KEEP LOOKING AT CHINA, BUT ALSO TAKE A LOOK BACK

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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.
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