Centro Latinoamericano para la Competitividad y
el Desarrollo Sostenible - CLACDS
Trade and Investments between
Central America and China*
August 2014
*
This document does not intend to prescribe models and policies nor are the authors or the INCAE's Latin
American Center for Competitiveness and Sustainable Development responsible for any incorrect
interpretation of the contents nor are they responsible for any good or poor administrative, management or
public management practices. The ultimate purpose is to increase the level of discussion and analysis about
the document's subject.
Table of Contents
Executive Summary ........................................................................................................................... 3
Introduction ....................................................................................................................................... 5
Methodology ...................................................................................................................................... 6
Political Relations between Central America and China ................................................................ 7
China as a Market............................................................................................................................... 9
Trade Relation between Central America and China ................................................................ 11
Challenges and Opportunities for Trade.................................................................................... 17
China as Competitor ........................................................................................................................ 22
China as an Investor ........................................................................................................................ 25
Chinese Investment Abroad. ....................................................................................................... 25
Chinese Investment and Central America ................................................................................. 28
Challenges and Opportunities for Investment .......................................................................... 36
Conclusions ...................................................................................................................................... 39
Final Reflections .............................................................................................................................. 41
References ........................................................................................................................................ 42
Appendix 1-Profile of the Trade and Investment Relationship between Central America and
China ................................................................................................................................................. 46
Belize ............................................................................................................................................. 46
Costa Rica ...................................................................................................................................... 48
El Salvador ..................................................................................................................................... 51
Guatemala ..................................................................................................................................... 53
Honduras ....................................................................................................................................... 55
Nicaragua ...................................................................................................................................... 57
Panama.......................................................................................................................................... 60
Executive Summary
China is the second largest world economy based on the size of its gross domestic product (GDP)
as a result of accelerated economic growth during the last 30 years. This has made it possible to
increase the living standards of its inhabitants, expand internal consumption and expand the level
of imports for raw materials and consumer products.
To date, despite the growth in the Chinese market, in Central America, China is among the top 10
export markets only in Costa Rica. Nevertheless, the Central American countries recorded growth
in exports to China in the 2005 – 2012 period (except Guatemala, which remained stable) based
on the value exported. The dynamism of exports from Belize, Honduras, and Panama was even
higher than global growth of Chinese imports.
In terms of imports, China is one of the main business partners for all of the Central American
countries. Chinese industry provides a wide variety of products that include consumer goods,
machinery and equipment, intermediary products, etc.
Developing and strengthening the commercial ties with this partner would provide the Central
American private sector with an alternative market as an export destination, since both its main
extra-regional partners (the United States and the European Union) do not show any signs of a
solid recovery after the international financial crisis of 2008-2009.
Any future growth in exports from Central America to China and developing a stronger business tie
with this country faces a series of challenges. The first of the challenges is to diversify the supply
that is exportable from the Central American countries, which in any case is concentrated on a few
products.
A second challenge is to increase the complexity of the products exported by Central America
where, with the exception of Costa Rica, they are primary products or products destined for the
recycling (waste) industry.
Another challenge that should be worked on together by the Central American countries and
China is bringing up the non-tariff measures that may represent a block to the products from
Central American countries entering China and the development of joint efforts to facilitate trade.
Seeking mechanisms to reduce some of the natural disadvantages (distance) requires the logistical
processes and the infrastructure to be optimized. The cultural and language gaps may be
narrowed within a context of proximity, knowledge and mutual respect between the
entrepreneurs and citizens in both regions.
Despite China's growing importance as a source of FDI in the world, this importance is still not
reflected in Central America. The flow of FDI to Central America is relatively low in comparison
with other business partners such as the United States or countries in the Latin American region.
China does not represent a source of relevant investment for any country in the region so far. For
3
Panama, the main destination for investment by China in Central America, China represented 2.5%
of the total FDI in 2011, yet for Costa Rica and Guatemala it meant less than 1%.
A series of limitations could be keeping Chinese companies from investing in the region, including:
a. The limited match among the investment opportunities that are promoted by the
Central American countries and the main sectors where Chinese companies invest.
Latin America has mainly received investments in sectors related to producing raw
materials (such as mining, extensive soy crops, etc.) as well as the logistical sector
that is meant to favor exportation of those products to the Chinese market.
Central America's capacity for these sectors is limited so up to this point it has not
been very attractive for companies to set up shop in these activities.
b. The lack of awareness about the region by investors is another limitation that
affects FDI by Chinese companies in Central America.
c. The problems in the investment climate and legal insecurity that affects investors
have had negative effects on investment projects by Chinese companies. In the
case of Costa Rica, in addition, the growing distrust by certain sectors of the
society has meant an additional barrier to executing any planned projects.
d. China's foreign investment support programs include favorable interest rates for
investment companies when projects use bank financing as an incentive. This
incentive does not apply to most of the countries in Central America since no
diplomatic relations exists so the political risk is considered to be high and to
involve higher interest rates.
The relationship between Central American and China is in the beginning stages, but there are
opportunities to develop deeper bonds. Searching for coordinated strategies between the
countries in Central America and international organizations may be a valid mechanism to
promote the region to potential investors.
4
Introduction
China is one of the economies that have had the highest growth during the last 30 years; this
growth has turned it into the second largest economy based on total GDP. As part of its growth
strategy, this country has encouraged integration with the rest of the world, especially after it
entered the World Trade Organization (WTO) in 2001.
Expansion of Chinese industry and its economy have meant an increase in the demand for raw
materials and intermediate products. Latin America has benefited from that increase in demand.
As a consequence, exports from the region of mineral products such as iron and copper and
agricultural products such as soy have provided a boost to the economic growth of the producing
countries. This is in addition to the arrival of Chinese investors interested in finding resources and
building infrastructure. These countries are located mainly in the southern part of the region.
The outlook for Central America, however, has been somewhat different than that of South
America. The low degree of complementarity between the supply exported by the countries in
Central America and Chinese demand has created a looser tie. Despite this fact, during the last
several years, growth has been seen in Central American exports to this market and some
investments by companies from that country.
China has also been a threat to the Central American countries in terms of competition in third
markets due to the low cost of business similar to the types of business that occur in Central
America. In the textile manufacturing industry, some countries in the region such as Costa Rica
have been displaced in the United States market, the main destination for exports for this
industry.
An analysis of the flow of trade is a first stage to understanding the depth of the ties between the
Central American economy and China, along with identification of the main barriers that affect
trade between the region and this country. Based on this analysis, it is possible to point out some
areas of work that make it possible to strengthen ties between the region and China
Although exports from the countries in the region to China are growing, the high concentration of
exports, the general simplicity of the exported products, and other challenges make it necessary
for the region to define strategies about how to approach the Chinese market to deepen their
relations.
Investment by Chinese countries in Central America also needs to be addressed. Although the
investments do not reach the magnitude of other latitudes, there are projects being analyzed by
Chinese companies that could change the competitive outlook for the region.
This document attempts to present a succinct description of the current state of the economic
relationship between the Central American countries and China. Based on these elements, some
reflections are made in an attempt to strengthen the relationship between both partners.
5
Methodology
A significant difference exists between the availability and reliability of the foreign trade data for
the countries and the figures on foreign direct investment. Therefore, there is a need to present
two different approaches for the following document.
The information about international trade was obtained from the available international
databases such as Trade Map from the ITC-UNCTAD/WTO and the information available from the
World Bank through the WITS program to avoid methodological discrepancy in compiling the data.
Based on this information, the flow of international trade between the countries in Central
America and the People's Republic of China was analyzed individually2. The main features analyzed
are related to the magnitude and trend of the investment flow. To gain an in-depth knowledge of
the existing types of flow, certain indicators were taken into account such as: export
concentration, similarity of exports between countries, measure of intra-industrial trade and
commercial complementarity.
The characterization of trade was complemented with secondary information to identify the main
blocks to trade that are faced by Central America and China. Based on this information, some
recommendations were made that could solve the difficulties that were found.
As was mentioned previously, the information available for foreign direct investment is not
necessarily as meticulous as the information available for foreign trade. This is due to the fact that
the movements of imports and exports are mostly recorded using mandatory forms, while this is
situation does not occur for investments. In addition, the use of tax havens or investments placed
through subsidiaries in other territories (such as Hong Kong or Taiwan), makes it difficult to
properly follow up on the flow of investments. As a measure to overcome these difficulties, an
information search was run in three areas:
1. Official statistical information obtained from central banks, ministries, and investment
promotion organizations.
2. Interviews with investment promotion organizations, ministries, and other governmental
entities. In addition, direct interviews were sought with companies of Chinese origin that
have investments in Central America to understand the level of ties that are developed in
the region. Nevertheless, as of the date of this report, and despite insistent requests, it
was impossible to obtain that information.
3. Information from the press and websites that identified notes that indicate an
involvement by Chinese companies in diverse activities within the region.
2
Among the types of flow of trade between the People's Republic of China, special administrative regions in
Hong Kong and Macao were not considered. They are independent customs territories and have their own
commercial and investment regulations.
6
The compiled and analyzed information constitutes a first approach in seeking to understand the
economic relationship between Central America and China. The information may be considered in
the beginning stages by comparing it to information about other regions on the planet, taking into
account that there are no political ties between the Central American countries (with the
exception of Costa Rica) and China.
Political Relations between Central America and China
The Central American countries are part of the group of nations that do not have any political and
official diplomatic relations with the People's Republic of China. The exception is Costa Rica, which
established diplomatic relations in 2007. This has made it possible to seek mechanisms for
economic and political rapprochement with China. Examples of this approach are the signing of
the free trade agreement in 2010, as well as mutual presidential visits.
The diplomatic closeness of China and Costa Rica has been seen as a mechanism for the Central
American region to approach China. During the Hu Jintao government, conversations began
between China and the region on the subject of trade and investment in the public and private
sectors. The Chinese government, through its ambassador in Costa Rica, assured that they hoped
that opening their office would be the beginning of the opening of diplomatic relationships
between the Central American governments and the Chinese government. The Chinese
functionary revealed that China hopes to begin political relations with the other countries within a
maximum period of two years after 2007. Even though at that time there was no official approach
by the Central American governments and the Chinese government, Ambassador Wang Xiaoyuan
claimed that Beijing maintains commercial and extra-official relations and contact with the
political parties in Central America in general (Agence France-Presse 2009).
Unofficial reports exist in the local communications media that state that Ambassador Wang
Xiaoyuan claimed that he had held conversations with the Honduran ex-president, Manuel Zelaya,
to begin diplomatic relations between both countries. The Honduran government denied that the
subject was brought up in the meeting (Associated Press 2007). The Salvadorian ex-president,
Mauricio Funes, stated that his country would begin diplomatic relations with China if it would
bring any economic benefit to El Salvador (Reuters 2013).
The Central American authorities' approach to China has been evident on determined occasions.
In the second half of 2002, the mayor of the District of Panama, Juan Carlos Navarro, and the
second vice president of the Legislative Assembly of Panama, Susana Richa, visited China. It was
learned that, in the meetings that were held with Chinese functionaries, a request was made to
change the diplomatic recognition of Taiwan to China (M. Rodríguez 2008).
During 2013, the Honduran authorities, after calling their ambassador in Taiwan for questions,
announced that they would open a business office in Shanghai soon due to a petition from the
country's business community. There have been heavy rumors in Honduras about a possible
7
change in diplomatic recognition after finding out that a Chinese company (Sinohydro) would build
a hydroelectric energy plant and that the Taiwanese company that had been announced years
before would not be involved in that project.
