Looking towards 2018, and back at 2017

Up Front

2017 was a year that saw a strengthening of the relationship between Asia and Latin America, both in quantity and quality of the engagement. 

Given the effort the Chinese government is putting behind it, just the soft expansion of the Belt and Road to Latin America in the second half of 2017 will drive big headlines in the New Year. But we wonder how much of any future Belt and Road projects in Latin America are the repackaging of existing plans, as opposed to the development of new markets. We suspect that new investment in Latin America from China will come from new players on a commercial footing, be they in tech, consumer goods, or finance. We will be talking a lot about this in the New Year.

The Belt and Road was not the only move that altered the linkages between the two regions. As we look forward to 2018, here are some of the biggest stories of the past year that will be driving our conversations in January and beyond:

Arguably the biggest headline of 2017 was the establishment of diplomatic relations between (mainland) China and Panama. The announcement in June precipitated an avalanche of agreements and delegations, culminating with the State Visit of Panamanian President Juan Carlos Varela to China in November. Panama is positing itself as a platform for China in the Americas, with Air China starting flights between Beijing and Panama City early next year, and free trade negotiations between the two countries expected to begin soon thereafter. The deal also ended the decade-long “truce” between China and Taiwan on poaching diplomatic recognition from each other. Currently, 11 countries in the hemisphere recognize Taiwan, with the Dominican Republic being the richest and most populous. With informal talks with China around the UN General Assembly, the question remains - is the Dominican Republic next? Or will Paraguay’s soy fields beckon Beijing?

In the M&A realm, the biggest trend this year was the purchase of Brazilian assets; the country becomes more attractive as it (hopefully) comes to the end of it’s ongoing recession. Chinese firms were the biggest purchaser of Brazilian companies, with assets like the Paranaguá container terminal, Dow AgroSciences’  Brazilian corn franchise, and energy distribution assets. Other notable pick-ups included Singapore’s GIC buying 40% of Cruzeiro do Sul Brazilian education company; more recently France’s Engie, Australia’s Macquarie, and the UAE’s sovereign wealth fund Mubadala are all leading consortia to bid on Petrobras’ Transportadora Associada de Gás (TAG). The new year may bring us the continued presence of new players from India, with Sterlite (winner of this month’s $800m auction of transmission lines) joining PowerGrid, Adani, and KEC in the hunt for Brazilian franchises.

Automakers aggressively expanded their presence in Argentina, Chile, Brazil, and Mexico. Chinese brands like Geely, BAIC, BYD, and Lifan all announced new plants or expansions of existing ones. Carlos Slim announced that his Giant Motors and China's JAC Motors will manufacture vehicles in Mexico's central state of Hidalgo. This all echoed the expansion plans of other automakers established in the region — like Korea’s KIA or Japan’s Toyota. But Chery — one of the first in the region — agreed to sell half the equity of its Brazil assets to local player CAOA. Next year will see the continued expansion of automakers in the region, likely with a greater focus on exports within Latin America.

The year also saw the strengthening of new business models vs the old government-to-government driver of Chinese investment in Latin America. Tech drove a lot of growth of Chinese activity in the region. Didi Chuxing began and ended the year with a bang: acquiring stakes — and maybe ownership? — of Brazil’s 99 ride-hailing app, as well as announcing an expansion to Mexico. Huawei has announced that one of the companies’ priorities for 2018 is to expand in Latin America. And Alibaba’s Jack Ma was effectively his own foreign minister, finding agreements with Argentina’s Mauricio Macri and Mexico’s Enrique Peña Nieto to get their country’s goods on his platforms. Deals such as these indicate that the big numbers seen in sales such as Chile Week or Single’s Day will only be increased in 2018.

Geopolitically, the move by the US away from engagement in the hemisphere under the current administration has opened the door for China and other Asian players to ink trade deals with Latin America. While the November revival of the Trans-Pacific Partnership was the biggest deal announced, what may have the bigger impact is the number of deals being pursued. Mexico — looking to get away from NAFTA — is talking with China and South Korea. South Korea in turn has signed Free Trade Agreements with Central America. And Peru signed deals with Australia and Indonesia. Technical deals and updates, including the Chile-China FTA 2.0, the Colombia-Japan double taxation agreement, and South Korea's customs agreements with Peru and Uruguay all deepened pan-Pacific linkages. The biggest question for next year may be what route Mercosur takes. While talks with Japan are ongoing, it’s attitude towards China remains unknown. While Brazil is hesitant (and Paraguay has an FTA with Taiwan), Argentina and Uruguay want a free trade deal. The latter may threaten to go it alone if Mercosur drags it’s feet.

