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China Goes to South America

10:31 AM, Jun 23, 2008 • By JENNIFER CHOU
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For my day job, I live and breathe China. When it comes to my annual vacation, however, I need to get away. Last year, I thought Ireland would be a good escape--only to discover after getting there that Mandarin is the second most spoken language in Dublin. Buying a Chinese-made stuffed leprechaun from a Mandarin-speaking shopkeeper, even on O'Connell Street, wasn't exactly my idea of an Irish vacation.

This year I thought Machu Picchu would be a safe bet. As our tour bus pulled into Cuzco, the gateway to the ancient Inca ruins, our Peruvian guide pointed to a road-improvement project and informed us, "As you can see, the city of Cuzco is sprucing up to usher in the coming Free Trade Agreement with China." China? There's that word again. I knew I shouldn't have had that third cup of coca tea at breakfast. The magical brew was supposed to ease high-altitude discomforts, but I was obviously having hallucinations.

It turned out that I was not hearing things. China and Peru are indeed set to sign a free-trade agreement (FTA) this November, and it's a big deal in South America. In fact, China is currently conducting FTA negotiations with a number of countries, including Costa Rica, Iceland, Singapore, South Africa, and http://www.ccs.org.za/downloads/The_China-Australia_Free_Trade_Negotiati... target=_blank>Australia. This past April, Australia's neighbor New Zealand signed an FTA with Beijing, the first such accord between China and a developed country. These bilateral pacts help shield China from anti-dumping complaints, many of which have been filed by Washington through the multilateral mechanism provided by the World Trade Organization.

Peru is the second Latin American country to sign an FTA with China, after Chile. Meanwhile, Chinese investment in the region has witnessed a significant increase with the launch of the "go abroad" policy. In 2004, the year the policy was instituted, 32 percent of Beijing's direct foreign investment went to Latin America. But Beijing had its eyes set on Peru long before then. In 1992, state-owned Capital Steel purchased a Peruvian iron company for a whopping $312 million, making China the second biggest investor in the Andean country.

Beijing's inroads into Peru reflect a larger Latin initiative. While its investment in the region is taking place largely in sectors that help meet a seemingly unquenchable appetite for energy and commodities, China has also maintained a long-running satellite program with Brazil and a more recent one with Venezuela.

In my conversations with Peruvians about Chinese investments, I noticed how they would usually start a sentence with "China is helping us do…" or "we are getting help from China with…"

Washington should take heed.