invreasing economic relations between peru and china

1. China and Peru relationship
Conference given at Shanghai University
November 18, 2015
Carlos Aquino Rodríguez
 Director of the Institute of Economics Research and Professor at San Marcos National University, Peru
 Specialist in Asian Economies
 Peru’s Official Translator of the Japanese language
 Master and Doctor Course at Kobe University, Japan
 Visiting Professor at Universities in Asia
E-mail : carloskobe2005@yahoo.com
Web site, Blog, Facebook

2. Index
 I. Introduction
 II. Peru and China old relationship
 III. State of economic relations: Trade, Investment,
Economic Cooperation
 IV. Chinese culture influence
 V. Conclusions

3.  The presence of China in Latin America is increasing.
China has become the second trade partner of the region
(for some of them it is already the first).
 If we exclude Mexico, China is the biggest trade partner of
the region.
 China is also becoming a big investor, specially in the
natural resource sector.
 China is proposing the construction of a bioceanic railroad
linking Peru and Brazil. This will increase Chinese
presence not only in the field of trade but also in the
investment in infrastructure projects.
 It could compete with the route of the Panama channel,
and also there is the option of building a channel through
Nicaragua
I. Introduction

6. Source: CEPAL: Latin America and the Caribean and China:
Tpwards a new era in economic cooperation
http://repositorio.cepal.org/bitstream/handle/11362/38197/S1500388_en.pdf?sequence=1

7.  On November 2nd, 1971 Peru and the People Republic of
China established diplomatic relations. On March 1st, 2015
was the fifth anniversary since the Free Trade Area, FTA,
agreement between the two countries entered into effect.
 China became in 2011 the biggest export destination and
trade partner of Peru, over the United States, which was
the traditional top partner, and that position will continue in
the future.
 The recent economic slowdown in China has affected
Peru.
 Peru has an old history of relations with China.

8. II. Peru and China old relationship
 The first contact between these countries began in 1849,
when Chinese immigrants began coming to Peru. From
that year up to 1872 around 100,000 Chinese came to
Peru, mostly from the southern part, in present day
Guangdong province.
 Peru became the first country in Latin America to receive
Chinese immigration in a large scale
 Peru became in 1874 the first Latin American country to
establish diplomatic relations with China
 (But in fact relations seems to be older than that. From the
second half of the sixteen century the Acapulco-Manila
Galleon trade made possible the exchange of goods
between China and Mexico –and Peru-, through
Philippines)

9. Acapulco Manila galleon trade: This trade route began in 1568
(white line)
The rival portuguese route (blue line) https://es.wikipedia.org/wiki/Gale
%C3%B3n_de_Manila#/media/File:16th_century_Portuguese_Spanish_trade_routes.png

10. III. State of economic relations: Trade, Investment,
Economic Cooperation
 After Peru suffered a period of economic stagnation and
political instability, in 1990 the new government introduced
economic reforms that opened the economy to foreign
trade and investment, and at the same time political
stability was attained. So the economy began to grow
again.
 Peru is a middle income country, with a Gross Domestic
Product, GDP, per capita of 6,700 dollars (year 2014) and
a population of 31 million people.
 It achieved sustained growth of its economy in the last
decade but growth has slowed in the last two years
 Has a strategic location in South America, with vast natural
resources and variety of climates, in a territory of 1.28
million km2

11. Overview of Peru’s economy
Source: http://www.proinversion.gob.pe/RepositorioAPS/1/0/JER/PRESENTACION_PAIS/PPT_Por%20que
%20invertir%20en%20Peru%20en%20ingles%202014_pptx.pdf

13. Exports and imports

14.  Peru had the fastest growing economy in Latin America
 It has a sound macroeconomic environment, low inflation rate
(2-3% per year), low public external debt (less than 20% of
GDP), and high Foreign Exchange Reserves (around 58
billion dollars or 30% of GDP)
 Since 1990 Peru embarked on the task of getting more
involved with Asia. Peru is present now in the Asia-Pacific
Economic Cooperation forum, APEC, the Forum for East Asia
and Latin American Cooperation, FEALAC, the Pacific
Economic Cooperation Council, PECC, and the Pacific Basin
Economic Council, PBEC.