A big change this year was in China’s support for Venezuela. Up until this past year, China was steadfast in its support. But as the crisis in Venezuela has gotten (even more) acute, that support has begun to waver. The Dagong rating agency put Venezuela on it’s negative list, and China has kept it’s distance from Venezuela’s debt restructuring. The tension spilled out into the open this month when Sinopec sued PDVSA in US court over a five-year dispute in which the Venezuelan oil company had failed to make good on a $21.5m payment over steel rebar. A week later they settled, and Foreign Minister (and Chávez son-in-law) Jorge Arreaza travelled to China in an attempt to patch things up. But until Venezuela gets it’s domestic house in order, China-Venezuelan relations are only likely to get worse next year.

Finally, more air links between the two regions are leading indicators of deeper connections in the future. In addition to the Beijing-Panama route, China Southern and ANA announced direct flights to Mexico City, with the latter offering non-stop to Tokyo. Aeromexico also began a new direct flight connecting Mexico City and Seoul in July. Not to be outdone, Emirates launched flights from Dubai to São Paulo on its massive A380s. LATAM inaugurated a flight between Melbourne and Santiago. And Argentina wants to expand Auckland-Buenos Aires flights to give China another route to South America.

Looking to 2018, we have questions over how the bilateral relationship will play out:

  • What is the staying power of Chinese interest in Panama, given the latter's market size?
  • Can Mexico's attempt at it’s own pivot to Asia make up for the US potentially pulling out of NAFTA? 
  • Will Chinese SOE’s continue to struggle with public engagement in the Caribbean and elsewhere? 
  • How will Latin America address it’s need for “decommiditization” in the face of the potential softening of overall commodity demand in Asia? 
  • And the big question: has Trump done enough damage to hemispheric relations to allow China to make more significant inroads with countries that have up to now looked to more to the US like: Chile (with an FTA with the US), Colombia (beneficiary of US support for Plan Colombia), or Mexico (which sends over 80% of it’s exports to the US)?

We will continue to watch these issues, among others going forward. 

In the meantime, the Novam Portam team wishes you and yours a Happy New Year - we look forward to working with you in 2018.

Top Stories

Brookfield Infrastructure Announces Agreement to Sell Chilean Regulated Transmission Business for $1.3 Billion — Global Newswire
Segunda mayor eléctrica china compra 28% de Transelec y debuta en Chile — Pulso
Brookfield vende el 27,7% de Transelec a China Southern Power Grid — La Tercera
China Southern Power Grid has agreed to buy Brookfield’s 27.8% stake in Chile’s Transelec for $1.3b. Transelec is the largest pure-play power transmission company in Chile, with over 10,000 kilometers of electricity lines serving approximately 98% of the Chilean population.

China flerta com projetos novos no Brasil — Valor
Brazil and China due to meet in January to assess support from the Fund for the Expansion of Productive Capacity — MacauHub
Officials from Brazil and China are scheduled to meet at the end of January 2018 to assess eight pre-selected projects to be supported by the $20b Brazil-China Fund. Valor is quoted that the Ferrogrão projects, a railway line linking Sinop, in Mato Grosso to Miritituba in Pará and a steel plant in Maranhão, in partnership with CBSteel, are the most likely to receive financial support from the fund. Additionally, a decision on China Railway Capital and China Railway First Group becoming involved in line 6 of the São Paulo metro should be made in January.

Seis empresas presentan propuestas a Corfo para desarrollar industria del litio en Chile — Pulso
Corfo has announced it’s shortlist for the lithium industry development project in Chile. The companies that made the cut are: TVEL Fuel Company of Rosatom (Russia); Suchuam Fulin Industrial Group (China); Shenzheng Matel Tech. Co. and Jiangmen Kanhoo Industry Co. Ltd. (China); Molymet (Chile); Gansu Daxiang Energy Technology Co Ltd. (China); and Samsung SDI and POSCO from Korea. Winners will be announced next month.

En el 2017 llegaron tres bancos asiáticos más a México — El Economista
The normally staid Mexican banking system saw three new entrants this year: Japan’s Mizuho Bank, Korea’s KEB Hana Bank, and — earlier this month — a second Korean bank, Shinhan Bank.

Argentine port blast kills one, injures others: China's COFCO — Reuters
Directivo de conglomerado de comestibles chino COFCO resalta sinergias entre Argentina y China — Xinhua
Sad end to the year for COFCO, as an explosion at a grains terminal in Rosario, Argentina killed one employee, injured others and affected shipping activities from one of the world’s top food suppliers. In response, Argentine grains inspectors and crushing workers unions are going on strike Thursday to demand better safety. The sad event overshadows an interview last week with Carlos Fuentes Rocha, COFCO head grains trader for Argentina, Uruguay, and Paraguay.

