China and Peru relations”5th World Forum on China Studies”,

Carlos Aquino Rodríguez Professor at San Marcos National University, Peru Specialist in Asian Economies Peru’s Official Translator of the Japanese languaje Master and Doctor course at Kobe University, Japan Visiting Professor at Asian Universities Chairman FEALAC Vision Group

E-mail : carloskobe2005@yahoo.comWeb site, Blog, Facebook

Index

I. Introduction II. Peru and China old relationship III. State of economic relations: Trade, Investment,

Economic Cooperation IV. FTA agreement between Peru and China V. Chinese culture influence VI. Conclusions

I. Introduction

On November 2nd, 2012 Peru and China celebrated forty one years of modern diplomatic relations. On March 1st, 2013 it was the third anniversary since the Free Trade Area, FTA, agreement between the two countries entered into effect.

China became in 2011 the biggest trade partner of Peru, over the United States, which was the traditional dominant partner, and given present perspectives that position will continue in the future

But Peru has a longer history of relations with China.

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

III. State of economic relations: Trade, Investment, Economic Cooperation

After Peru suffered a long 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.

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. See table 2.

Graphic 1: Peru Gross Domestic Product growth, 1992-2012 (annual growth average)

Source: Peru National Statistics Institute http://www.inei.gob.pe/perucifrasHTM/inf-eco/cuadro.asp?cod=3842&name=pr01&ext=gif

Country 2010 2010 2011 2011 2012 2012Exports Imports Exports Imports Exports Imports

1. China 5,436 5,140 6,963 6,325 7,692 7,7951. United

States6,087 5,811 5,903 7,350 6,032 7,921

1. Switzerland

3,845 118 5,937 150 5,062 154

1. Canada 3,329 539 4,232 583 3,358 588

Table 1: Peru main trade partners in the last three years, in million dollars•Source: Peru’s Customs Office:http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122012.htm

Country/Economy 1993 1997 2003 2006 2008 2010 2011 2012

World Total 3,344.40 6,741.75 8,939.82 23,431.43 31,162.75 35,073.25 45,636.0 45,228.6

Australia 14.99 16.31 53.12 38.25 79.81 117.5 115.3 98.7

South Korea 59.36 91.50 176.34 545.27 551.69 894.9 1,694.9 1,527.4

China 140.84 490.06 676.96 2,267.27 3,737.24 5,425.9 6,961.4 7,692.4

Hong Kong 28.60 68.82 30.31 42.14 54.21 78.5 92.5 94.9

Japan 299.04 473.57 391.16 1,229.76 1,853.18 1,790.4 2,174.8 2,576.2

New Zeeland 1.50 - 3.72 7.59 12.60 13.5 18.4 25.5

Russia 9.90 9.48 14.18 25.61 21.74 57.9 79.5 85.1

Taiwan 118.78 159.11 147.28 415.03 596.11 293.0 368.8 260.9

Table 2: Exports from Peru to mains partners in Asia members of APEC (in million dollars) (FOB)Source: Peru’s Customs Office:http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122011.htm

Trade

China is 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 will decrease and the country will be greatly affected

Peru exports mainly raw materials while buys from China mostly manufactured goods.

It is an asymmetric trade relationship

Product Million of dollars

Total amount 7,692.4

1. Copper ore 3,415.6

1. Fishmeal 885.5

1. Iron ore 852.7

1. Lead 805.7

1. Copper Cathode 684.1

1. Copper “Blister” 223.3

Table 3: Main products exported to China, 2012•Source: Peru’s Customs Office: http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122012.htm

1993 1997 2003 2004 2007 2010 2011 2012World Total

4,024.5 7,716.9 8,428.5 10,111.4 20,464.2 29,879.5

37,699.0

39,911.8

Australia 17.3 33.0 28.1 46.8 67.5 75.0 110.6

133.1

South Korea

99.4 230.2 277.7 296.5 522.3 1,044.2

1,490.6 1,647.4

China 90.4 195.9 646.5 767.9 2,474.2 5,115.3 6,321.5 7,795.7Hong Kong

12.2 17.0 15.1 21.9 16.5 22.8

15.7 20.6

Japan 303.6 417.9 367.4 358.8 790.3 1,366.9

1,307.1 1,499.3

New Zealand

45.9 - 16.2 23.3 22.4 56.4

67.8

119.0

Russia 15.2 21.9 56.3 44.7 136.3 183.4

513.2 334.3

Taiwan 60.1 112.0 133.5 151.1 258.4 327.8

439.7

461.5

Table 4: 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

Trade

Actually China is the biggest market for Peruvian exports. China buys most of the iron ore, copper, zinc, fishmeal, lead, tin, that Peru sells abroad. And China is the second source of imports, after the U.S., but this year will be the first.

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.

Product Millions of dollars (fob)

Total 7,795.71. Mobile phones 525.91. Data Processing Machinery 417.71. Motorcycles 151.21. Vehicles 100.31. Phone equipment 90.21. Footwear 79.3

Table 5: Main products imported from China, 2012•Source: Peru’s Customs Office: http://www.aduanet.gob.pe/aduanas/informae/MPaisPartMensual_01122012.htm

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. 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

Graphic 2: Stock of FDI in Peru, million dollars

Source: http://www.proinversion.gob.pe/0/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=0&PFL=0&JER=1537

 STOCK DE APORTES AL

CAPITAL POR PAÍS DE ORIGEN

(Millones US$) 

