China's Blueprint For Engagement With Latin America

Includes: CX, CZZ, PBR, VALE
by: Erik Bethel


In November of 2016, China published a policy White Paper.

The White Paper is focused on Latin America and the Caribbean.

The White Paper is a blueprint that highlights how China plans to engage in the region.

China has committed tens of billions of dollars to the region and this has implications for investors.

This past November, China published a second "White Paper" on Latin America and the Caribbean. The first was written in 2008. Neither of the two policy papers received a lot of initial attention, but they are worth reviewing because they serve as blueprints that cast light on China's method of engagement and interaction. This is important because China's influence in Latin America and the Caribbean has serious implications for the region itself, for U.S. policymakers, and for business & trade.

· Here is a link to the November 2008 White Paper (link).

· Here is a link to the November 2016 White Paper (link).

At a high level, both White Papers are relatively vague. They discuss generalities such as the fact that China wants to expand its relationship with the Latin/Caribbean region and the fact that China seeks a mutually beneficial "win-win" relationship. Notwithstanding, China's 2016 White Paper goes a bit further than its 2008 predecessor. In it, the Chinese government discusses its desire to deepen its relationship with Latin America in specific areas. Specifically, it makes reference to China's "Cooperation Plan 2015-2019" announced at the China-CELAC Forum in 2014. For those readers who are unfamiliar with CELAC, it refers to the Community of Latin America and Caribbean States and consists of 33 countries in the Latin/Caribbean region representing roughly 600 million people. It was formed in 2011 in Caracas, Venezuela as a left-of-center alternative to the Organization of American States (OAS). CELAC's membership explicitly excludes the United States as well as Canada. Yet, it does not seem to exclude China. In 2014, Xi Jinping visited Latin America and announced the formation of a China-CELAC Forum that includes China as well as the 33 CELAC members.

Historically, numbers have played a prominent role in Chinese foreign policy. Latin America is, apparently, no exception. China's new White Paper references two numerical frameworks that were specifically developed for the region. One is the "1+3+6 Cooperation Framework" announced at the 2014 BRICs summit in Brazil. The "1" refers to one plan - specifically the Cooperation Plan 2015-2019 described above. The "3" refers to the three pillars (trade, investment, and finance) that will drive China's engagement with the region. The "6" references the six most important industries in the Latin/Caribbean region in which China intends to focus its efforts - energy, natural resources including mining, infrastructure/construction, agribusiness, scientific innovation, and information technology. The new White Paper also references another mathematically-inspired policy framework, the "3x3 Model of Cooperation," through which China seeks to expand its interests in three areas: (1) logistics, (2) power generation, and (3) information technology through bilateral linkages between three stakeholders: (1) governments, (2) enterprises, and (3) society.

Over the last few years, China has announced the commitments of tens of billions of dollars to the Latin America/Caribbean region. These commitments are strongly correlated to the various policy initiatives coming out of Beijing, and I'll spend the next few weeks providing additional information and analysis of the November 2016 White Paper. I will also point out (from an investment perspective) who could likely benefit from this relationship including Latin American construction firms, cement companies, port and rail operators, mining, and energy businesses. Some of them include the likes of Cemex (NYSE:CX), Petrobras (NYSE:PBR), Cosan (NYSE:CZZ), Vale (NYSE:VALE), and others.

Regardless, Latin American and Caribbean nations (as well as the U.S.) should begin formulating their own set of policies of regional engagement with China so that the end result is truly a "win-win" for all parties.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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