China as a region composed by China mainland, Hong Kong, Macao and Taiwan, she is in her New Economic Growth. China has faced an important development since 1978 and in deep since 1998. At the beginning of this era, they invested their obligatory saving in capital and then they got high human productivity and private rights close to market mechanism. Colombia has not been absent from this “Economic Growth Miracle”, Chinese residents in Colombia increased from 519 in 1960 to 5,122 in 2010, trade indicator increased from 0.06% in 1962 to 11.92% in 2012 and FDI as stock from China increased from US$240.6 thousand at chained prices of 2012 in 1968 to US$76.9 million in 2012, moreover Colombia’s GDP cycle will be explained by China’s GDP cycle about 29% in the next four years. Unfortunately, Colombian government does not pay attention to this positive economic relation, it is evidenced by works from international agencies where Colombia is not in the poll of Latin American countries that has strong relations with China. In addition, the lack of Chinese banks in Colombia is other evidence of poor government work on this issue, foreign banks after immigration are the first step to develop economic relations between countries. Finally, China’s GDP growth is a variable that is taking into account to forecast the Colombian economic growth rate of 3.2% in 2013.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: Humberto_Bernal
Since China had deep economic reforms in 1978 and 1998 her impact on Colombia economy has not been trivial. China faced a transformations in her agrarian productivity, private property and economic openness through structural reforms and their effects on Colombia economy can be evaluated through higher Chinese as residents in Colombia, higher FDI from China in Colombia and higher international trade between these countries. One can divide this China’s New Economic Growth in three periods as many authors do, first one between 1948 and 1978; second between 1978 and 1998; finally from 1998 to present. Through the first two periods Chinese worked on local infrastructure and local private property, the last period they have been working in international economy, therefore the main results from China and Colombia relationship come from this last period. This note highlight few economic facts due to China and Colombia relation since 1960 and points an issue to work on to get Colombia inside China’s economic agenda.
Since 1978 China has been working hard in building political and economy relations around World and Colombia has not been absent. The president of Colombia Julio Cesar Turbay (1978-1982) opened a close relation with China through Colombian embassy in China, the ambassador was Julio Mario Santo Domingo (colombian magnate). Of course, there were immigration of Chinese to Colombia before 70’s, they came in huge volume at the beginning of twenty century as workers in Panama Canal and as workers in railroads, therefore they settled close to Atlantic coast in cities such as Santa Marta, Barranquilla and Cartagena.
Chinese in Colombia are about 5,122 of people in 2010, they started to come to Colombia in huge volume since 1960 as figure 1 shows, they came to Colombia to search economic opportunities (better standard of living due to economic environment in China, they faced the Great Leap Famine between 1959-1961) and as a bridge between China and the United States. The volume of Chinese in Colombia increased in high magnitude after 2006 due to abolition of VISA to get in. Those Chinese who decided to take Colombia as a home work on hotels and restaurants mainly, for instance there was about 11.5% of Chinese residents in Colombia working in this sector between 2005 and 2010, there were others working in transport and communication, they were about 3.13% of residents between 2005 and 2010 and there were 1.1% working in education between 2005 and 2010, this last share can be higher at the end of 2012 due to Colombia and China set up agreements in Expo Shanghái 2010, there is a program for students and teachers in both countries through exchange. In Colombia and other countries, it is under Confucius Program. However, since 2010 there has been outflows of Chinese from Colombia, it can be explained by deceleration of Colombian economy and better economic environment in Peru, Brazil and Chile.
Figure 1. Chinese residents in Colombia 1960-2010
(number of people)
Source; World Bank Data, Bureau of Economic Statistics (DANE) and Migration Colombia.
Most of Chinese in Colombia work as employees, they were 40.6% of total Chinese between 2005 and 2010, those who have business and give employment to Colombians were 23.9% of total Chinese in Colombia and those who has a small business were 35.4% (inside this percentage are those who own Chinese restaurants and hotels). There is Chinese unemployment in Colombia but it is transitory due to they are so laborious and creative, fact that Colombia has to be aware to improve their competitiveness. Most of Chinese in Colombia live in Bogotá with 40.4% of total Chinese between 2005 and 2010, other places enjoyed by them are Pereira and Medellín with 23.4% and 21.3% respectively. There are other places where they live such as Santa Marta, Puerto Colombia, Barranquilla, Cartagena and Tuluá as figure 2 shows. Chinese residents in Colombia are 57% males and 43% females, moreover 19% are single, 76% are married and the others are widower or divorced. Chinese in Colombia are young, 20% are between 1 and 30 years old, 62% are between 1 and 50 years, these information come from last census in 2005. Most of them counts with secondary education, it means 44% of total Chinese residents in Colombia, and those with tertiary education are 13%.
Figure 2. Chinese residents in Colombia by municipality 2005 - 2010
(%, percentage of people)
Source; World Bank Data, Bureau of Economic Statistics (DANE) and Migration Colombia.
