China’s Changing Consumer Demographics and the opportunity for Latam

Up Front

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China’s demand for bulk hard and soft commodities have had an undeniable impact on Latin America. From Brazilian iron ore to Chilean copper to Argentinian soy, China’s sustained growth, rapid urbanization, and large population have created a near omnipresent demand for these resources; China is reshaping global agriculture. Alejandra Marinovic, international economist at Chile’s Adolfo Ibáñez University notes that this is a result of China’s success:

“A sustainable rate of growth in China, oriented to internal consumption and local investment, strengthens and stabilizes the demand for commodities like copper. However, it opens up other areas, such as - for example - the export of food."

Marinovic points to an aspect of the Chinese market that many overlook. The current impact – and the larger opportunity – of China’s ever growing middle class is the most important market for smaller and specialty producers from the Latin America. From organic food, to fine wine to high-end consumer goods, China’s rapidly evolving consumer demographics are forcing Latin American producers to rethink supply lines to cater to increasing demand from the world’s second largest economy.

McKinsey estimates that by 2022, 75% of China’s urban households will be middle class. That is an estimated 270 million households or 550 million consumers within the income range of $9,000 to $34,000 per year. Of those, 167 million household or approximately 400 million individuals will be what the McKinsey calls “new mainstream” consumers with disposable incomes between $16,000 and $34,000. Boston Consulting Group anticipates these will provide an increased demand for “healthy and organic food, apparel made from natural products(such as cotton and linen), energy-saving electronics, and natural skin care products.”

The U.S. and European markets cannot be ignored. But the opportunity provided by an increasingly affluent and discerning middle class in China means Latin American producers of everything from liquor to fresh fruits and vegetables, to high-end beef need to recognize China for what it has the potential to be: their primary export market. A major limitation has been the distance and the cost associated with shipping fresh produce from Latin America to China, but as technological advancements increase, produce is moving from being flown to being shipped, significantly cutting transportation costs. This week, the Dundy Star arrived in Shanghai from Chile, carrying a 4,000-tonne shipment of blueberries, cherries, nectarines, grapes and plums and making headlines: 智利鲜果“包船”来沪 全国首艘混装水果冷藏船入境

But while many are tempted by the potential of China’s market, even behemoths like Amazon have been stumped by the challenge. China’s size and complexity requires a sophisticated strategy to effectively break into the market. While the temptation exists to rely on online platforms such as Alibaba or JD, such as passive approach does not guarantee success in an increasingly crowded and competitive marketplace. While export promotion agencies – such as ProChile and their successful Chile Week – play an integral part, their bandwidth can be limited, and priorities can change according to change in administration or political shifts.

Chile has been successful because the public and private sector has taken a proactive approach to engaging distribution channels and consumers. And the results are clear across a range of products. And Chilean fresh fruit exporters are not resting on their laurels, looking at consumer markets in Japan, Korea, and even India as growth markets.

But other specialty segments and other countries in Latin America are not keeping up, and missing out on the potential of the Chinese middle class. The need to get on board before that ship – like the Dundy Star – has sailed.

Top Stories

Chile anuncia que tres firmas invertirán US$ 754 millones en industria vinculada al litio — Economía y Negocios
Valor agregado y divisas ofrecen tres empresas por el litio chileno — Publimetro Chile
SDI, Posco land Chile lithium bid — JoongAng Daily
Chile says companies to invest $754 million in lithium industry — Reuters
It’s Chile’s Molymet and China’s Sichuan Fulin Industrial Group, a South Korean joint venture between Samsung SDI Co Ltd and POSCO. Chile’s Economic Development Agency (CORFO) finally came out with it’s announced winners for creating value-added industries on the lithium supply chain in exchange for guaranteed lithium supply. The groups are expected to invest $754m, and are expected to be ready to produce 58,000 tonnes of high-end cathode a year in two years. We haven’t seen comment from Elon Musk.