País 2012 % % Acumulado

España 4,818.57 21.25% 21.25%EE.UU. 3,012.47 13.29% 34.54%Sudáfrica 1,740.17 7.67% 42.21%Chile 1,643.90 7.25% 49.46%Brasil 1,334.91 5.89% 55.35%Reino Unido 1/ 1,314.93 5.80% 61.15%Canada 1,276.23 5.63% 66.78%Suiza 934.65 4.12% 70.90%México 897.90 3.96% 74.86%China 796.48 3.51% 78.37%Italia 733.51 3.23% 81.61%Colombia 569.32 2.51% 84.12%Países Bajos 2/ 486.39 2.15% 86.26%Japón 436.79 1.93% 88.19%Noruega 402.82 1.78% 89.97%Otros 2,275.31 10.03% 100.00%

TOTAL 22,674.35 100.00% *Stock actualizado a diciembre de 2012. 1/ Incluye Dependencias Británicas y Territorios Británicos de Ultramar. 2/ Incluye Territorios de Ultrama

Table 6: Stock of FDI in Peru by country of origin, million dollarsSource: http://www.proinversion.gob.pe/0/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=0&PFL=0&JER=1537

Investment

In the last years Chinese companies have announced and are carrying out big investment. For example currently Chinalco Aluminiun Corp. is investing 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 January 2013 there is an amount of 54.68 billion dollars of investment mostly being currently carried on the mining sector, of which investment from China accounts for 22.35% of the total, or 12.21 billion dollars, the biggest one.

Graphic 3: Approved investment (and currently carried on) in the mining sector, by country, in million dollarsSource: “Cartera Estimada de Proyectos Mineros” Updated January 2013, Ministry of Energy and Mines http://www.minem.gob.pe/minem/archivos/file/Mineria/INVERSION/2012/CEP%20SETIEMBRE%202012.pdf

Investment

Lately Chinese investment in the fishing sector is active. The reason is that China is the main buyer of Peruvian fishmeal. On March 13 this year China Fishery Group Limited (CFGL) bought 9.9% of shares, valued at 54.8 million dollars, of Copeinca, one of the biggest Peruvian companies in the sector producing fishmeal. 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, and sometimes two or three times per year, they have had trouble with its labor union that had gone on strikes very often

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 several Confucius Institutes with Peruvian Universities to foment Chinese culture and language.

The Industrial and Commercial Bank of China (ICBC) established an office in Lima in the year 2012 with a capital of 50 million dollars to lend companies in Peru who want to buy goods from China

China is a member of the IADB

IV. FTA agreement between Peru and China

Peru has a FTA in effect with China from 2010. Peru expects to sell products with more value added to China.

The FTA agreement was initially opposed by some companies in Peru that were afraid of competing with China. In the agreement sensible sectors to China competition in Peru like textiles, garments, footwear were exempted from the lowering or elimination of tariffs

But Chinese imports are, for some Peruvians companies, unfair competition because of dumping and subsidies.

A representative case is of Chinese shoes, which even if they have antidumping duties imposed on them from the year 2000, have came to dominate the market for imported shoes.

Number of imported Chinese shoes and share in the market of imported shoes (in thousands –right hand-, and in %) Source: Quarterly Dumping and Subsidies Bulletin of Indecopi, december 2011, pag 5: http://www.indecopi.gob.pe/repositorioaps/0/5/bol/boletin_dumping_y_subsidios/Dic11CFD.pdf

By December 31, 2012, the following products from China have antidumping duties: several kinds of footwear (up to the year 2016), a kind of stainless steel flatware (up to the year 2016), several kinds of zippers (up to the year 2015), several kinds of poplin fabric type (up to the year 2015), several kinds of cotton fabric and mixtures with polyester (up to the year 2014), a kind of cotton denim fabrics (up to the year 2015), several kinds of plain weave fabrics (subject to examination), several kinds of sandals (up to the year 2014).  

In summary, at present, March 2013, 57% of antidumping duties imposed by Peru are to Chinese products. There are 8 duties imposed to China, two to United States, one to Pakistan, one to Vietnam, one to India, one to Spain and another one to Italy.

Peru expects more Chinese investment, not only to exploit raw materials, but also to produce manufactured goods for the internal market that is growing, and also to produce in Peru and from it to export to countries whom Peru has FTA agreements. Peru has achieved FTA agreements with major markets like the U.S., European Community, Canada, most of Latin American countries, Japan and South Korea.

Peru is in negotiating in the Trans Pacific Partnership agreement, TPP that will form a large free trade area among them.

Peru has formed with Chile, Colombia and Mexico the “Alianza del Pacifico” or Pacific Alliance, of 4 Latin American countries with borders in the Pacific Ocean and they will have a free trade area among them

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. 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

IV. Conclusions

China is an important economic partner of Peru. It is its 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, to the point as it was stated, that Peru Minister of Economy and Finance “prays every day” for this to continue. 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. 

Peru and China are nations experiencing robust economic growth.

They 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.’

Need to know the Chinese market to sell more value added goods and also to industrialize more the country.

Bibliography

Carlos Aquino: “Ties good, but could be better” (about relations between China and Latin America) , China Daily, February 10, 2012, http://www.chinadaily.com.cn/usa/business/2012-02/10/content_14579217.htm

Carlos Aquino: “China and Peru relations after 40 years of diplomatic links and two years of a FTA” April 24th, 2012, UNMSM http://economia.unmsm.edu.pe/noticia/2012/PeruChina_24.4.12.pdf

Jiang Shixue: “Understanding China relations with Latin America” http://www.sinolatincapital.cn/Upload/2009929184158.pdf

“El imperio chino superará al imperio español” http://acontecer-ahora-es.blogspot.com/2010/08/el-imperio-chino-superara-al-imperio.html