Commodities, Emerging Markets, Energy, Frontier Markets

China-Latin America Relations And The Fall Of Oil Prices

By Yagmur Ersan

China Latin AmericaThe first ministerial meeting of the Forum of China and the Community of Latin American and Caribbean States (CELAC) was held from January 8-9, 2015 in Beijing. Three presidents, President Luis Guillermo Solís of Costa Rica, President Rafael Correa of Ecuador and President Nicolás Maduro of Venezuela, as well as Prime Minister Perry Christie of the Bahamas and 22 foreign ministers came together for the first China-CELAC ministerial meeting. Consisting of representatives of all countries in the Americas except the United States and Canada, CELAC is a coalition of 33 Latin American and Caribbean countries, which was formed in 2011 by the initiative of Venezuela to enhance integration and reduce the economic and political influence of the United States in the region. The meeting was very crucial for the countries of Latin American, particularly those that export oil, as many aim to increase the amount of oil exported to China and attract Chinese investment to their countries. This development arises as the fall of oil prices, which have plunged by more than 50 percent over the last six months, has come to hit the economies of oil producing countries in Latin America such as Venezuela, Ecuador, and Brazil.

Chinese President Xi Jinping attended the opening ceremony of the ministerial meeting stating that China and CELAC have agreed on a five-year cooperation plan that will be applied in the realms of politics, trade, security, investment, energy, finance, infrastructure, agriculture, science, industry and people to people exchange. “All sides should keep friendly consultation, hold common development and consider interests from all sides in order to ensure a firm political foundation for the cooperation,” he said. Other crucial outcomes of the meeting were the Beijing Declaration and the Regulations on China-CELAC forum.

Latin America is important for China in terms of energy, raw materials and as an expanding market for Chinese manufactured goods. China’s imports from the region have dramatically increased after 2001 when China became a member of the World Trade Organization (WTO). The volume of Latin American imports to China has increased nearly twenty-fold from 2001 to 2013. While the economies of the U.S. and Europe have slowed following the 2008 financial crisis, Latin America has come to be seen as an expanding market for China. The volume of Chinese exports to the region has increased more than fifteen-fold during the same 2001-2013 period. [1]

China invests in many sectors throughout Latin America, whether energy, agriculture or infrastructure. In this sense, the ministerial meeting saw a strengthening of this dynamic as Xi Jinping articulated that China would raise the amount of foreign direct investment (FDI) allotted to Latin American countries to constitute a total of $250bn over the next decade. This is a considerable boost when noting that Chinese FDI in the region was $22.7bn in 2011. China was the third largest investor in the region in 2011 as it accounted for 9% of the total FDI received, following the U.S (17%) and the Netherlands (13%). [2] Compared with the bilateral trade volumes, China’s FDI in the region is not that significant. In 2010, the share of Chinese FDI in the region was only 1.28%.

China also pledged to nearly double its trade with the region, encompassing $500bn by 2025, as compared to the $260bn that was seen in 2013. Although the region does not constitute a big share of China’s total trade, at only around 15 percent, trade relations do have the potential to improve. On the other hand, for the Latin American countries, China is a crucial export destination. For instance, China is the largest export partner for Brazil, Chile and Peru and second for Venezuela, Argentina, Costa Rica and Cuba. Here, although China-Latin America trade relations have been gradually increasing, they are still unevenly distributed throughout the countries of the region and their various sectors. For example, China primarily imports copper, iron ore, oil and soybeans from the region, and these resources tend to come from Chile, Brazil, Argentina and Venezuela.

Chile signed a free trade agreement with China in 2005, and China became Chile’s largest export destination in 2007. Chile exports a great amount of copper to China, which accounts for almost one third of China’s total copper imports. China also became Brazil’s largest trading partner in 2009, with the latter primarily exporting raw materials such as oil and iron ore. Brazil holds a significant share of China’s import market in terms of iron ore, constituting over a quarter of China’s total iron import. For Brazil, however, China is perhaps of disproportionate importance as the final destination for more than half of its domestic iron. Argentina also exhibits a similar dynamic as it exports more than half of its soy to China. Latin American exports have kept pace with the demand for these resources in China. Therefore, in the near future, it seems natural that as China’s demand continues to rise, its interest in the region will follow suit.

Another important country is Venezuela. During the ministerial meeting, China agreed to invest $20bn into the Venezuelan economy that is slumping as a result of the declining oil prices. Venezuelan President Nicolas Maduro announced that this money would be used for housing, energy, infrastructure and technology projects. Since 2007, China has provided $50bn worth of loans to Venezuela in return for oil, with the latter exporting around 500,000 barrels of oil per day to the former. Crude oil accounts for 95% of Venezuela’s total exports, thus, the fall in oil prices has negatively affected the country’s economy, precipitating rapid inflation, declining production and various import shortages. Hence, the China-CELAC meeting was crucial for Caracas, which hopes to breathe new life into its economy via Chinese loans. The fact that China was included in Maduro’s tour of various OPEC countries, including Saudi Arabia aimed at initiating discussions on the falling of global oil prices clearly displays the importance of the Venezuela attaches to its energy trade with China. Nonetheless, there remains no clear sign that oil prices will stabilize any time soon. Here, increasing the amount of oil that is exported to China and thus receiving more loans from the country has become a priority for Venezuela.

Within this context there are signals that the Chinese economy is beginning to slow. However, according to BP Statistical Review of World Energy 2014, China is still the world’s second-largest oil importer (5.6b/d), preceded by the U.S. (7.7b/d), and it seems this demand will continue to increase. Hence, on the one hand, China aims to deepen its cooperation in the energy sector with Venezuela; yet, on the other hand, it would like to become involved in developing oil and gas fields in Brazil, Ecuador and Argentina. In the future, if oil prices remain at their current levels or decline further, China-Latin America relations have the potential to become all the more intimate.

Although there is great potential for energy cooperation between China and the Latin American countries, there are also some challenges. For China, one of the most crucial problems is the economic disadvantage associated with the long-distance transportation of oil across the Atlantic Ocean. In addition, China’s limited refining capacity, the cost of oil and gas extraction, some Latin American countries’ domestic security environments and the influence of the U.S. in the region raise concerns for China. As developing economies themselves, Latin American countries also have their own concerns, whether they be the rapid development of the Chinese economy, the boost of China’s share of global trade or China’s strategy of investing in many regions and many sectors and providing development assistance to a plethora of developing economies. China’s share of total global imports/exports has increased from 6.6% to 10.0% while the share of the U.S has decreased from 11.4% to 9.8% between 2005 and 2011. [3] Hence, Latin American countries are worried about the possibility that China could come to dominate the international market with its growing economy.


1.Trade Map Statistics

2. World Economic Forum, Latin America,

http: //

3. International Trade Statistics 2013, World Trade Organization

Courtesy of Journal of Turkish Weekly (JTW), © 2015 JTW


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow Us On Social Media

Google Translate

Like Us On Facebook

Our Discussion Groups

Facebook Group
LinkedIn Group

Follow EMerging Equity on

Our Social Media Readers


Get every new post delivered to your Inbox.

Join 275 other followers

%d bloggers like this: