MercoPress. South Atlantic News Agency

Latin America quick to dance to China's tune.

Perspectives on China's growing links with Latin America highlighted by this week's visit to the region of Chinese president Hu Jintao could not be more different

There is a growing recognition both in Latin America and international markets that the region could derive significant long-term benefits from its commercial relationship with China.

Walter Molano of the Connecticut-based BCP Securities, one of the first observers to spot the potential of the relationship a couple of years ago, says China enthusiasm is growing, especially in the south of the region.

"The China theme has taken a life of its own. The further away [you go] from the United States, the more it has caught on," says Mr Molano.

Hard economic reality underpins the connection that Mr Hu will cement by visiting Brazil, Argentina, Cuba and Chile in a two-week trip starting on Friday.

China's economy in spite of fears of a slowdown is still expanding at a rate of 9.1 per cent while its industrial output is expected to jump by 16.1 per cent.

That growth is sucking in ever greater quantities of raw materials being produced in Latin America.

Brazil is selling vast quantities of high-quality iron ore. Chile and Peru are selling copper and farmers across the southern cone are selling soya beans to the vast Chinese market.

Last year commodity exports from Argentina and Brazil helped Latin America produce a $3.3bn (?2.6bn, £1.8bn) surplus in its trade with China, contributing to a 50 per cent increase to $28.8bn in overall bilateral trade.

China is now Brazil's fastest-growing export market, with trade between the two countries quadrupling over the past four years. And in spite of one or two hiccups in the soya market, growth has continued this year.

Argentine exports to China in the first four months totalled $807m, 66 per cent higher than in the same period of last year.

And with demand from China's 1.3bn consumers growing rapidly, analysts suggest that there is potentially huge scope for further increases.

"Many Latin American countries are well positioned to supply the Chinese market with agricultural products, processed food and drink," said a recent report by the Inter-American Development Bank.

"As incomes grow, tastes should also diversify in China, offering opportunities for growth of exports such as wines, coffee, meats, fruits and vegetables."

The booming commodity trade has helped Latin America generate trade surpluses and for the moment at least overshadows fears that low-cost Chinese manufacturers will steamroller their Latin American counterparts, especially in countries like Mexico, Honduras and the Dominican Republic that have made extensive inroads in the US market in sectors such as textiles and electronics.

"On average, and in spite of some exceptions, Latin America is a clear trade winner from Chinese global integration," says a recent draft report by BBVA, the Spanish bank.

Many countries are now beginning to realise that China's need to secure future supplies of raw materials offers the prospect of large quantities of direct Chinese investment. Chinese companies already have stakes in iron ore mines in Peru, oil fields in Ecuador and gold mines in Venezuela.

Last year about $1.04bn flowed into Latin America from China, accounting for 36.5 per cent of the year's total, according to statistics from China's commerce ministry. And that amount could be about to rise significantly.

After his ninth trip to China in just 18 months, Luiz Fernando Furlan, Brazil's development minister, reported in May that he expected to secure $5bn in investments in projects ranging from a new railway to improvements to two ports.

"The Chinese are giving a lot of priority to Latin America," says Javier Santiso, chief economist for Latin America and Emerging Markets at BBVA in Madrid. "Increasingly it is not just about trade but direct investment as well."

Yet there are obvious dangers. As so often before, Latin America could again become too dependent on a narrow range of volatile commodities. At the same time, the region could find itself a prisoner of China's own economic performance and would be badly hit if the Asian giant were to stumble.

On the other hand a prolonged period of Chinese expansion might provide the region with the surplus it needs to reduce debt levels and reinforce recently gained macro-economic stability.

Mr Molano suggests the China connection could even pave the way for Latin America to capitalise on its strengths as a low-cost producer of raw materials. If that happened it could open the way to the re-emergence of a development model based on the classical economic concept of comparative advantage rather than on more recent ideas such as import substitution.

"China gives a new hope to Latin America to be a viable part of the world," he says. (FT)