Chile-China trade relations: Challenges and opportunities
Dorotea López
Professor
International Studies Institute, University of Chile
Chile
Andrés Bórquez
Professor
International Studies Institute, University of Chile
Chile
Chile has had one of the most active trade policy performances in Latin America during the last 40 years. Since Pinochet’s dictatorship, this country has established an active trade opening plan following the paradigms of liberalism and State non-intervention. Then, economic integration has been one of the pillars of its development strategy. During the 1970s, Chile carried out a profound unilateral reduction of the country’s existing tariff and non-tariff barriers. The beginning of the democratic period (1990) was a decisive moment for the country, with a consensus on the need to continue with the insertion but with a different strategy, defining negotiation as the main principle. This allowed the new government to differentiate from the previous period and recover the country’s diplomatic relations. Chile’s commercial diplomacy of negotiating free trade agreements (FTAs) has been part of this wider geostrategic vision. Today Chile is the country that has signed most FTAs in the world and the first Latin American country to sign an agreement with China.
China has increased its trade engagement worldwide under the framework of China’s “going out” policy, establishing more diverse forms of interactions. China’s entrance to the World Trade Organization in 2001 was considered a turning point for world trade, its participation in APEC has been relevant to building a framework for its approach toward economies in the region. After this period of adaptation, China began a new phase of interaction in global trade through the Belt and Road Initiative which aims to develop infrastructure and connectivity of countries along different regions. This opening into the world as a key trade actor, has had an impact on the Latin American economies in many aspects: culturally, educationally and politically, and the relation is experiencing an interesting period. The economic ties between China and Latin America have increased dramatically in recent years.
Even though Chile and China are two countries that are geographically far apart, they have developed a very strong relationship. Chile was the first South American country to establish diplomatic relations with China in 1970, and the first country outside Asia to sign the FTA with China in 2005. Moreover, Chile supported the accession process of China to the WTO in 2001. In 2004, in the APEC forum, the FTA negotiations were launched between the two countries, and on October 1st, 2006, China signed its first FTA with a non asian country. In November 2018, Chile signed a cooperation agreement on the Belt and Road Initiative and upgraded its bilateral free-trade agreement with China in March 2019. The expanded agreement deepened the chapters that are relevant, such as trade, trade in services, electronic commerce, rules of origin, technical and economic cooperation, and trade rules. In 2021, the Export-Import Bank of China became the third Chinese bank to operate in the country. Chile joined the Asian Infrastructure Investment Bank in July 2021 and has been a member of the Belt and Road Initiative since 2018. Actually, the relationship is becoming stronger and China concentrates more than 38% of Chilean exports. Chile has become China’s major supplier for a variety of goods and commodities ranging from copper and molybdenum to fresh cherries, grapes and plums. In recent years, fresh cherries have been an export phenomenon: In 2022, Chile sends 88% of its cherries (worth over $2 billion) to China.
Some critics point out that China is reproducing the reprimarization of economy with some countries. Nearly 50% of the Chilean export basket consists of one product, copper, and the country is highly dependent on its external sector. Therefore it is clear that Chile has to diversify products and destinies of its exports as well as to incorporate small and medium enterprises. For some experts, Chinese–Chilean relations have crossed the threshold to a new phase that goes beyond copper and could be an opportunity to address these challenges.
For this, Chile must also establish strategies to access the markets of China’s inner regions, which have been less explored despite being areas where the emerging middle classes are increasingly demanding quality imported products. Along these same lines, the distinctive “Chile brand” must be strengthened so that the new products and services that are exported to China can be inserted without starting from scratch.
Among the new opportunities offered by the Chinese market, there is space to develop specialized food products for an increasingly sophisticated Chinese consumer. Mainly, non-traditional products are identified, such as snacks (sticks, chips and cereal bars) that incorporate both food from the traditional diet and highly healthy food and bottled wines. Additionally, some services with potential opportunities for the new Chinese middle classes are identified: Chile is an attractive place for international tourism and is one of the countries in the Latin American region that has paid the most attention to the digital economy. This could facilitate the export of e-commerce services, virtual education, computer games industry, amongst others.
Finally, the relations between Chile and China will face some challenges beyond economy. On one hand, there is a growing tension between China and the United States – the first being the major trading partner and the second country being the first investor of Chile. The rise in tension has increasingly become challenging for Chile in trying to stay neutral in a possible conflict between these global powers. On the other hand, Chile is in the middle of important domestic transformations, such as its constitutional process, which could have an impact on the relationship.
Expert article 3292
>Back to Baltic Rim Economies 4/2022
To receive the Baltic Rim Economies review free of charge, you may register to the mailing list.
The review is published 4-6 times a year.