Also in 2013, President Otto Perez of Guatemala declared that Guatemala wanted to establish a
deeper trade relationship with the People's Republic of China but to also maintain diplomatic
relations with Taiwan. In addition, he announced that his country planned to open a trade office in
that country during 2014 (La Prensa 2013). So far, however, no official approach has been made to
begin diplomatic relations between the governments in Central America and China.
One of the strategies used to attempt to achieve greater proximity between China and Central
America has been to develop associations similar to those in the People's Republic of China.
Domestic chambers of commerce exist in the Central American countries that provide an incentive
for and cultivate trade relations between China and Central America. The Central American
Federation for Friendship with China has been established, which groups together the Friendship
Associations with China in Panama, Honduras, El Salvador, Costa Rica, Nicaragua, and Paraguay.
Some of these institutions have the participation of political personalities in their countries. For
example, the Panamanian Association of Friendship with China has, among its 350 members, expresidents such as Guillermo Endara and Jorge Illueca, ex-president Ricardo Arias Calderon, and
the ex-Chancellor, Oyden Ortega. Likewise, the Nicaraguan Association for Friendship with the
People's Republic of China and the Salvadorian Association for Friendship with China are linked to
various political parties in their countries (M. Rodríguez 2008).
The block to establishing official relations among the Central American countries and China is the
diplomatic relations with Taiwan, since they are considered to be mutually exclusive.
The relationship with Taiwan makes it possible for Central American countries to obtain benefits in
terms of aid for development. The aid provided by the government of Taiwan is at the government
level and in the regional integration institutions. The Central American governments receive
economic support for development, relations with the business community, military aid, and
scholarships for young people.
The economic approach to China has been partially offset by Taiwan, which has intensified the
economic aid to the governments with which it has relations, providing technical aid in the
primary sector of their economies. Aid is a clear tool used by the government of that country to
secure its diplomatic relations in the region.
The aid offered by the Taiwanese government is also provided to the regional institutions and
Taiwan has turned into one of their main allies: Taiwan economically supported the construction
of the building for the Central American Economic Integration System (SIECA in Spanish) and is a
contributor to and a member of the Central American Economic Integration Bank (BCIE in Spanish)
after providing $150 million (Rodas-Martini 2004).
8
The need for aid may also explain the vision of the Central American governments that entails
maintaining their diplomatic relations with Taiwan since they receive significant contributions in
the form of aid for development from that country. In addition, the Taiwanese government has
intensified its efforts to make trade grow with Central America after it became a partner, which
had more relevance for some countries than China did. Therefore, in 1997, Taiwan established the
Central American Trade Office to strengthen and promote bilateral relations, economic aid, and
the development of investments. Afterward, free trade agreements were signed with these
countries to provide even more incentives for trade.
The efforts to promote trade and investment by Taiwan may be deemed to be fairly unsuccessful
measures according to the figures that were reached. This country represented the destination of
fewer than 2% of the exported value for each country in the Central American region in the 20102012 period (International Trade Centre UNCTAD/WTO (ITC) 2013). In terms of investment, FDI by
Taiwanese companies in the region came to US $285 million during the 2010-2012 periods. Of
that, 95% was concentrated in Panama (United Nations Conference on Trade and Development
[UNCTAD] 2014). Basically, the relation with Taiwan is characterized by having little trade and little
investment, but strong international aid (Agosin, Rodas-Martini, and Saavedra-Rivano 2004).
In the near future, the political outlook could remain stable in most of the countries where aid
from the Taiwanese government continues to be a huge contribution for moving their
governments' political agendas forward. Nevertheless, there has been a certain approach to
investments to develop infrastructure in Honduras and Nicaragua by Chinese companies. This
opens a door to the possibility for a change in recognition by those governments.
China as a Market
The economic integration between China and Latin America in general is based mostly on
international trade, with a relatively defined pattern. Latin America provides raw materials to
China while Chinese manufacturing is the main product exported to the region.
Trade between Latin America and China has shown a growth trend during the last several years,
which is characterized by an increase in both directions. In 2012, Chinese imported close to US
$126 billion from this region while it exported more than US $134 billion (International Trade
Centre UNCTAD/WTO (ITC) 2013).
China imports mostly raw materials from Latin America, such as minerals, oil, and agricultural
products. The concentration of imports on limited activities is reflected in the fact that the five
main sectors represent 82.2% of the total imports from the whole region.
9
Table 1 - China: Main Products Imported from Latin America (millions of dollars)
2010
30,328
13,812
2011
40,786
17,022
2012
38,113
19,229
2013
38.947
24.361
Combustible minerals, mineral oils, and the products of
their distillation
13,029
19,446
23,337
21,341
Copper and copper manufacturing
Machinery, devices and electrical material and their
parts
12,671
5,095
14,472
6,104
14,436
7,532
12,636
7,328
Minerals, slag and ashes
Oleaginous seeds and fruits, seeds and diverse fruits.
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
Despite the high concentration of imports from the region, China has reached a level of
diversification of sources of supply that is sufficiently high to keep Latin America and the
Caribbean from increasing their negotiation powers in relation to these products (Rosales and
Kuwayama 2012).
The diversity of the countries in Latin America causes their trading behavior with China to have
unequal characteristics between South America and the northern region made up of Mexico and
Central America. South America, the producer of most of the raw materials imported by China, has
been benefited by the growing demand that was generated by major increases in the value of
their exports. For their part, Mexico and Central America are mostly importers of those raw
materials due to the fact that they are not produced locally. This translates into an increase in the
prices of their imports while the magnitude of the exports to China from this sub-region is lower
than compared to the south.
This situation explains the concentration on South American markets that is seen in the Chinese
imports from Latin America with the exception of Mexico and Costa Rica. Brazil is the main Latin
American provider for China with more than 40% in 2012, followed by Chile and Venezuela.
10
Figure 1 - China: Origin of Imports from Latin America (2013)
Costa Rica
4%
Others
7%
Argentina
5%
Peru
7%
Brazil
43%
Mexico
8%
Venezuela
10%
Chile
16%
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
China has turned into a relevant export market for Cuba, Chile, Peru, Brazil, Costa Rica, and
Argentina while it has been a market that has been very little used by Ecuador and the rest of the
countries in Central America and Mexico. Despite the different levels of exports to China, China's
importance as an export destination has been increasing in most of the countries in the region
(Rosales and Kuwayama 2012).
Trade Relation between Central America and China
When the Central American region is analyzed more carefully, what is seen is that the total trade
(exports + imports) between Central America and China exceeded US $12.7 billion in 2011. This
growth has been boosted mostly by the increase in imports of Chinese products by the region,
which represented 94% of the total trade in that year.
The level of integration between the different Central American countries and China has been
holding steady: high volumes of imports compared to the volume of exports. The exception is
Costa Rica, which has been able to penetrate the Chinese market to a greater degree and
represented 54% of the Central American exports to China in 2013. Guatemala represented 24% of
the regional sales to that market and Honduras 16%.
11
Table 2 - Central America: Trade Relation with China
(in millions of US $)
Belize
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
Total
2010
1.2
268.8
3.3
34.9
101.0
8.2
38.0
455.4
Exports
2011
2012
3.5
2.0
214.9 326.7
2.0
3.7
27.9
34.7
90.9 123.8
16.4
10.6
40.5
n.d.
396.1 501.5
2013
14.5
372.4
5.4
167.2
113.9
21.7
n.d.
695.1
2010
67.9
990.7
477.6
983.7
531.8
365.5
4,172.7
7,589.9
Imports
2011
2012
118.3
110.1
1,528.5 1,439.6
552.2
603.5
1,144.1 1,265.0
668.1
767.0
465.4
558.9
5,712.2
n.d.
10,188.8 4,744.1
2014
105.7
1,602.2
703.0
1,438.5
844.8
628.3
n.d.
5,322.5
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
China's relative importance as a trade partner is seen primarily in imports, as well as in the case of
Panama (including the free trade zone in Colon) which was the main source of imports in 2011.
Meanwhile, Costa Rica, Honduras, and Nicaragua were the second source of imports in 2012. For
the latter year, the figures placed China as the third largest partner for imports in Belize and
Guatemala and finally in El Salvador, which came fourth (International Trade Centre UNCTAD/WTO
(ITC) 2013).
Exports to China decreased in importance in El Salvador. No country in the region is located in the
top five export destinations. China is the eighth largest trading partner for Costa Rica3 and
Honduras; for Belize, it is in position 11 and it trails behind in the remaining countries in position
25. For Nicaragua, Guatemala, and El Salvador, China represented less than 1% of the exports in
2012, while in Costa Rica, Honduras, and Belize, the countries for which this market is the most
important, it represented less than 3% in all cases.
3
It should be pointed out that Hong Kong is the fourth largest trading partner for Costa Rica.
12
Figure 2 – Central America: Share of Exports
To China as a Percentage of the Total Exported (2012)
Costa Rica
Honduras
Belize
Nicaragua
Guatemala
El Salvador
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Share in Total Exports (2012)
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
Despite the little importance that China has as an export destination, some countries in the region
have recorded significant dynamism in the flow of exports, with growth rates higher than an
annual average of 14%, which was observed in the total Chinese imports in the 2005-2012 periods.
This dynamism may be reflected in the growing importance that is assigned to China by the local
business market, as well as the efforts that the cultural associations make to seek a greater
rapport between the countries.
Figure 3 – Central America: Annual Average Growth
of Exports to China (2005-2012)
Belize
112.0%
Honduras
31.6%
Panama*
25.8%
Costa Rica
4.6%
Nicaragua
4.3%
El Salvador
3.4%
Guatemala
-0.8%
-20%
Average
Linear (China)
0%
20%
40%
60%
80%
100%
120%
* Data until 2011
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
13
In some of the countries, the growth figures for exports tend to hide abrupt variations, especially
in Costa Rica, Guatemala, and to a lesser degree, Panama. In Costa Rica, exports grew from US
$240 million in 2005 to more than US $800 million in 2007 to drop to US $270 million in 2012.
For its part, Guatemala does not show any definite trend and there usually are positive / negative
variations in the flow of exports from one year to another. Nor is there a definite trend in Panama:
exports reached US $72 million in 2007 to drop to US $22.5 million in 2009 and then increase over
the last several years.
These sudden variations in exports from Central American countries may be associated with the
high concentration that is recorded in terms of products. A change in the business strategy (see
Intel in Costa Rica) or the market conditions (sugar for Guatemala) creates a significant change in
the total exports to China
In six of the seven countries analyzed, the five main tariff lines4 represent more than 80% of the
country's exports to China. El Salvador is the sole exception to the previous statement. This is
primarily due to the limits set since the five main tariff lines represent 79.4%, which in practice
also reflects a significant concentration.
Figure 4 – Central America: Concentration of Exports to China
Costa Rica
91.8
Belize
91.2
Guatemala
86.8
Panama
83.7
Honduras
83.6
Nicaragua
80.5
El Salvador
79.4
0
10
20
30
40
50
60
70
80
90
100
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
The concentrations of products exported by Central America to China are also observed at the
level of industry, machinery, and electrical equipment, which represented more than 40%. They
4
A tariff line is defined as a sub-entry in the synchronized accounting system (the first six digits). The main
tariff lines by country may be observed in the Appendix.
14
almost all have their origin in Costa Rica. For their part, the sales by the basic mineral industry and
related products are mostly scrap and waste for recycling. Finally, exports of minerals consist
primarily of iron ore produced in Honduras by an Italian company whose main market is China.
