A midnight stroll through the Jing’an Temple area of Shanghai

As I left my apartment around 12:30am as Wednesday was ushered in here in China, I braced myself for the cold, windy weather which lie ahead.  I was en-route to the nearest convenience store near my apartment in Shanghai to buy a re-charge card for my mobile phone, which has been running through its 100 rmb credit faster than usual thanks to various important incoming calls from the states these past few nights.

New York City (where i’m from), has a cliche saying, “the city that never sleeps.”  Perhaps this is true, in the sense that there are people who love to enjoy themselves into the wee hours of the morning, and therefore there are people who are required to provide services for those that have the luxury of enjoying themselves into the wee hours of the morning.

To be honest, Shanghai isn’t really the “New York City of the East,” which it undoubtedly aspires to be, but it is no less a city that never sleeps.  However, the restaurants and convenience shops are not filled entirely with party-goers seeking a late night snack, but instead with down to earth people from both Shanghai and afar (Chinese migrants, not laowai a.k.a. foreigners), who have worked their friggin a$$ for 12+ hours and are enjoying a decent meal, a few Tsingtao beers or baijiu (Chinese white liquor which packs a serious punch).

As I walked into the convenience store to buy myself a re-charge card for my mobile, and yes, I admit a bag of Lays potato chips (I am very gringo when it comes down to certain things), I gave a “migrant” looking guy a nice ninhao), which is the respectful way of saying hello in Chinese… and something a migrant worker would never expect to hear from a laowai (foreigner).  The store clerks who know me quite well at this point because I’m a frequent customer said their hellos and asked me if I was cold from the weather and strong winds.  I naturally replied that I was and that I was hoping spring would soon come, impressing myself that I was capable of saying such in Mandarin.

As I approached the counter to pay for my chips and re-charge card, this migrant worker (which I confirmed at this point by hearing his utter total inability to speak legitimate Mandarin), whips out a wad of money I estimated at around 3000-4000 rmb.  This is the amount of money a Shanghainese taxi driver earns in a month.  The mere fact he has such money in a giant wad inside his pocket tells me two things.   First, China is a lot like Latin America in the sense the masses are excluded from the main stream banking sector.  If they were not, would this kind migrant worker not save his money in a bank? Second, China’s saving rate is not anywhere near what the West thinks it is.

I don’t believe that this guy was dis-encouraged from saving his money in a bank because of the exact same reasons poor people are in Latin America.  In Latin America many are not allowed to open bank accounts because they lack legal titles on their property or have insufficient funds to be worthy of a bank account… but rather, here in China I believe it is because the costs of doing so probably so outweigh the benefits of having your money safely deposited in a bank account that its simply not worth it.

Something to think about…

Peru-China FTA to induce 10,000+ Peruvian companies to pursue exports to China

Peru and China’s bilateral Free Trade Agreement became effective March 1st.   According to officials at Peru’s Foreign Trade and Tourism Ministry (Mincetur) the agreement could potentially prompt some 10,000+ companies to begin exporting to China.  Read more about it in this article from Andina

All in all, the official message expressed by major media is that trade with China = good. I personally this doubt this is the full story. I’m pretty sure a great many Peruvian industries are not so happy they will be competing with “made in China.”

For example, I’m sure the companies which make all the cloths sold at Lima’s Gamarra Market are shaking in their boots right about now.

On the other side, as Michael Reid explains in his book, The Forgotten Continent: The Battle for Latin America’s Soul, the rise of China and other countries which offer Latin America countries alternative markets for their exports has empowered Latin America with far more freedom to develop on their own terms than every before in history.  With new markets, Latin America is no longer as heavily dependent on the United States, and China is at the center of this shift.

There’s always two sides to the story and I’m barley scratching the surface here.  I’m sure readers from Peru to China have many other reasons to argue both sides of the equation.

Evolution

With this post, I bid farewell to the old and disorganized posting format I have used here at ChinaSouthAmerica (CSA) for the past few years. I will begin an arduous, yet rewarding process of re-inventing this corner of the World Wide Web.

Fear not, CSA will continue to function as a bastion of information exchange for all that is China and Latin America’s ever evolving, dynamic relationship—specifically focusing on South America (a land I am personally connected to being half Peruvian).

What brings this change? Well for starters, your humble author and webmaster is no longer residing in the western world. I have set up shop in Shanghai, China and this is where I will remain for the indefinite future. Adapting to a totally new routine in a foreign land has led me to examine why I first started this site.

