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Speeches

Oct 21, 2010

Chengdu CHINA-LAC Business Summit

President Luis Alberto Moreno
Chengdu, China - Thursday, October 21st, 2010

As prepared for delivery final draft

  • Your Excellency Vice Chairman of the Chinese People's Political Consultative Conference, Bai Lichen;
  • Chairman Wan, President of the China Council for the Promotion of International Trade;
  • Governor Jiang of Sichuan Province:
  • Vice Governor Ma of the People’s Bank of China;
  • Distinguished Latin American and Caribbean ministers, speakers, entrepreneurs and guests;
  • Dear Japanese and Korean guests,
  • Dear Executive Directors and colleagues from the Bank
Huan Ying, Youkoso, Hwangyong-Hamnida, Welcome, Bienvenue, Bem vindo, Bienvenidos!
  • When Christopher Columbus arrived with his expedition in 1492 to the Americas, China was then the oldest, largest, and richest civilization in the world.
    • The emperors of the Ming dynasty (1368-1644) presided over a vast and stable centralized bureaucracy. Its command of science and technology far exceeded that of Europe.
    • A strong agrarian economy ensured that its inhabitants were better provided for, than those of any other society on earth. Chengdu was, in fact, already known as the "Storehouse of Heaven" because of the agricultural wealth of the Sichuan province.
       
  • By 1820, Britain was emerging as the world’s first modern superpower, Asia accounted for more than one third of world GDP, while Latin America was still a dot on the map, with less than three per cent of the world GDP.
  • Today, Asia is once again setting the pace for change. GDP per head has more than doubled since 2000 and, according to the IMF, accounted for more than half of world growth over the past three years.
  • The emerging markets are leading the way forward, in a way few would have thought possible only a few years ago.
    • Within three years, for the first time, the economic firepower of emerging markets will overtake the developed world – measured by purchasing power parity. It’s a defining moment in history.
    • While China can expect to reach nearly ten per cent of growth, Latin America & the Caribbean is likely to grow by slightly under six per cent this year,

1. TOWARDS A “LATIN AMERICAN DECADE”: A SYNOPSIS OF OUR REGION

LAC’s gains and positive track record 
 

  • Latin America & the Caribbean has coped successfully with the world financial crisis; financial, monetary, and fiscal institutions are much sounder than two decades ago; the natural resources in demand around the world are abundant in our region; and social policy mechanisms are more efficient.
  • Our region faces the next decade not from the perspective of dealing with a financial or social crises, but with the assets to face the --good-- challenges -- those associated with sustainable growth and development.
  • After decades of macroeconomic imbalances, a broad political and social consensus has been built around price stability and the need for responsible fiscal and monetary policies, and sound financial systems.
  • New political and social institutions have improved the governments’ capacity to support human capital development and to offer social safety nets for low-income families.
    • Although Latin America & the Caribbean has traditionally had the widest social inequalities of any region in the world, that range has narrowed in the last decade in most of the countries, thanks to efforts to increase and target social spending for low-income families.
  • The medium-term outlook for us is indeed very promising. While acknowledging the diversity of economic and political conditions from country to country, one can say the Latin American region is one of the emerging regions best prepared to benefit from the decade ahead.
  • The majority of our economies are opening to the globalized world, supported by sustainable macroeconomic management and responsible fiscal, monetary, and social policies.
    • However, let’s not underestimate the fact that one of our main pending challenges is to complement these gains with increases in productivity that ensure quality jobs and sustained and sustainable growth.

2. TOWARD A SUCCESSFUL AND SUSTAINABLE ASIA-LAC RELATIONSHIP

LAC ASIA: The decade long take-off in numbers 
 

  • We are gathered here at a place that has truly been at a crossroad of history. It’s with humbleness and certain optimism that we are witnessing that the world’s trade routes are now changing direction and heading --South-South--.
  • This new ?Latin American Decade? should be built in part on the increasing relationship with Asia. Between 2000 and 2009, Asia’s share of Latin American trade has more than doubles from 9 percent to approximately 20 percent.
    • This booming trade, driven by countries such as Japan, Korea and Chinas has led Asia to overtake the European Union among the region’s top trade partners, and to be the second one to the United States.
    • Investments flows have also been showing strong dynamism and greater diversification than trade flows, covering areas as diverse as mining and manufacturing.
  • This growing integration with Asia is being strengthened and consolidated by the first building blocks of an institutional framework capable of reducing investments and trade costs.
    • Japan has signed a free trade agreement (FTA) with Mexico and his negotiating with Peru. Korea has FTA with Chile and negotiating with Mexico and China has FTAs with Chile, Peru and Costa Rica. More FTA’s are being negotiated. 
  • Among the region’s relationships with Asia, China clearly stands out for the speed with which trade flows were built. In the space of ten years, two economies that barely traded, let alone exchanged investments, have become major trade partners.