传杉杉股份等中企竞购SQM股权 中国锂电产业涉足海外 — Caijing
Chile insta intervención en oferta de Tianqui por cuota de SQM — Teletrece
Chile pide a autoridad antimonopolio bloquear ofertas chinas por participación en minera SQM — Swissinfo
Corfo pide a la Fiscalía Nacional Económica bloquear ofertas chinas por participación en SQM — Economía y Negocios
Chile files complaint to block sale of SQM shares to Chinese companies — Reuters
EXPLAINER-Chile attempts to block China from prize lithium asset — Reuters
But it’s not just smooth sailing for Chinese companies in the Chilean lithium markets. Also on Friday, CORFO filed a complaint with antitrust regulator FNE to block a late-2017 “non-binding” offer by Tianqi Lithium for Nutrien Ltd’s - formerly Potash Corp of Saskatchewan - 32% stake in SQM. The offer was more than 20% over market value. Tianqi already owns a 2% stake in SQM, and Nutrien has to unload its stake thanks to post-merger regulatory requirements. The FNE process is expected to take at least six months.

Both lithium moves by the Chile authorities took place 48 hours before Sebastián Piñera was sworn in as the new president. It’s not yet clear whether the new administration will change tack on these issues. 

商务部:中国不会主动发起贸易战 中美经济对话将继续 — Caijing
Temen acereros nacionales una invasión de acero chino — El Diario de Coahuila
Mexico slaps tariffs on Chinese steel pipe for 'unfair' pricing — Reuters
Soja: Negociação mais direta do Brasil com a China pode ganhar força frente… — Notícias Agrícolas
What’s Behind the Great Trade Skirmish — Bloomberg
Is the trade war getting hot? Mexico has imposed anti-dumping tariffs on Chinese imported steel pipes due to “unfair” trade practices, the same day US President Donald Trump announced plans for tariffs on US steel and aluminum imports. The Mexican duties replace provisional duties imposed last year. Zhong Shan, China’s Minister of Commerce pushes back, saying: "China does not want to fight a trade war and will not initiate a trade war." Looking for a silver lining, Roberto Dumas Damas, an economist at Insper (the old Ibmec), thinks that Brazilian soy exporters can benefit from the fracas by becoming a preferred source for China. And our friend Shannon O’Neil of CFR talks to Bloomberg on the question of a trade war: the short answer is not yet, but it isn't looking good.

Latin America needs an infrastructure upgrade — The Economist
Will China’s Belt and Road Initiative outdo the Marshall Plan? — The Economist
The Economist with a pair of articles from last week and this week on Latin America’s need for infrastructure, and whether China can fulfill that need. The Free Exchange column compares the impact the Belt & Road Initiative can have to that of the US’ post-WWII Marshall Plan. The latter’s impact was significant beyond its dollar value due to the encouragement of capital markets; the free market advocate magazine says "The BRI will have no comparable influence."

Look Out: TPP About to Bring Next Big Trade Wave — Latin Trade
Moody's: TPP-11 impulsará comercio y reformas aún sin EE.UU. — El Comercio
Ministro vietnamita se reúne con pares de Japón, México y Chile al margen de firma del CPTPP — Vietnam Plus
El PIB de países latinoamericanos crecerá por lo menos 1% más con TPP — W Radio
TPP11 — Excelsior
Lección comercial para Uruguay — El Observador
David Parker, ministro de Comercio de Nueva Zelandia: “Chile puede estar orgulloso del rol que jugó en el acuerdo” — La Tercera
TPP-11: ¿Salida de EE.UU. del acuerdo favorece al Perú? — El Comercio
Del TPP11 al CPTPP — El Sol de México
TPP11: Un perdedor que puede ganar — El Heraldo de México
México debe prepararse para incorporación de EEUU al CPTPP — Swissinfo
México celebra acuerdo TPP11 que crea “la zona comercial más grande del mundo” — Diario Digital Nuestro Pais
CPTPP ya perfila su ampliación — El Economista
Chile: Trans-Pacific Agreement will open the Japanese market — Fresh Plaza
A round-up of news on last week’s launch of the Trans-Pacific Partnership. Chile comes in for a deserved victory lap, Uruguay looks on in envy, and winners and losers from the deal are assessed. As we mentioned, other countries are looking at joining the brand-new TPP, including Colombia, Costa Rica, South Korea, Indonesia, the Philippines, the United Kingdom, and Taiwan. We’ll take the under on the latter two, or the US under the current administration.