Figure 5 – Central America: Exports by Sector (2011)
Food Industry
5%
Wood and
Wood Items
5%
Mineral
Products
7%
Plastic
Products
7%
Chemical
Products and
Associated
Industries
7%
Other
8%
Machinery
and Electrical
Equipment
43%
Common
Metals and
Their
Manufacturing
18%
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
In general, the supply exported by Central America is characterized by two features:
1. The low level of complexity in the exported merchandise: in seven of the eight countries
that were indicated, their main export products include waste or scraps of some raw
material, with El Salvador being the most notable for this issue where the five main tariff
lines pertain to this type of merchandise. Just as for the case with South America, added to
that is the fact that the main products are characterized by mostly being commodities such
as leather, wood, and mineral products. The exception is Costa Rica which exports mostly
manufactured goods.
2. The presence of traditional agricultural products from the region is practically zero: except
for Guatemala which has been able to penetrate the Chinese market with sugar and
coffee, traditional agricultural products from the region are absent in the main tariff lines.
Despite having similar characteristics, the supply exported by each of the countries in Central
America to China does not represent any competition for the other countries in the region. In all
15
cases, the Krugman index5 (with the exception of Belize and Nicaragua) is at levels close to 2,
which implies a slight overlap with exported products.
Table 3 - Central America: Krugman Similarity Index (IK) for Exports to China.
Belize
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Belize
Costa Rica
1.94
El Salvador
1.91
1.86
Guatemala
1.92
1.90
1.52
Honduras
n.d.
n.d.
n.d.
n.d.
Nicaragua
0.93
1.90
1.64
1.59
n.d.
Panama (2011)
1.86
1.82
1.58
1.53
n.d.
1.86
Source: Propriety preparation based on data from the World Bank 2013, CUCI rev. 3
Another issue that should be emphasized is that, even if there were a certain similarity in the
supply exported from the Central American countries, as has been indicated between Nicaragua
and Belize, the current exported volume in relation to the size of the potential market would cause
this competition to be limited in practice.6
Trade between the countries in Central America and China is characterized by primarily being
inter-industrial. For all these Central American countries, there exists a low level of intra-industrial
trade with China (according to the estimates made by the Grubel Lloyd Index [IGLL]7). This may
reflect the low level of similarity between production systems and make it difficult for Central
America to integrate with the Chinese value chains. This trade pattern blocks any greater density
existing in trade and leaves less space for joint investments in relation to Latin America and Asiathe Pacific (Rosales and Kuwayama 2012). This also applies for the specific case of Central America
and China.
5
IK=∑ |
| where P is the share of product k in the exports by country i. The IK varies between zero
(the export structures are exactly alike) and 2 (there is no overlap between the potential structures in the
two countries)
6
Under the assumption that a large market size is based on absolute consumption.
7
LGI=[
∑|
|
∑(
)
]*100. An LGI close to 100 implies a trade relationship based on intra-industrial
commerce.
16
Table 4 - Central America: Lloyd Grubel Index (LGI) for the trade relation with China (2012).
Country
LGI
Belize
0.06
Costa Rica
9.09
El Salvador
0.22
Guatemala
0.51
Honduras
n.d.
Nicaragua
0.20
Panama (2011)
0.21
Source: Propriety preparation based on data from the World Bank 2013, CUCI rev. 3
Challenges and Opportunities for Trade
Despite the fact that potential exists for trade between Central America and China8, when the
current volumes are considered (which are relatively limited) for exports from the region to China,
it becomes necessary to examine the main barriers and challenges that affect Central American
companies.
The first element is the structural type. Complementarity between the supply exported from the
region and the external demand from China is low in comparison with other markets when it is
compared by using the complementarity index9. The United States and the European Union
maintain a higher level of complementarity with the Central American countries, which could
explain the greater flow of exports to those markets.
8
The Appendix shows some examples of products with potential to increase trade.
[
∑ |
| ]where m means the proportion of imports of product K made my country
A from any part of the world, while X represent the exports of product k made by B to any part of the world.
The closer to 100 that the index is, the higher the complementarity is.
9
17
Figure 6 – Central America: Trade Complementarity Index
With China, the United States, and EU-27 (2012)
Belize
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama (2011)
0.0
5.0
European Union
10.0
15.0
United States
20.0
25.0
China
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
Costa Rica is an atypical case; it is a country that has more complementarity with China than the
United States, despite the fact that the latter is its main trading partner. The level of
complementarity with China that Costa Rica showed during 2012 may also explain the greater
levels of exports that Costa Rica has to the Chinese market in comparison with the other countries
in Central America.
Despite the low level of complementarity, it is necessary to consider the asymmetry of the
volumes that China trades in relation to what Central America produces. For example, a product
with relatively low importance may come to represent more than the total exports for a country in
the region. Imports of concentrated and/or flavored milk from China represented 0.1% of the total
imports in 2012; however, this represented more than US $1,940. However, this figure is much
higher than the US $307.25 million exported all together by the Central American countries
(International Trade Centre UNCTAD/WTO (ITC) 2013).
In addition to the lack of complementarity, the factors that are traditionally designed to restrict
the flow of trade such as tariffs and non-tariff measures should be mentioned. Of the Central
American countries, only Costa Rica has a free-trade agreement with China, which may benefit
Costa Rica in the form of tariff preferences. In addition, the fact that a significant number of
products that the region could have an interest in exporting to China (dairy products, fruits and
18
vegetables, etc.) that require phytosanitary approval from the government of China should be
considered.
Some of these non-tariff regulations for foods establish the need to do a Country Risk Analysis
(CRA), which is done jointly by the health authorities in both countries. This process, in the case of
some Costa Rican products, has taken close to one year for each product of interest (Vindas 2013).
Not having them represents a total restriction on trade since the product cannot be sold in China.
Even though no official direct contact exists between most of the Central American countries and
China, multilateral organizations may be used to develop mechanisms to facilitate trade and make
it possible to overcome part of the non-tariff measures that companies face. Authorization for and
development of an Authorized Economic Operator10 is one of the possibilities that the region
should assess to facilitate trade with China in both directions. It would permit a reduction in costs
and restrictions that would benefit the companies and potentially the consumer.
The political factor may turn out to be another limitation on Central American exports to China,
according to some of the people who were interviewed. With the exception of Costa Rica, the
other Central American countries maintain diplomatic relations with Taiwan. In addition, five of
the countries have a free trade agreement with Taiwan and are actively supported by the
Taiwanese government to provide an incentive for greater trade proximity by promoting trade
fairs and visits.
The importance of the political factor as an explanation for the low level of exports may also be
considered to be limited. Despite the fact that political relations and the FTA between China and
Costa Rica exist, these facts have not generated any diversification in Costa Rican exports to this
market. Nor has it achieved satisfactory results for the support strategy by Taiwan with the
countries that maintain diplomatic relations, as was mentioned previously.
In addition, the political factor is not a hindrance for trade as is reflected in the volumes of Chinese
product imports in the region. China's commercial interest in Central American exporters has
caused plans to be developed in the Central American private and public sectors to establish trade
offices in China, setting the political issue aside.
There are other factors that exist that may be mentioned as a limitation on trade between the
Central American countries and China: the geographic and psychological distance.
Two countries that are closer to each other may have more intense trade than countries that are
farther apart, according to the Tinbergen gravitational model predictions. In addition, the
10
The concept of authorized economic operator has its origin within the regulatory framework of the World
Customs Organization (WCO) to secure and facilitate global trade. It is an operator of the reliable, secure
logistics chain whose accreditation and certification is provided by a customs administration through an
auditing process for its organization, processes, administration, and financial statements and in compliance
with a series of safety standards (World Customs Organization and BID 2014).
19
similarity of the size of the economies will be another variable that will determine the intensity of
the flow of trade.
Geographic distance represents a barrier to trade for certain products for exports from Central
America to China. The duration of maritime transportation from Central America to China is close
to at least 27 days, according to the companies that were consulted. The time in transit affects
mostly perishable products due to losses in quality and the costs associated with
refrigeration/freezing. This represents a major limitation for some of the main export sectors in
Central America (fruits and vegetables, meat products, seafood, etc.).
The costs of trade (the result of tariffs or logistics) are not the only explanation for the bilateral
flow of trade, since trade may be affected by the psychological distance that is produced by
intangible barriers such as cultural and institutional differences (Linders, Burger, and van Oort
2008).
In general, the Chinese market and its possibilities seem to be well known to Central American
exporters. A good part of the business sector is aware of the growth in the market and believes
that opportunities exist in the market; however, the lack of information and language and cultural
barriers may favor the establishment of trade relations with "closer" partners. According to
Alberto Güell,11 cultural differences and lack of knowledge of the market, precipitation and the
lack of respect that there is toward Chinese customs may also be challenges that need to be faced
by companies interested in doing business (Brenes 2013).
Despite the fact that cultural differences go both ways, Chinese products appear to have faced a
lower portion of these difficulties to enter the Central American countries.
The existence of a Chinese community in the region may favor trade; in other regions it has been
determined that these communities supply information about the market and facilitate the search
for international buyers and sellers(Rauch and Trindade 2002). Another possible explanation is the
manufacturing of products by multinational companies with a global presence in China, whose
products are distributed to all the countries from the manufacturing point. Finally, the Chinese
policy based on an export scheme requires major aggressiveness by the companies to reach the
different countries.
If the countries in Central America would like to establish closer trade ties with China, they must
seek mechanisms to overcome these difficulties and take advantage of the opportunities that
exist. The recent changes in Chinese policies favor internal consumption more and may open up
spaces for more imports of items (Zhao 2013). This would create the possibility of diversification
for exports from the region.
11
The Director of China Trade, a consulting company that supports companies in their quest to establish
business (imports) with China.
20
There is a series of Central American products that would have potential in the Chinese market
and make it possible to diversify the exports to this country. When comparing the supply exported
by Central America against the demand for imported products by China,12there is possible
potential for agricultural products such as: bananas, beef, dairy products, sugar, seafood products
or for manufactured products such as: parts for the automotive industry, medical products, rubber
and latex products, etc.
The possibility of these products entering the market will depend on a series of tariff and nontariff factors that should be considered by interested companies and that need to be the jumping
off point for any analysis.
From a business point of view, to take advantage of this opportunity, one of the main challenges
that will be faced is adapting the product to the tastes and preferences of Chinese consumers or to
the client's requirements for intermediate products. This adaptation requires information and
knowledge of the market, which implies that companies must find mechanisms to obtain that
information.
In that regard, the government and union associations may perform a role as a facilitator by
means of market research and developing schemes to collaborate with their Chinese counterparts.
As a compliment, the knowledge of the market, culture, and language garnered from the Chinese
diaspora may be used as a tool to facilitate the export process.
The logistics for exports to China may also represent a challenge due to the duration of
transportation and a possible unawareness of any processes that are necessary to enter the
market. At the level of the government, developing the infrastructure to encourage international
trade is one of the potential ways of helping with the logistics for export companies.
The trade promotion organizations may favor development of schemes to release logistical
information with the support of specialized companies. The purpose would be to facilitate access
to information about the services available for Central American companies that are interested in
exploring the options related to the Chinese market.
In other cases, it may be necessary for the companies to review and clean up their export logistical
processes in search of greater efficiency and cost reduction.
Finally, the elements related to the size of the market itself must be considered. The ease with
which companies are able to form alliances for a single product may make it possible to
12
By estimating the potential trade that CCI shows on its web page www.trademap.org. The indicative
potential trade is calculated by the CCI as: Min {(〖TM〗_k^i-M_j^i );├〖TX〗_j^i }┤ where i is the product,
k is the importing market, j is the exporting country, M is the imports and X is the exports. In these cases, it
should be pointed out that the potential trade indicator is a first signal; however, an analysis is needed for
the access requirements (non-tariff measures) as well as the logistics for access to the market and finally the
market analysis (price, distributors, quality, product presentation, etc.) among other issues prior to
determining the real market potential.