China-LAC

Chineses avançam na fatia de fusões e aquisições estrangeiras no país — Valor
An overview of foreign investment in Brazil in the past year, which Chinese firms dominated. With $10.7b in investments this year, Chinese companies were over one third of the buyers in Brazil this year. Overall foreign investment in Brazil is summed up in the following:

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Delivering world to Chinese sellers — China Daily
A profile of DHgate.com, an ecommerce platform that allows Chinese SMEs to sell to a variety of countries including Per through the establishment of local Digital Trade Centers that help with cross-border trade.

Avanza negociación para exportar aguacate desde México a China — América Economía
Mexico's Jalisco state sees progress in talks to export avocados to China — Xinhua
Experts from China's General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) visited avocado farms in Jalisco to clear them to export avocados to China.

Bahamas Developer Claims Huge Chinese Fraud at $3.9 Billion Resort — Bloomberg
Bahamas businessman Sarkis Izmirlian is suing CSCEC subsidiary China Construction Americas for $2.25b over what he claims are delays and false billing in the long-plagued Baha Mar resort project.

Yearender: LatAm development gets a boost from Chinese initiatives — Xinhua
ARTICULO DE FIN DE AÑO: Iniciativa china impulsa desarrollo de América Latina — Xinhua
Las 10 noticias más importantes de América Latina y el Caribe en 2017 — Xinhua
Round-ups from Chinese state media on the impact Chinese investment has had on development in Latin America and the Caribbean.

China signals interest in building Panama railway — BNamericas
Chinese Tiesiju Civil Engineering Group (CTCE), a subsidiary of state-owned conglomerate China Railway Engineering Corporation, has thrown it’s hat into the ring on building the railway to the Costa Rica border.

China and Mexico: Developing Trade, Investment for the Future — China Briefing News
A dive into how the China-Mexico trade relationship is deepening, and the unique role Alibaba is playing. The piece emphasizes the opportunities that abound:

However, despite the fact that Mexico is China’s largest commercial partner in Latin America, and China is Mexico’s second largest trading partner in the world, both countries have not yet deciphered how to take full advantage of its potential.

Tired of Regional Critics, Venezuela Looks to Russia and China — NYT
An update on Venezuela’s efforts to keep afloat — with the help of China and Russia — while they alienate Brazil and Canada. The article says that China is playing for the long game, which Russia sees it’s points of leverage to gain greater short-term influence over Venezuela.

Crece la expectativa por exportar más langostinos, pescados y vinos a China — El Cronista
Argentina remains excited about the lowering of tariffs that China provided earlier this month.

China e Chile: aspectos da relação sino-chilena a partir de 2018 - Ceiri Newspaper
A brief note from Brazilian think tank CEIRI on what foreign commercial policy to expect from the incoming government of Chilean President-elect Sebastián Piñera. In addition to a focus on China, they expect special attention to be paid to Malaysia and the Philippines.

La soja salvó el examen en China — El Observador
Despite having a "more rigorous” phytosanitary agreement with China than Argentina, Uruguay was able to be competitive on price with its neighbor in their largest export market this year.

La automotriz china DFSK llega a la Argentina — La Voz
Otra marca china llegó al país con cuatro modelos para el trabajo: características y precios — Todo Noticias
DFSK — one of the three largest auto producers in China — has launched in Argentina with four commercial vehicles. They are being sold via Sidequip, a subsidiary of a Macri family holding.

Venezuela ofrece "ubicación geográfica privilegiada" a iniciativa china de Franja y Ruta — Xinhua
Not to be left out, on his trip to China last week Venezuelan Foreign Minister Jorge Arreaza pitched the troubled country as the perfect base for the Belt and Road Initiative in Latin America, given the country’s “privileged geographic location.”

Mapa promove missões internacionais para ampliar exportações e atrair investimentos — Comex do Brasil
Brazil’s Ministry of Agriculture provides an end of year overview of it’s activity, leading with increased exports of beef to China. “President Xi Jinping says he likes and is a poster-boy for Brazilian meat,” says Minister Blairo Maggi.

Exportaciones de Uruguay a China subieron 30 % en último año — W Radio
Uruguayan Ambassador Juan Lugris says his country’s exports to China have jumped 30% since President Tabaré Vázquez traveled to Beijing and Tangshan last year. Overall exports for the region to China are up 30% according to the IADB, so we’re not sure what he’s crowing about.

Expansión: China convierte su apetito  por tierras agrícolas en una prioridad — La Nación
A profile that talks about the impact on Argentina of China’s push for food security by purchasing land around the world.

Puerta comercial entre México y China promete ser más amplia en el 2018 — América Economía
China y México, a punto de iniciar una nueva expedición — Milenio
Observers — including Ambassador Qiu Xiaoqi — see big things for the China-Mexico relationship next year.