15. Trade
 One of the engines of Peru economic growth has been
external trade, and specially demand for China.
 In 1993 the amount of Peruvian exports to China was only
of 140 million dollars, but in 2003 they reached 676 million
dollars. In the same period imports from China increased
from 90 million dollars to 646 million dollars.
 But from the last decade exports to China leaped to reach
7.8 billion dollars in 2012, but decreased to 6.9 billions
dollars last year 2014. Imports from China was 8.9 billion
dollars in 2014.

16.
Exports from Peru to main partners in Asia members of APEC (in million
dollars) (FOB)
Source: Source: Peru’s Customs Office:
http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122011.htm
For 2014 http://www.mincetur.gob.pe/newweb/Portals/0/documentos/comercio/RM_Expo_Diciembre_2014.pdf
Pag. 4
Country/Economy 1993 1997 2003 2006 2008 2010 2011 2014
World Total 3,344.40 6,741.75 8,939.82 23,431.43 31,162.75 35,073.25 45,636.0 38,161.70
Australia 14.99 16.31 53.12 38.25 79.81 117.5 115.3 127.0
South Korea 59.36 91.50 176.34 545.27 551.69 894.9 1,694.9 1,207.80
China 140.84 490.06 676.96 2,267.27 3,737.24 5,425.9 6,961.4 6,968.00
Hong Kong 28.60 68.82 30.31 42.14 54.21 78.5 92.5 155.30
Japan 299.04 473.57 391.16 1,229.76 1,853.18 1,790.4 2,174.8 1,580.20
New Zealand 1.50 - 3.72 7.59 12.60 13.5 18.4 30.3
Russia 9.90 9.48 14.18 25.61 21.74 57.9 79.5 137.8
Taiwan 118.78 159.11 147.28 415.03 596.11 293.0 368.8 316.00

17. http://www.bcrp.gob.pe/docs/Publicaciones/Memoria/2014/memoria-bcrp-2014-2.pdf

18. China Peru bilateral trade, 2010 and 2014 and Jan.June 2015, in milion dollars
Source: MINCETUR: Saldo Comercial Perú-China, 2010-2014 y Ene-Jun 2015
(US$ Millones)
5 436
6 956
7 841
7 354
7 030
3 181
5 140
6 365
7 814
8 413
8 924
4 231
296
591
26
-1 059
-1 894
-1 050
-4 000
-2 000
0
2 000
4 000
6 000
8 000
10 000
2010 2011 2012 2013 2014 Ene-Jun
2015
Exportaciones FOB Importaciones CIF Saldo Comercial

19. Trade
 China became from 2011 the top export destination and
the top trade partner of Peru
 Peru’s Minister of Economy Mr. Luis Castilla said on
October 2011 that he “prays every day” for China economy
to continue growing at high rates because that way Peru
will benefit from that. If China economy reduces its pace of
growth there will be less demand for Peru raw materials,
prices, of specially minerals, will decrease, exports
revenue will decrease and the country will be affected. In
fact this happened from 2012.
 See the following two figures where it is seen that price of
raw materials have decreased a little and there is strong
correlations with China economic growth rates.
 Peru exports mainly raw materials while buys from China
mostly manufactured goods.

20. Fuente: IMF, World Economic Outlook, april
2014, page 36

21. Source: World Economic Outlook, april 2014, Figure 1.5 page 6

22. TOP 11 PRODUCTS EXPORTED TO CHINA, 2013
PRODUCT Millions of Dollars
FOB value
Total 7,331
Copper ores and concentrates 3,338
Copper cathodes 1,020
Fishmeal 856
Iron ore 855
Zinc ore 203
Lead ore 195
Silver ore 182
Zinc, not alloyed 100
Cuttle fish and squid 91
Other gasoline without lead
tetraethyl
58
Fresh grapes 45
Ores and Fishmeal (8 products): 92% of total
Source: ADUANAS DEL PERU
http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122013.htm

23. Trade
 Actually China is the biggest market for Peruvian exports.
China buys most of the copper, iron ore, zinc, fishmeal,
that Peru sells abroad. And China become last year the
first source of imports, above the U.S.
 In the other hand, most of the textiles and garments
imported by Peru came from China as are also toys,
footwear, electrical appliances and most of the consumer
goods, and increasingly cars.
 Cheap manufactured goods from China have helped
improve the living standards of many Peruvians, especially
of poor people.
 But also cheap Chinese goods has represented a strong
competition to some manufacture sectors in Peru.

