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August 19, 2008 |
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| August 12, 2008 |
By: Wayne Tompkins |
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hen Mario Sacasa hears about the
surge in trade between China and Latin America, he has only to
glance at a world map to see the potential rewards for South
Florida.
“We are basically
a distribution platform, if you will, with a good
infrastructure, good logistics, good financial network,
telecommunications and so forth to serve as a distribution
center, just like the Europeans have been doing now for
years,” said Sacasa, senior vice president for international
programs at the Beacon Council, which focuses on Miami-Dade
County’s economic development.
China needs raw materials — oil, copper, soy,
iron ore — to fuel its economic growth. It’s finding them in
Latin America, building relationships, making investments and
weaving itself into the fabric of the region’s economy and
politics.
In the process, however, it’s challenging the
long-dominant United States in ways that could upset Latin
America’s geopolitical and economic balance.
That could pose challenges as well as benefits
for South Florida’s economy, and exporters, economists and
trade officials recall the oft-told myth that in Mandarin
Chinese, the word for crisis is also the word for opportunity.
Only, in this case, that just might hold true.
Just as important as South Florida’s geography,
Sacasa adds, “It is the United States. That brings a lot of
stability that the companies find useful and also from a
business standpoint more efficient. Executives want to live
here.”
But while South Florida could find ways to
benefit from China’s ambitions, there are plenty of reasons to
be wary.
“The United States government does have a concern
about the growing trade between China and Latin America,
because they believe they are taking away opportunities that
U.S. multinational corporations or the government might
otherwise have in the region,” said attorney Michael Diaz,
managing partner of Diaz Reus in Miami who has worked
extensively with companies in both Latin America and China on
international trade issues. “It’s not just the Chinese; you
have the Middle East investing heavily in Latin America. In
2007, for the first time in Latin America’s history, you had
over $100 billion in foreign direct investment.”
China’s $102.6 billion in trade with Latin
America in 2007 is more than double the $50 billion in
business it did with the region two years earlier, but, for
now, it remains well below the $560 billion Latin America-U.S.
relationship.
Unfettered trade rules
While China does not pose a military threat to
the region, it also isn’t bound by the same trade rules and
regulations as the United States.
“For example, the Foreign Corrupt Practices Act;
all the things that keep our hands tied when doing business
abroad,” said Mark Weiner, an attorney who recently joined
Katz Barron in Miami to start an immigration and international
practice group. “Right off the bat, culturally, the Chinese
have more in common with Latin America than they do with us.
In terms of their political structure, their civil law, or
common law they are much more familiar with and can get things
done faster dealing with a Latin American country.”
Weiner said China has been signing free-trade
agreements with Latin American countries — they’re about to
finalize one with Peru — while over the past eight years the
U.S. has largely neglected the region.
“They’re financing bilateral investment treaties
with South America, which is dangerous because Latin America
is moving to the left,” he said.
For example, China’s dearth of natural oil
reserves has compelled it to court Hugo Chavez, president of
OPEC member Venezuela.
“It wants its oil, it needs its oil. They have
very little of it,” said Neal Asbury, a Fort Lauderdale
businessman who chairs the South Florida District Export
Council. “They’ll be going to people like Chavez and offering
him just about anything he wants. There is risk there
politically.”
Whatever the strategic and economic implications,
the courtship of China and Latin America was inevitable, said
Manuel Lasaga, an economist who heads StratInfo in Coral
Gables.
“South America has an abundance of raw materials
and natural resources that China needs and China also sees
Latin America as a good market for its own products. So
there’s a very natural base for growing trade between the two
continents,” Lasaga said.
Now that it has two suitors to play against one
another, Latin America will come out a winner on many levels,
but also needs to be mindful of downsides.
China’s economic footprints are felt in the
booming exports countries like Argentina and Brazil have
enjoyed in products ranging from soybeans to copper. That
promises to be a boon to South America, where countries such
as Brazil are seeing a growing middle class, but also a cause
of growing pains. Soaring revenues for soy and sunflower oil
in Argentina sparked a bitter, months-long fight between the
government and farmers over who would keep the spoils. Chile’s
booming copper profits sparked labor unrest as miners demanded
a larger share of the profits.
Hopes that China would invest in Latin America’s
long-neglected highways and railroads, a means to move exports
more cheaply and efficiently, have yet to materialize.
Manny Mencia, senior vice president for
international business development for Enterprise Florida, is
among those who believe that even a perpetually growing
Chinese presence will help South Florida.
