Saturday, November 19, 2005

Free Trade accord with China

Chile has a Free Trade agreement with China. 92% of Chilean exports to China, are now tax free, and only 52% of Chinese export to Chile are tax free. So it looks like a good accord, specially for consumers and producers who will have the time to adjust to the Chinese products competition. However, more important than that, from the China point of view, is the better access to the other Latin America markets (Brazil, Argentina) through the pacific ocean for its textile and manufactured products, investments and technology . On the other hand, improve ties with Latin America as trading partner, is an important step , for dealing with other important countries in the global scene.
According to available data, trade between China and Latin America ,has increased from U$$ 200 million in 1975 to U$$ 40.000 million in 2004.China investments in the region are U$$ 37,700 million, and the expectation is to move this figure upward in the coming years..
Economics projections based on the five year plan, (october 2005)for the period 2006-2010, indicates that China economic growth is expected to be 7,5% on annual average and its GDP to become U$$ 1,38 billions in 2010, twice the level of the year 2000. In his recent “China Trip report”, New York University ,Professor Nouriel Roubini ( ), suggest that as far as China economic growth is unbalanced,(rural-Urban unbalance), and with key prices currently distorted, excessive investment growth, excessive real estate investment and export growth is more a signal of this prices distortions than healthy economic expansions. So, sooner or later bottle necks may arise along the way. For instance, energy requirements are very important for economic growth ,but at the same time it implies higher level of investments to match the growing energy demand, This investment projects requires energy prices to be high enough to get back some return, but whether this price is artificially low, so it will be the expected return. The result, underinvestment in a key sector , can reduce the speed of growth.-
Chile benefits from this Free Trade accord, are related to the chance of diversify its market even more, and to make higher scale of production, an incentive for higher investments levels and stable export growth, as long as it can compensates commercial troubles in other export markets.-

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