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China and Peru:Bridging the Pacific

Presentation by:Andres Aguilera

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Ventures Across the Pacific

The Mediterranean is the ocean of the past,

The Atlantic, the ocean of the present,

And the Pacific, the ocean of the future.John Hay, U.S. Secretary of State1889

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China, Latin America & the MonroeDoctrine

China establish

relations with Cuba1960 Nixon visits Beijing in

1972. Later that yearMexico, Argentinarecognize China.Brazil 1974.Colombia 1980.Bolivia 1985.

The Taiwan Issue

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Taiwan or Chinese Taipei?

Latin America hasemerged as the crucial

battleground where adozen strugglingnations, mainly inCentral America andthe Caribbean,have becomeensnared in the cross-strait dispute.12 countries in theregion keep relationswith Taiwan. Source: Erikson & Chen (2007) China, Taiwan and the

Battle for Latin America.

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The Gravity Model: China: Nova or Black Hole?

Chinas global influence(accelerated during the global

financial crisis) propelled theMiddle Kingdom to explorebeyond its traditional tradingpartners, both for suppliersand new markets for itsproducts.Chinas growing demand forcommodities (oil, iron ore,copper, aluminum and others)and abundant foreign reservesallowed China to secure

strategic assets in LatinAmerica.

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China as Non-Borrowing Member of IDB

China became a non-

borrowing member ofthe Inter-AmericanDevelopment Bank in2009. Chinese

contribution adds to$350 million. Japanbecame member in1976 and South Korea

in 2005.

Chinese central bank governor Zhou Xiaochuan speaks at theannual governors assembly of the Inter-American Development Bank(IDB) held in Medellin, Colombia, March 30, 2009

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China demand for Commodities

Source: Chinas Commodity Hunger: Implications for Africa and Latin America, DB Research (2006)

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China bilateral trade with Latin America

Source: Jiang Shixue Understanding Chinas Relations with Latin America.Presentation at the National Defense University.

0

10

20

30

40

50

60

70

80

2000 2002 2004 2006 2008

Exports Imports

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China FDI to Latin America

China FDI totaled $184B

Asia $131B

Africa $8BEurope $5B

Oceania $4B

N.America $4B

L.America $32BOf the $32 Billion to Latin America

and the Caribbean. $30 Billion went to

Cayman Islands and British Virgin

Islands.

Source: Jiang Shixue Understanding Chinas Relations with Latin America. Presentation at the National Defense University

China Outbound FDI 2008

Asia

72%

Africa

4%

Europe

3%

Oceania

2%

North America

2%

Latin America

17%

Asia

Africa

Europe

Oceania

North AmericaLatin America

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China and Peru meet in APEC

Peru, APEC Summit 2008.

China publishes Policy Papertowards Latin America.

Out of the 36 countries in the Americas

Only Canada, USA, Mexico, Peru andChile are members of APEC.

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Why a FTA with Peru?

Peru is APEC member

country, it has sustainedsignificant levels ofgrowth in the lastdecade (avg. 6.6% from2003~2009) and hassubstantial mineralresources (copper, gold,

zinc, crude oil)

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Deconstructing the deal

The following steps were takingbefore the CRTA:

Comprehensive Cooperation(2004)Strategic Partnership (2008) After 14 months of negotiationsChina-Peru FTA wasimplemented in March 1st 2010. Bilateral trade reached $7.5Billion in 2008. It is expected toreach $15 Billion by 2015.

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Scope of the China Peru FTA

90% of Goods Tariff eliminationon a phased schedule.

Services subject to scheduleand scope. (Annex 6: SpecificCommitments)Investment, Intellectual Property,Technical Standards, Dispute

Settlement mechanisms,Temporary entry of businesspersons. Cooperation in Research,Science & Development,

Technology. IT Cooperation.Education, tourism.Chinese Foreign Minister Yang Jiechi (right) and his Peruviancounterpart Jose Garcia Belaunde.

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Exceptions and Restrictions

Annex 1 by Peru: Used clothing,footwear, vehicles, engines and

parts. Used goods machinery andequipment which utilizeradioactive sources. Annex 6 specifies restrictions inservices, business persons and

others. Annex 6 No change in theChinese joint venture regime.Land in China is State-owned,term limitations apply. (ex. 50years for industrial purposes)

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Case Study Implications to the larger region

China is challenging the Americanprimacy in the Western Hemisphere.

(i.e. Financial Crisis, Iraq,Afghanistan) Double nature of China and LatinAmerican countries (partners &competitors)

A new commodity boom in Latin

American countries may risk theoutbreak of the Dutch disease in theregion. Labor-intensive manufactures at riskin Latin America due to the high

productivity and low cost of labor inChinaChinalco Toromocho Project: One of the worldlargest mining and most controversial endeavors.

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Thanks!

Gracias!

!