Reasons behind the take-off

  • The surge in Asian demand for Latin American’s exports helped a number of countries in the region to turn around their economies and resume growth, consolidating a recovery that had been initiated by more than a decade of market oriented reforms and sounder fiscal and monetary policies.
    • Asian contribution to the region’s growth went beyond the direct impact of exports and was also felt trough its contribution to the growth of the world economy.
  • Asia’s growing importance to the region’s growth became particularly evident during the recent financial crisis and ensuing worldwide recession.
    • The effectiveness of some China’s countercyclical policies was immediately felt in the region, providing a much welcomed counterbalance to the slump in the US and European markets.
       

3. THE OPPORTUNITIES AHEAD: ASIA AS AN ESSENTIAL PARTNER IN LAC’S DEVELOPMENT

Trade and Investment: Beyond Commodities

  • In the third century before Christ, the powerful Qin's conquered all of China, and in 221 before Christ Chengdu was established as the capital of their empire. People have lived in Chengdu for almost 4000 years, making it a historic city believed by some to be the oldest established city in the world.
  • The economic shift, I have been describing, is creating a new middle class. In 2000, the emerging market middle class numbered 250 million people worldwide. By 2030, it will be 1.2 billion.
  • All of this has implications for any industry that relies on consumers. China has become the second-largest luxury goods market in the world, consuming 25% of luxury goods. China already has more millionaires than the United Kingdom – and the average age of those millionaires is an enviable 43, according to HSBC.
    • Just like with Japan earlier on, as their income rises Chinese and Korean consumers are becoming more health-conscious, environmentally-sensitive and brand-oriented.
    •  There is uniqueness in every market and Asia has a scale that is unparalleled. Latin American entrepreneurs must therefore acknowledge that quality is increasingly a critical consideration.
  • These phenomenon entail untapped opportunities for our goods and services, especially high-quality ones: from our natural and unique grass fed beef, renowned wines, and specialized coffees to the high-quality services of our architects and engineers, both Asia and Latin American & the Caribbean stand to gain from more trade between them.
  • Simultaneously, Foreign Direct Investment from Asia in Latin America continues to expand, especially in areas such as manufacturing, energy and transportation.
  • The Chinese market has already recognized this dynamic:
  • while Chinese companies are producing cars in Uruguay, Chilean architects are selling anti-seismic architectural services to China;
    • while Chinese companies are investing in Brazil’s energy sector, Mexican companies are producing consumer goods and pastries in China geared to the local market;
    • while Chinese companies are investing in Argentine rail transportation, Brazilian companies are developing highly sophisticated aircraft components, in China, geared towards the entire Asian markets;
    • while Huawei is increasing its investments in telecommunication services in Costa Rica, companies located in this country are exporting highly value added technological products to China, running a significant trade surplus.
  • Services could also be an immense area of opportunity. There is an increasing interest in the tourism industry, posing significant economic opportunities for both regions.
    • In 2009 alone, there were 47.66 million Chinese tourists visiting locations outside China. And we encourage them to visit Caribbean resorts.
  • Latin America and the Caribbean also represent an important logistical platform into the US and other markets.
    • Countries such as Panama, Mexico and others in the Central American and Caribbean Region are significant locations to develop trade and investment platforms to target markets in the western hemisphere.
  • In addition, there are interesting prospects for investment in the development of Base of the Pyramid markets.
    • The Base of the Pyramid market in Latin America and the Caribbean is composed of 70 percent of the population—that live on less than US$300 per month.
    • The size of the market is $500 billion per year and remains largely untapped, with huge unmet demands for price-conscious-high- quality goods and services.
  • Events like the 2010 Chengdu CHINA-LAC Business Summit represent a unique venue to generate new opportunities, to better understand our business and consumer cultures and thus to encourage more trade and investment between the two regions across the Pacific Ocean.
    • The Bank is committed to keep on playing a role as key facilitator in this process.
Green growth: opportunities for innovation and know how
  • Green growth will be one of the top drivers of innovation and productivity in the years to come. From this perspective, Asia already leads the world in clean energy investment, showing how growth and sustainability are not contradictory.
    • In 2009, according to the Pew Charitable Trusts, China surpassed the US and other members of the G20 for the first time as the leader in clean energy investment. Last year clean energy investment in China totaled $34.6 billion, compared with $18.6 billion in the United States.
  • We have much to learn from Asian knowhow and policies in high-speed transportation systems, smart power grids, and efficiency.
    • But, on the other hand, we also have plenty to offer to Asia in terms of innovation and know-how in another key area of Green Growth: Sustainable agriculture and conservation.
  • Brazil is a significant example: over the past 30 years only 20% more land has come into agricultural use but production has risen by 150%.
    • Brazil was a net importer of food in 1973; according to some estimates it is heading to become the largest global exporter of agricultural products by the year 2020.
    • At the same time, Brazil is drastically pushing forward strong sustainability measures, especially to protect the Amazon jungle. As a result in 2008-2009 the deforestation rate of the Amazon recorded the lowest level in two decades.
  • There is significant accumulated know-how in Latin America on highly efficient sustainable agriculture techniques; and the pace of innovation keeps accelerating.
    • Embrapa, Brazil’s agricultural research institute, has now the World’s only laboratory deploying nanotechnology for agriculture; Braskem, a Petroquemical Brazilian firm, is about to open the World’s first green plastic plant, by developing ethylene from bioethanol. Uruguay has now the most advanced traceability system for the beef industry in the planet, allowing a customer to determine the precise origin of each piece of beef.
  • Sustainable mining is other area where South America has much to offer in terms of know how. Venezuela, for instance, developed advanced techniques to process heavy oil from the Orinoco Basin; without, it would not be possible to take advantage of these resources.
  • But the recent history of commodities in Latin America is not only about raw materials, it is about how to turn natural endowments into strong competitive advantages through innovation and highly effective value chains.
    • There is room for Asia and others to join and take advantage of Latin America’s strong knowledge and technological innovation in these and other areas.

