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Travel to any country in Latin America and you will see the visible hand of China at work: a computer manufacturing plant in Mexico, a copper mine in Peru, a football stadium in Costa Rica. In the year 2007, the thought of China in Latin America would have appeared, at best, improbable. But in a three-year stretch, China signed free trade agreements with Chile, Peru and Costa Rica, inked billions of dollars worth of deals in oil and mining projects throughout the region, and supplanted the US as Brazil’s biggest trading partner. Once almost unseen in Latin America, China’s bilateral trade has risen from $12bn in 2000 to well over $150bn today.

Given the importance of its new Asian friend, Latin Americans are rolling out the red carpets to Chinese business delegations and jumping on planes not only to Beijing but also to Shanghai, Shenzhen, and Tianjin.

Rationale Behind Chinese Investments in Latin America [...]

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Reuters Video

Luxury brands have set up shop in China’s four wealthiest coastal cities, but are moving inland as the number of the nation’s rich grows. (01:50)

Peru prepares pisco promotional campaign in Asia

Lima, Jul. 12 (ANDINA). In a bid to boost pisco exports, Peru will launch a promotional campaign for increasing consumption of its national drink in the Asian continent.

“Pisco has enormous potential in the Asian market but we still have a lot to do. Commercial offices in the region are making progress and we must design an aggressive campaign,” said the director of the Commercial Office of Peru in Taipei, Gycs Gordon.

Peru’s GDP likely to post two-digit growth rate in second quarter

Lima, Jul. 12 (ANDINA). Peru’s Gross Domestic Product (GDP) growth rate would have registered a two-digit increase in the second quarter this year, Peru’s Minister of Economy and Finances Mercedes Araoz said Monday.

Peru, Ecuador discuss tourism cooperation

Lima, Jul. 12 (ANDINA). Peruvian Trade and Tourism Minister Martin Perez will meet Monday with Ecuador’s Tourism Minister Freddy Ehlers to address issues relating to tourism facilitation, investment, community-based tourism and handicrafts, among others.

Following the coming into force of the FTA between China and Peru this past March, Peruvians are being encouraged to invest roughly $5,000 usd on trips to China.

This was the announcement made by Jorge Chiang the Peruvian Economic and Commercial Counselor in Beijing today.

“It’s necessary to have more Peruvian business people in that country, who know their partners and participate in trade shows and missions,” said Chiang.

Click here to read more about this from Peruvian News Agency, Andina

Labor cost in China

Recently there are two labor unrest cases widely reported in China. This is uncommon as the Chinese media usually do not report such cases involving big foreign MNC in China. Besides trying to demonstrate her openness in news reporting, there could be a subtle change in mindset on how much the government could tolerate the wage abuse by employers. It is a well known fact that the local government is very accommodating to big foreign companies in their prefecture as the latter would provide labor and tax revenue. Thus many such companies could get away with labor abuse and flouting regulations.

The first case involved Foxconn where 13 suicide attempts were made and caused 10 deaths. Some employees citing to journalists that the tough management and long working hours (80 hours of overtime in a month) are the main stress they are enduring. The victims were young with average age of twenty and unlike their parents, are less tolerable to hardship, ambitious and more solitude which could be the result of the one-child policy.

With the bad publicity and customer pressure, Foxconn increased 30% on the basic monthly wage for most of its 800,000 employees in China. The production operators have their wages increased from RMB900 ($132), which is the minimum wage level, to RMB 1,200. And Foxconn is also considering providing housing allowance for 80,000 employees in its Yantai plant in Shandong province. The annual cost would amount to RMB200 million ($29.3 million).

The second case was the strike by the workers of one components manufacturing plant of Honda in southern province Guangzhou. The strike had caused four other Honda assembly plants to shut down production. Honda subsequently increased the basic wage by 24%.

There were also reports about trade unions and local communities forcing some US fast food chains to raise the workers wage to the stipulated minimum wage level in China and Hong Kong. To shun the bad publicity, many of these fast food chains have reluctantly agreed to meet the minimum wage level for their workers.

Such wage increase in Foxconn and Honda has created severe repercussion to other factories especially those at coastal provinces. The workers may demand wage increase and follow the Honda example. Labor supply at the coastal cities is already very tight and the employers have to increase wage and benefits to attract workers. One Hong Kong businessman commented on a TV news interview that 2,000 to 3,000 Hong Kong companies in Guangzhou would encounter difficulties to match the pay rise by Foxconn and Honda.

The current skyrocketing increase in property price and some inflation on food have put tremendous stress on cost of living for many Chinese. Consequently the pressure is exerting onto the government to address the issue. Without an effective curb on property price increase at the moment, the government may want to increase the income level for her citizen especially the lower income bracket to combat the rising living cost.

China may also want to sway away from a sweatshop industry which she is widely known as. The low cost merchandised goods do not seem to be appreciated by her American and European customers. Not only are the customers putting immense pressure to force China to appreciate the yuan (RMB), the local trade unions and politicians are targeting China as the culprit for their woes on unemployment and loss of competition. Thus it makes better sense for Chinese government to increase labor cost to soothe the trade friction with their US and Europe customers than to appreciate her exchange rate which will cause acute economic and political pains to the country and the people.