“That part of the world has helped Latin America
continue its expansion even in the face of a U.S. recession,”
Mencia said. “That changes a historical pattern, which is
every time the U.S. economy sneezed; Latin America went into
the tank.”
A Chinese market still consuming tremendous
amounts of commodities even in the face of declining U.S.
demand has kept Latin America afloat, and by extension South
Florida’s economy, Mencia said.
“Last year was unprecedented: We were close to
$45 billion in origin exports from the state. We’re doing 21
percent better this year and a significant amount of that is
with nations of Latin America. Our exports to Brazil are up
over 35 percent this year.”
Mencia said that international business has been
crucial to cushioning Florida’s economy against the state’s
real estate driven economic downturn.
Threat exaggerated
Others argue that the Chinese threat is overblown
— that its glory years of miraculous economic growth are past
and that the world’s most populous nation faces internal
challenges of its own. Crucially, economic pressures are
raising the cost of doing business in China, undermining its
competitive position.
China’s stock market has lost over 50 percent of
its value in less than eight months, housing prices are
plunging, electricity rationing is afflicting several
provinces, upward wage pressure and public unrest is growing,
environmental problems abound and a 2006 Ernst & Young
report estimated that the Chinese financial system is carrying
close to $1 trillion in bad debt, said William Gamble, who
heads the consulting firm Emerging Market Strategies and is
the author of two books on China.
“They have enormous inflation, but they can’t
raise the renminbi (China’s currency, whose unit is called the
yuan) because that throttles their export market,” he said.
Fort Lauderdale
exporter Asbury, whose Greenfield World Trade does business in
both regions, said the Chinese currency remains from 20
percent to 25 percent undervalued, still giving that country
an advantage.
“China is under tremendous pressure from its
world trading partners to get the renminbi valued at where it
should be, or better yet let it float and find its own level
like other major trading currencies,” said Asbury, whose
company exports heavy commercial products, mostly targeted
toward the commercial food service market.
“What’s going to happen over the next 12 months
is the renminbi is going to appreciate another 10 to 15
percent. Export tax rebates, which are against [World Trade
Organization] rules, are being withdrawn. They were 13
percent, they’re now 8 and some have gone away completely.”
Asbury said that a Chinese company could run at a
loss and still make money through its tax rebates, something
that he says will soon be a thing of the past.
“They’re going to have to be more financially
responsible,” he said.
The implications: “Thousands of companies in
South China are going to be going out of business because of
the renminbi appreciation and because of the tax rebates being
withdrawn. Labor rates and operational costs are going up.”
Asbury said. “Companies are saying, ‘Maybe we can be in
Vietnam, maybe we should be in India. It’s just too expensive
now to do business in China.’”
Enterprise Florida’s Mencia agrees that the China
threat is overblown, but for a different reason.
“If you look at what China sells in Latin
America, most of it does not really compete with our
products,” he said. “There are some telecom-related products,
but what they sell tends to be more labor-intensive, low-cost
producer driven while what we sell tends to be more
value-added, high technology: computers, information
technology, aviation and aerospace, transportation equipment
and health technologies.”
Even if China eventually catches up in these
areas, Mencia said, South Florida still maintains its
advantage as a financial and distribution platform.
He does have concerns for Latin America, however.
“Particularly smaller nations like in Central
America or the Caribbean Basin have been losing U.S. market
share to China for some of the commodities that they have
traditionally supplied our country with,” he said. “For
example, apparel and accessories. It is much better for
Florida for Latin American countries to sell products to the
United States than for China to sell the same product to the
United States and cut out the Latin American suppliers.
Advantage of NAFTA
Asbury said a lot of Latin American countries see
China as a competitor, “and that’s a good thing.”
Mexico and Central American countries are
watching with alarm as Chinese companies begin underselling
them on world markets in areas such as textile manufacturing
and consumer products.
He said free trade agreements are crucial to the
U.S.’s competitive advantage.
“A lot of people are beating up on NAFTA,” Asbury
said of the controversial free trade agreement between the
U.S., Canada and Mexico that has been in place since 1994.
“It has meant incredible business for American
exporters; it has put millions of Americans to work. It’s
given Americans a huge advantage in Mexico.”
Meanwhile, he said, duties of Chinese products
going into Mexico have been between 23 percent and 30 percent.
“That just shows what the trade relationship with
the U.S. means and their suspicion of China, keeping the
tariffs and duties high,” he said. “In Central America, the
same thing exists. They just signed a free trade agreement
with the United States; they have bet their economic futures
on the trade relations with the United States, it’s hugely
important to them.”
