KEEP LOOKING AT CHINA, BUT ALSO TAKE A LOOK BACK
Home > Business Intelligence > Statistics > Asia - Latin Trade KEEP LOOKING AT CHINA, BUT ALSO TAKE A LOOK BACK AT THE US: DEAN OF WHARTON SCHOOL Asia - Latin Trade 6th May 2015 by David Ramirez Wharton dean’s views on Asia, the US and Latin America The cooling of the Chinese economy may be driving Latin American firms to rethink the value of expanding in that country. However, it may not necessarily be the time to abandon efforts in China, although it may be opportune to look at other geographies in Asia, as well as to seize the opportunities in the US. This is one of the main conclusions of Latin Trade’s interview with Geoffrey Garrett, Dean at the Wharton School of the University of Pennsylvania. Mr. Garrett, Australia born, is a well-seasoned academic with experience in the analysis of international affairs, among others. He currently is member of the New York-based Council of Foreign Relations and comments and writes for major media outlets and specialized publications on global business, economics and politics. It does not seem to be the best time to do business with China. How do you think Latin America shall react to this trend? First, slower growth in China is essentially not bad, if it is smooth and if it drives the economy into a more domestic consumption-driven pattern. This will allow the country to hold the largest middle class in the world in the long term, with the enormous potential that this represents. A second factor is that the recent slight real appreciation of the renminbi has meant more outward investment all over the world. In 2014 for the first time, Chinese investment overseas exceeded inward foreign investment. Energy-related investments will continue, no doubt, but there are other areas, such as real estate, which is done by individuals, so it does not depend on corporate decisions. How do you think Latin America can make business with China outside energy-sector commodities? Part of the answer is on what the Chinese middle class is buying. No matter what product (cars, clothing), they care a lot about the brand, so exporters have to redouble efforts to differentiate themselves when it comes to selling manufactures. But exporters also have to try to move from manufacturing goods into services, although observing some restrictions prevailing (for example, in the financial sector). A third area to seize is tourism; Latin America’s exotic scenes can attract Chinese tourists. Although Chinese investment in domestic infrastructure is not comparable to the peak it reached from 2008, this sector will keep expanding, thus bringing opportunities. Another key sector we must not neglect is the potential for exporters of high quality food–highend fruits, vegetables, meat. Some Latin American countries are already taking advantage of this potential. To many business people in the region, doing business in China is still challenging. Game rules can change unexpectedly and there are complaints about the quality of Chinese products. What is your take on this? My view is that President Xi Jinping is consolidating a lot of power and there may be doubts about what for. So there will always persist some degree of uncertainty. As to product quality, it is more arguable. Take Apple, for example, a fine product assembled in China. Where else shall Latin America look in Asia, beyond China? The focus for opportunities is not only China. There is a bigger picture, principally in countries like Indonesia and India, whose enormous populations constitute a promise of a bigger middle class in the future. It will require time and effort for these nations to develop and clearly India is much more a complementary economy to Latin America than Indonesia would be. The similarities with Indonesia may become a limitation for trade with the region, just as it happens nowadays, for example, with Australia, which is more of competitor for countries, such as Chile and Brazil. What would be the approach to strengthen relations with Asia? China is outside the Trans Pacific Partnership (TPP), whereas the Chinese government is in a proactive diplomatic mode that appears to have forced others, such as Japan and South Korea to follow its steps. The TPP may acquire a broader concept. The US may be expecting to include China in the TPP later in the future, although it certainly remains to be seen if China–now a significant economy in the world context–will be willing to come to the partnership later in the game. Anyway, it is positive that Chile, Mexico and Peru join the TPP. We have focused in talking about Latin America and Asia, but what about the region’s relation with the US. It seems to have taken some political distance for some time now. There has been a disconnection between economics and politics between the US and Latin America. The democratization of the region has not brought about closer ties to the US, but the private sector has been increasing its business in the region. It is possible that a normalization of relations with Cuba could mean a political return of the US to Latin America and in fact boost bilateral relations. In the meantime, Latin America shall keep looking at the US because its economy is gaining strength. Finally, talking about the region’s democratization, one of your articles ten years ago referred to relative dismay due to the weakness of institutions and corruption. However, these problems appear to become more widespread. A key factor to consider is that even in stable democracies there can be frustration with effective leadership, be it because expectations were set too high at the beginning of an administration, or because the environment (in which governments operate) is extremely difficult. You also have cases of countries with one-party democracies in which corruption is not a problem, such as Singapore, or others where it may be rife. In other words, the political system does not determine the levels of corruption. REGISTER TO OUR SUBSCRIBE TO LATIN SUBSCRIBE TO LT.COM EVENTS TRADE MAGAZINE Click here to begin a subscription for Latin Trade magazine, available both in print and online. Click here to begin an online subscription to LT.com, with its extensive ranking, indices, and market intelligence on Latin America. SUBSCRIBE SUBSCRIBE Take a look at and register for our signature events, including Trade Americas, Latin Trade Symposium, and the Bravo Business Awards. 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