China/Latin America's New Scenario
Chinese economic policy has lead China to become one of the most important countries in the world. Nowadays that assertion seems so obvious that people normally forget that it is a result of a long, admirable, calculated process.
China has been constantly taking measures to boost its enormous economy. Although China`s GDP growth fell from 11.9 % for the whole of last year to 9.0 % in the third quarter with more pessimistic forecasts in the future, the US$ 586 billion (RMB 4 trillion) stimulus plan announced by the government, the cut in interest rates for the fifth time in three months, and the reduction of the Bank’s reserve ratio by 50 basis points, proves that China is taking serious measures to persist in its sincere aspirations to become the world's largest economy.
These measures mainly seek to rebuild rapidly weakening confidence and unleash domestic demand by pumping money into the economy in order to restore high growth rates and thus maintain China’s social stability.
The stimulus plan represents around 16% of China’s total economic productivity in 2007, and is almost equivalent to the sum of all central and local government spending in 2006. Beijing’s stimulus announcement clearly gave global markets an immediate boost (The Shanghai Composite Index added 7.3%, Tokyo's Nikkei 225 Stock Average rose 5.8%, Hong Kong's Hang Seng Index rose 3.5%, and shares in London, Frankfurt and the U.S. were higher as well.), but the real question is whether or not it will have a lasting effect domestically.
We are more inclined to think that China’s stimulus plan will have an extended internal effect because it is combined with several other critical measures. A clear example is the Chinese government's decision to make employment for millions of recent university graduates and workers laid off from export-intensive industries its top priority. Another policy that will contribute to extend the effects of the implementation of the stimulus package, and to the surprise of many readers accustomed to hearing about China’s growing greenhouse gas emissions, is China's robust domestic climate change policy that aims to diversify its energy sources and to reduce greenhouse gas emissions by increasing the use of natural gas and renewable energy sources.
China’s enormous quantity of reserves will also contribute to extend the internal effect of the stimulus package and thus strengthen China’s position in the new global scenario. It is no secret that the hegemonic powers feel a bit uncomfortable with China’s predominance so they are trying desperately to avoid this. As a mater of fact, last week UK prime minister Gordon Brown called on Beijing to use its reserves, officially valued at just under $2,000bn, to help the IMF bail out those countries worst affected by the credit crisis. But China’s stockpile of foreign assets is actually much larger and growing far faster than official foreign exchange reserve figures would suggest.
China’s tangible situation demands a decisive shift in policy both to keep the country’s finances on track and to dampen international criticism of Beijing’s growing financial muscle. In order to steer clear of that international appreciation and to further highlight its closer ties with the region, China has released its first “Policy Paper on Latin America and the Caribbean,” just ahead of President Hu Jintao's November 16-22 Latin American tour.
According to Yang Wanming, Director-General of the Department of Latin American and Caribbean Affairs of the Foreign Ministry, "The Policy Paper was formulated with an aim to further clarify the goals of China's policy in this region and outline guiding principles for future cooperation”.
In Latin America, one of the top priorities today is the improvement and expansion of infrastructure projects. China’s Policy Paper also addresses this, stating that the country will, “strengthen practical cooperation with Latin American and Caribbean countries in transport, information and communications, water conservancy and hydropower and other areas of infrastructure development.
As Latin America continues to play a major role in the global economy, we can expect that its cooperation with China, in all respects, will only continue to get stronger. Diaz, Reus & Targ is not only witnessing this process but also playing an active role in the Latin American infrastructure development by being involved in the most important projects in the region.
Federico J. Tabja LL.M.
Associate Attorney
Diaz Reus & Targ LLP