Diez países más se suman a la agroexportación de productos peruanos este año — Gestión
Exportaciones ubican a Perú como primer país en América Latina en crecimiento económico — People Daily
Cítricos peruanos ingresarán a mercados de República Dominicana y Japón — Perú
Peru is continuing its push for new markets. This year the government expects to begin exporting berries and citrus to India; quinoa to China; mandarin oranges to Japan; avocados and citrus to Vietman; and avocados to Korea, Thailand and the Philippines. The National Agrarian Health Service (SENASA) says to expect the Japan deal as soon as May.

China-LAC

Down but not out: Chinese Development Finance in LAC, 2017  — The Dialogue
Our friend at the Inter-American Dialogue have the most recent update to their China-Latin America Finance Database. There was a steep decline in policy lending to Latin America to $9b over eight loans from $21.2b over nine loans last year. The headline figures are below - note that almost all the lending to Brazil was in the energy sector - but the report is worth reading in full.

Dialogue China-LAC Fin DB 2018.png

Bank of China obtiene permiso final para operar en Chile — La Tercera
Segundo banco chino recibe permiso definitivo para operar en Chile — Diario Financiero
Bank of China authorized to operate in Chile -regulator — Reuters
Chile’s SBIF banking regulator has given Bank of China the go-ahead to begin operations, joining China Construction Bank which has been there since mid-2016.

膜拜单车进入智利首都圣地亚哥,正式落地南美洲 — Tencent
Fresh off its launch in Mexico City, Mobike is out in Santiago. 

In Chile, a Billionaire Takes the Reins From a Socialist, Again — NYT
A piece on the presidential transition this past weekend in China from Michelle Bachelet to Sebastián Piñera (déja vù). As the article notes, both want to see even deeper ties with China, Chile’s top trading partner, and have pushed against US warnings about China. Says Piñera:

”The relationship with China has been a good relationship, and it is expanding beyond commercial matters, to investment and cooperation in science and technology, environmental issues and several other fronts… China has been gaining ground in Latin America in part because China has been pursuing it and partly because the United States is stepping back.”

China launches mega aid agency in big shift from recipient to donor — SCMP
Supposedly, China is setting up a new aid organization, the International Development Cooperation Agency. It will report to the State Council and according to SCMP "consolidate roles that had been between divided between the ministries of commerce and foreign affairs.” Details are sparse, so we’ll see...

Las nuevas centrales nucleares argentinas made in China — Infobae
A read-out on the two new nuclear power plants (in addition to the three existing one) that Argentina is building over the next five years with China, thanks President Mauricio Macri’s agreement last May. Nucleoelétrica Argentina (NA-SA) is building them with help of China National Nuclear Corporation (CNNC) and its subsidiary China Zhongyuan Engineering Corporation (CZEC). ICBC will providing 85% of the $14b in funding. While Argentina’s fourth nuclear plant — Atucha III — will be built like it’s sisters on the CANDU-6 design from Canada’s AECL, the fifth plant will be a pressurized water reactor based on the model of Hualong I.

Work resumes on UWI's South Campus — Trinidad Express
40 per cent drop in Cave Hill students — Trinidad and Tobago Newsday
Changes at the University of the West Indies (UWI). First, work has resumed on its South Campus, which is expected to be completed this year by local construction companies. This follows the termination of an agreement with China Jiangsu International — which won the contract in 2013 — sometime over the past year. $350m has been paid to China Jiangsu International, with UWI says it is taking legal steps to recover. Also this week vice chancellor Sir Hilary Beckles said UWI will establish a Chinese campus in conjunction with Jiangsu University. He also spoke of a “Japan Initiative” by UWI. 

