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Chinese Investment in Latin American Resources: The Good, the Bad, and the Ugly

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Author Info

  • Barbara Kotschwar

    ()
    (Peterson Institute for International Economics)

  • Theodore H. Moran

    ()
    (Peterson Institute for International Economics)

  • Julia Muir

    ()
    (Peterson Institute for International Economics)

Abstract

China's need for vast amounts of minerals to sustain its high economic growth rate has led Chinese investors to acquire stakes in natural resource companies, extend loans to mining and petroleum investors, and write long-term procurement contracts for oil and minerals in Africa, Latin America, Australia, Canada, and other resource-rich regions. These efforts to procure raw materials might be exacerbating the problems of strong demand; "locking up" natural resource supplies, gaining preferential access to available output, and extending control over the world's extractive industries. But Chinese investment need not have a zero-sum effect if Chinese procurement arrangements expand, diversify, and make more competitive the global supplier system. Previous Peterson Institute research (see Moran 2010) and new research undertaken in this paper, show that the majority of Chinese investments and procurement arrangements serve to help diversify and make more competitive the portion of the world natural resource base located in Latin America. For a more comprehensive analysis, we conduct a structured comparison of four Peruvian mines with foreign ownership: two Organization for Economic Cooperation and Development-based, and two Chinese. We examine what conditions or policy measures are most effective in inducing Chinese investors to adopt international industry standards and best-practices, and which are not. We distill from this case study some lessons for other countries in Latin America, Africa, and elsewhere that intend to use Chinese investment to develop their extractive sectors: first, that financial markets bring accountability; second, that the host country regulatory environment makes a significant difference; and third, that foreign investment is a catalyst for change.

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-3.

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Date of creation: Feb 2012
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Handle: RePEc:iie:wpaper:wp12-3

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Keywords: Chinese foreign direct investment; foreign direct investment (FDI); natural resources; Peru; environmental impact; corporate social responsibility.;

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  1. Theodore H. Moran, 2010. "China's Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa92, November.
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Cited by:
  1. Andrea Bonilla, 2014. "External vulnerabilities and economic integration. Is the Union of South American Nations a promising project ?," Working Papers halshs-00945044, HAL.
  2. Andrea Bonilla Bolanos, 2012. "External vulnerabilities and economic integration. Is the Union of South American Nations a promising project?," Working Papers 1238, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.

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