El canciller chino llega al país para impulsar acuerdos — Diario El País Uruguay
El arbolito de Navidad que deben armar Uruguay y China — El Observador
Chinese Foreign Minister Wang Yi will be in Montevideo at the end of January to meet with his Latin American counterparts. Uruguay hopes this will be the shot in the arm to begin Mercosur-China FTA talks.

El extraño caso de Taiwán: quiere invertir en la Argentina pero el Gobierno le pone fuertes trabas — Infobae
The chief representative of Taiwan in Argentina, Hsieh Chun-then, says that President Mauricio Macri’s strong interest in closer relations with mainland China is making it difficult for Taiwanese companies to invest in Argentina.

É nos tempos ruins que conhecemos os nossos amigos bons — Valor
An interview with Chinese Ambassador to Brazil Li Jinzhang, who sums up how his country wants to be perceived by struggling Brazilians in the headline: “it’s in bad times that we know our good friends."

China Changyu: vino más vendido del mundo arribará a Chile en 2019 — La Tercera
A profile of the investment by China’s Changyu in the Chilean wine industry.

Colombia y China, a un paso de firmar acuerdo de repatriación de detenidos por razones humanitarias — Noticias Caracol
Colombia y China firmarán tratado de repatriación de presos — El Espectador
Colombia and China are going to sign a deal on repatriating inmates to their home country for humanitarian reasons. This is seen to benefit Colombians in Chinese jails.

Desembarques de soja do Brasil na China sobem 280% em novembro — Terra
Brazilian exports of soy to China skyrocketed last month backed by a record soy harvest and weakened US exports.

¿Invasión china en 2018? Guerra entre fabricantes de móviles — C|NET
Do the moves this past year of Xiaomi and Huawei presage a “Chinese invasion in 2018”? This article conforms to Betteridge's law of headlines: "Any headline that ends in a question mark can be answered by the word no."

Câmara Brasil-China abre unidade em Porto Alegre — Gaúcha Zero Hora
The Brazil-China Chamber of International Development and Commerce (CCDIBC) will open a branch in Porto Alegre to attend to southern Brazil, Uruguay, and Argentina.

‘Competimos contra todos, igual que ustedes’: las voces de las maquiladoras en México — NYT
‘We’re Competing Against Everybody Just Like You’: Voices on Manufacturing in Mexico — NYT
A series of interviews with people in maquila industry in Mexico. Key quote from David Treviño, a production manager at a plant in Mexico City:

If the U.S., Mexico and Canada do not find ways to work together, we will see many U.S. manufacturing companies closing due to the brutal competition from Asia, and China in particular.

CNPC pegs Peru project at US$4.4bn — BNamericas
China National Petroleum Corporation expects to invest $4.4b to exploit oil reserves in Peru's block 58.

Parte hacia Argentina segundo lote de 20 locomotoras chinas — Xinhua
The second group of twenty locomotives built by CRRC Ziyang for Buenos Aires’ suburban San Martín line have left China.

América Latina: 2018 puede reafirmar la sociedad con China y la UE — Huffpost
A piece arguing that in the face of the US’ protectionist impulses, Latin America should turn to China and the EU to become their biggest trade partners.

Korea-LAC

Un TLC con Corea del Sur abriría mercado al sector agroalimentario — El Financiero
Mexico sees the benefit of increased agricultural exports from completing a free trade deal with South Korea.

Japan-LAC

Recurre México al diesel asiático — El Heraldo de Aguascalientes
As Mexico continues to modernize it’s energy sector, it is looking increasingly further afield to meet domestic diesel demand. In Novermber 16.2% of it’s imported diesel came from China, Japan, and even Malaysia.

ASEAN & Oceania-LAC

Singapore's Keppel, Sembcorp Marine Shares Fall On Brazil Woes — Nikkei Asian Review
Shares of Singapore rig builders Keppel Corp and Sembcorp Marine got slammed after Keppel's offshore and marine unit was fined $422m in Brazil’s Lava Jato corruption probe. Keppel has denied the charges, and Sembcorp has not been indicted yet, but investors fear it is next. According to analysts, Keppel's 2017 earnings could be 70-75% lower because of the fines.

India-LAC

Perú: Exportaciones a Asia crecen 48,04% en un año y llegan a US$ 15,595M — América Economía
India is a surprising success for Peruvian exports. Peru’s exports to Asia of $15.6b for the first three quarters are up 48% over last year. Exports to India grew the fastest, with the $1.6b representing an increase of 127%.

GCC-LAC

Colombia inicia exportación de carne bovina a Emiratos Árabes — W Radio
Colombia sent it’s first cargo export of beef to the UAE last week, thanks to a certification by the World Organisation for Animal Health earlier this month that the country was hoof-and-mouth disease-free. “We will continue to look for new opportunities in countries like China and Israel,” says Minerva Foods Colombia manager José Amaral.

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