Big business between China and Colombia
FDI as stock from China in Colombia reached a value of US$76.97 million chained of 2012 prices in 2012, this FDI shows an important positive trend since 1995 and huge volumes since 2000 as figure 3 shows. The first important FDI inflow from China in Colombia was in 1968, the volume invested was US$53 thousand (US$240.6 thousand at 2012 prices), it appears, this investment was in Social Services activities such as education, health and so. Nowadays, the main economic activities of big Chinese firms are wholesale business, real estate and vehicles business, there are few big firms in crude oil sector; transport and communications; and hotel and restaurants. Some of these big firms are Sinopec International Petroleum, Megafer (Wholesale), Tuluá Motors, International Parts Service Ltda (Vehicle parts), Huawei technologies Co (consumption products and communications) and ZTE (technologies of communications). Tuluá Motors is one of the oldest Chinese firms in Colombia they have financial information since 1995. There are future government projects that will bring huge Chinese FDI and local employment such as the project signed between Hydrochina and Cormagdalena to improve the Magdalena river navigability, however this project goes too slow, theres is no results still, the only information is on government servants traveling to China and social meetings.
Figure 3. China FDI as stock in Colombia* 1968-2012
(US$ million chained of 2012)
*FDI as stock without crude oil investment. Crude oil investment from China was approximately US$373.4 thousand in 2006, it comes from Sinopec Equity.
Source; Central Bank Colombia; Romero, N.1987; De Lombaerde, P. 1997; and own calculations.
International trade indicator (exports plus imports between Colombia and China as percentage of total exports plus imports from Colombia) between China and Colombia showed a positive trend as figure 4 shows. This trade was tiny in 1962, it was 0.06%, since 1999 it started to take value, it was 1.15% and increased to reach 11.92% in 2012, the main goods exported by Colombia to China were coal, crude oil, iron, steel copper, skins, plastics and chemical products, therefore most of exported products are raw materials, while Colombia imports from China electronic products, electrical equipment, machinery, vehicles, footwear, textiles, organic chemicals, toys and rubber, those products imported by Colombia are finished products mainly. The balance trade in this case is in favor to China, it means the exports value is lower than imported value from Colombia, in 2012 it was US$6.4 million in favor of Chaina.
Figure 4. Trade indicator between Colombia and China 1962-2012
(% of total trade balance in Colombia)
Colombia and China are getting a close relation as other countries in the region do. Colombia’s GDP cycle and China’s GDP cycle is shown in figure 5, as one realizes there is a Contra- Cyclical relation between 1979 to 2003, then the cycle starts to be Pro-Cyclical but in 2012 the cycle differs. It means, at the beginning of 80’s there was no problem due to low economic trade between Colombia and China and low FDI from China into Colombia, but the issue took relevance since 2000 when Colombia started to depend of China in trade and FDI inflows, therefore there is a new Leader Economic Indicator that has to be taken into account by policy makers in Colombia and it is the China’s GDP cycle. I did this homework and results are: the Colombia’s GDP variability will be explained in 29% by China’s GDP variability in the next four years, 20% will be explained by USA’s GDP variability and the rest by other internal and external variables, these results were taken from a Vector Correction Model (VEC) forecasts.
Figure 5. Colombia and China GDP cycle 1970 - 2012
(normalized series, quarterly data)
Moreover, taking into account this information and local variables shown in table 1, Colombia GDP’s growth depends mainly on China’s GDP growth and USA’s GDP growth. Forecast results for Colombia on 2013 are a Colombia’s GDP growth of 3.2% (government forecast is between 4.1% and 4.5%, it will be so difficult to reach it while local GDP from industrial sector shows negative growth); Coffee production forecast is 7.2 million of 60kg sacks, crude oil production forecast is about a million of crude oil barrels per day; unemployment will be around 9.6% and the Colombia Stock Price index will face an increase to reach 14,262.9 units. These forecasts take into account a USA’s GDP growth of 1.7% on 2013 (International Monetary Found forecast was 1.9% on April of 2013) and a China’s GDP growth of 7.8% on 2013 ( the IMF forecast was 8.0% on April of 2013).
Table 1. Forecast of main economic variables 2013
(VEC model)
Variable
|
2012
|
Forecast 2013
|
USA GDP growth (%)
|
2.2%
|
1.7%
|
China GDP growth (%)
|
7.8%
|
7.8%
|
Colombia Coffee production
(thousand of 60kg sacks)
|
8,181
|
7,248
|
Colombia Crude oil production
(average daily barrels)
|
969,770
|
1,040,859
|
Colombia Stock Price Index
(IBGC)
|
14,121.3
|
14,262.9
|
Colombia Unemployment (%)
|
10.2%
|
9.6%
|
Colombia GDP growth (%)
|
4.0%
|
3.2%
|
Source: Own calculations. Stata 12.1.
Issues to work on by Colombian government
Colombia counts with 12 big firms with Chinese capital on 2012, unfortunately the number of big firms showed a decline since 2006 when there were 23 firms, this decline can be explained by low economic performance in Colombia in the last years compared with economic performance in Peru, Chile and Brazil and poor government policies to attract FDI inflows to Colombia and hold it. For instance, the lack of Chinese banks in Colombia is evidence of poor policy management, foreign banks are the first step to improve FDI inflows from source country and other economic relations such as international trade. For instance, the main investors in Colombia such as Spain counts with BBVA Bank in Colombia, USA counts with City Bank, Chile counts with CorpBanca Bank and Falabella Bank, the UK counts with HSBC Bank and Canada counts with Scotiabank Colombia S.A but there is not private Chinese Bank in Colombia still!!!. Moreover, the absence of colombian government interest on China trade and FDI inflows is evidenced through official agencies such as Inter-American Development Bank (IDB) that broadcast works such as “China’s Emergence in the World Economy and Business Cycles in Latin America” where takes the China’s cycle impact on Mexico, Peru, Brazil, Chile, Argentina’s GDP cycle but not on Colombia’s GDP cycle.
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