Boston University Professor of Global Development Policy Kevin Gallagher gave a lecture titled “What is Latin America’s China Plan?” in Mergenthaler Hall on Monday. In his talk, which was hosted by the sociology department, Gallagher discussed China’s recent investments in Latin American countries.
“We’re in a little bit of a new phase for China and Latin America economically,” he said. “Latin America has to step up to the plate and do something about it, or they’re not going to be able to take advantage of it.”
According to Gallagher, China was not on the radar of Latin American countries in 1999, but by 2013, it became the primary trading destination for South America and secondary destination for most of Mexico and Central America.
He further explained that the recent boom in Latin America mirrors a similar boom following the Industrial Revolution in the U.S. and Europe, when people moved from the countryside to the city and began importing more commodities.
“They needed a lot of agricultural goods, textiles and raw materials from the rest of the world for the industrialization process,” Gallagher said. “Latin America... had a lot of that silver and gold and coffee, or at least the conditions to grow some of these things.”
Gallagher elaborated that in addition to importing, these modernizing countries also invested heavily in Latin America in order to increase the amount of commodities that region could produce.
Recently, China has been investing both by developing new plants in the region and by merging with and acquiring Latin American companies. He added that these investments have primarily been in natural resources and infrastructure.
“We estimate that there are about $170 billion worth of funds across the world in different regions,” Gallagher said. “Latin America is the second largest.”
Gallagher explained that after the 2008 financial crisis, higher interest rates in Latin America caused China to invest more in the region.
“What [China was] doing was largely borrowing in U.S. dollars at low interest rates and reinvesting in countries like Peru, Chile, Colombia and especially Brazil where interest rates were eight to 14 percent,” he said.
According to Gallagher, the China Development Bank is the ninth largest bank in the world and has been a core component of Chinese economic growth. Gallagher said that in 2003 and 2004, the China Development Bank began loaning money to foreign governments for public projects similar to other financial institutions such as the World Bank, which provides funding for developing countries.
“They’ve loaned about 160 billion dollars to Latin American governments, which is more than the World Bank,” he said. “They’re the biggest developmental financier in Latin America.”
Gallagher also noted that increases in carbon emissions and water use in Latin America can be attributed to China’s involvement.
“Exports to China are almost twice as carbon intensive and almost 10 times as water intensive as general economic activity in Latin America,” he said.
Additionally, areas in which China is investing are often biologically diverse and hotspots of indigenous peoples, which Gallagher said can create problems.
Gallagher also discussed how changes in the Chinese economy may cause them to import more commodities from Latin America.
He explained that this is particularly important as commodities prices have been declining globally since 2013.
Gallagher concluded the talk by saying that although Latin America has suffered from a difficult political and economic landscape in the past, the China boom gives them a new opportunity.
“We’ve got growth in the region for the first time in two and a half years,” he said. “Can they capitalize on this new opportunity with the Chinese or, like the Industrial Revolution with the UK and with the United States, will they take one or two steps back?”
Freshman Sabrina Sussman attended the event to gain a better understanding of Latin America.
“I haven’t really focused on Latin America in my studies so it was interesting to see how China investment caused the boom,” she said.
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