21
consolidate an export volume that may be attractive to their Chinese counterparts(An 2014). It
should be seen as a regional and not just a national alternative. The necessity of segmentation is a
reality when faced with the challenges that may be represented by dealing with a market that is
dozens of times larger than the Central American market.
China as Competitor13
China's strategy for promoting exports has implied a displacement of their exported products and
their activities that target the local market for diverse countries at the world level. In general,
competition with Chinese manufacturing and competition from other Asian economies have
introduced structural changes in certain Latin American industries that have had to adapt to this
new reality (Rosales and Kuwayama 2012). This section will provide a brief analysis of competition
with China in the US market for the main Central American export sectors.
For Central America, the main destination for exports is the United States.14 The United States is
the second most important market for Chinese imports (after Hong Kong) so direct competition
should be expected between some of the Central American and Chinese products in this market.
As a region, Central America primarily exports clothing (knit and other materials), fresh fruits,
machinery and electrical equipment, and scientific and medical products to the United States. As a
whole, these five categories were concentrated on 52% of the exports to the United States in 2012
(International Trade Centre UNCTAD/WTO (ITC) 2013).
When Chinese and Central American exports from those sectors are compared, what is observed is
that the greatest similarity of products occurs in clothing (Chapters 61 and 62 of the synchronized
accounting system); for the other products, this similarity is less. Thus, for example, the supply of
fruit exported by China and Central America in the period that was analyzed should be considered
to be different and they do not represent direct competition.
For clothing exports from some countries such as El Salvador, Guatemala, Honduras, and
Nicaragua, the similarity between the supply those countries exported to the United States and
the supply exported by China to the United States increased during the latest period. The results
obtained for clothing may reflect direct competition between China and Central America, which
has intensified during the period from 2000 to 2012.
13
This will be analyzed from the perspective of foreign trade in the United States market. The effects of
competition with China in the local and international markets are a complex subject that requires specific
analyses that exceed the scope of this document.
14
For 2012, exports to the United States were estimated to represent 35% of the total exported by the
region (International Trade Centre UNCTAD/WTO (ITC) 2013).
22
Table 5 - Central America: The Krugman Similarity Index with China for the Main Products
Exported to the United States
SA
Period
08
61
62
85
90
Belize
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
2000-2002
1.99
1.98
1.98
1.97
1.99
1.99
2.00
2010-2012
1.99
1.93
1.94
1.92
1.95
1.94
1.96
2000-2002
1.67
1.61
1.52
1.46
1.53
1.64
1.78
2010-2012
1.88
1.47
1.20
0.88
1.06
1.00
1.51
2000-2002
1.81
1.46
1.13
1.19
1.38
1.58
1.27
2010-2012
1.81
1.71
1.21
1.21
1.37
1.37
1.16
2000-2002
1.89
1.73
1.87
1.68
1.93
1.93
1.29
2010-2012
1.64
1.91
1.97
1.34
1.96
1.99
1.52
2000-2002
1.61
1.88
1.92
1.88
1.83
1.95
1.54
2010-2012
1.82
1.71
1.61
1.74
1.76
1.82
1.53
Source: Proprietary preparation with data from the International Trade Centre UNCTAD/WTO (ITC) 2013.
The sectors exported by the Central American region that have the greatest similarity with China
have been those with the worst performance shown in the United States market. When the
growth in the exported value is compared, negative growth or lower than average growth is seen
for the market (between 2000 and 2012), primarily for clothing. For their part, Chinese imports of
these products grow at a faster pace than the market pace, which may be an indicator of
displacement of Central American products.
Table 6 – United States: Growth of imports by Region in Relation to Growth of Total Imports
by Sector
08
61
62
85
90
Belize
Lower
Negative
Negative
Higher
Negative
China
Higher
Higher
Higher
Higher
Higher
Costa Rica
Lower
Negative
Negative
Higher
Higher
El Salvador
Lower
Lower
Negative
Negative
Higher
Guatemala
Higher
Lower
Negative
Higher
Higher
Honduras
Lower
Lower
Negative
Higher
Higher
Nicaragua
Higher
Higher
Higher
Higher
Higher
Panama
Higher
Negative
Negative
Higher
Higher
Note: Higher: growth rate above the rate recorded for total imports for the United States; lower: positive growth rate
lower than the rate recorded for total imports; negative: a decrease in the period from 2000 to 2012.
Source: Proprietary preparation based on data from the (US International Trade Commission 2013)
23
The growth in Chinese exports of clothing has meant a loss in the market for Central American
countries. In 2000, prior to the entry of China into the World Trade Organization, the countries in
Central America represented 15% of the imports of clothing made by the United States, while
China meant less than 11%.
Five years later, in 2005, when the entry of China into the WTO had been finalized and restrictions
were eliminated from the multi-fiber agreement, China went on to represent 24% of imports into
the United States, while the countries in Central America saw their share drop to close to 13%.
The effects in later years are more evident, especially in cases such as Costa Rica and to a lesser
degree Guatemala. These two countries have been the most affected by this change in the trade
patterns, despite the tariff preferences granted by the free trade agreement between the United
States, Central America and the Dominican Republic (DR-CAFTA in Spanish).
The Costa Rican case may be used to illustrate the gradual decrease in the industry as a
consequence of competition in the main export market as well as internal factors such as an
increase in the cost of production.
In 2004, Costa Rica exported US $548million in textile products. This figure dropped to US $209
million in 2012 (PROCOMER 2008; PROCOMER 2013). It is estimated that in 10 years the textile
industry went from having 30,000 employees to only generating 8,000 jobs in that year(Central
America Data 2013).The main reason indicated for closing these companies is the inability of Costa
Ricans to compete with the low costs of human resources in other countries, especially China and
other Asian countries.
Table 7 – United States: Origin of Imports of Clothing
Origin
2000
2005
2010
2012
China
6,514
17,802
30,145
30,851
Average Annual
Variance (20002012)
13.84%
Honduras
2,462
2,744
2,541
2,711
0.81%
El Salvador
1,641
1,658
1,679
1,882
1.15%
346
736
1,048
1,382
12.23%
1,531
1,872
1,191
1,280
-1.48%
844
491
172
163
-12.81%
19
18
0
0
-51.65%
7
4
2
1
-16.48%
Nicaragua
Guatemala
Costa Rica
Belize
Panama
Source: Proprietary preparation based on data from the (US International Trade Commission 2013)
24
Despite the negative effects on the textile industry in some countries in the region, there are other
countries where the industry has been able to compete with Chinese companies. Honduras and El
Salvador recorded increases in their exported volume even though they lost market share, while
Nicaragua recorded a growth in its sales to the United States above the market sales, which made
it possible to increase its share within the imports.
Even though the results appear to indicate that there has been an increase in competition for
clothing with China and the Central American countries in the US market, and a possible
displacement by China, the changes that have been produced in the market cannot be analyzed
only from the perspective of competition. They must be examined from a broader perspective that
includes the internal adjustments for the production system and competition in each country,
which is outside the scope of this report.
China as an Investor
Chinese Investment Abroad
As part of the its trade opening and rapprochement process with the rest of the world, starting in
2000, the Chinese government changed the Chinese investment policy abroad and installed a
policy known as Go Global. It went from a relatively closed system, where Chinese companies in
practice could not invest abroad, to one that is more open. This is in addition to opening up the
possibility of investing abroad by means of engineering and construction processes overseas to
take advantage of the exports of jobs and services (Cheng and Ma 2010).
The measures taken by the Chinese government to encourage investment abroad included the
following: (i) Creation of incentives, (ii) Facilitation of administrative procedures, (iii) Facilitation of
capital tracking, (if) Provision of information and guidance about investment opportunities, and (v)
Reduction of the political and investment risk (Luo, Xue, and Han 2010).
The responsibility for approving investments for US $3 million was transferred from the provincial
governments, while investment proposals and feasibility studies no longer required governmental
authorization. In addition, funds were developed to support foreign investments as well as to
subsidize the interest in the investment companies; the construction and engineering companies
had subsidies developed for project financing and insurance (Cheng and Ma 2010).
The application of those policies has encouraged growth and an outgoing volume of FDI by
Chinese investors. On average, between 1995 and 2005, Chinese companies made investments
abroad in the amount of US $3.82 billion per year. For 2008 and 2009, this figure increased until it
exceeded US $50 billion per year(UNCTAD 2010). In 2011, the figure reached US $75 billion while
in 2012 it exceeded $86 billion(International Trade Centre (ITC) and United Nations Conference on
Trade and Development (UNCTAD) 2013). Some 66% of the investments in 2010 were made by
Chinese state companies and the remaining percentage was made up of private investors.
25
However, the trend that has been observed reflects a reduction in the importance of state
companies (Davies 2012).
The developing countries are the main recipients of Chinese FDI. The Asia and the Pacific region,
including Australia, represented 70% of the world supply of Chinese FDI at the end of 2009. In
Latin American and the Caribbean, 95% of the supply was concentrated on two economies: the
Cayman Islands and the British Virgin Islands (Rosales and Kuwayama 2012). After these
companies were registered on those islands, different investments were made in the Latin
American region as well as in other parts of the world.
The measures taken by the government are considered to be one of the keys to success in
expanding foreign investment (Child and Rodrigues 2005; Lu, Liu, and Wang 2011) but they are
also due to strategic objectives that make it possible to reach Chinese national interests
(commercial and diplomatic). In 2004, circulars were issued by the authorities to promote: (i)
Projects to mitigate the Chinese need for natural resources, (ii) Projects to promote exports of
technology, products, equipment, and Chinese labor, (iii) Research and development centers
abroad that use advanced international technology, professional contacts, and management skills,
and (iv) Mergers and acquisitions that make it possible to strengthen competitiveness for Chinese
companies by accelerating their internationalization process (Luo, Xue, and Han 2010).
The promotion of activities that are carried out by authorities to match in broad strokes the
primary economic reasons why companies become international: the search for resources; the
search for markets; the search for assets; and the search for efficiency (Dunning and Lundan
2008).
The search for resources is still currently one of the main investment activities for Chinese
companies abroad; in 2011, it represented 19% of the total investment (International Trade Centre
[ITC] and United Nations Conference on Trade and Development [UNCTAD] 2013).
This is the main reason for investments in Latin America (more than 9%) in relation to extracting
natural resources, mostly oil and to a lesser degree mining (CEPAL 2012) or to develop the
infrastructure required for that to happen (Mesquita-Moreira 2010).
Between 1991 and 2005, Chinese investments were primarily motivated by the search for natural
resources and access to markets (Cheng and Ma 2010). In the companies that invest that were
motivated by the search for markets, expansion may be oriented toward maintaining their
position in the market where they were originally present by engaging in exports, as well as in
expanding toward other previously untouched markets (Dunning and Lundan 2008).
In the case of Chinese companies, FDI is an alternative for moving beyond the commercial barriers
that were imposed. Therefore, it is a dominant strategy in companies that belong to sectors with
intensive exports (Lu, Liu, and Wang 2011) since it allows them to secure access to the market.
According to a survey done for companies in the province of Guangdong, most of the companies
26
opt to develop a company abroad, which is primarily motivated by the potential for an
international market (Fu, Liu, and Li 2013).
In the case of Central America, Chinese investments searching for a market have translated into
opening sales offices that make it possible for companies in that country to increase their share in
the local market and they do not record investments in product manufacturing areas for the local
market. For South American countries, in addition to opening offices, investments have been
made in manufacturing plants in the automotive sector that are targeting meeting the needs of
the local market (CEPAL 2012).
