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Chile Holds Own in Global Market

While other countries fear China and maintain high tariffs; the Latin nation is tearing down trade barriers to Beijing.

October 14, 2006|Marla Dickerson | Times Staff Writer

SANTIAGO, Chile -- Chinese competition has put hundreds of textile manufacturers in Latin America out of business. It gave Jose Ramon de Camino Muxi a new start.

After visiting China many times in the 1990s, the Chilean entrepreneur was convinced that his family's wool and cotton operations would be shredded by mammoth factories there. But he didn't despair. He decided to let China do his manufacturing for him.

De Camino now peddles Chinese-made footwear through his 10 Payless ShoeSource retail shops in Chile. And he sells wholesale shoes and fabrics with the "Made in China" label to mom-and-pop stores around the country. De Camino said his $12-million enterprise is growing 20% a year. Business has never been better.

"China is my partner," he said on a recent afternoon amid the clatter of electric drills and hammers wielded by construction workers expanding his jam-packed warehouse. "I would not like to have the Chinese as an enemy."

De Camino's if-you-can't-beat-'em-join-'em attitude is an example of how Chile has cobbled one of Latin America's most successful trading relationships with the Asian giant. While other countries in the region maintain high tariffs on Chinese goods, Chile is busy tearing down trade barriers.

Over the last decade, China has become Chile's second-largest trading partner, behind the United States. Chile signed a free-trade agreement with China last year, the only Latin American country to have done so.

That might seem foolhardy for a nation of only 16 million souls, whose manufacturing base is dwarfed by that of the world's most populous country. But Chile ran a $1.9-billion trade surplus with China last year, mainly because of surging copper exports to feed voracious Chinese demand.

Chinese-made merchandise is swamping store shelves and showrooms in Chile. Chinese imports hit a record $2.5 billion last year, about 8.5% of Chile's total purchases from foreigners. China supplies nearly half of Chile's imported consumer goods such as clothing and electronics, up from one-tenth in 1996.

But in contrast to countries such as Mexico, where domestic producers are clamoring for protection, Chilean manufacturers are among the strongest supporters of the free-trade deal with China.

"You can't close the door. That's the reality," said Patricia Perez, general manager of a Santiago-based medical products company and president of AsexmaChile, an exporters' trade group. "We see an opportunity to find niches for our products in China ... and to make Chile a platform" for Chinese manufacturing and trade with the rest of Latin America.

That view is not widely shared across the region despite a Chinese-led commodities boom that is fueling robust economic growth. In addition to snapping up raw materials from aluminum to wood pulp, China is investing in railways, pipelines, highways and satellites. Analysts credit low-cost Chinese-made consumer goods for helping keep inflation in check and for boosting the buying power of the poor. Still, many in Latin America view China and other fast-growing Asian nations as rivals that are stealing jobs, soaking up foreign investment, threatening domestic industries and pushing them out of world markets.

In 1980, the combined economies of the nations of Latin America and the Caribbean were twice as large as those of China and India together. By 2004, they were 20% smaller than the two Asian countries, according to a recent World Bank report.

China and India's share of world exports is 50% larger than those of Latin America and the Caribbean. In 1990, the reverse was true. China's economy averaged 8.5% growth from 1981 to 2000, while Latin America's barely budged and poverty remains entrenched.

"Blame for the private sector's poor performance ... often falls on the growing presence of China," said the World Bank report released in August.

Mexico and the natural resource-poor nations of Central America are particularly wary. In contrast to their South American counterparts, they sell little to China and are running trade deficits with the Asian nation.

They are also losing out in export markets. Ten years ago, China wasn't even ranked among Chile's top-ten trading partners. Today it's No. 2, behind the United States.

Central America has lost thousands of apparel and textile jobs to Asia. Mexico, Brazil and Argentina together have initiated more anti-dumping cases against China than the European Union, the United States or Canada, according to the World Bank, which says the approach is counterproductive.

"Instead of responding with protectionist policies, the region should adopt offensive strategies to take advantage of the overall positive effects of high Chinese and Indian growth," said Guillermo Perry, chief economist of the Latin America region for the World Bank.

Chile, which is thinly populated but blessed with natural resources and educated citizens, has been opening its economy for more than three decades.

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