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

36 Pages Posted: 27 Feb 2012

See all articles by Theodore Moran

Theodore Moran

Georgetown University; Center for Global Development

Barbara R. Kotschwar

Peter G. Peterson Institute for International Economics; Georgetown University

Julia Muir

Peter G. Peterson Institute for International Economics

Date Written: February 17, 2012

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.

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

JEL Classification: F14, F16, F21, F22, F59, O16, O54, Q31, Q32, Q34, Q37, Q38

Suggested Citation

Moran, Theodore and Kotschwar, Barbara R. and Muir, Julia, Chinese Investment in Latin American Resources: The Good, the Bad, and the Ugly (February 17, 2012). Peterson Institute for International Economics Working Paper No. 12-3. Available at SSRN: https://ssrn.com/abstract=2007277 or http://dx.doi.org/10.2139/ssrn.2007277

Theodore Moran

Georgetown University ( email )

Washington, DC 20057
United States

Center for Global Development

2055 L St. NW
5th floor
Washington, DC 20036
United States

Barbara R. Kotschwar (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Georgetown University ( email )

Washington, DC 20057
United States

Julia Muir

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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