Churros in Beijing: Does China Understand Latin America?

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Walking around Beijing or Shanghai these days, it’s sometimes difficult to tell you are in China. Instead of the mom and pop shops that once defined Chinese neighborhoods, you’ll now find Korean clothing boutiques, Taiwanese milk tea shops, international fast food chains, and brightly-lit sneaker stores lacking a clear national identity.

China’s largest cities are indeed international; residents who only decades ago would have been isolated from the outside world, are now often as cosmopolitan as their counterparts in other large Asian cities. They easily identify European luxury brands, contrast America’s largest cities, recount the beauty of Thailand’s beaches, and top it all off with a barely-accented “C’est la vie.”

But for all of these leaps in cosmopolitanism, there remains a tremendous lack of understanding, even among highly-educated Chinese, of fellow developing countries. Among these, Latin American countries top the list. Despite China’s rapidly increasing presence in the region, Latin America remains inaccessible to most Chinese, not only geographically, but linguistically and culturally. Even Brazil, a fellow BRICS member, is poorly understood by most.

This lack of awareness is partially attributable to the fact that extensive interaction between China and Latin America has only occurred relatively recently. While Chinese migrant populations have been present in Latin America for generations, it wasn’t until 2001, and former President Jiang Zemin’s historic visit to the region, that China’s dealings in Latin America expanded much beyond Taiwan-related political jostling.  In the past few years, China has signed free trade agreements with Peru, Chile, and Costa Rica; rapidly strengthened its strategic alliance with Brazil; and invested in energy and resource-related projects throughout the region. Trade between China and Latin America exceeded $100 billion in 2009. 

But increasingly robust economic ties have done little to impact understanding among the majority of Chinese. A mere handful of Chinese academics study Latin America, and when they do, it is usually within the context of energy policy or economic development theory.

There is a general perception among observers that China is doing a much better job of understanding Latin America than Latin America is of understanding China. In Adrian Hearn and Jose Luis Leon-Marnriquez' recently-published book, China Engages Latin America: Tracing the Trajectory, Dr. David Shambaugh argues that "compared to Beijing's communities of Latin American experts in think tanks, universities, and government, there is a pressing need for expertise on China in Latin America." In a report today on NPR, correspondent Juan Forero described China's impressive "charm offensive" in Brazil, as well as its sophisticated and multilingual diplomatic corps.

There have indeed been efforts in China to address perceived cultural and linguistic deficiencies. Chinese institutions, for their part, are slowly beginning to emphasize Latin American studies. The Chinese Academy of Social Sciences (CASS), a government-affiliated think tank, ramped up Latin America-related research in recent years, and also opened a new Center for Brazilian Studies. In addition, a few more Chinese, especially in the business world, are now studying Spanish and Portuguese.

But although China has a slight linguistic advantage, and perhaps a leg up with regard to cultural understanding, it still has a very long way to go. Chinese Academy of Social Sciences Institute of Latin American Studies (CASS ILAS) scholars are well-versed in Latin American culture and history, but there are only approximately twenty-five of them and many have just begun studying the region. Ministry of Foreign Affairs representatives have impressive Spanish and Portuguese skills, but their commentary on Latin America often seems limited to "white paper"-inspired platitudes. In addition, while the research and policy communities in Beijing may have an advantage over counterparts in Latin America, general Chinese and Latin American populations typically know very little about each other.

Due to the contributions of expatriate populations, hints of Latin American culture are increasingly apparent in China’s largest cities, albeit to a limited degree. In Beijing or Shanghai, one can easily satisfy a craving for Brazilian barbeque or find a fairly authentic Mexican taquería. On Beijing’s Nanluoguxiang hutong, a trendy, well-preserved Ming dynasty-era street, Chinese youth line up in the dozens in front of a churros stand. Only a few miles away in the Sanlitun district, a latin dancing club attracts hoards of smartly-dressed Chinese with polished dancing skills. But if you ask the Chinese patrons where tacos originated, or about the Latin American countries where salsa dancing is most popular, or even about the languages spoken in Latin America, the answers are generally not of the same caliber as the merengue footwork.

As China and Latin America continue to engage economically and politically, cross-cultural familiarity will be of increasing consequence for both parties. Latin America certainly lags far behind other regions in China studies, and stands to lose a great deal by misreading China’s intentions. The Asian giant has had a transformative effect on much of the region and future interactions must be considered carefully. An appreciation for China’s language and culture, as well as its global perspectives, will be invaluable to Latin American countries seeking to assert themselves as viable partners, and not simply as sources of natural resources and commodities.

As a new global player, China would also benefit from a more thorough understanding of the regions in which it is currently operating. Greater familiarity could reduce labor-related tensions, ease joint ventures, expose untapped markets, or alleviate fears of Chinese neo-colonial intentions.