Another of the components that have been exploited has been the promotion of projects that
encourage exports and Chinese labor, as well as, for example, the construction (by means of a
donation) of the National Stadium in Costa Rica. The Stadium was totally developed by Chinese
laborers and the products used for constructing it come from China. This reason may explain the
strategy used by Chinese companies in Central America due to the incorporation of Chinese
technology and products in the different infrastructure products that they are carrying out in the
region.
In the strategy to search for assets, companies acquire assets belonging to other companies as a
way of promoting their long-term objectives. They are generally related to developing their
competitive capacities. These companies include both new companies that are seeking to quickly
obtain some sort of competitive strength in a market that they do not understand, as well as
already established companies with experience that rely on a strategy for expansion as part of a
multinational, regional, or global integration strategy.
Chinese companies have made investments for this reason by means of acquiring high-technology
companies (especially in technology-intensive industries), recognized brands (for example, Volvo
in the automotive industry or the ThinkPad brand of desktop computers), and to attract human
capital to be able to manage a global company (Buckley et al., 2007; Child and Rodrigues 2005; Lu,
Liu, and Wang 2011).
Given the characteristics of Latin American, and particularly, Central American companies,
investments to acquire technology or brands have been relatively few
The search for efficiency is a strategy that is usually used by large, experienced companies. This
search is motivated by the need to rationalize the investment structure, based on resources or in
certain markets, such that expanding the company may benefit from a multinational presence.
This benefit generally comes from the ability to develop economies of scale for production and risk
diversification by having the productive capacity in different countries, which allows for
geographic readjustments to production in case there are any problems in a particular territory
(Dunning and Lundan 2008).
Linked to the search for efficiency, the Chinese government promotes investment abroad by
means of setting up economic and commercial aid zones in some countries. These zones have
27
been boosted with the following objectives: (i) Increase exports to comply with the rules of origin
and thus reduce any trade disputes; (ii) Support the development of global brands by Chinese
companies; (iii) Reduce accelerated expansion in the accumulation of international reserves; (iv)
Contribute to developing jobs in the recipient country by enhancing bilateral relations. In addition,
this type of zone makes it possible for companies to arrive together that may provide support to
each other and seek support from the local government (Cheng and Ma 2010). Currently, this type
of zone is in the development process in Costa Rica, which would represent a first in Latin America.
Given the motivations that lead to Chinese companies investing abroad, Chinese FDI primarily
targets large markets based on the size of their GDP (Cheng and Ma 2010). Another feature of
Chinese investors is that they look for countries that have natural resources and weak institutions
(Kolstad and Wiig 2009). Greenfield investments, for their part, have been mostly concentrated on
the areas of energy, raw materials, the automotive industry, and real estate (Davies 2012). Latin
America offers Chinese investors raw materials for the most part and in some countries, Latin
America offers a considerable market size, such that the investments are concentrated on
activities related to these attractions.
The South American countries are the primary destination for Chinese investment since this area is
where most raw materials are found. This outlook changes in the north of Latin America (Mexico
and Central America) where Chinese investment is scarce (CEPAL 2012). The following shows more
details about investments in Central America.
Chinese Investment and Central America
The figures for DFI made by Chinese companies in Central America represent a small fraction of
the total DFI received by other countries. In absolute terms, in the 2009-2012 period, Central
America recorded Chinese investments in the total amount of US $128 million. Of that figure,
Panama received 7%, Guatemala received 19%, and Costa Rica received 8%, according to the
information supplied by local sources.
Other sources agree when they indicate that there are low levels of Chinese investments in the
region. According to data from the Chinese Ministry of the Economy (MOFCOM 2011), investment
in Central America by Chinese companies in the 2004-2010 period was close to US $60 million and
was mostly concentrated on Panama.
28
Table 8 - Central America: Direct Foreign Investment Originating in China (in millions of US dollars)
Belize
Costa Rica
El Salvador15
Guatemala
Honduras
Nicaragua
Panama
2009
n.d.
3.60
n.d.
0.20
0.80
n.d.
2.53
2010
n.d.
0.79
n.d.
16.40
1.10
0.31
18.25
2011
n.d.
0.95
n.d.
6.20
0.00
0.45
70.00
2012
n.d.
4.78
n.d.
1.00
0.00
0.61
n.d.
Source: Proprietary preparation based on data from BCCR, Invest in
Guatemala, BCH, ProNicaragua, and Proinvex.
Investments made by Chinese companies do not represent a significant source of flow of FDI in the
region so far. For 2011, Chinese companies in Panama represented 2.5% of the total investment
received in that year. For Costa Rica and Guatemala, Chinese investments in 2012 represented
0.2% and 0.1%, respectively.
As was mentioned, Panama has become the primary destination for investment by Chinese
companies in Central America. This may be due to Panama's logistical importance due to the canal
that is used for ships to cross from the Pacific Ocean to the Caribbean Sea. The canal is especially
relevant for Chinese import and export companies since it makes it possible to abbreviate the
times from the Caribbean coast of the American continent, especially in places such as the East
Coast of the United States or Brazil. In addition, the strategic importance of the free trade zone in
Colon should be considered, which is used as a distribution center for Chinese merchandise and
for merchandise from other origins for Central America and the northern part of South America.
The FDI figures presented above may not reflect all of the Chinese investment in Central America.
As was mentioned previously, in Latin America and the Caribbean, 95% of the supply is
concentrated on two economies: the Cayman Islands and the British Virgin Islands (Rosales and
Kuwayama 2012). After the companies were registered in the islands, different investments were
made in the region as well as in other parts of the world. In practice, this impedes carrying out
proper statistical follow-up, as occurs in the case of El Salvador (Velázquez 2013).
The problem that impedes verifying all of the investment is that there is no obligation for private
Chinese companies (An 2014) to declare investments. Therefore, these figures that come from
China do not have all of the investments in the region either.
15
El Salvador does not have any statistics on FDI originating in China, due to the methodology used. That
methodology books the investments in the country where the money comes from and not the country
where the company comes from (Velázquez 2013).
29
As an alternative measure to approximate the Chinese investments in Central America, investment
promotion agencies were consulted with, as well as other public and private organizations, and
searches were run in different databases and for and news about the presence of Chinese
companies in Central America.
Based on this search for information, a total of 42 different projects16or investments were found
where Chinese companies were participating (the same company may participate in projects in
different countries). In total, the amounts announced by these projects are close to US $65 billion;
however this figure is concentrated on two mega-projects in the feasibility study stage, the interocean canal in Nicaragua, and the railroad canal in Honduras (which will be presented in more
detail later). According to the preliminary estimates, all together they may represent US $62
billion.
According to the number of projects, the telecommunications, construction, and logistics sectors
are the most active. Altogether, these three sectors represent 78% of the projects that were
identified.
In telecommunications, the physical presence (offices) of companies such as Huawei and ZTE in
most of the countries makes this the most important sector. For its part, the construction sector,
especially related to infrastructure, has been one of the most dynamic during the last several years
with the presence of Chinese companies acting as contractors, and the announcement of diverse
projects for the upcoming years. For their part, companies related to the logistics sector are
closely tied to the Panama Canal and the free trade zone in Colon.
16
The results that were presented were obtained by means of consultations with different organizations;
however, it is likely that they do not represent all of the investors with a presence in the region, especially
investors of a smaller size. The complete list of companies identified by country is found in the appendices.
30
Figure 7 – Central America: Investment Projects or Investments Identified
for Chinese Companies
Manufacturing
2% Oil
Banking
5%
Machinery
2%
Fishing
2%
5%
Commerce
7%
Telecommunications
29%
Logistics
22%
Construction
26%
Source: Proprietary preparation based on databases from diverse sources.
Congruent with the results obtained for the amount of investments in dollars, Panama is the
country with the greatest presence of investors; there are 16 firms with operations in the country.
Nicaragua is in second place with the presence of eight Chinese companies, followed by Costa Rica
with eight.
Figure 8 – Central America: Location of Investment Projects by Country
or Investments Identified by Chinese Companies
Honduras
7%
El Salvador
5%
Belize
2%
Guatemala
9%
Panama
39%
Costa Rica
19%
Nicaragua
19%
Source: Proprietary preparation based on databases from diverse sources.
31
Chinese companies that have invested or have a presence in Central America may be classified
based on the reason for their investment.17 A group of these companies is concentrated on
meeting the needs of the local market and the investments made so far consist primarily of
activities linked to the telecommunications industry with companies such as Huawei and ZTE.
These companies provide post-sales service to the main telephone operators in the region such as
the Mexican company América Móvil (Claro) and the Spanish company Telefónica (Movistar) as
well as other local mobile telephony operators that they have business relations with. In addition,
these offices boost the sales of products to consumers and operators. These companies are
characterized by having a presence in practically all the countries in Central America.
Table 9 - Central America: Companies of Chinese Origin in Search of a Local Market
Company
Sector
Country
Bank of China Limited
Banking
Panama
Cantonese House, S.A.
Commerce
Nicaragua
Chen y Chen Compañía Limitada
Construction
Nicaragua
China Development Bank
Banking
Costa Rica
Huawei Technologies
Telecommunications
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
Importadora y Exportadora YiYi
Commerce
Nicaragua
Joing Foods Nicaragua
Fishing
Nicaragua
Lampa, S.A.
Commerce
Panama
Sany Group
Machinery
Xinwei Telecom Enterprise Group
Telecommunications
Costa Rica
Panama
Nicaragua
ZTE
Telecommunications
Costa Rica
El Salvador
Guatemala
Nicaragua
Panama
Source: Proprietary preparation based on databases from diverse sources.
One of the projects with the broadest scope that is working on the local market is currently being
developed by Xinwei Telecom Enterprise Group. It is predicted that the Chinese firm will invest US
17
Based on the information compiled about the activities carried out in the region in secondary sources.
32
$300 million in developing and operating a landline and Internet network (Xinwei Telecom
Enterprise Group 2012). The investment was set for 2013; however, diverse delays caused the
work to begin in 2014 with the arrival of the first equipment in February of that year. It was valued
at US $100 million (Vidaurre-Arias 2014).
Another sector that is targeting taking care of the needs of the local market is the financial sector.
Bank of China has a branch in Panama that provides services to local companies with business
relations with China (Mejía 2012). Banco de Desarrollo de China has a presence in Costa Rica. Its
purpose is to analyze the special economic zone project that is being developed in that country. In
addition, three Chinese companies were identified that are dedicated to trade in the Central
American region (two in Nicaragua and the other in Panama) and the sales offices of the Sany
company, which is specialized in machinery in Costa Rica and Panama.
Of the Chinese companies reported by the Panamanian investment attraction agency, ProInvexel,
50% are found in activities related to logistics for international trade (Carrión 2013). In addition,
there are companies such as Sinopec International or part of the Huawei activities that operate
with regional headquarters to capitalize on Panama's positioning as an international company
operations hub. These companies may be classified in the category for searching for efficiency due
to the fact that they try to capitalize on this country's advantages and its strategic positioning
between North and South America.
Table 10 - Central America: Companies of Chinese Origin Searching for Efficiency
Company
Asia International Import and Export, S.A.
Asia Panamá Internacional, S.A.
China Shipping Agency Panama
COSCO Panama Maritime, S.A.
Fortuna Import and Export
Gaviota International, S.A.