The answer to this question can be summarized in the following two bullets –

• To share with the world any news I stumble upon concerning Latin American countries and China. More importantly the growth of trade between the two regions.
• To offer my own perspective and analysis from time to time on a specific development with the rest of the world and thereafter encourage debate and exchange of ideas with other likeminded people.

While these two main bullets may remain the foundation of which CSA stands upon, now that I am living in China I would like to add insight into the world of China-Latin America from the stories I have to share from living here these past few months. This includes, the opinion a group of taxi driver’s playing cards, old ladies who press my cloths who ask me about Obama, and dream about going to Brazil one day.

Shanghai to Challenge HK on IPO’s

It seems the latest buzz is how Shanghai is set to challenge Hong Kong’s status as the world’s IPO “fund-raising king.”  CNBC, Bloomberg, China Daily, Reuters, etc are all talking about it.  CSA asks, is this a legitimate claim?

It is difficult to argue with the numbers.  According to this article, HK is expected to raise about $47.7 billion this year in 2010, while Shanghai is predicted will attract about $55.7 billion.

The key question to ask is, who is raising this money?  Hong Kong has the institutions, history and legal framework for international company’s to list on its bourse, while Shanghai does not.  In other words, the mainland may attract more money in IPO’s, but the money is going to be raised primarily by mainland company’s–specifically ones state owned entities.

Shanghai is preparing a international board which will allow foreign company’s to list on the mainland but, when this will come online is anybody’s guess.  Shanghai still lacks a developed insurance market, many private company’s on the mainland fear listing because of the potential of being forced to pay higher taxes after they make their accounting public / transparent, margin trading and short-selling is limited, the bond market is small, and stock market futures were only introduced today (see this Bloomberg article).

Nonetheless, there are company’s working on getting access to Shanghai.  The China Daily reports the first company’s which are hoping to list on the mainland’s A-share market are HSBC and the global exchange group NYSE-Euronext.  HSBC, is essentially the main player in HK’s HengSeng inde, while NYSE-Euronext represent the investors vehicle for investing in shares of the New York Stock Exchange its its European Counterpart.  Once again CSA asks, “where do regular company’s from abroad fit into this context?

In this article from the China Daily, Terence Ho, a analyst with Ernst & Young explains “Currently, the two places have different roles.  Hong Kong caters to millions of international investors while Shanghai mainly targets domestic investors. In the short term, Shanghai is unlikely catch up with Hong Kong in terms of international exposure and liquidity.”

CSA is inclined to agree with Mr. Ho, the two markets do have different roles at the moment.  As hungry as company’s around the world are tap mainland capital, China would rather have both financial centers fill different niches at the moment.

Shanghai will only come to dominate the Hong Kong’s IPO market once its financial services expand and it develops the framework for facilitating the listing of international company’s on the mainland.

The growth of stock markets in Latin America

The Latin Business Chronicle published a story today which technically, was supposed to focus on the growth of Colombia’s stock exchange and explain why it was the regions best performer last year.

In addition to Colombia, the article also shares data complied by Economatica on the growth of the other major stock exchanges in the region, which is what CSA will be sharing with you today.  To read the full article from the Latin Business Chronicle click here.

Colombia – Best performer in Latam last year, IGBC (Colombia’s benchmark) stock index has grown in value by 927.9% during the past 10 years, and average decline in value of transactions in 2008 was 2.3%—lower than all other countries in the region

Brazil – Latin America’s largest stock market, Ibovespa (Brazil’s benchmark) stock index has grown 301.3% during the past 10 years, and the average decline of transitions in 2008 compared with 2009 was 13.6%.

Mexico – IPC (major benchmark index in Mexico) has grown 250.5% during the past 10 years, and the average decline in transactions last year was 13.9%

Venezuela – The Caracas stock index has grown by 916.5% during the past 10 years, and the average decline in transactions was 29.5% last year—the second worst in Latin America.

Argentina – The Merval inces has grown by 321.3% during the past ten years, and had the worst average decline in transactions last year, suffering a decline of 54.4%.

Peru – The Lima stock index (IGBVL) has been one of the regions best performing in the past few years.  Seeing growth of 671.1% during the past 10 years, and a decline in average transactions last year of 21%.

Chile – Last but not least, Chile’s IPSA index has grown by 218.8% over the past 10 years, and the average decline in transactions last year was a mere 3.6%-second best next to Colombia.

China’s private sector ventures into Latin America

A private Guangdong based firm by the name of Rixin Development, has reached an agreement to buy a majority stack in the ownership of a Chilean iron ore mine.