Textiles made in Central America are competing
head-to-head with textiles made in China.
“The difference is textiles manufactured in
Central America have a much better chance of having American
content than Chinese,” Asbury said. The raw materials used to
manufacture textiles often are exported from the United States
to manufacturers in Central America, and then sent back as a
finished product.
“China has almost no American materials in
textiles being exported to the U.S.,” he said
“That business [textile manufacturing] isn’t
coming back to the United States, but it would be great to
bring it back closer to our border.”
Lasaga, the Coral Gables economist, said Latin
American countries “won’t put all their eggs in one basket.
“China can not sustain its growth rate,” he said.
“That will trigger more trade between Latin America and the
U.S. — particularly for the sourcing of production out of
Latin America for U.S. companies and consumers — because the
revaluation of the [renminbi] is going to increase the cost of
doing business in China.”
Even those concerned about the geopolitical
threat of China are optimistic that South Florida can find
several ways to benefit from Latin America’s popularity as a
global trading partner.
Miami attorney Weiner’s vision has the city
emerging as “The Hong Kong of the West,” a nexus of trade
between not only Asia and Latin America, but also Europe.
It’s a goal he says that is lofty, but not
impossible.
His advice: “Try to keep Florida as the place to
do your business in South America” while diversifying an
export economy still highly dependent on Latin America.
“Unless Miami stops taking its focus on just
doing business with Latin America, and thinking, ‘Wait a
minute, there is this superpower called China that we should
be courting …’ Miami’s not focusing on the Eastern bloc, the
Czech Republic, Poland, Romania, Bulgaria, which are friendly
with the Americans, but totally neglected.”
Diaz said
business and political leaders need to recognize the changing
trends in global trade.
“You have two regions of the world where there’s
a great amount of liquidity, both the Middle East and China,
and that will increase the demand for services from our
financial industry, from our professional services here in
South Florida, as we are not only a gateway to Latin America
but we’re a gateway to the rest of the world.”
South Florida should also welcome the infusion of
liquidity that comes with Latin America growing trade.
“I believe,” Diaz said, “that we are going to be
the direct beneficiary of that as the closest city that can
service the needs of folks both in goods and services.”
Mencia says he believes the trends that have
already made Miami a center for Latin American trade will only
accelerate.
“You’ll see more Chinese companies coming to
Florida as their operations in Latin America mature,” Mencia
said. The key advantage is logistics.
“It is a lot easier communicating, traveling from
South Florida to many parts of the Americas than it is
inter-regionally, even if the distances are shorter,” he said.
“If you’re going from South America to the Caribbean Basin and
even places in Central America, often it is easier to transfer
through Miami.”
South Florida also is the central data processing
and telecom hub for the nations of the hemisphere, Mencia
said.
South Florida’s diverse Hispanic population means
that companies can find neutral ground amid international
rivalries.
“We have a multilingual, multicultural workforce
and if you’re doing a lot of business in Colombia and you’re
looking for someone to manage that market, you don’t have to
hire a generic Latino to run that operation, but you can hire
a Colombian who understands the culture of the specific
markets where you are doing business.”
Lasaga said the widening of the Panama Canal also
needs to be closely watched, to see how it will impact trading
patterns that could help or hurt South Florida.
The canal’s widening would allow additional large
ships to onload and offload their cargo in Miami, Lasaga said.
“To the extent that Miami has the infrastructure
in terms of warehousing facilities for transshipment of goods,
then it would help us,” he said. “That, of course, hinges on
additional investments here in Miami as far as improving the
capacity of the port,” and the dredging of the port so larger
ships can be accommodated.
“It’s in our blood. It’s in our DNA,” Asbury said
of South Florida’s world trading role. “We are a very
sophisticated trading city and bringing Latin America closer
to the U.S. economically is great for South Florida. As China
becomes more expensive and more business finds its way back to
Latin America, that relationship with South Florida will
become even more important.”
Wayne Tompkins can be reached at (305) 347-6645.
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Reader's comments
Franck Dossa @
www.CondHotel.com said:I strongly believe in South
Florida as a trade center. I think that this is the
right time to maket it to the Euopean company, showing
them that they can use South Florida as the gateway for
their products and services towards the USA and Canada,
as well as the Caribbean and Latin America. Then there
is another avenue which is totally neglected: South
Florida is geographically close to Africa, where you
have tons of natural ressources, from precious woods to
oil and diamonds. This something that needs to be
developped. Franck Dossa @ http://www.CondHotel.com
Aug. 15 at 2:37
a.m. | |
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