Many Chinese I have talked to and also from the Chinese blog websites are showing anger on those foreign countries forcing China to adhere to their demand to appreciate the yuan while insisting on low cost goods as many foreign buyers do not agree to price increase whenever there is an appreciation on the yuan. To further aggravating the situation, some countries are putting up trade barriers to fence off the competition from China. This acrimonious trade dispute will lead to further misunderstanding and hostility not only between countries but also people from both sides.

China is also embarking on her fiscal policy to spur up domestic consumption. This will reduce her reliance on export to maintain economic growth. After all she needs a balanced economic structure for sustained growth and social harmony. Unfortunately the increase in domestic consumption has met limited success other than the housing and luxury goods. Henceforth an increase in income for the masses will boost the domestic consumption.

Thus I sense the Chinese government is giving indirect consent to the trade unions to bargain for higher wages. Though the Chinese government implicitly allows the wage to increase to appease her citizens, the cost competitiveness is not lost. Many of her inland provinces are providing abundant resources and manpower to accommodate the low cost manufacturing. However the price will still be higher than what the foreign customers are accustomed to. The transfer of technologies, management knowledge and labor skills from the coastal cities to the inland industrial parks will ensure their strategic leverage and competitiveness against other low cost manufacturing countries.

This may help China to reconcile relationship with US and Europe with the slightly higher product cost. After all, an increase in domestic consumption would also increase in import too. And this will help the foreign companies to fulfill their goal to capture the immense China market.

* This entry has been published with the permission of the author, Calipe Chong of Vipo Asia.  Please visit VipoAsia to access his blog directly and read more of his insight on Asia and the world.

Peru partners with other countries to seduce China at Expo Shanghai 2010

Peru organizes joint activities with Colombia, Brazil and United States at Shanghai World Exposition, in order to promote themselves better and attract capital and tourists.

Peru to be promoted as luxury tourist destination in Expo Shanghai

Peru’s Export and Tourism Promotion Board (Promperu) will participate in Asia Luxury Travel Market (ALTM), a Reed Travel Exhibitions show to be held in Shanghai, China, on June 14-18 within the framework of Expo Shanghai 2010 set to kick off on Saturday.

Peruvian pavilion at Shanghai Expo to attract some 40000 visitors on first day

Some 40000 visitors of different nationalities and ages are expected to visit the Peruvian pavilion at Shanghai World Expo, which officially opened today, May 1, Peru’s Foreign Ministry reported.

Bridas is controlled by the wealthy Argentine businessman Carlos Bulgheroni who also owns a nice 40% stake in Pan American Energy LLC, Argentina’s largest crude oil exporter.  Pan American Energy LLC also owns energy assets in Chile and Bolivia–which China may eventually like a piece of as well.

As the worlds second-biggest energy consumer, after the United States, China is searching for oil assets across the world.  This however, would be the first major purchase by CNOOC, China’s biggest offshore oil explorer in Latin America.  Since 2008 Chinese companies have spent around $13 billion usd on energy acquisitions and are currently bidding for assets in countries ranging from Ghana, Nigeria and Uganda.

Analyst, Neil Beveridge of Sanford C. Bernstein & Co., told Bloomberg in this article, “This seems like a relatively attractive valuation and the acquisition is entirely in keeping with the Chinese government’s policy of increasing oil reserves.”

Once again, China is on the move people.  As I sit here typing this post I can feel the cold air blowing back into Shanghai and I am thinking to myself how if this entire country had two space heaters running like I do right now the world might self-implode… (just a bit of sarcasm incase you didn’t catch it).

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.

Here are the basic facts and forecasts, provided via this article from Nasdaq.com. For the record, author Sophie Kevany, is a superb journalist who is actually based in Peru. This article does not do justice to her credo of true investigative journalism I have read in the past, but no less is always a good source for all that is Peruvian finance.

Check out her other articles on the WSJ, Decanter (yes she even writes about Peruvian wines and spirits), and well, just google her name and you’ll be greeted with a swarm of informative pieces about Peru and the greater South American region.

LIMA -(Dow Jones)- Peru’s free trade agreement with China is set to come into force early February, and it is expected to boost total trade values to an estimated $8 billion in its first year.

The treaty was ratified earlier this month by a supreme government decree, meaning Peru’s congress will not vote on it, state newspaper El Peruano said Wednesday.

The treaty excludes so called “sensitive products” such as textiles, shoes and clothing, Peru’s Vice Minister for Trade and Tourism, Eduardo Ferreyros, told El Peruano.

Trade between the two countries is expected to total about $5.5 billion in 2009. Of that, exports to China from Peru are expected to reach $3 billion, Ferreyros told state news agency Andina, while imports from China should total about $2.5 billion.

-By Sophie Kevany, Dow Jones Newswires; 51-198-903-8043; sophie.kevany@ dowjones.com