The UN’s Economic Commission for Latin America (Eclac/Cepal) reports that the region attracted a record US$138bn in foreign direct investment (FDI) in 2011. Although China maintained its place as the region’s third biggest external investor, it actually reduced the size of its direct investment in the region in 2011 compared with 2010.
The US accounted for 17% of the region’s 2011 FDI and Holland supplied 13%. China provided 9%, well ahead of both Spain and Canada, traditionally heavy direct investors in the region, which each accounted for 4%. In 2010, according to Cepal, FDI in Latin America had come to US$112.6bn. At 9% of the total, China’s fresh investment in Latin America in 2011 was just under US$12.4bn on Cepal figures. In 2010 Cepal estimated that China invested around US$15bn in Latin America.
China is selective about where it invests. It has invested little in the region’s two biggest economies, Mexico and Brazil where the bulk of Latin America’s FDI traditionally goes. Cepal reports that, during 2011, total FDI in Brazil was US$81.5bn while the figure for Mexico was just under US$10bn. It is worth noting that the Banco de México reports an even lower FDI figure: US$8.04bn, down 53% on the 2007 figure.
China’s big bets are on three Andean countries. Given the small size of the Ecuadorean economy, China was, by the end of 2011 with around US$7bn invested, already heavily overweight in that country, but, as we note inside, it shows little sign of pulling back. China’s involvement with Venezuela is also well known.
The Andean country with which China has had the longest foreign investment relationship, is Peru. China’s experience has been surprisingly successful and Chinese companies are now on course to control 25% of Peru’s copper production by 2020.
China’s first major bet on Latin America’s commodities was its US$120m investment in HierroPerú when that company was privatised in 1993. Despite persistent labour unrest, that investment has proved hugely profitable. Shougang, the Chinese company which bought HierroPerú, timed its purchase brilliantly. It bought when iron ore was fetching US$25.20 a tonne. In 2010 the average iron price was US$100.90 and the Chinese owners have managed to increase Hierroperú’s production from 4.6m t a year in 1994 to just over 6m t a year in 2010.
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