China rebalancing: Blessing and curse for Latin America

Research Briefing
Emerging markets
Author
Magdalena Forster
+49 69 910-30664
magdalena.forster@db.com
Editor
Maria Laura Lanzeni
Deutsche Bank AG
Deutsche Bank Research
Frankfurt am Main
Germany
E-mail: marketing.dbr@db.com
Fax: +49 69 910-31877
www.dbresearch.com
DB Research Management
Ralf Hoffmann
China is undergoing a rebalancing of its growth model. In the process, real GDP
growth has started to decline and the economy is gearing for a higher share of
domestic consumption and services and a lower share of investment. As a
consequence, the composition of Chinese commodity imports is likely to
change, with a slowdown in the demand for base metals and oil for instance,
and an increase in the demand for foodstuffs and natural gas.
What does this mean for Latin America? Latin American countries are among
the top suppliers of commodities to China, and, in turn, China is a key market for
them. Venezuela, Cuba, Peru, Brazil, Uruguay and Chile sell between 15% and
25% of their exports to China, outstripping the Latin American average of 10%
(see chart below). While Cuba and Brazil have a relatively low export-to-GDP
share, the other four countries are more open to trade and thus more vulnerable
to a drop in Chinese demand growth.
Chile and Venezuela are the economies most exposed to China’s economic
rebalancing given their concentration on copper and oil, respectively, while
Uruguay is likely to benefit the most as a food exporter. Brazil and Peru are
intermediate cases since they – to different degrees – ship both types of
commodities, namely soya beans and fishmeal in the “favoured” group, and iron
ore and copper in the “less favoured” group.
Latin America: Exposure to a slowdown in exports to China
45%
1
BO
40%
PY
35%
Exports as % of GDP
March 26, 2015
China rebalancing: Blessing
and curse for Latin America
MX
30%
EC
25%
CL
VE
CR
PE
LatAm
UY
20%
DO
15%
AR
CO
BR
10%
PA
5%
CU
0%
0%
5%
10%
Exports to China as % of total exports
Sources: IMF DOTS, IMF WEO, UNCTAD, Deutsche Bank Research
15%
20%
Colour code: Main export category to China
Food & agricultural commodities
Metals, ores & gold
Fuels
Manufactures
Mixed
25%
China rebalancing: Blessing and curse for Latin America
Latin American exports to China
skyrocket
2
China’s rapid economic growth over the last decade has been heavy industrycentred and reliant on natural resources imports. By value, China is the world’s
largest consumer of iron ore, copper and soya beans. Thus, commodityexporting countries – including those in Latin America – have benefited from
Chinese commodity demand and related high prices. Especially the southern
part of the continent with its vast natural resources has been a perfect match.
USD bn
100
80
60
40
20
CL
VE
PE
MX
AR
CO
2013
2014*
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
BR
China has quickly developed into a major export market for Latin America
others
Latin American exports to China rose from USD 11 bn in 2003 to almost USD
106 bn in 2013 (chart 2). This pushed up China’s share in Latin American
exports nearly tenfold in that period, while the share of the US declined (chart
3). Emerging Asia (including China) became the second most important export
partner for the region after the US in 2012, overtaking the EU, which now
occupies third place.
*2014: Jan-Oct
China is No. 1 export market for Chile, Uruguay and Brazil
Sources: Deutsche Bank Research, IMF DOTS
nd
Shift in trading patterns
3
LatAm export destinations, % of total
100
90
80
70
60
50
40
30
20
10
0
For Latin America as a whole China is the 2 most important market after the
US, taking up 10% of the region’s exports (chart 4). Chile, Uruguay, Brazil, Peru,
Cuba and Venezuela have a higher-than-average export share vis-à-vis China
(chart 5). For the first three countries, China is actually their No. 1 market
worldwide. Among countries with a smaller-than-average share of exports to
China, Colombia stands out and is rapidly catching up towards the regional
average (chart 6).
