Chinese investment in Peru exceeds US$13 billion

13 years have passed since Peru and China signed the Free Trade Agreement (FTA), consolidating their economic relationship.

According to figures from Sunat Customs, for the first half of this year, exports to China amounted to US$11,137 million, a growth of 10.7% compared to the same period in 2022.

This advance has been driven mainly by the mining sector, which has experienced an increase of 12.9% during the first months of the year, reaching US$9,975 million.

Furthermore, according to Mincetur, for the first four months of 2023, exports exceeded those of last year by 6.6%, due to exports of fishing products such as squid (+887%) and minerals such as zinc (25.5%), lead (+8%) and copper (+7%).

In 2022, the trade balance between both countries was also positive: exports to the Chinese market were 32.9% (US$20,791 million) and imports reached 26.2% (US$15,782 million).

direct investment

China is not only the main trading partner, but also one of the countries that invests the most in Peruvian territory. According to the Peruvian Chinese Chamber of Commerce (Capechi), the Asian country maintains the largest foreign direct investment (FDI), which until May 2023 amounts to US$13.6 billion.

Likewise, according to the figures that Proinversión provided to La República, the Finance and Mining sectors concentrate more than 80% of FDI.

In detail, in the finance area, investment began in 2018 with more than US$50 million and grew to US$370 million by 2020, reaching a total of US$942.4 million at the end of 2022. The main companies involved are Yangtze Andes Holding Co, Limited (YAHCL) and the Industrial and Commercial Bank of China (ICBC).

In mining, the figure is around US$157.8 million, and the companies include Shougang Corporation, Zijin Mining Group and Zibo Hongda Mining.

In the construction sector, the investment reports US$7.2 million. A highlight are also the projects underway, such as the Port of Chancay and the Río Blanco, Pampa de Pongo, and Toromocho Expansion mines, among others (see graph).

Different routes

Beyond the trade side, both countries have followed divergent economic paths.

On the one hand, Peru has relied heavily on agriculture and mining, while China has carried out structural reforms since 1995, diversifying into high-skill, high-income industries.

Rosario Santa Gadea, director of the UP Center for China and Asia-Pacific Studies, indicated that Peru moved to an economy based on low-productivity services and extractive mining.

“It was not possible to transform the economy, which remained based mostly on natural resources and never developed a structure based on the export of manufactures,” said Santa Gadea during the presentation of the book In Search of a Path to Avoid the Middle Income Trap: The cases of China and Peru co-organized by the Center for China and Asia-Pacific Studies of the UP and IWEP.

In contrast, María Amparo Cruz Saco, a master’s degree in Economics from the University of Pittsburgh, highlighted that China has made great progress in manufacturing, achieving great assimilation of technology and innovation, which are exemplified in the Chinese space program, high-speed wheels. speed, the production of electric vehicles and the solar industry.

High gaps

An investigation by economists Roberto Urrunaga and José Luis Bonifaz reveals a large infrastructure gap between Peru and the countries that are part of the OECD, of US$86,117 million, and with China, of US$55,000 million.

57% of this deficit is found in the transportation sector, while in water and sanitation the differences are 34%, and 9% in the telecommunications and energy sectors.

Urrunaga warns that investment in transportation – where Peru has the highest gap – was key to the development of infrastructure in China.

Along these lines, he highlighted that financing in this area by the Asian giant was based on a combination of tax revenues and public debt.

“They were obtained from the sale or rental of land, and then the taxes that created these new infrastructures. This gave rise to many local governments being the promoters and executors of the projects,” the specialist stressed to this medium.

Keys

Presence. Peru is the third Latin American country preferred by China after Mexico and Brazil, according to a Capechi report.

Historical ties. 53 years have passed since the opening of diplomatic relations between Peru and the People’s Republic of China.

Informality in Peru and China

According to the latest INEI report, labor informality affects 73.5% of Peruvians. In contrast, research carried out by economists Alejandro Flores and Jorge Heredia reveals that in China these levels are zero.

In that sense, China would have developed a strategy to accompany companies that begin to have certain levels of informality, helping them transition towards formality. An example is the case of Shang Tsai, a company dedicated to the development of telephones, which obtained contributions from the Chinese Government for capital and technological opening.

The support increased their productivity. “Peru should perhaps consider starting a similar public policy,” Flores suggests.

The word

Rosario Santa Gadea, director of the UP Center for China and Asia-Pacific Studies.

Can the economic development paths of China and Peru converge? “This requires an internal agenda in Peru and a plan for international economic insertion with the horizon 2050.”