Minerva Foods exportará carne bovina hacia Israel, China y Chile a finales de este año — La República
José Amaral, country manager for Minerva Foods in Colombia, is bullish (sorry) that his company will export beef to China as well as Israel and Chile this year, despite an outbreak of hoof and mouth disease last year.

Panamá y Chile son dos ejes estratégicos para China — Forbes México
Francisco Cruz, Chile’s Ambassador to Panama, sees the two countries as two strategic axes for China. He says: 

[Chile and Panama] are like-minded countries, with high commercial flows and a privileged bilateral relationship, that can be protagonists in the bringing together [and] proximity… with Asia and its economies across the Pacific.

TLC con China pondrá a prueba a Panamá — La Prensa
Panama Wont Set Deadline for Trade Deal with China — Latin American Herald Tribune
Primer embajador panameño considera "un nuevo amigo" a China, en la que no ve una "amenaza" — Xinhua
A pesar de desconfianza entre EEUU y China, embajador panameño llama a esa nación asiática de esta manera — La Jornada
China and Panama continue their moves to get closer together. Panamanian trade and industry minister Augusto Arosemena is hedging on when exactly a Free Trade Agreement (FTA) between the two countries will be readied, but says feasibility studies have been completed and negotiations should begin by July, in line with previous guidance. Benchmarking a timetable, LATH notes that “the negotiations leading to Panama’s trade accords with the United States and Canada required roughly one year and two years, respectively." 

Ecuador prevé impulsar alianza estratégica con China — El Comercio
Ecuador’s Foreign Minister Carlos Larrea hosted MOFA’s new director general for Latin America and the Caribbean Zhao Ben Tang. Ecuador wants to sign a new Bilateral Investment Treaty (BIT) with China, as well as get help on building a refinery at Manabí.

Crecieron importaciones en Uruguay desde China, Brasil y Argentina — El Cronista
Uruguay XXI says the country is buying more abroad, with imports in the first two months of this year up 15%, to $1.2b. Phones (iPhones?), autos, autoparts, and medicines drove the increase. China remained the largest source, providing $264m worth of goods, 6% above last year.

A República Popular da China não gostou desta viagem de Bolsonaro — Exame
Who would? Although in this case, China’s “indignation” at Jair Bolsonaro is not because of anything he said, but because he traveled to Taiwan, which they see as a violation of the “One China” Policy. 

China importó 412 mil toneladas de acero de América Latina durante enero — Mundo Marítimo
Latin American steel imports in January from China shrink by 39pct YoY — Alacero
Importaciones chinas de cobre caen en febrero — EL Comercio
Is the China juggernaut slowing down? China’s copper imports have dropped a third month in a row, with February figures showing a 20% decrease. China’s steel exports to Latin America in January were also down, but may increase if the US follows though on it’s threatened steel tariffs.

Nidco denies Galleons Passage crew quit — Trinidad and Tobago Newsday
The star-crossed Galleons Passage continues to struggle in its trip across the Pacific to Trinidad and Tobago. The National Infrastructure Development Company (Nidco) had to issue a denial of rumours that the crew had abandoned ship in Shanghai due to safety concerns. Former Transport Minister Devant Maharaj says the initial crew didn’t think the vessel was seaworthy for the Japan-Hawaii leg. According to Fleetmon.com, the vessel is currently in Yokohama - we’ll keep tracking, and hoping it makes it safe.

尹中卿:中国应加强外资引进 不能过早地产业空心化 — Sina
Artigo: As relações entre Brasil e China — Estadão
China plantea su nuevo mapa de ruta — El Peruano
Las dos sesiones de China llevarán nuevas oportunidades a América Latina — Xinhua
Deputy Director of the Financial and Economic Committee of the 12th National People’s Congress Yin Zhongqing; Li Jinzhang, Chinese Ambassador to Brazil; Jia Guide, Chinese Ambassador to Peru; and Minister Councilor Lin Ji at the Chinese Embassy in Mexico see the “Two Sessions” as providing new opportunities for Latin America.

