‘Accords with China a hallmark in Argentina's foreign relations history’
Chinese investment is seen to reach US$600 billion a year by 2030, mainly oriented to Brazil's and Argentina's manufacturing industry, an expert said
Despite protests that the accords signed this year between Buenos Aires and Beijing are shrouded in secrecy, strongly asymmetrical, and that they will deepen the trade commoditization of Argentina — one of the world's largest food exporters — an outstanding international relations expert hails them as a hallmark in Argentine history.
“The accords signed with the People's Republic of China and passed into law by the Argentine Congress are one of the great achievements in the history of Argentina's foreign policy," said Jorge Castro, who served as Strategic Planning Secretary under neo-conservative Peronist President Carlos Menem (1989-1999).
Under the administration of the late President Néstor Kirchner (2003-2007) Argentina became a strategic partner of China, a relationship which Kirchner's widow and successor, Cristina Fernández de Kirchner, upgraded to an integral strategic level in a meeting with President Xi Jingping in 2014.
"In today's international trade, investments are more important than the exchange of goods. This is the essential content of a free trade accord which China, Argentina and Brazil will reach in some way or other in the coming five to 10 years," said Castro.
"Chinese investment, the world's leader, is estimated to reach US$600 billion a year by 2030, mainly oriented to Brazil's and Argentina's manufacturing industry, besides the extraordinarily relevant Chinese investments in the infrastructure field," he added.
Castro was addressing a business forum on the Mercosur trade bloc, China and the Arab countries for 2030, organized this month by the University of Buenos Aires’ School of Agronomics led by Engineer Fernando Vilella.
Although the Kirchners initially supported fellow-Peronist Menem, they afterwards blamed his market-oriented policies for many of the problems which have led to Argentina's current economic crisis.
Under the accords signed with Beijing, China itself will be the one providing financing for the mammoth infrastructure works it plans to build in Argentina, including Argentina's fourth nuclear plant, a space base and hydro-electric dams.
The plan is part of China's infrastructure expansion worldwide, including a US$40-billion channel to link the Atlantic and the Pacific oceans to rival the Panama Canal.
Several international relations experts have harshly criticized the accords signed by Fernández de Kirchner and Xi, alleging that very little information has been made available, that they involve the cession of Argentine sovereignty, and that they will deepen Argentina's trade commoditization pattern. The UIA industrial lobby claims that, in the face of its dire financial straits, Argentina has negotiated "on its knees."
But Castro emphasized that the relationship with China is "decisive" for the insertion of Argentina and all South American countries in the international scene.
Mostly isolated from international financial markets and technology, Argentina has also forged a strategic partnership with the other Asian giant — Russia.
Fernández de Kirchner last week paid her second visit to Moscow and signed accords with President Vladimir Putin, who visited Argentina last year.
Russia is to build a nuclear plant in Argentina.
Agribusiness at the core
The key to the relationship between China and Argentina lays on the Argentine agribusiness production, one of the three world leaders.
With a population of 1.34 billion people, China is feeding a fifth of the world population while it only has seven percent of the world's fertile land and is undergoing the biggest urbanization process in history. A total 300 million peasants are seen going from the countryside to cities between 2015 and 2030. This happens when the per capita income is doubling every eight years. This means that China is almost doubling its food demand over the growth rate of its population at a time when it is also experiencing the largest diet transition in history through the massive flow to the consumption of animal protein.
According to the IMF, China's per capita income stood at US$8,394 in 2014 as measured by the domestic purchasing-power capacity. And this takes place in a full urban employment situation with real salaries growing 20 percent over the past six years.
This is why China has abandoned the food self-sufficiency of its population and has placed it in the hands of thee countries: the US, Brazil and Argentina.
'this gives Brazil and Argentina a strategic relevance regarding China's demand and priorities, which have a unique character in this world context."
The US Department of Agriculture estimates that soy imports will exceed 120 million tons in 2022-2023.
“The reason for the exceptional growth of grain imports is that pork, poultry and beef consumption is skyrocketing," the expert said.