24. Peru imports from main partners in Asia members of APEC (on million
dollars) (CIF)
Source: Peru’s Customs Office:
http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122011.htm
For 2014 http://www.mincetur.gob.pe/newweb/Portals/0/documentos/comercio/RM_Impo_Diciembre_2014.pdf
1993 1997 2003 2004 2007 2010 2011 2014
World
Total
4,024.5 7,716.9 8,428.5 10,111.4 20,464.2 29,879.5 37,699.0 42,196.8
Australia 17.3 33.0 28.1 46.8 67.5 75.0 110.6 132.2
South
Korea
99.4 230.2 277.7 296.5 522.3 1,044.2 1,490.6 1,382.4
China 90.4 195.9 646.5 767.9 2,474.2 5,115.3 6,321.5 8,913.7
Hong
Kong
12.2 17.0 15.1 21.9 16.5 22.8 15.7 16.7
Japan 303.6 417.9 367.4 358.8 790.3 1,366.9 1,307.1 1,106.1
New
Zealand
45.9 - 16.2 23.3 22.4 56.4 67.8 129.0
Russia 15.2 21.9 56.3 44.7 136.3 183.4 513.2 318.0
Taiwan 60.1 112.0 133.5 151.1 258.4 327.8 439.7 423.9

25. TOP 10 PRODUCTS IMPORTED FROM CHINA, 2013
PRODUCT Millions of dollars
CIF Value
Total 7,921
Mobile Phones 730
Data processing machine 459
Motorcycles 136
Vehicles 111
Telecommunications devices 98
Other polyethylene terephthalate
with titanium dioxide
84
Other footwear with top of textile and
rubber sole or plastic
84
Other footwear 80
Other wind power generators 69
Other TV sets 76
Source: ADUANAS DEL PERU: http://www.aduanet.gob.pe/aduanas/informae/MPaisPartMensual_01122013.htm

26. Peru: Antidumping duties in effect
Source: INDECOPI, Reporte de Estadísticas Institucionales, Reporte Mensual, marzo 2015

27. Investment
 Foreign Direct Investment (FDI) in Peru has increased a lot in the last
years
 China investment in Peru was nil up to 1992. That year, Shougang
Corporation ( 首钢集团 ) bought the state company Hierro Peru that
exploits iron. It was the first big sale of a Peruvian state company after
the government began in 1990 a process of economic reforms and
opening of the economy to foreign investment.
 China interest in securing sources of raw material was the reason
behind its decision to buy the Peruvian company. It was one of the first
biggest investments by a Chinese state company of a foreign asset
outside Asia. Shougang paid around 120 million dollars for that. The
mine that Shougang bought is the only one that produces iron ore in
Peru
 China investment is mainly in mining, but lately also in oil and fishmeal
sectors.

28. Investment
 In the last years Chinese companies have announced and
are carrying out big investment. For example Chinalco
Aluminiun Corp. invested 3.5 billion dollars in a copper
mine called Toromocho, in the central part of Peru.
Another big investment is the project Pampa de Pongo, of
the Nanjinzhao Group Co. Ltd. for 3.28 billion dollars that
will produce iron.
 According to statistics by the Ministry of Energy and Mines
of Peru, by June 2015 there is an amount of 63.2 billion
dollars of investment mostly being currently carried on the
mining sector, of which investment from China accounts
for 35.9% of the total, or 22.66 billion dollars, the biggest
one.

