The Chinese Prime Minister will visit Peru during the third week of May to strengthen more the bilateral relationship.
China and Peru have old economic, political and cultural links. Peru was the first Latin American country that established diplomatic relations with China in 1874 (with the then Qing Empire), and was one of the first in the region to establish relations in November 1971 with the People´s Republic of China. Peru was the first to receive large scale immigration form China beginning in 1849, and up to the year 1872 it is estimated that 100 thousand Chinese came to Peru. That is the reason why Peru is home to the largest Chinese community in Latin America.
Trade between the two countries and investment from China has increased by leaps and bounds from the 1990s. In 1994 Peru exported only 140 million dollars to China, in the year 2012 it reached a peak of 7.8 billion dollars (and the total trade amount was of 15.6 billion dollars that year). In the year 2013 and 2014 exports to China decreased a little because price of primary goods (that constitute 96% of goods that Peru exports to China), decreased, but even so the total trade reached a record of 15.8 billion dollars in 2014. China is now the biggest trade partner of Peru.
Demand from China for primary goods has benefited a lot to Peru. Thanks to the high price of these raw materials, because of China strong demand, Peru economy grew at high speed the last decade. In the last few years, with the slowdown of economic growth in China, prices of these raw materials have decreased and Peru economy is suffering the consequences.
Imports of cheap Chinese goods have benefited many Peruvian consumers that can now afford to have many goods from clothes, electrical appliances, smartphones, and now even Chinese cars. But also some Chinese imports have created a lot of competition to Peruvian industries like textiles and shoes. Some of this competition has been found to be unfair, because some Chinese goods have been doing dumping. By March 2015, of the 10 antidumping measures imposed by the Peruvian government, 6 are against Chinese goods, mostly in the textile and shoes sector. One more antidumping duty against imports of Chinese hot rolled steel tubes was imposed last month, in April [1].
In the investment side in the year 1992 the Shougang Corporation bought the iron mine Hierro Peru paying for it 120 million dollars. It was the first foreign investment by China outside Asia. Now the investment from China to Peru has increased multiple times. According to statistics from Peru´s Ministry of Energy and Mines, with data up to February 2015, of the current and planned investment in the mining sector of 63.9 billion dollars, around 35.4% come from China, that´s around 22.6 billion dollars. China is now the biggest investor in the mining sector in Peru and also is increasing its presence in other sectors like petroleum and gas, and fishery.
In 2010 a Free Trade Agreement was established between China and Peru that now has become a Comprehensive Strategic Partnership Agreement. Also Peru and China are members of the Asia-Pacific Economic Cooperation fora, which will celebrate next year its Leaders Summit meeting in Peru.
Regarding economic cooperation from China in the last years this has increased. China has made donations, as the one on 2009 when it sent ambulances to the Peruvian Red Cross, or more recently this year 2015 when the Chinese Embassy in Peru donated construction material to some districts affected by natural disasters in Lima, the capital of Peru.
The bilateral cooperation includes several aspects. The one showed above, and in the education and cultural aspects. China has established several Confucius Institutes in some Peruvian Universities, to teach Chinese culture and language and is increasing the number of scholarships given to Peruvian students (one of my students is now in Beijing doing his PhD studies in Economics for example).
But many more things can be done in the economic cooperation field. For example:
- Peru is in an urgent need of development of its physical infrastructure. More ports, airports, and highways are needed. China has the experience, the companies, and the money to help in this field. In this respect there is an interesting project that look for to join together Brazil and Peru in a transoceanic railway, connecting the Atlantic and Pacific Ocean. This project is also of enormous interest to China because it will allow that resources and goods from Brazil go to China through this railway to a port in the Pacific in the Peruvian side, instead of having to go north to pass through the Panama Channel. Last year when President Xi Jinping came to Brazil the idea was proposed and seems this will be implemented in the near future. It is expected that in its visit to Peru Premier Li Keqiang will also talk about this project with Peru´s President.
- Peru is looking for to establish industries to give more value added to the plenty of raw materials that it has. Peru internal market is becoming bigger thanks to the economic growth (one of the fastest in the Latin American region, with a growing middle class in the country) but also Peru is a member to the Pacific Alliance a market of 4 countries in the Pacific side of the region (Chile, Colombia, Mexico and Peru). Besides this, Peru has many Free Trade Area (FTA) agreements, with countries like USA, European Union, and Japan, to name just a few, so if Chinese companies come to establish manufacture sites in Peru they could produce goods not only for the internal market but for other biggest markets where Peru goods has free access thanks to the FTA that the country has established.
- In the field of tourism to encourage Chinese people coming to Peru, home of the ancient Inca Empire, simplification of formalities to get a visa, and specially the establishment of more direct air flights should be a priority. It is expected that Chinese airlines could establish more direct links to Peru, because now the trip between Peru and China involves going through North America or Europe, making the trip longer.
- Also in order to deepen understanding of each other country we should encourage an exchange of visits of people at every level. Exchange visits at the political level, academic level, and business level. In this sense the visit of Premier Li Keqiang to Peru is a good way to deepen that understanding. Also, to increase economic relations, businessman of each country should know each other better. Each country have different cultures and idiosyncrasy so there is a need to understand to conduct business smoothly. Also exchange of visits of young people is needed so in this way future leaders of each country should know each other better.
- At a general level, China experience with economic development is something worth knowing and learning. The rapid economic growth of China, that began 36 years ago, have lessons for every developing country. Especially the way that China is transforming from producing mainly low-skilled goods to producing now high-skilled goods, with more value added, is a path that every developing country should try to follow.
- Finally, as still developing countries China and Peru should collaborate in the international level in order to have an international system open and free of hegemonic trends of any country.
[1] “Indecopi dictó medidas antidumping a la importación de tubos de acero de China”
https://alertaeconomica.com/indecopi-dicto-medidas-antidumping-a-la-importacion-de-tubos-de-acero-de-china/