Rixin Development will acquire a 70% stake in the Chilean property.  Such a deal shows the power of China’s up and coming company’s.  For starters,  Rixin Development is listed only on a local provincial enterprise information website,  sdwin.com.  The company does not have its own home page.  Officially it is a “trader for home appliances, textiles, auto parts and so on, and importer and exporter of various products and technologies.” However, I wish any readers the best of luck if they undertake the challenge to find any further information from a official company medium.

If you follow Alibaba.com’s 101 on how to avoid being scammed in China, such a deal should probably send alarm bells off.   Perhaps in the post, economic-recession world of 2010, the traditional elements which define a professional entity are no longer necessary.  Especially when your a developing Latin American country hungry for investment… or a private investor in China, STARVING for investment opportunities in a very over-saturated market with little options on where to park your capital and have it grow at the same time.  It is clear, the deal is going through and that the company is legitimate.

Li Zihao, president of Rixin was recently quotes saying, “privately-owned companies are in a better position to invest in overseas natural resources.” Time will tell if this is actually true, or if the central government is content with allowing such a dynamic to emerge.

Read a more comprehensive article on the facts (which are known) surrounding this deal via this article over at ChinaMining.org.

Ecuador, China to set up oil joint venture

China’s latest foray into Latin America hit the presses on Thursday when Ecuador announced it would initiate a new joint venture with the China to explore for oil in the South American country.

China’s Sinopec International Petroleum will invest $1 to $1.1 billion to form a joint venture to exploit oil from block with proven reserves of 120 million barrels of crude in eastern Ecuador.  The joint venture will between Ecuador’s state-owned Petroecuador and China’s Sinopec, according to Germanico Pinto, Ecuador’s minister of nonrenewable natural resources.

Sinopec will hold a 40 percent stake in the joint venture, with Petroecuador holding the remaining 60 percent.

Ecuador, OPEC’s smallest oil producing country, can pump out 500,000 barrels of crude each day.

“Sinopec could improve its supply chains through investing in the South American country, because in the past, the company has always concentrated on processing,” Lin Boqiang, deputy director of the China Center for Energy Economics Research at Xiamen University, said Thursday.

“The reserves of 120 million barrels of crude are small, but many countries are eager to invest and explore oil overseas,” he added. “Sinopec has the technical know-how and capital to complete the project.”

Beijing’s direct investment in Ecuador has reached $2.2 billion, making it one of the top targets of Chinese investment in Latin America, Jia Qinglin, chair of the National Committee of the Chinese People’s Political Consultative Conference, told reporters when he was paying a visit to Ecuador.

Trade between the two countries reached $2.4 billion in 2008, a 50 percent increase from the previous year, he said.

A valuable bridge between Latin America and China

[Source] - Andean Development Corporation

• The CAF President, accompanied by an official delegation, visited the Asian country to deepen trade and investment links between Latin America and China.

• The Corporation is playing its characteristic catalytic role attracting funds from other latitudes for the progress of the region.

CAF President & CEO Enrique Garcia visited Peking, accompanied by a delegation from the Corporation, with the objective of deepening trade and investment ties between Latin America and China.

The working agenda included CAF participation in the Latin America-China Investors Forum (LA-CIF), organized by Latin Finance Magazine, along with a series of meetings with China Development Bank (CDB), EximChina, China Construction Bank, Industrial and Commercial Bank of China (ICBC), and Sinocapital, among others.

Promoting investment and trade between the two regions

At the LA-CIF Forum, CAF President Garcia, along with the president of HSBC China, Richard Yorke, and the deputy governor of the China Development Bank, Jian Gao, was one of the keynote speakers at the inaugural session which was attended by a large number of business leaders, bankers, investors, government representatives, academics and media.

During his remarks, Garcia spoke of the important role that China is playing in the current international economic and financial situation and its contributions to mitigating the effects of the global crisis. He emphasized the complementarity of the economies of the two regions and the positive impact which China’s accelerated growth has had on Latin American investments and exports.

He underlined the enormous potential of bi-regional relations and CAF’s interest in deepening them with a view to building a valuable bridge between Latin America and China. “The Corporation is committed to supporting Latin American countries in opening of new horizons in Asia and strengthening a long-term integrated development agenda. Its catalytic role will help attract new actors to channel additional resources, both economic and technological, in order to achieve sustained development and move toward stronger economies stimulated by competitive advantages.”

China Development Bank: a strategically

One of the most important high-level meetings held by the mission was with the China Development Bank Corporation (CDB), represented by its Governor Chen Yuan.

The two institutions, based on the excellent level of relations and successful joint work which has led to increased knowledge of China and of Latin America, agreed to sign a new cooperation agreement in the near future. The accord will define new lines of credit; move forward with cofinancing operations to benefit small, medium-sized and large enterprises; set up a trust fund; and promote exchange of personnel.