Industry
Logistics
Logistics
Logistics
Logistics
Logistics
Logistics
Hua Yuan Investment Group
Manufacturing
Huawei Technologies
Telecommunications
Nancy Internacional
Logistics
Sinopec International Petroleum Exploration and Petroleum
Production Corporation
Union Trade Import and Export
Logistics
Yicheng Logistics, S.A.
Logistics
Special Economic Zone
Real Estate
Country
Panama
Panama
Panama
Panama
Panama
Panama
Guatemala
Panama
Panama
Panama
Panama
Panama
Costa Rica
Source: Proprietary preparation based on different interviews and online information.
33
One project that may boost the arrival of Chinese companies that are motivated by the search for
efficiency is the development of a special economic zone, which is being analyzed by the
governments of Costa Rica and China. The purpose of this zone is to offer investors the possibility
of setting up operations in Costa Rica for manufacturing and to take advantage of the platform of
trade agreements both with the USA and Central America. The special economic zone's attraction
for investors would be a joint effort between Costa Rican stakeholders and their Chinese
counterparts. The special economic zones that have been developed by China abroad have made
it possible to buffer the companies' risks and create new incentives. This has made it possible to
obtain economic benefits for China and the host country (Bräutigam and Xiaoyang 2012).
In Guatemala, an announcement was made in mid-2013 that the Hua Yuan Investment Group was
analyzing the possibility of investing US $8 million in developing a plan to manufacture medical
equipment (Prensa Libre 2013a).
According to the compiled information, no Chinese companies exist that have invested in the
Central American market to search for strategic assets. This makes sense if the fact is considered
that most of the investments made by companies from that country have been linked to acquiring
relevant international brands (ThinkPad and Volvo, for example) and due to the access to
advanced technologies that in most cases have their origin in developed countries.
In the case of the search for resources, in Central America there are deposits of mineral products
that could be relevant for international investors. However, the exploitation of these deposits has
been in many cases scarce due to the difficulties related to the regulatory framework in many of
the countries. An improvement in the regulatory framework as well as legal security, are elements
that are necessary to improve the investment climate in the region. This could favor the arrival of
investors and favor capitalizing on these resources.
Examples exist of foreign investments in extracting mineral resources to send them to the Chinese
market, which is the case with the company Five Star Mining Honduras, which is a subsidiary of
the Italian company Goldlake. This company is dedicated to extracting iron oxide: its main market
is China. Between 2010 and 2012, exports of Honduran iron oxide to this market grew by 530.6%,
reaching up to 1.4 million tons (D. Rodríguez 2013).
A particular case that may be related to both resource-intensive industries and the search for
efficiency is the company Soresco. This firm is a joint venture between the companies Refinadora
Costarricense de Petróleo (RECOPE) and China National Petroleum International Company (CNPIC).
Each of the firms has a 50% share. The project includes the construction of a refinery with an
estimated cost close to US $1.4 billion. Soresco would be responsible for investments of US $1.258
billion with 30% financing for this amount using its own capital (50/50 between both partners) and
a financing structure for the remaining 70% of the costs of the work (RECOPE 2012). Despite the
fact that this project dates back from 2009, so far administrative delays and unfavorable public
opinion due to suspicions of corruption in Costa Rica have kept it from being executed.
34
In Latin America, China has increased economic aid through investments, infrastructure
construction, resources, and energy, among other activities (Camus et al. 2013). For Central
America, construction is one of the activities where a significant presence of Chinese companies is
found. In total, participation by companies from the country was found in at least nine projects in
the region, especially in the area of energy plants and roadway infrastructure.
The company Sinohydro participates as a contractor in constructing hydroelectric projects in Costa
Rica and Honduras, just as it had done previously in Belize by building the Chalillo Dam
hydroelectric plant (Sinohydro 2013). In Costa Rica, Sinohydro acts as a contractor for the Italian
company ENEL in building the Chucás project. This is a hydroelectric plant with a 50MW capacity;
the estimated amount of the contract is US $92 million (Sinohydro 2010). In Honduras, the Patuca
III project is being built by Sinohydro with an estimated investment of US $50 million (UEPER
2013).
In Guatemala, the company China Machine New Energy Corp. was hired to develop the Jaguar
Energy project (thermal energy). It is estimated to require a total investment of US $700 million
(Invest in Guatemala 2013).
The company China Harbour Engineering Company (CHEC) is another Chinese company in the field
of infrastructure construction with activities in Central America. China has had a presence in
Panama since 2002 and was responsible for expanding the container terminal at the Port of Balboa
(CHEC 2014). Currently, it is expanding the container terminal at the Port of Colon, which is valued
at US $66 million and which is expected to end in 2015 (Labrut 2013).
In Honduras, CHEC is working on a feasibility study for an inter-ocean railway that encompasses 10
railway lines more than 600 kilometers long, a bridge 2.4 kilometers long, a refinery, two mega
ports (one on the Caribbean Sea and one on the Pacific Ocean) and an oil pipeline the same length
as the railway lines. The project is valued at more than US $20 billion (El Heraldo 2013).
For its part, in Costa Rica, the CHEC company has been announced as being responsible for
widening a stretch of 108 kilometers of highway that links the capital of Costa Rica with the main
port on the Caribbean. This job is valued at more than US $400 million. It would be financed by a
loan granted by the government of the People's Republic of China through the Export-Import Bank
of China and an offsetting fund by the government of Costa Rica (Pérez 2013). One of the
requirements for this type of loan, based on the experience in Latin America, is for the project to
be developed by construction companies or technology generated in China (Gallagher, Irwin, and
Koleski 2012). This has created an up roar in Costa Rica due to the fact that there is no clarity in
the company selection processes.
The investment project with the broadest reach in Central America by companies related to China
is the construction of an inter-ocean canal in Nicaragua. It would compete directly with the
Panama Canal. This project is valued at US $40 billion and will be developed by the company Hong
Kong Nicaragua Development Group (HKND). This company is linked to entrepreneur Wang Jing,
the main executive of the Xinwei company with operations in Nicaragua (Boehler 2013b). This
35
project is in the feasibility study stage and is expected to begin construction in December 2014
(HKND Group 2013). According to the information provided by the press, some of these studies
are done by the China Railway Construction Corporation (CRCC), one of the main construction
companies in that country (Boehler 2013a).
Lesser sized companies have also made investments in the region. In Nicaragua, according to
PRONICARAGUA, during the 2010-2012 period, close to 40% of the investments was in the
commercial sector; construction, for its part, received close to 40% and the remaining percentage
(20%) was destined to the fishing sector. Among the Chinese companies that have made these
investments are: Cantonese House, S.A; Importadora y Exportadora YiYi, S.A; Chen y Chen
Compañía Limitada; and Joing Foods Nicaragua(Pineda 2013).
Central America and China have an investment relationship with a relatively short history.
Although there are examples of investments that date back to the beginning of 2000, the main
investment projects (the inter-ocean canal in Nicaragua, the railway in Honduras, energy projects,
and roadway infrastructure) have been announced only beginning in 2010. This recent tie between
the countries has created a limited number of projects that have been concluded. Instead, it may
be said that they are in a promotion and approach phase so the weight that China will have as an
investor in Central America will not actually be known until the upcoming years.
Challenges and Opportunities for Investment
Although there is a presence of Chinese companies developing different investment or
construction projects in the Central American region, this area continues to represent a limited
portion of the Chinese investments in Latin America.
The different types of productive and commercial specialization between Latin America and China
do not bode well for greater levels of FDI and reduces the possibilities of more productive,
technological, and commercial alliances (Rosales and Kuwayama 2012). For Central America, these
differences may be even more marked since there is a disparity between the investment
objectives by Chinese companies and what the Central American companies can offer. Chinese
investments in Latin America have been focused mostly on obtaining raw materials. This resource
exists but has been very little exploited in Central America.
This factor is reinforced by the fact that there is little awareness that this region exists in China and
of the opportunities that may exist in it (2014). Despite the fact that no Chinese investors exist in
relation to extracting natural resources, this sector may be attractive to them. Guatemala actively
promotes investment in this activity and has deposits of gold, silver, zinc, nickel, tungsten,
antimony, lead, copper, iron, titanium, and cobalt (Invest in Guatemala 2013a).
36
In Honduras, for its part, deposits of iron oxide and other metals have been identified in at least 10
of the 18 departments in the country. Eighty-four applications to exploit iron oxide in the
identified deposits are currently being processed and are expected to be approved (D. Rodríguez
2013).
The investment climate in the Central American countries, added to the legal insecurity that is
present in some of these countries, represents another limitation for foreign investors. For
Chinese investors, examples exist of projects that have been frustrated by elements related to
these subjects, such as building the energy plant in Guatemala and the cases of the refinery and
the roadway infrastructure loan in Costa Rica.
In Guatemala, the development of the energy plan registered multiple difficulties from the early
stages. Finally, in December 2013, the contract between the companies China Machine New
Energy Corp and Jaguar Energy was broken. The Jaguar company accused CMNE of delays in the
work while the Chinese company made accusations of delays in making payment. Currently, there
is an international lawsuit brought by the Chinese company for breach of contract (Prensa Libre
2013b).
In Costa Rica, in the case of the loan for roadway infrastructure to be developed by the CHEC
company, the fact that no contract existed with obligations and rights for the parties was
questioned (there is a loan contract but not a construction contract), along with the dearth of
criteria for selecting the company. Nor is there any information to verify the costs stipulated in the
loan (Herrera 2013). These and other points have been the object of criticism by members of
Congress and private organizations in Costa Rica and have meant a delay of more than one year in
beginning the work.
The project for the new refinery that would be developed in Costa Rica by SORESCO presented
problems of credibility due to the fact that there are no evaluations about the financial and social
benefits and the profitability for the Costa Rican state company, RECOPE. The existing analyses
were developed by the company Huanqiu Contracting & Engineering Corporation (Hqcec), which is
tied to CNPC, a RECOPE partner in that project. This creates a conflict of interest (Agüero 2013).
Conflicts of interest were also found in the analysis done by the Australian company Worley
Parsons(Ruiz 2013).
The little transparency in the investment projects cited in Costa Rica has created an additional
barrier for Chinese investors. The lack of trust that is found at certain political levels and in public
opinion toward the companies from China would probably make executing any future projects
difficult.
37
Financing for investment projects may be another limitation that Central American companies face
for Chinese companies to arrive, especially for those investments that are made through bank
financing. As was mentioned previously, Chinese policies on investments abroad favor the use of
subsidized interest rates. The lack of diplomatic relations has a negative effect on the interest
rates (either the rate increases or the subsidy is not given) for companies interested in investing in
Central America as they are considered to be at a higher premium due to the political risk (An
2014). This problem does not exist when the project financing is through market mechanisms.
Despite the existence of challenges, there are elements in the region that could favor and increase
the arrival of Chinese investors in the short- and medium-term. Central America has a low level of
industrial development in comparison to China. Therefore, the region could be an incentive for the
arrival of companies in sectors that are complementary to local industries so tighter bonds may be
developed between local and international industry.
There is interest in diverse countries in attracting investments in specific sectors, such as the case
of Guatemala and plastic products, or the cases of El Salvador, Honduras, Nicaragua, which are
looking for agro-industrial companies that will make it possible to increase the value chain for
agricultural products.
Due to the small size of the Central American countries individually, the investment promotion
agencies for these countries tend to channel a good part of their efforts into attracting foreign
investment in search of efficiency. In the case of companies coming from China, the countries in
the region offer the possibility of having a broad platform due to the free trade agreement with
partners such as the United States and the European Union and relevant partners in the Latin
American region that would allow investors to have access to favorable tariff conditions in those
markets if the product meets the standards of origin.