Castro gives a flurry of figures. He says that the key feature of the Chinese economy in 2015 is not that it is slowing down. Instead, now it is expanding at a pace equivalent to that of five years ago, with a new accumulation mechanism.
China has grown 7.4 percent a year in 2014, with 7.3 percent in the last quarter, its lowest level in the past 25 years, four points below the period between 2001 and 2008, when it reached an average of 11 percent per year, he said, adding that, at the same time, China reduced its investment rate as compared to the same period of the previous decade.
There are other fundamental data about the Chinese economy.
In the first place, the fact that services are now growing at a faster pace than the industrial sector, Castro said. The service sector grew 12 percent last year vis-a-vis an 8.3 percent increase of the industrial manufacturing GDP.
Secondly, the per capita income of the rural population has expanded faster than that of the urban population: 11.2 percent versus 10 percent.
And finally, retail sales rose 12 percent in 2014, pushed by on-line purchases, which rose 49.7 percent, expanding China's online business base to 450 million consumers.
All this takes place while the labour force shrank last year by 3.7 million workers. If this labour level is maintained, the Chinese manufacturing industry will have 50 million workers in 2030, but the productivity will be 10 times higher, Castro said. Today, the Chinese manufacturing industry has 150 million workers. In 2030 they are set to number less than 100 million.
At the same time, he added, a crucial fact in international terms is that real wages have risen 20 percent over the past six years, expanding production through increasingly sophisticated technology. This process increases the added value and redefines China's comparative advantages in the world market.
'the slowdown of the Chinese economy doesn't diminish its world relevance. On the contrary. It increases it," Castro told the forum.
The key fact is that China's GDP growth of 7.4 percent in 2014 — due to a wider economic base —is tantamount to the 11 percent growth China posted in 2010, with the addition that now more jobs are being created than in 2010, when the growth rate was four points higher that the present one, he said.
Last year, 13 million jobs were created and — for the first time in China's reform process and economic opening since 1978 — the largest chunk, perhaps up to 60 percent, were created not in the manufacturing sector but in the services sector.
In constant dollars — not in domestic purchase capacity — the Chinese GDP stands at US$10 trillion, an expansion of about seven percent a year over 5-10 years, tantamount to the creation of an economy the size of Australia per year: US$1.5 trillion, Castro said.
The Chinese participation in world trade stood at 35 percent in 2014 while the US participation was 15 percent. As a result, the unanimous criterion of international agencies is that the Chinese economy is today the largest in the world: US$17.79 trillion as measured in domestic purchasing-power capacity terms.
A new, China-led Asian development bank
To properly gauge China's relevance for Argentina in the 21st Century, one has to ponder the full significance of Britain's decision in late March to become a founding member of the new Asian Infrastructure Investment Bank (AIIB) created by China in an open challenge to the US, Castro said.
China says 57 countries have signed on as members of the new bank, but the US is not among them.
Three days after the British announced that they were joining the bank — which has an initial capital of US$100 billion provided by China — Germany, France and Italy made similar decisions.
The World Bank has estimated Asia's infrastructure needs at US$8 trillion.
British Chancellor of the Exchequer George Osborne, upon justifying the decision of Premier David Cameron to join the AIIB, said that it aimed to turn the United Kingdom into a magnet for Asian investment in Europe on the assumption that by 2025 China will complete the internationalization process of its currency, the renminbi, which entails the full incorporation of China's domestic savings of US$5 trillion (compared to the US’ US$3 trillion domestic savings) — into the international financial system, Castro said.
Britain is also assuming that China's GDP will treble over the next 15 years to US$30 trillion from US$10 trillion while its domestic savings are expected to grow from US$5 trillion at present to US$12 trillion in 2030.
This means — and this directly affects China's relations with South American countries and with Brazil and Argentina in the first place — that China's foreign investment will grow sixfold in 2030 to US$600 billion a year, Castro said.
China's total international trade in renminbi-yuan stood at 0.7 percent in the first six months of 2010. It grew to nine percent in 2011 and to 35 percent in 2014. At this pace, it is likely to reach 65 percent of China's international trade — the world leader — in 2025, the expert said.
“To ponder the role of China in the present world context, rather than its growth figures, we must track the trends of its development."