“Through CAF we have come to know more about Latin America,” Governor Yuan said. “We recognize the potential which the region represents and we have worked hard to make this into real cooperation. CAF is the best partner for us.”

Garcia said bilateral relations began in 2006, following identification of a series of common interests. He expressed his satisfaction that CAF had contributed to the important work which CDB is doing in Latin America, and the joint financing of projects in the region. “Our activities during this visit to China – the CAF president concluded – mean we are playing a catalytic role by contributing ideas and resources from other regions in favor of regional development.”

New steps in expanding relations with China Eximbank

As part of its strategy of deepening relations with Asia, the CAF mission also met with the Export-Import Bank of China (China Eximbank) which has become an important source of financing for capital goods, technology and infrastructure projects around the world.

At the meeting, the two institutions reaffirmed their interest in working jointly in areas of common interest. They agreed to sign a framework cooperation agreement in the near future which will cover lines of credit and joint operations with a view to actively promoting trade and investment initiatives in the framework of horizontal cooperation between developing countries.

Singapore-Latin Trade: Singapore and Panama in focus

Attention! / ¡Atención! / ???

Merlion - Singapore

For those of you out there who pay the whoppin’ $399 a year for a subscription to the Latin Business Chronicle, you can feast your eyes on some juicy reporting about Singapore’s growing trade with Latin America, particularly with Panama.

Here’s a brief synopsis from CSA of what was available for free from the Latin Business Chronicle:

Singapore’s trade with  Panama is a $6.6 billion usd, more than double Singapore’s entire trade with its second largest trading partner in Latin America, Brazil.

Considering that Singapore has signed Free Trade Agreements with the South American countries of Peru and Chile which have yet to help increase total exchange to a level even comparable with Panama’s.  It is clear to CSA, Singapore has found a healthy partner in Panama and it plans to nourish the relationship.

Panama is country of similar size (population wise), like Singapore it is strategically positioned in the middle a important global trade network, and it is increasingly open to economic cooperation with Asia.

Long term, CSA believes that Singapore is playing it smart in Latin America.  It is positioning itself to not only benefit directly from trade, but also from the growth of trade between other Asian and Latin American countries.

In other words, once Singapore has established a base of operations in Panama, it will probably expand into the business of providing services for other countries and companies within the Asia – Latin America trade network.

Below are a few excerpts from the Latin Business Chronicle article you can access directly via this link.

Soon, Singapore will also be known locally for its port services. PSA International, the world’s second-largest container terminal operator, will be competing with Hong Kong-based Hutchison Whampoa, the world’s largest operator for container traffic that goes through Panama.

PSA is building a terminal at the Pacific entrance of the Panama Canal, right across from the Port of Balboa, which is operated by Hutchison unit Panama Ports Company. It expects to open the terminal, located at what once was a US Naval station, next year.

The current and future business generated by ST Aerospace and PSA is helping cement Panama as Singapore’s top trading partner in Latin America. Singapore’s trade with Panama is twice as large as its second-largest trade partner in Latin America, Brazil.

Last year, Singapore’s total trade with Panama grew by 59.6 percent to 9.2 billion Singapore dollars (US$6.6 billion), according to a Latin Business Chronicle analysis of IE Singapore data. While Singapore exports still dominate the …

Chile stands up for fellow developing nations

South-South Cooperation politics at their finest according to CSA.   Chile made headlines on various news sites this afternoon when president, Michelle Bachelet announced she wants to see China, Brazil and India have a greater role in the International Monetary Fund and the World Bank.

President of Chile - Michelle Bachelet

Today, with a few choice words, Bachelet propelled her country into global headlines on sites like Bloomberg– which usually prefer to focus on Brazil & Mexico’s stock markets, how Argentina’s political system is a mess, or when miners go on strike in Chile or Peru… Or when Huge or Evo do something which is worthy to flash on major cable news.

Click here to read a Bloomberg article which touches upon a few different elements of Bachelet’s trip to Asia, not covered here in this post.  Instead, CSA has focused on what Bachelet said in regard to China, Brazil and India’s.  Summed up with the following excerpt (taken from the same Bloomberg article linked above).

Before the recent global slump, the Washington-based bodies “were not representative of global realities,” she said. “There are countries like Brazil, India and China that are world powers and economic powers and that have very little representation.”

Bachelet also questioned the custom that the president of the World Bank always comes from the U.S. while leadership of the IMF goes to a European.

The lack of representation from developing countries at global institutions has contributed to several crises, Bachelet said, such as the record high prices of wheat, corn last year.