The service sector is actively promoted by most of the Central American countries, especially call
centers and contact centers, taking advantage of the focus on near-sourcing. The region is able to
offer Chinese companies a time zone that is convenient for the United States, as well as the
advantage of using the language and convenience due to the proximity to the main cities in the
United States.
Infrastructure construction is another of the priorities for most of the Central American countries.
The lag in developing infrastructure affects the countries' competitiveness and the subject has
been pointed out as one of the limitations on taking advantage of the free trade agreement with
the United States (Calderón and Poggio 2010). The Chinese companies' current activity in this area
as well as the existing plans in different countries to develop new projects during the upcoming
years (ports, highways, energy, etc.) shows the potential that this activity may have for investors
and contractors.
Coordination between the countries in the region would seem to make sense to promote the
region in general. This collaboration may materialize by sharing trade offices or at least
coordinating them in common areas so the operating costs are reduced for them.
38
The development of joint promotional material by the investment promotion agencies may be a
strategy that would make it possible to reduce the costs, since many of the attributes that are
used in promoting the Central American countries are held in common (geographic location, free
trade agreements, a youthful population, etc.).
Another strategy that has been suggested is to increase the diversification of regional trade with
China. This would generate better conditions to stimulate alliances, investments, and a trade
exchange with more components involving innovation and technological change (Rosales and
Kuwayama 2012). These general efforts must be complemented by very punctual exercises
targeting convincing specific clients (investors) of the bounty found in the country or region.
There are multiple additional measures that could be sought by the countries in Central America
to attract investors from China. However, the development of a strategy to promote investments
must be analyzed within a broader context than the economic ties that the region is seeking to
have with China, considering the advantages that are offered in terms of market size and potential
investments but also the risks of competition in the local market and possible displacement in the
international market.
Conclusions
1.
The relationship between Central American and China is in the beginning stages, but there are
opportunities to develop deeper economic bonds. Public and private efforts are being made
in the Central American countries to seek greater economic proximity with the People's
Republic of China. This is reflected in the proposal to open trade interest offices in China,
either governmental or private, as well as the active role that is played by cultural
associations and bilateral chambers of commerce.
2.
Costa Rica holds the lead in the diplomatic-economic relations with China in the Central
American region. These countries share a free trade agreement and trade offices for their
official organizations in each country (PROCOMER and CCPIT, respectively) and ongoing
efforts are being made to achieve closer ties in their economies. Despite that, Costa Rican
exports continue to depend on a limited number of products and no major investments by
Chinese companies have been recorded so far. What do exist are aid agreements between
governments, executed by Chinese companies.
3.
The total trade between Central America and China (exports + imports) shows a growth trend
and exceeded US $12.5 billion in 2011. This increase has been apparent in both exports from
the region to China and in imports. Despite the growth in the flow in both directions, there is
a deep imbalance in favor of China: 94% of the total trade consists of Chinese products
entering the region.
39
4.
Exports from the Central American countries to China are highly focused on a few products.
The five main products exported represent 80% or more of the total exports. This group of
products is made up mostly of low-level primary processing products for the recycling
industry (with the exception of Costa Rica, which exports manufactured goods).
5.
Central American products are not competing among themselves in the Chinese market. The
exported supply is different for each country in the region and the market size means that in
practice no similar products are presented as competitors.
6.
Central American trade with China is based on inter-industrial trade and not on trade
between similar industries, which would make it possible to enter a higher stratum on the
value chain for growing Chinese industry.
7.
There is a low level of complementarity between exports from Central American countries
and imports from China. Despite that, all the countries have a set of products that potentially
could be exported to China. However, these products must overcome a series of barriers,
which include:
a.
b.
c.
d.
Tariff and non-tariff measures that tax Central American products
Logistics
Geographic distance
Psychological distance: cultural, language, lack of access to information, etc.
8.
Although China has been indicated as a potential competitor in some industries, the
characteristics of the production system for each country and its competitiveness will be
determining factors for the effects that may be caused by that competition. The Central
American textile industry has been most affected by Chinese competition in the US market.
9.
China's growing importance as a source of FDI in the world is still not reflected in Central
America. The flow of FDI toward Central America is relatively unimportant and China does not
represent a relevant source of investment for any country in the region so far. Panama, the
main destination for investment by China in the region, represented 2.5% of the total FDI in
2011, yet for Costa Rica and Guatemala FDI meant less than 1%.
a.
Chinese investments in Central America have been limited for diverse reasons, which
include: the limited match between investment opportunities that are promoted by the
Central American countries, the main sectors where Chinese companies make
investments, and the lack of awareness of the region by investors.
40
Final Reflections
The growth in the Chinese economy will mostly favor those countries with closer ties with China,
yet the Central American region appears to not have very close ties with China in the form of
exports and investments. This could take away opportunities to generate economies of scale for
greater export volume or technology transfers that favor economic growth.
The lack of diplomatic relations should not be seen as an unsalvageable obstacle to strengthen the
economic relationship between Central America and China The Central American private sector
has a role to perform in strengthening the economic relationship, since it may be the immediate,
direct (or harmed) beneficiary of closer ties with China.
41
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45
Appendix 1 - Profile of the Trade and Investment Relationship
between Central America and China
Belize
Belize: Trade Balance with China
150
Millions of US $
100
50
0
2005
2006
2007
2008
Exports
Imports
2009
2010
2011
2012
-50
-100
-150
Balance
Proprietary preparation based on data from CCI.
Belize: Exports by Sector (2012)
Other
30%
Wood, Plant
Charcoal, &
Wood
Manufacturing
66%
Footwear &
Footwear Parts
4%
Source: CCI
Belize: Main Products Imported from China (millions of dollars)
46
SA
Description
2010
2011
2012
9999
4011
Materials not specified in other places
Pneumatics (pneumatic tires), new rubber.
0.07
1.50
98.18
2.37
86.32
2.75
3808
8704
8711
Insecticides, rat poison, fungicides, herbicides, germ
inhibitors
Automotive vehicles for merchandise transport
Motorcycles and tricycles
0.52
0.58
0.42
0.83
0.92
0.66
1.27
1.16
1.14
Source: CPI based on statistics from COMTRADE And the statistical Institute of Belize
Belize: Indicates to Trade Potential with China, Main Products
Potential Trade
(in millions of
US $)
93.15
65.63
Equivalent
Ad Valorem
Tariff
0.00%
7.50%
HS
270900
200911
Description
Petroleum or bituminous mineral crude oil
Orange juice, frozen, without fermentation and without
alcohol.
271019
240220
030619
330112
200830
Other petroleum oils and preparations
Tobacco cigarettes.
Other frozen crustaceans.
Essential oils of orange.
Prepared or concerned acidic products, including with
sugar or sweetener
9.16
7.05
5.99
4.89
3.89
4.73%
25.00%
16.00%
20.00%
20.00%
100590
071333
030611
Other types of corn
Common beans, dried, husked
Frozen lobster.
3.15
3.12
3.10
65.00%
3.75%
10.00%
Sources: Calculations by CCI based on statistics from the General Customs Administration of China and
statistics from UN COMTRADE up to January 2012. CCI - MAcMAp.
Belize: Chinese Investors
Company
Industry
Country
Category
Sinohydro
Construction
Belize
Infrastructure
Source: Proprietary
47
Costa Rica
Costa Rica: Trade Balance with China
2000
Millions of US $
1500
1000
500
0
-500
-1000
-1500
2005
2006
2007
Exports
2008
2009
2010
Imports
Balance
2011
2012
Proprietary preparation based on data from CCI.
Costa Rica: Exports by Sector (2012)
Copper & Copper
Manufacturing
3%
Furs & Leather
1%
Other
4%
Wood, Plant
Charcoal, & Wood
Manufacturing
1%
Prep. Fruits &
Vegetables
5%
Machinery, Electrical
Devices & Material,
Parts
86%
Source: CCI
Number of Companies that Export to China (2006-2012)
Number of
companies
2006
62
2007
57
2008
74
2009
60
2010
81
2011
90
2012
93
Source: (PROCOMER, 2008 & 2012)
China: Main products exported to Costa Rica (millions of dollars)
48
HS
Description
2010
2011
2012
8517
Electric telephone devices
69.98
187.95
174.04
8471
Automatic machines to treat or process data and
parts
31.74
197.07
51.25
6402
4011
9503
Other footwear with a sole and uppers made of
rubber or plastic
Pneumatics(pneumatic tires)
Other toys
28.62
25.67
23.28
32.49
34.73
26.09
36.74
36.23
33.65
Source: CCI based on data from COMTRADE, PROCOMER and BCCR.
Costa Rica: Potential Trade with China, Main Products
Potential Trade
(in millions of
US $)
662.45
397.70
Equivalent
Ad Valorem
Tariff
0.00%
0.00%
HS
901839
901890
Description
T-kehr probe
Other devices and instruments for medicine, surgery, and
dentistry
080390
210690
902139
Bananas
Other food preparations
Prosthetic items and devices (excluding false teeth and
joints)
362.76
343.74
250.61
9.30%
12.00%
0.00%
854449
Other electrical conductors
174.23
2.40%
401110
New rubber tires of the type used for tourism vehicles
146.38
0.00%
090111
300490
300210
Coffee, unroasted, no caffeine removed
Other prepared medicines
Specific serum from animals or immune people
126.97
120.44
90.31
7.20%
0.00%
0.00%
Sources: Calculations by CCI based on statistics from the General Customs Administration of China
and statistics from UN COMTRADE up to January 2012. CCI - MAcMAp.
Costa Rica: Amount of Direct Foreign Investment Originating in China
49
6
Millions of US $
5
4
3
2
1
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Banco Central de Costa Rica (BCCR)
Costa Rica: Chinese Investors Identified
Company
Industry
Category
Anhui Foreign Economic Construction (Group) Co. Ltd
Construction
Infrastructure
China Development Bank
Banking
Market search
China Harbour Engineering Company Limited
Construction
Infrastructure
Huawei Technologies
Telecommunications
Market search
Sany
Machinery
Market search
Sinohydro
Construction
Infrastructure
SORESCO (China National Petroleum International
Company)
Petroleum
Resources
ZTE
Telecommunications
Market search
Source: Proprietary
50
El Salvador
El Salvador: Trade Balance with China
800
600
Millions of US $
400
200
0
2005
2006
2007
2008
Exports
Imports
2009
2010
2011
2012
-200
-400
-600
-800
Balance
Source: Proprietary preparation based on data from CCI.
El Salvador: Exports by Sector (2012)
Synthetic Fibers or
Discontinuous
Artificial Fibers
5%
Other
14%
Wood Fiber Board
& Other Fibrous
Cellulose
Materials, Paper &
Cardboard 27%
Smelting, Iron &
Steel
6%
Plastic Materials &
Manufacturing
27%
Aluminum &
Aluminum
Manufacturing
21%
Source: CCI
China: Main products exported to El Salvador (millions of dollars)
51
SA
Description
2010
2011
2012
640299
Other footwear with a sole and uppers made of
rubber or plastic
17.15
18.05
14.49
521031
Cotton fabrics
8.13
7.75
13.37
853931
Fluorescent lights with hot cathode
6.14
4.63
12.93
871120
Motorcycles
4.73
7.65
12.71
600622
Knit fabric
16.98
17.21
12.31
Source: CCI based on data from COMTRADE
El Salvador: Potential Trade with China, Main Products
Potential
Trade (in
millions of US
$)
180.0
159.6
129.6
127.7
Equivalent
Ad Valorem
Tariff
107.1
14%
HS
610910
170114
853221
090111
611020
Description
Knit cotton t-shirts for women and girls
Cane sugar
Other fixed condensers
Coffee, unroasted, no caffeine removed
Sweaters, jerseys, pullovers, cardigans, vests, and similar
items
611030
Sweaters, jerseys, pullovers, cardigans, vests, and similar
items
80.0
16%
220290
392330
610990
Other non-alcoholic beverages
Canisters, bottles, jars, and similar items
Knit T-shirts made from other fabrics
71.4
70.6
69.8
35%
6.5%
14%
14%
50%
0%
8%
Sources: Calculations by CCI based on statistics from the General Customs Administration
of China and statistics from UN COMTRADE up to January 2012. The tariffs were extracted
from the World Trade Organization (WTO).