Countries with high export exposure to
China
00
02
04
06
08
10
12
5
Countries' export shares to China
Countries' export shares to China
30%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2003
25%
US
China
Emerging Asia (other than China)
EU
Latin America & the Caribbean
Rest of the world
20%
15%
10%
5%
Sources: IMF DOTS, Deutsche Bank Research
0%
2003
Ranking of export partners
4
Share in total exports, 2013
No. 1
No. 2
2005
CL
PE
LatAm
2007
2009
2011
UY
CU
Sources: IMF DOTS, Deutsche Bank Research
Argentina
BR
21%
CN
7%
Bolivia
BR
33%
AR
20%
Brazil
CN
19%
US
10%
Chile
CN
25%
US
13%
Colombia
US
32%
CN
9%
Costa Rica
US
38%
NL
7%
Cuba
CA
16%
CN
15%
Dom. Rep.
US
39%
HT
16%
Ecuador
US
45%
CL
10%
Mexico
US
79%
CA
3%
Peru
US
18%
CN
18%
Uruguay
CN
22%
BR
17%
Venezuela
US
34%
IN
16%
Latin America US
39%
CN
10%
Countries with smaller export exposure
to China
2013
BR
VE
2005
2007
2009
2011
6
2013
LatAm
CO
AR
PA
CR
BO
DO
EC
MX
Sources: IMF DOTS, Deutsche Bank Research
Sources: IMF DOTS, Deutsche Bank Research
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| March 26, 2015
Research Briefing
China rebalancing: Blessing and curse for Latin America
Exports to China are disproportionally based on commodities
Latin America has a relatively diversified export structure: 44% of its exports to
the world are manufactured products while 56% are commodities (although for
South America the share of manufactured exports is lower at 24%) (chart 7).
However, only 8% of Latin American exports to China are manufactured goods.
Within the commodities group, exports to China are heavily dominated by
metals, ores, and agricultural products.
Overall Latin American exports are relatively diversified ...
... but not so much in terms of exports to China
Composition of exports to world, %, 2013
Composition of exports to China, %, 2013
Latin America
South America
Central America*
Caribbean
AR
BO
BR
CL
CO
CR
CU
DO
EC
MX
PA
PE
PY
UY
VE
22%
0%
Food &
agricultural products
14%
20%
20%
44%
40%
Ores, metals & gold
60%
Fuels
80%
Latin America
South America
Central America*
Caribbean
AR
BO
BR
CL
CO
CR
CU
DO
EC
MX
PA
PE
PY
UY
VE
100%
Manufactured goods
30%
0%
Food &
agricultural products
20%
41%
40%
Ores, metals & gold
7
20%
60%
Fuels
80%
8%
100%
Manufactured goods
* includes Mexico
Sources: UNCTAD, Deutsche Bank Research
Chinese growth model rebalancing will change its commodity demand
Chinese growth slows down
8
yoy
12
11
10
9
8
7
6
5
08
09
10
11
12
13
14
15
Real GDP (quarterly)
Avg. 2005-2014
16
In the wake of the global financial crisis, China’s economic growth has declined
markedly, from 12% yoy in Q1 2010 to 7.3% in Q4 2014 (chart 8). At the same
time, China has started to steer a change in its economic growth model, away
from investment and commodity-intensive production and towards domestic
1
consumption and services.
The IMF estimates that China’s new growth model will trigger a change in the
composition of the country’s commodity imports. While the consumption of
commodities on a per capita basis will continue to increase across the board,
given the large scope to catch up compared to more developed economies, the
demand for some commodities will rise more slowly than for others. For
example, demand for some base metals such as copper or iron ore, very basic
staple foods (e.g. rice), crude oil and coal will grow at a slower pace. On the
other hand, demand for some metals such as aluminium and zinc, protein-rich
2
agricultural products and natural gas is likely to accelerate.
Sources: IHS Global GmbH, Deutsche Bank Research
1
2
3
| March 26, 2015
Dorrucci, Pula and Santabárbara (2013).
IMF (2014), pp. 36-40.
