THE GROWING ECONOMIC TIES between the People’s Republic of China and Caribbean states may appear to be symbiotic but deliberate precautions and steps have to been taken to ensure mutual benefit, otherwise benefits may be one-sided or limited.
As China’s growth rates moderate, financial market frailties are confronted, and the country shifts to a more consumption-driven model as opposed to an investment-driven one, China will have less demand for commodities and less surpluses that can be recycled into foreign direct investments and foreign loans. In addition, some observers claim that China has engaged in aggressive expansion, thus increasing its risk exposure.
That it may be in for an unpleasant awakening in the near future by repeating the errors of traditional development and Western commercial banks in terms of lending too recklessly to certain countries with unsustainable macroeconomic conditions and even volatile and uncertain political settings. These new developments may lessen Chinese interest in the Caribbean region, a trend which Caribbean policymakers need to take into account, revamp their own strategies of engagement with China based on short- and medium-term forecasts, and press for more impactful ties.
From China’s perspective, the Caribbean is a minor subregion, a relatively resource poor one with a relatively small market of 41 million people, compared with sub-Saharan Africa, Latin America, and South Asia.
China’s total involvement and exposure in the Caribbean Sub-region is comparatively small when viewed in light of its en-gagement in other regions of the world, especially South Asia and South America, and therefore its risks profile is much lower. From the Caribbean’s perspective, China represents a new export destination, an alternative source of capital, and a new source of tourists.
To tap into all the opportunities presented by China, however, Caribbean states will need to introduce policy changes and engage in several structural reforms to build competitiveness and become more dynamic and attractive, such as a manufacturing platform, a logistical hub, or a premier tourist destination for higher income Chinese.
The evolution of the growing economic ties has been in three phases. The first stage consisted of just trying to win diplomatic allies in international fora by using aid and finance to persuade Caribbean states to de-recognise Taiwan.
Simultaneous to this was the steady rise of Chinese exports as share in the total imports of merchandise goods. The second phase had been the growing presence of its construction firms working on public infrastructure projects and burgeoning direct investments in the extractive sectors (timber, gold, bauxite, oil, nickel) of the main commodity exporters in the subregion: Cuba, Guyana, Suriname, and Trinidad and Tobago.
As commodity prices decline, it is likely that Chinese outbound foreign direct investments to these countries will also diminish.
In the third and latest phase, Chinese investment is beginning to support tourist resort complexes (Antigua and Barbuda, The Bahamas, and Dominican Republic) and port and logistical facilities (The Bahamas, Jamaica, and Trinidad and Tobago), probably in light of tourism as the economic mainstay for much of region and the expected increase in shipping traffic associated with expansion of the Panama Canal.
As Cuba opens up to the massive US tourist market and positions itself to catapult pass the Dominican Republic as the largest tourist destination in the Caribbean, Chinese construction companies could be well positioned to assist in a hotel construction boom and related tourist infrastructure investments in Cuba given long-standing relations with the Cuban government already.
The most singular and noteworthy unexploited opportunity for the Chinese in the Caribbean sub-region is to mount export-oriented businesses to take advantage of preferential trade arrangements between signatory Caribbean states and the United States and Canada. These investments may be slow in materialising because of low labour productivity, high transport cost, high energy costs, and other impediments to competitiveness that beset most of the Caribbean states and again underscore the need for policymakers to redouble efforts and address these particular weaknesses.
Still another unexploited Chinese opportunity may be in helping the subregion shift its energy matrix toward renewables.
The existing foothold of Chinese construction firms in the sub-region, mixed with China’s dominant position as the one of the world’s lowest cost manufacturers of photovoltaic cells, offers China another mutually beneficial opportunity to be exploited.
A third area that can be exploited is the market for tropical, high-value specialty crops such as spices, peppers, coffee, and cacao; however, production levels of coffee, citrus, cacao, and bananas have been declining in the Caribbean outside of the Dominican Republic.
The possibility for agricultural exports from Latin America and the Caribbean to China is high, but Latin American countries with better endowments of land and fresh water and lower labor costs are much better poised to take advantage of this opportunity.
Caribbean agricultural producers will have to focus on branded specialty crops.
In general, publicly elected authorities and private sector representatives in the Caribbean express the desire for more access to financing, more direct investments, more tourist arrivals, and new export opportunities with China to spur growth.
They generally see the rise of China as a positive development. Whereas the region’s aspiration to engage with China is clear, it needs to strengthen its ability to execute deals and implement action plans which will lead to obtaining a greater level of benefits out of economic relations with China.
The opportunity to exploit near-term Chinese trade and investment deals could represent a means to spur growth and increase public sector revenues and thus a way to break the “chicken and egg” dilemma of which comes first, reform or growth.
Thus, the bargaining theory dictum to be “well informed, protect your own interests, negotiate well, and execute well” becomes ever more salient to escape this vicious cycle and move to a virtuous path.
Taken from new research, Chinese Rise In The Caribbean: What Does It Mean For Caribbean Stakeholders?, authored by Guyana-based Inter-American Development Bank (IDB) economist Mark D. Wenner and IDB researcher Dillon Clarke.