El Salvador: Chinese Investors Identified
Company
Industry
Category
Huawei Technologies
Telecommunications
Market search
ZTE
Telecommunications
Market search
Source: Proprietary
52
Guatemala
Guatemala: Trade Balance with China
1500
Millions of US $
1000
500
0
2005
2006
2007
2008
2009
2010
2011
2012
-500
-1000
-1500
Exports
Imports
Balance
Proprietary preparation based on data from CCI.
Guatemala: Exports by Sector (2012)
Wood, Plant
Charcoal & Wood
Manufacturing
Coffee
4%
6%
Wood Fiber Board
or Other Fibrous
Cellulose Materials;
Paper & Cardboard
7%
Other
7%
Sugars & Candies
60%
Plastic Materials &
Manufacturing16%
Source: CCI
Guatemala: Potential Trade with China, Main Products
53
HS
170114
261610
080390
270900
400122
300490
090111
610510
400110
340220
Description
Bulk cane sugar
Silver minerals and their concentrates.
Bananas
Petroleum or bituminous mineral crude oil
Technically specified rubbers
Other prepared medicines
Coffee, unroasted, no caffeine removed
Knit cotton T-shirts for men and boys
Latex from natural rubber including vulcanized
Surfactant preparations outfitted for retail sales
Potential Trade
(in millions of
US $)
746.18
541.65
365.73
291.70
209.26
164.90
125.76
93.91
83.62
Equivalent
Ad Valorem
Tariff
50%
0%
10%
0%
0%
3.60%
8%
16%
0%
77.48
10%
Sources: Calculations by CCI based on statistics from the General Customs Administration
of China and statistics from UN COMTRADE up to January 2012. CCI - MAcMAp.
History of FDI with a Chinese source in Guatemala
Year
2007
2008
2009
2010
2011
P
2012
P/
2013
Amount (in millions of US $)
22.4
0.0
0.2
16.4
6.2
1.0
3.0
Total percentage
3.0
0.0
0.0
2.0
0.6
0.1
0.4
Proprietary preparation based on data from the Invest in Guatemala´s investment promotion office.
2012: Preliminary Figures. 2013: Accrued as of June.
Guatemala: Chinese Investors Identified
Company
Industry
Category
China Machine New Energy Corp
Construction
Infrastructure
Hua Yuan Investment Group
Manufacturing
Efficiency
Huawei Technologies
Telecommunications
Market search
ZTE
Telecommunications
Market search
Source: Proprietary
54
Honduras
Honduras: Trade Balance with China
1000
800
Millions of US $
600
400
200
0
-200
2005
2006
2007
2008
2009
2010
2011
2012
-400
-600
-800
Exports
Imports
Balance
Proprietary preparation based on data from CCI.
Honduras: Exports by Sector (2012)
Vehicles &
Vehicle Parts
3%
Copper &
Copper
Manufacturing
5%
Aluminum &
Aluminum
Manufacturing
13%
Other
13%
Non-organic
Chem. Prods,
Metal
Compounds
45%
Minerals,
Scraps, &
Ashes
21%
Source: CCI
Honduras: Main Products Imported from China (millions of dollars)
55
HS
Description
2010
2011
2012
851712
Telephones including mobile (cellular)
telephones
and from to
other
networks;
Automatic machines
treatwireless
or process
digital
52.35
38.03
57.61
847130
871120
721061
data
Motorcycles
Alloys clad in aluminum and zinc.
25.93
24.21
4.17
36.30
31.24
9.30
37.12
37.00
24.79
950300
Tricycles, skateboards, go-karts, toy cars and
seats of
11.25
13.42
11.99
Source: CCI based on data from COMTRADE.
Honduras: Potential Trade with China, Main Products
HS
854430
090111
030617
080390
151190
870829
282110
151110
481910
Potential Trade
(in millions of
US $)
219.51
127.57
107.37
83.91
83.32
76.48
56.24
50.38
38.53
Description
Jumper cables
Coffee, unroasted, no caffeine removed
Other frozen shrimp and lobsters
Bananas
Other palm oils and their fractions.
Other parts and car accessories
Oxides and iron hydroxides
Palm oil, in bulk.
Paper or cardboard boxes
Equivalent
Ad Valorem
Tariff
7.50%
8.00%
6.20%
10.00%
8.67%
10.00%
5.50%
9.00%
5.00%
Sources: Calculations by CCI based on statistics from the General Customs Administration
of China and statistics from UN COMTRADE up to January 2012. CCI - MAcMAp.
History of FDI with a Chinese source in Honduras.
Year
2006
2007
2008
2009
2010
P
2011
P
2012
Amount (in millions of US $)
0.0
0.1
0.6
0.8
1.1
0.0
0.0
Total percentage
0.0
0.0
0.1
0.2
0.1
0.0
0.0
Source: Banco Central de Honduras.
2011, 2012: Preliminary Figures.
Honduras: Chinese Investors Identified
Company
Industry
Category
China Harbour Engineering Company Limited
Construction
Infrastructure
56
Huawei Technologies
Telecommunications
Market search
Sinohydro
Construction
Infrastructure
Nicaragua
Nicaragua: Trade Balance with China
800
Millions of US $
600
400
200
0
-200
2005
2006
2007
2008
Exports
Imports
2009
2010
2011
2012
-400
-600
-800
Balance
Proprietary preparation based on data from CCI.
Nicaragua: Exports by Sector (2012)
Copper &
Copper
Manufacturing
6%
Aluminum &
Aluminum
Manufacturing
3%
Other
6%
Wood, Plant
Charcoal, &
Wood
Manufacturing
51%
Furs & Leather
14%
Plastic
Materials &
Manufacturing
20%
Source: CCI
Nicaragua: Main Products Imported from China (millions of dollars)
SA
Description
2010
2011
2012
851712
Telephones including mobile (cellular)
telephones and from other wireless networks;
41.61
37.54
51.69
57
847130
Automatic machines to treat or process digital
data
401120
Motorcycles and cycles with valves or
alternative piston c
New tires made of rubber of the type used for
buses and trucks
380850
Insecticides, rat poison, fungicides, herbicides
871120
16.48
27.12
25.40
11.22
17.08
20.64
8.33
12.14
15.96
10.77
9.22
10.60
Source: CCI based on data from COMTRADE
Nicaragua: Potential Trade with China, Main Products
Potential Trade
(in millions of
US $)
HS
020230
854430
090111
030617
620342
Description
Deboned, frozen beef.
Jumper cables
Coffee, unroasted, no caffeine removed
Other frozen shrimp and lobsters
Pants, overalls, and shorts made of cotton
610910
610990
620520
170199
Knit cotton T-shirts for women and girls
Knit T-shirts made from other fabrics
Cotton T-shirts for men and boys
Other cane and beet sugar and chemically pure
sucrose
040690
Other types of cheese.
223.65
219.35
127.68
116.24
114.33
Equivalent
Ad
Valorem
Tariff
12.00%
7.50%
8.00%
6.20%
16.00%
108.33
75.33
73.61
64.50
14.00%
14.00%
16.00%
50.00%
45.72
12.00%
Sources: Calculations by CCI based on statistics from the General Customs Administration
of China and statistics from UN COMTRADE up to January 2012. CCI - MAcMAp
Nicaragua: Amount of Foreign Direct Investment Originating in China in Nicaragua
58
700
Thousands of US $
600
500
400
300
200
100
0
2010
2011
2012
Source: ProNicaragua (Pineda, 2013)
Nicaragua: Chinese Investors Identified
Company
Industry
Category
Cantonese House, S.A
Commerce
Market search
Chen y Chen Compañía Limitada
Construction
Market search
Hong Kong Nicaragua Development Group (HKND)
Construction
Infrastructure
Huawei Technologies
Telecommunications
Market search
Importadora y ExportadoraYiYi
Commerce
Market search
Joing Foods Nicaragua
Fishing
Market search
Xinwei Telecom Enterprise Group
Telecommunications
Market search
ZTE
Telecommunications
Market search
Source: Proprietary
59
Panama
Panama: Trade Balance with China
8000
6000
Millions of US $
4000
2000
0
2005
2006
2007
2008
2009
2010
2011
-2000
-4000
-6000
-8000
Exports
Imports
Balance
Source: CCI
Panama: Exports by Sector (2011)
Furs & Leather
4%
Waste, Food
Industry Waste
4%
Other
9%
Wood, Plant
Charcoal, &Wood
Manufacturing
11%
Copper & Copper
Manufacturing
55%
Aluminum &
Aluminum
Manufacturing
17%
Source: CCI
Panama: Main Products Imported from China (millions of dollars)
60
HS
Description
2009
2010
2011
640299
620349
Other footwear with a sole and uppers made
of rubber or plastic
Men's pants
120.75
45.37
255.84
82.29
263.68
143.11
540710
640291
Fabrics manufactured with high tension
nylon or other threads
Other footwear that covers the ankle
48.80
92.39
115.65
98.54
140.63
126.58
611090
Sweaters, jerseys, pullovers, cardigans, vests,
and similar items
56.39
112.10
119.10
Source: CCI based on data from COMTRADE
Panama: Potential Trade with China, Main Products
HS
300490
080390
720449
030617
020230
Potential Trade
(in millions of
US $)
310.19
199.33
63.13
47.39
45.82
Description
Other prepared medicines
Bananas
Other waste and iron or steel scrap metal
Other frozen shrimp and lobsters
Deboned, frozen beef.
Equivalent
Ad Valorem
Tariff
3.60%
10.00%
0.00%
6.20%
12.00%
Sources: Calculations by CCI based on statistics from the General Customs Administration
of China and statistics from UN COMTRADE up to January 2012. CCI - MAcMAp.
Chinese investment in Panama (2009-2011) (thousands of dollars)
Year
2009
2010
2011
FDI
2,525
18,245
70,000
Accrued FDI
22,055
40,300
110,300
Source: ProInvex (Carrión, 2013)
Panama: Chinese Investors Identified
Company
Industry
Category
61
Asia International Import and Export, S.A.
Logistics
Efficiency
Asia Panamá Internacional, S.A.
Logistics
Efficiency
Bank of China Limited
Banking
Market search
China Harbour Engineering Company Limited
Construction
Infrastructure
China Shipping Agency Panama
Logistics
Efficiency
China State Construction Engineering Corporation Limited
Construction
Infrastructure
COSCO Panama Maritime, S.A.
Logistics
Efficiency
Fortuna Import and Export
Logistics
Efficiency
Gaviota International, S.A.
Logistics
Efficiency
Huawei Technologies
Telecommunications
Market search
Lampa, S.A.
Commerce
Market search
Nancy Internacional
Logistics
Efficiency
Sany
Machinery
Market search
Sinopec International Petroleum Exploration and Production
Corporation
Union Trade Import and Export
Petroleum
Efficiency
Logistics
Efficiency
Yicheng Logistics, S.A.
Logistics
Efficiency
ZTE
Telecommunications
Market search
Source: Proprietary
62