S&P Global Platts: "China será muy cuidadosa con EEUU por la dependencia de su petróleo” — El Economista
Mark Schwartz, director of planning at S&P Global Platts, says that while China would strongly benefit from importing American oil and gas, it will move with caution not to depend on the US. China, the world’s biggest importer of oil, is forecasted to continue increasing demand up to 12 million barrels daily sometime in the next decade.

Japan-LAC

Nissan LEAF, el auto eléctrico más vendido del mundo, llegará a la Argentina — Infobae
Valls, chairman de Nissan: "En Argentina se van a producir 400.000 pickups” — El Cronista
Para Nissan, la Argentina "aún no es competitiva” — La Nación
Nissan LEAF: el auto 100% eléctrico llegará pronto al Perú — Depor
Nissan is pushing hybrids in Latin America. The LEAF is being launched in Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Uruguay, and Puerto Rico. However, in an interview at the LEAF launch, José Luis Valls, president of Nissan for Latin America, notes that while they’re selling in Argentina, they’re not being produced in Argentina. “Argentina isn’t competitive” for autos, he says. But Argentina will keep producing pickups, and Nissan plans to build 400,000 there within two years.

El Toyota FJ Cruiser regresó a Colombia: Características, versiones y precios — Carro Colombiano
Further in Japanese auto corner: the hybrid Toyota FJ Cruiser has returned to being sold in Colombia.

Un japonés presidirá Mazda en Colombia — Portfolio
Finally in Japanese auto corner: Nobuyuki Sato is coming from the Mazda home office to run operations in Colombia. He’s replacing Fabio Sánchez Forero, who ran the brand there for a dozen years.

El embajador de Japón afirmó que para los empresarios de su país "la Argentina aún no resulta confiable” — Infobae
Echoing the concerns from Nissan above, Japanese Ambassador to Argentina Nortieru Fukushima says “Japanese businesses have a great interest in investing, but they are waiting for bigger adjustments in the changes that are afoot.” But he is hopeful the current government will get Argentina to a good place.

Mensaje del Representante Residente — Japan International Cooperation Agency
JICA opens it’s 99th office in Havana, Cuba.

Korea-LAC

Shinhan Bank opens first branch in Mexico — Korea JoongAng Daily
Korea’s Shinhan Bank, known for its corporate financing, just opened its first bank in Latin America. Having chosen Mexico for its expansion into the continent, Wi Sung-ho, CEO of Shinh, said the branch “will offer a base for a broader regional network.”

S. Korean delegation calls for stepped-up cooperation with Chile — Yonhap
The South Korean delegation to Piñera’s inauguration sees the potential for bilateral cooperation on economic issues.

India-LAC

Embraer in talks with several Indian airlines on E-175 jet orders: executive — Reuters
Cesar Pereira, Embraer’s Vice President for sales and marketing in the Asia Pacific, works the crowd at the Wings India airshow, where he talked with Interglobe Aviation Ltd’s IndiGo unit, SpiceJet Ltd, national carrier Air India, Jet Airways Ltd and Vistara about buying E-175 jets. India is the only BRICs country without a significant regional jet fleet, so the opportunities are there.

GCC-LAC

UAE's Mubadala said to seek financing for Brazil gas pipeline bid — Arabian Business
Brazilian Petrobras will be holding several auctions soon, including Transportadora Associada de Gas, a 2800-mile network that spans ten Brazilian states. Sources say Goldman Sachs is planning to finance UAE’s Mubadala Development and EIG Global Energy Partners ahead of a bid for the network.

Emirates adds Mexico City to its network — Airline Hub Buzz
Emirates volará la ruta Barcelona-México — La Vanguardia
Emirates will begin offering service form Dubai to Mexico City via Barcelona, with full traffic rights between the latter two. The route is rumored to be daily, but its unclear when it will launch.

Brazil team discusses food export issues in UAE — Trade Arabia
Brazilian delegation visits UAE to enhance agribusiness trade relations — Zawya
Brazil’s Ministry of Agriculture, Livestock, and Supply (MAPA) led a delegation to the UAE last week.

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