China's growth as the factory of the world requires ever increasing amounts of raw materials. Latin America has become a strategic source of raw materials for China's manufacturing process. It is also a supplier of agricultural goods to feed China's people.
This has led to an increasing involvement by the Chinese in Latin America's Economy. The Chinese government and its oil company, CNOOC, have invested US$400 million in gas exploration in Venezuela. China Minmetals Nonferrous Metals Co. has invested US$2 billion in a joint venture with Chile's state copper giant Codelco. Baoshan Iron and Steel has invested US$1.4 billion in a joint venture with Brazilian iron-ore giant CVRD for the construction of a new steel plant in Brazil. Yanguang Group has created a new coal company in Brazil in a joint venture with CVRD and Japan's Itocho Corp. Chinese petrochemical corporation Sinopec has an alliance with Brazil's state oil company Petrobras.
The Chinese also are beginning to move higher into the supply chain itself. This is the next natural move. What is the point in investing in raw material if you cannot get it back to China quickly and profitably? Chinese and Korean companies are lobbying for a new Pacific freight port in Baja California at Punta Colonet. This is a US$1 billion investment, aimed at reducing congestion at U.S. Pacific ports, and most importantly, at increasing the efficiencies of getting Chinese imports into the Americas.
As long as China wishes to maintain its economic growth rate, it will depend on raw materials from Latin America. This will drive commodity prices, which will remain strong through 2009, leading to strong currencies in South America. The influx of liquidity will continue upstream into the supply chain, galvanizing the logistics segments of the major Latin American countries.
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