It has also prompted an impassioned debate about how the region’s governments should react to the emerging influence of China. Instead of confrontation, suicidal competition or the protectionism of the past, Mexican foreign minister Luis Ernesto Derbez is proposing a strategic alliance that will involve the combined 1.8 billion people living in the two regions. Over the long term, his plan would benefit both Latin America and China by letting them share in the bonanza.

Derbez, who calls himself an “admirer of China,” is staking out his position at a difficult time for Mexico: Chinese exports are displacing Mexican goods in the U.S. market, and Mexico’s trade deficit with China hit US$9 billion in 2003.

Below are excerpts from Derbez’s speech during a conference entitled “The Emergence of China: Opportunities and Challenges for Latin America and the Caribbean,” that was held recently at IDB headquarters in Washington, D.C.

Vision of the future. If we look at China as a rival, as a competitor, the challenge in terms of the work force is tremendous. We must figure out how to be productive enough to stand up to the competition China represents. But we are competing with more than just their work force. China also represents technology and development. It’s a country that is capable of attracting foreign investment and developing priority sectors over the long term.

Mexico and Latin America as a whole must have a strategy for the future.

We don’t want to pick sectors where we already know we’ll lose, sectors in which China’s work force gives it a fundamental advantage. Instead, we must seek out areas in which geographic location or technological development is key. We Latin Americans must make an effort to get involved in this process in order to get at the abundant wealth China offers, but as partners, not rivals.

If China’s middle class today comprises some 300 million people with a per capita annual income of US$5,000 to US$6,000, we can conclude that it offers a market for all of Latin America, not just competition.

Like many Latin American countries, China also has a vast agricultural base, in this case consisting of approximately 700 or 800 million people working in this area. As the country develops, farmers will not want to continue working in this sector, as has happened in some of our countries as well.

We need to put topics like this on the table. To think about ways to combine our agricultural sectors in order to satisfy the needs of China’s markets over the long term. Brazil, whether on its own initiative or by chance, has been able to do this and is now exporting on a large scale, as is Argentina. In Mexico we have not had the vision or the interest to do so.

Partnerships and policies. China and Mexico are competing for the same markets. The question is not whether Mexico is losing the U.S. market, but rather how we can establish a strategic relationship with China to penetrate that market together. We must select and define sectors in which we can work together without displacing Mexico or Latin America. The FTAA (Free Trade Area of the Americas) will play an important role in this partnership.

If Latin America becomes an integrated area entitled to preferential treatment, we would have enormous advantages as a group, even if we are competing with China. We would have a preferential market with rules for everyone.

We also need to think about policies. What institutional changes are taking place in China since it joined the World Trade Organization? What sectors are going to suffer as a result of institutional adjustments, and what opportunities will these adjustments offer for trade with Latin America?

Mexico needs clear industrial development policies that adapt features we can use in these strategic alliances. China is developing technology and incentives for the future. We should not be afraid of industrial policies. We need stability and we need to be careful with the tax system, but we also need to look at what incentives will make industry and business competitive.

Mexico–China. Many Mexican business executives already understand that they must invest in China with Chinese partners and invest in Mexico with those same partners. Then they can go after the U.S. market together, using the advantages of the FTAA. We are developing three-way businesses between Mexico, China and the United States, and the participants have begun to understand what globalization of trade means and how to establish a structure that benefits everyone.

What have we discovered about our partnership with China? That there are sectors in which we are not going to compete, and others in which we complement each other.

We recently signed an agreement with the tourism sector to attract tourists from distant locations to Mexico. Our estimates suggest that tourism could increase by 500,000 to 1 million people a year. This will require strategic partnerships in such sectors as airline transportation. A new agreement has established a relationship between Chinese and Mexican airlines in order to be prepared for this potential increase in air traffic.

In the maritime transportation sector, we need logistical support to handle products arriving from China on their way to the United States. This will require investments and partnerships.

In the martial arts, you use your opponent’s strength to make yourself stronger. Mexico and China have put together a binational commission to promote discussion of all the institutional aspects of our strategic partnership. We believe we can develop a multi-model program for our countries to make regionally focused investments.

Mexico already has the FTAA, which promotes markets and strategic partnerships in industries with which we can come to an agreement. This is the way to go. This is the way to look at Asia and China in general, and it is the focus that Latin America must understand.

When we have 500, 600 or 700 million people as our strategic partners, we will work together and get to know each other. We will be able to move ahead on a large-scale basis. To lament that China may overtake us, or that they play clean or play dirty, is a reflection of our inability to see what is best for our countries. It shows that we are unable to promote the process of structural change and competitiveness that will enable us to attract partners that offer us the opportunity to grow. They knew how to do it, because 20 years ago they weren’t where they are now. Let’s take this as a lesson, make the most of it and forge ahead.

Questions? Comments? Suggestions? Please write to editor@iadb.org