4. THE ROLE OF THE IDB IN PROMOTING THE LAC-CHINA PARTNERSHIP

  • Last year China joined Japan and Korea and became the third Asian member country of the IDB. It was a crucial step in fostering the cooperation between China and Latin American & the Caribbean.
  • This collaboration has been flourishing in significant ways upon the arrival of China as new member of the Bank:
    • Financial cooperation agreements have been signed with several Chinese banks, including the China Exim Bank and the China Development Bank.
    • Several Chinese Banks have joined the IDB’s trade financing program, facilitating the provision of trade finance for export import activities, including the Bank of China and the Agricultural Bank of China.
  • All these efforts are deriving in more trade and business opportunities between the two regions:
    • I want to highlight that, this afternoon, we will sign an agreement for US$200 Million with China Exim Bank in trade financing resources to be managed by the IDB to support trade activities in the region. We are also signing an agreement with China Minsheng Banking Corp for trade finance facilitation.
  • Additionally, we are preparing the potential participation of Chinese banks in large renewable energy and transportation projects, in Guyana, Ecuador and Colombia.
  • We have also established an agreement with Alibaba – the largest electronic trade platform in the World to promote trade in SMEs between China and Latin America, and we are already operating our first program in Peru, with resources from IDB’s Multilateral Investment Fund.
  • Some Chinese companies are already taking advantages of the opportunities to be suppliers of IDB financed infrastructure projects in countries, such as Ecuador.
  • In addition, we have created an equity fund with the Inter- American Investment Corporation, a member of the IDB Group, to promote and facilitate investment and growth in key SMEs.
  • In terms of technical cooperation, we are just announcing an ambitious exchange program between Latin America & the Caribbean and China -to be financed with resources from an institutional capacity fund, provided by China – that will contribute to the acceleration of their mutual understanding.
    • This Program will start in 2011 and consist of exchanges of high level officials of economics departments of the public and private sector, as well as academic exchange that can result in sharing business models, economic development and integration experiences and good practices.
  • Dozens of missions, including high level meetings and events, have been part of IDB’s outreach agenda to strengthening the cooperation ties between the two regions. These have included presentations regarding opportunities of doing business in Latin America & the Caribbean and organization of several events presenting partnerships and business opportunities.

5. FINAL REMARKS

  • In conclusion, all the indications are that this shift in ?South-South” economic power is not some recession-driven blip. It seems certain that emerging markets will not only to drive recovery, but also lead global growth in the generation ahead
  • Nor is this simply a question of economics. This South-South” transference of economic power is increasingly driving a rebalancing of the centre of gravity in politics and culture too.
  • The pendulum will not swing back from this globalised world. We have no choice but to face up to the reality and opportunity that globalization brings, to forge fresh alliances, as today, and work together if we are to deliver economic and social development.
  • The IDB is therefore focused on building its capabilities in trade and openness. In the decade ahead, the ability to support these new “South-South” trade routes will be vital.
    • Those people who have the deepest understanding of both emerging and mature markets will be in the highest demand. - That includes everybody in this room. It’s no accident that we are a near record attendance at maximum capacity-.
Xièxiè, Arigato, Kamsaminda,Thank you, Obrigado, Gracias.


 

 

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