How should Ecuador and Latin America manage their trade relations with China?

During the past 15 years, Latin America and China have built an unprecedented relationship, which has meant an annual increase of more than 130 percent in commercial flows on average since the year 2000. However, the model is starting to show limitations resulting from the fall of prices and reductions in the demand for raw materials by the Chinese market, evidencing the still vulnerable Latin American economy in the face of the external conditions. 

As a result of this reality, a report was presented in Quito: "Economic perspectives of Latin America 2016: Toward a new association with China". This document poses a series of analysis and recommendations for the region to take advantage of China's socio-economic transformation, to be able to capitalize the opportunities as part of its development agenda.  

During his welcoming speech, Bernardo Requena, CAF's Director Representative in Ecuador stated, "The book proposes the optimization of financial flows to counteract the deficiencies still present in the region, and identifies opportunities that are important for Ecuador, such as the development of tourism, and the export of agricultural products with value added, to mention some examples". At the same time, Wang Yulin, Extraordinary and Plenipotentiary Ambassador of the Republic of China in Ecuador, highlighted part of the Chinese policy toward the region through "a new definition of the relations between the two parties as an association of comprehensive understanding between China and Latin America and the Caribbean, characterized by equality, mutual benefit, and shared development". 

During the event, Adriana Arreaza, CAF's Director of Macroeconomic Studies, and Juan Vázquez, Economist of the Development Center at the OECD, were in charge of presenting the report, which among its conclusions, mention that trade between China and Latin America has experienced a strong expansion, but trade of raw materials is reaching its limits, and new strategies must be found to consolidate the association with the Asian giant which has been, and will continue to be, an element of real change for the region and the world.  

As part of the event's agenda, a conversation took place regarding the "Vision of Ecuador and its strategic relation with China", which analyzed the current and future trade relation from the State's perspective, between Alejandro Dávalos, Vice-minister of Foreign Trade and Simón Cueva, Regional Academic Director of Laureate. Lenin Parreño, Chief Economist at CAF Ecuador moderated the panel.

One of the main conclusions of this forum, was that Ecuador, as well as the rest of the region, is not yet prepared to respond to the changing needs of the Chinese market, which demands increasingly less primary products, and it is not prepared to sign a free trade agreement either. 

There was also talk about the need to transform the productive structure, and the importance of diversifying the offer of non-oil products -more technological with value added- and services, developing knowledge, skills, as well as defining favorable policies that facilitate access to that market. In addition, the important role of China was highlighted as a financier of projects and low foreign investment, representing another opportunity offered by the Asian giant in this transformation scenario.   

This report opens the debate about the present and future of Latin American and Chinese relations, considering the trends and challenges for both economies. This is the fourth edition developed, and the first time it is presented in Ecuador. 

The report is available in digital version at: www.latameconomy.org.