Research Briefing
China rebalancing: Blessing and curse for Latin America
Along the lines of continued rapid urbanisation, rising disposable incomes and
changes in eating habits, the United States Department of Agriculture (USDA)
projects that China’s trend of soya bean imports, mainly used as animal feed,
will rise rapidly over the next decade. The USDA expects a rise in China’s share
in global soya imports from currently 65% to 71% by 2024. Meat imports may
also rise faster, since China’s expanding meat production might not keep pace
3
with accelerating demand. China is also the world’s largest consumer of fish
meal to support its fast-growing aquaculture sector, a trend expected to
4
strengthen with dietary changes in the Chinese population.
Uruguay: A potential winner
10
Agriculture and metal exports depend on Chinese demand
9
% of total exports to China, 2013
% of total goods exports by country that are shipped to China
80%
14%
Soya and other oil seeds
Meat
Other foodstuff
Manufactured goods
Other
VE Crude oil
UY Beef
BR Wood pulp
BR Crude oil
CU Metal ores
CL Wood pulp
UY Soya beans
CL Copper
PE Silver ore
PE Copper
BR Iron ore
PE Fishmeal
20%
CU Sugar
40%
26%
CL Iron ore
50%
BR Soya beans
60%
7%
AR Soya beans
3%
0%
Sources: COMTRADE, UNCTAD, Deutsche Bank Research
Sources: UNCTAD, Deutsche Bank Research
Change in Chinese import matrix holds chances for Uruguay, risks for Chile and
a mixed picture for Brazil and Peru
Chile tops export exposure
11
Exports to China as % of GDP, 2013
Latin America
CL
VE
UY
PE
BR
CO
BO
AR
CR
EC
CU
MX
DO
GT
PY
PA
SV
Single export goods that are heavily dependent on Chinese demand include
soya beans, iron ore, sugar, fish meal, wood pulp, and copper and other metals
(chart 9). Assuming that demand for copper and iron ore declines and for soya
and meat increases, Chile is likely to be affected negatively while Uruguay
(chart 10) and Argentina might be in a sweet spot. For countries like Brazil and
Peru, the picture looks mixed, since their exports to China specialise in both
agricultural products and base metals. According to press reports, Cuba benefits
from an agreement with China that guarantees annual exports of 400,000 t of
sugar, potentially a stabilising factor in future trade flows. Venezuela ships less
than a fifth of its total crude oil to China, but considering that oil is the country’s
main (if not exclusive) export good, the impact is much higher – Venezuelan oil
exports to China accounted for 5% of its GDP in 2013 (chart 11). On the other
hand, the fact that a large part of oil exports to China are tied to loan-for-oil
agreements may result in Venezuela’s oil exports to China remaining more
stable than would otherwise be the case.
0% 1% 2% 3% 4% 5% 6% 7%
Sources: IMF, Deutsche Bank Research
Magdalena Forster (+49 69 910-30664, magdalena.forster@db.com)
3
4
4
| March 26, 2015
United States Department of Agriculture (2015).
World Bank (2013).
Research Briefing
China rebalancing: Blessing and curse for Latin America
References:
Dorrucci, Ettori, Gabor Pula and Daniel Santabárbara (2013). China’s Economic
Growth and Rebalancing (ECB Occasional Paper Series No. 142). Frankfurt
am Main, Germany: European Central Bank.
International Monetary Fund (IMF) (2014). World Economic Outlook: Recovery
Strengthens, Remains Uneven. Washington D.C., USA: International
Monetary Fund.
United States Department of Agriculture (USDA) (2015). Agricultural projections
to 2024.
World Bank (2013): Fish to 2030 – Prospects for fisheries and aquaculture
(World Bank Report Nr. 83177-GLB). Washington D.C., USA: The World
Bank.
Country key
Argentina
AR
Bolivia
BO
Brazil
BR
Chile
CL
Colombia
CO
Costa Rica
CR
Cuba
CU
Dominican Republic
DO
Ecuador
EC
Guatemala
GT
Mexico
MX
Panama
PA
Peru
PE
Paraguay
PY
El Salvador
SV
Uruguay
UY
Venezuela
VE
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