THE INFLUENCE OF CHINA’S ECONOMIC ACTIVITIES ON LATIN AMERICA

Abstract

Since 2001, China has been expanding its influence into Latin America, but this phenomenon has remained relatively underexamined. To help fill this gap, this thesis examines China’s bilateral relationships with Peru and Ecuador and examines the effect of China’s growing economic presence on their economic development. The main findings are that China’s loans and investments have supplied Peru and Ecuador with very short-term economic advantages, but their increasing financial presence also has adverse consequences that will likely worsen over time. This thesis identifies two major negative effects of China’s economic activity: 1) it exacerbates the resource curse through further deepening commodity dependence and undermining industrialization; and 2) increased Chinese investment in oil and mining provides short-term benefits, but also creates negative externalities such as pollution and deforestation, which are costly to address. In attempts to manage the China challenge, Peru relies on metal exports but successfully diversified into other service sectors, whereas Ecuador has been less successful in diversification, and its dependence on loans for oil has only deepened Ecuador’s debt. This thesis makes recommendations on how these countries can maximize the benefits from China’s growing economic presence, while minimizing the risks, and move toward more sustainable economic development.