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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (50153)	5/19/2004 4:01:57 AM
From: elmatador	Read Replies (1) \| Respond to of 74559

Lula visit China: China wants to break its economy and may ask Lula to teach them how to drive an economy to the ground!!!! Trade windfall Financial Times; May 19, 2004 This weekend's visit to China by Brazil's President Luiz Inácio Lula da Silva highlights a trend that has assumed increasing importance over the last 18 months. China's expanding economy has been consuming more and more iron ore, copper and soya beans from Latin America, helping bring a healthier glow to the external accounts of a traditionally commodity dependent region. The relationship could soon be underpinned by flows of Chinese investment, opening up new economic and potentially political possibilities for Latin America. But amid expectations of a slowdown in China and signs that commodity prices are already dropping, governments must prepare to ride out some potentially volatile conditions over the coming months. China is now Brazil's third biggest trading partner, with bilateral commerce having nearly tripled since 2000. Last year, Brazilian exports to Beijing rose by 80 per cent to $4.5bn (€3.7bn) and growth has continued apace this year. Mr Lula da Silva is hopeful of attracting billions of dollars in Chinese investment into railways, roads and ports. This would simultaneously help China to secure supplies of cheap soya and iron ore and Brazil to develop its inadequate infrastructure, as well as improve connections to the Pacific ports of its neighbours. Other countries are also cashing in on the China trade. Argentina has seen its soya exports soar. Chile and Peru have been helped by rising sales of copper. Even Cuba's dismal prospects have been brightened by sales of nickel to Beijing. Last year Chinese demand for all these products underpinned rising prices, helping Latin America to record its first current account surplus for 50 years. However, there are already signs that commodity prices have peaked. Industrial metals such as copper and iron ore have dropped by nearly 15 per cent since early March. Soya prices have fallen by a similar amount. The current rates of Chinese investment and industrial growth look to be unsustainable, raising the prospect of an economic slowdown and further falls in prices. More worryingly, this would come alongside a likely rise in US interest rates that will make Latin American high-risk assets relatively less attractive to investors and could depress capital flows to the region. It would be short-sighted to ignore the long-term importance to Latin America of China and other large developing markets such as India. But these Asian markets do not represent an easy alternative to increasing trade with the big developed economies of North America, Europe and Asia. In addition, Brazil, Argentina and other regional economies cannot afford to relax fiscal discipline. Debt levels in the region are still too high for comfort. Reducing them towards more sustainable levels will both guarantee that the region can ride out future financial storms and fully take advantage of new trading investment opportunities.