This edition of LAAR focuses on developments in China's policy towards both the US and Latin America. Potentially, the bid by the China National Offshore Oil Corporation for Unocal signals a major change in Chinese financial policy. Instead of funding the US current-account deficit by buying US Treasury bonds, the Chinese may now start buying US companies. 

This change could have major implications for global interest rates: arguably Chinese and Asian purchases of US Treasury bonds have kept long term US interest rates lower than they would otherwise be. This has enabled the US economy to keep on borrowing and growing.

It is significant that Unocal is an oil company. The US has started to fret about the strategic implications of China's need for more raw materials to feed its manufacturing industry. Some US policymakers fear that Latin America could become the site of a competition between the US and China for these raw materials, notably metals and energy. 

What is not (yet) clear is how this competition will play out: in this edition we analyse an interesting paper, published by the US Army War College arguing that Chinese competition may even complement US policy and encourage political stability in Latin America. 

Latin America is not just a passive site for these geopolitical ambitions. Brazil and Mexico, in particular, are developing their policies towards China in different ways. As we report inside, Brazil's alliance with China has been dented by China's support of US policy on the UN. 

Both countries oppose the expansion of the number of permanent seats at UN Security Council. This means no permanent seat for Brazil. China is not against Brazil getting a seat but it does not want Japan to have one. This development has given new importance to the historically strong links between Brazil and Japan which had been withering over the past 15 years or so. 

Mexico on the other hand is trying to engage more with China. Policymakers here are concerned by the economic challenge China poses, both as regards Mexican exports to the US and Chinese exports to Mexico. Inside we analyse the changes in Mexico's policy towards China. 

We round out our coverage by reporting on Guatemala's attempt to court China without upsetting its long-term ally, Taiwan. Guatemala's initiative is being closely watched by other Taiwanese allies, such as the Dominican Republic, which also want to increase their trade with China.