With China-Latin America interaction poised to increase over the next few years, the current degree of cross-cultural understanding remains strikingly insufficient. 

Will China's "ghost cities" haunt Latin America?

There are many signs that China’s economic growth could begin to slow. Inflation has increased over the past few months, export growth is slowing, unemployment remains high, and labor costs are rising. The central government is even tempering growth expectations among the Chinese population. In a speech in March, China’s premier Wen Jiabao (温家宝) set a growth target of only 7 percent over the course of the 12th Five-Year-Plan (2011-2015) in order to "ensure sustainable development." 

As reported in most major newspapers today, research conducted by China's national audit office suggests high levels of local government debt throughout the country. This mounting local government debt will also threaten China's economy.

According to David Barboza of the New York Times, local debt accumulation began when China implemented a $586 billion stimulus in 2008 and then provided massive amounts of state-backed lending in 2009 and 2010 to independent investment companies.

Problems really began when these bank loans were used for ambitious local-level real estate and infrastructure projects including luxury high rises, residential complexes, and even entire cities complete with hospitals, schools, museums, parks, and stadiums.

While basic infrastructure projects are welcome in many of China’s rural areas, this boom in construction created an excess of unaffordable housing and flashy infrastructure projects that don't necessarily meet the needs of local populations. As Gillam Tulloch explained in a June 16th Business Insider article: "China consumes more steel, iron ore and cement per capita than any industrial nation in history. It's all going to railways that will never make money, roads that no one drives on and cities that no one lives in."

In rural Anhui province, for example, posters in the tiniest of villages indicate planned construction of luxury high rises with manicured landscaping, swimming pools, and well-dressed fully middle-class residents. A quick glance around development sites, however, suggests an entirely different reality. Residents live in poorly constructed cement buildings with only basic amenities; their ability to afford luxury housing is questionable at best.

As a result, newly-constructed skyscrapers and housing projects often remain vacant. There are even cases of "ghost cities" without a single resident. (See Business Insider slideshow for photos.)  

Many argue that this phenomenon is evidence of a growing and dangerous real estate bubble in China. If this bubble were to burst, they say, the consequences will be felt globally. Others warn about the possibility of a related sharp rise in nonperforming loans. According to the NYT’s Barboza, Credit Suisse recently downgraded its profit forecasts for Chinese companies and state-owned banks, as it warned of slowing growth for the overall economy.

If China's property bubble were to deflate, or if the economy were to slow for any number of reasons, we should expect a subsequent material slowdown in demand for commodities, and especially for construction-related commodities such as steel, iron ore, cement, and oil. According to Vikram Mansharmani, “approximately half of Chinese steel consumption is in construction...a slowdown in construction would reduce global demand for steel and also for iron ore."

Considering that Brazil, Chile, Argentina, Peru, Venezuela and other Latin American countries have benefited tremendously from the export of commodities to China over the past few years, the consequences of slower growth in China could be felt throughout the region. According to an article published by the IMF’s Vivek Arora and Athanasios Vamvakidis in the December 2010 edition of Finance & Development, in the short and medium term, “a 1 percentage point shock to China’s GDP growth is followed by a cumulative response in other countries’ growth of 0.2 percentage points after three years and 0.4 percentage points after five years.” And, according to their research, the impact would be felt predominantly through trade channels. It is highly possible, of course, that countries reliant upon construction-related commodities exports to China will be hit much sooner and much harder.

The extent to which China's “ghost city” phenomenon will impact Latin America depends upon China’s ability to foster economic growth while restricting bank lending and implementing measures to control inflation. While China's massive store of foreign reserves could help to avoid a debt-related crisis scenario, lending restrictions and interest rate hikes could slow economic growth by making it harder for small and medium-sized businesses to access much needed capital.

The burden will also fall on Latin America. As Kevin Gallagher argues in his book The Dragon in the Room: China and the Future of Latin American Industrialization, although Latin American exports to China are relatively small as a percentage of total exports, Latin American nations must use revenue from high-priced, China-bound commodities in order to weather future economic crises, alleviate poverty, and diversify economically. A lack of forward-thinking in this regard could very easily impact future economic well-being.

China is forecasted to grow at respectable rates over the next decade (World Bank predicts 7% growth). A growing middle class and the urbanization of its sixty percent rural population practically guarantees continued development and a sustained thirst for commodities. However, as a result of the many economic challenges that the country is facing, and in light of evident banking sector vulnerabilities, a slowing of economic growth in China is very possible. And the impact of even a slight economic downturn will likely be felt globally. Latin American nations must continue to take precautions against China’s weakening economic growth.