong. Chinese authorities expect the numbers to double within 25 years.

It is little wonder, then, that China needs so many resources and is investing so much in every corner of the world to obtain them. Latin America — and Peru in particular — are no exceptions.

Eduardo McBride Quirós, a lecturer at Peru's ESAN business school, says that with the recent purchase of the Bambas mine by a consortium led by China Minmetals Corporation, the amount invested in the mining and energy sector, or committed for investment in coming years, now stands at $20 billion. That includes sums Chinese investors have already paid to buy mines.

"Chinese investments in the mining sector are increasing and represent today more than 30% of the sector total. And there are no signs, at least in the medium term, of this trend stopping," says McBride. "China has a tremendous need for minerals, especially copper, zinc and iron. They will keep looking for opportunities here and in other countries to ensure they depend not on the market but on their own resources."

Carlos Aquino Rodríguez of Peru's Universidad Nacional Mayor de San Marcos (UNMSM) says Chinese investors are drawn to his country because of how few "controls" are in place and because economic ties between the two countries are longstanding.

"We should recall that China's first investment outside Asia was in Peru. That was in 1992 when Shougang won the privatization tender for Hierro Perú," says Aquino. "We also have the largest Chinese community in the region and were the third country in the world to establish diplomatic ties with China. These are factors that make Chinese investors feel very comfortable and make them prefer us over countries with the same resources."

That's not so say China is ignoring the rest of the region. Far from it. "Venezuela is a partner by default, having no access to international loans but badly needing investment. And China is one of the few countries ready to oblige, obviously with production guarantees," the UNMSM lecturer says. "The Chinese also have a lot of interest in Brazil and Argentina." Overall, 90% of Chinese investments in Latin America are in natural resources, according to Aquino.

Controlling product and price

Cynthia Sanborn of the Universidad del Pacífico says Chinese investments in Venezuela, Brazil, Argentina and Ecuador are focused in large part on hydrocarbons. China is also developing related infrastructure projects in those countries. Its main interest in Peru, in contrast, is mining.

"Chinese mining investment is diversified around the world and includes countries ranging from OECD members like Australia, to developing states like Burma and Zimbabwe," she says. "In fact Chinese mining firms are present in 17 Asia-Pacific states, at least eight African countries and six in Latin America and the Caribbean. They also have mining operations in Russia and Saudi Arabia."

ESAN's McBride notes that Chinese investments can take different forms, from buying shares in energy sector firms in Argentina and Brazil, to carving out a stake in Bolivia'a Mutún, the world's largest iron deposit. "Colombian and Ecuadoran oil are other examples of Chinese interests," he says. "China does not want to depend on the commodities market to acquire its raw materials, and wants to assure both the product and the price."

McBride says China is also trying through investments and loans to challenge European and U.S. hegemony in the world of foreign exchange and international financing. "We should bear in mind that China, alongside Brazil, Russia, India and South Africa, have just announced the creation of a $50 billion fund to function as a paralllel body to the IMF," he says. "Guess which country will run it?"

Professor Sanborn says Chinese firms want the same as those from any country: good projects, quality natural resources, low extraction costs and relatively stable social and political settings.

She also notes that the Chinese state (which owns most of these firms and finances all of them), has a strategic interest in accessing resources to help develop its enormous economy and diversify its presence in the world.

"So it helps its firms become more competitive and also meet global industry standards," Sanborn explains.

José de Echave, an NGO researcher who formerly held a post in the Peruvian Ministry of the Environment, agrees that China is now one of the main players in Peru's mining sector. "Looking at China's investment portfolio we see a country with the highest proportion of new investments," he says.

He also notes how important it is that these firms are public and follow a strategy set out by the Chinese state, unlike Western firms that follow their own strategies.

"Behind Chinese investment," de Echave says, "lies the strategy of an entire country."

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Society

Play And Pay: Why Singapore's Education System Is Top Of The Class

For years, Singapore has topped education rankings and inspired other school systems. Among the keys to its success is a playful approach to education and highly paid teachers. But many worry about the pressure the system places on children.

Students at Sri Mariamman Hindu temple in Singapore

Yann Rousseau

SINGAPORE — Every year in mid-October, social networks are set ablaze in Singapore. Upset parents attack the Ministry of Education on Facebook, Twitter and other forums, accusing it of having organized tests that were too complicated for their children. They say their children came home from the math section of the PSLE – the Primary School Leaving Examination – in tears. The results come in late November.

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