29. PERU: ESTIMATED PORTFOLIO OF MINING PROJECTS
BY MAIN INVESTOR, JUNE 2015
Source: Ministerio de Energía y Minas: “Cartera estimada de proyectos mineros, June
2015”

30. Investment
 In addition to that on April 2014 the company resulting
from the merger of Glencore and Xstrata agreed to sell the
copper project Las Bambas located in Apurimac, and sold
it for $5.85 billion to a Chinese consortium led by MMG
Ltd., which is owned by China Minmetals, and included
Guoxin International Investment Corp. and Citic Metal Co.
When the mine come into production it could increase by
more than a third the amount of copper produced in Peru
 On November 13 2013 it was announced that China
National Petroleum Company through its listed company
PetroChina bought Petrobras Peru unit for $2.6 billion. The
Chinese firm bought all the shares of Petrobras Energia
Peru S.A., which has three oil and gas fields in Peru.

31. Investment
 Also a Chinese company, China Fishery Group Limited
(CFGL), bought last year the fishmeal company Copeinca
(for a total of nearly US$300 mlls), and seeks to control a
larger part of the production of fishmeal, of which China is
the largest buyer of Peruvian production. In March 2014
CFGL and a group of Chinese investors under the name
Fosun were the bidders to buy the fishmeal company
Diamante, with a price tag of $850 million. Peru share in
world export of fishmeal is around 41% and China is the
main world importer of that product with a share of 41% of
the world total.
 But some Chinese investment has run into trouble,
especially and notoriously Shougang Corporation. Since it
began operations, every year, they have had trouble with
its labor union that had gone on strikes very often.

32. Investment
 The Industrial and Commercial Bank of China (ICBC)
established an office in Lima in the year 2013 with a capital
of 50 million dollars to lend companies in Peru who want to
buy goods from China
 Chinese investors have shown interest in others sectors,
like agro industry and infrastructure
 Also there is a need to attract more Chinese tourists, who
travel in bigger number all over the world.

33.  La caratula dice: A LA
CONQUISTA: La compra de
Las Bambas le dará a China un
tercio de la producción de
cobre del Perú. Lo que se viene
puede ser aun mas
sorprendente
 (The title page says: TO THE
CONQUEST: Buying of The
Bambas will give China a third
of Peru's copper production.
What's come next may be even
more surprising)
Magazine “Poder”, April 24 - 2014,
Issue No 62
http://www.poder360.com/home.php?id_country=7

34. Possible route of the bioceanic railroad El Comercio. 2015. Blog Vía China “La
ruta de la seda se extiende a Sudamérica”. El Comercio. Lima, 17 de mayo. Consulta: 24 de junio de 2015.
<http://elcomercio.pe/blog/viachina/2015/05/la-ruta-de-la-seda-se-extiende-a-sudamerica>

35. Economic Cooperation
 In the last years China has given some money as
economic cooperation to Peru and lately scholarships to
Peruvian students to learn Chinese language. Also it has
established four Confucius Institutes with Peruvian
Universities to foment Chinese culture and language.
 China is a member of the Inter American Development
Bank

36. IV. Chinese culture influence
 It is said that perhaps 10% of Peruvians has some
Chinese origin.
 Chinese immigrants influence in Peru is well known in
several subjects and for example one strong is in food.
 Interest in China is increasing. China has established 4
Confucius Institutes in four Peruvian Universities
 Peruvian government has begun giving scholarship for
studying in China. CONCYTEC, the official institution for
science and technology is offering financing for studies of
Master, Doctor Course, special training and Chinese
language in Chinese Universities

37. V. Conclusions
 China is an important economic partner of Peru. It is the
biggest market for its exports, and an important source of
investment. These two roles will increase in the future.
China’s need for raw materials will increase and its
companies are looking to control the source of these raw
materials.
 China economic growth at high rates is also important for
Peru. In the last two years prices of minerals decreased
because of a slowdown in China economy and this has
affected Peru.
 Also, Peru has big expectations on increasing exports to
the Chinese market thanks to the FTA, but this will depend
on creating goods suitable for their consumers.

38.  Peru and China are middle-income countries with a
growing middle class, where internal demand is playing a
bigger role in fueling economic growth.
 Peru and China can strengthen their trade, investment and
other economic ties, and expand their people-to-people
exchanges.
 It is important knowing better each other to avoid
misunderstandings.’
 There is a need to know the Chinese market to sell more
value added goods and also to industrialize more the
country (and need to learn form China development
experience).
 That is needed to change the pattern of asymmetric trade
between China and Peru (and China and Latin america),
but that mostly depend in Latin america side.