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

To: RealMuLan who wrote (50292)	5/21/2004 8:49:12 PM
From: elmatador	Respond to of 74559

we know already what happens when the US comes to South East Asia

To: RealMuLan who wrote (50292)	5/21/2004 9:15:22 PM
From: elmatador	Read Replies (2) \| Respond to of 74559

A challenge for America in its own backyard Published: May 21 2004 21:50 \| Last Updated: May 21 2004 21:50 news.ft.com Throughout the night, giant trucks with oversize wheels drone up and across the slopes of the enormous open-pit mines at Carajas in the heart of the Amazon jungle. They are carrying iron ore on the first leg of its journey to China - raw material to feed the insatiable appetite of the country's industrial sector. This year alone, Companhia Vale do Rio Doce, the world's largest iron ore company, will invest $1.8bn to keep the wheels turning. It has just announced plans for what would be the world's biggest ever cargo ship, to carry the material to market even faster. "We are working at full capacity 24 hours a day. We just can't keep up with all the orders," says Fernando Thompson, a CVRD official and one of more than 450 Brazilian business people who will accompany Luis Inácio Lula da Silva, the country's president, on a four-day official visit to China that begins on Saturday. Mr Lula da Silva's mission reflects a feverish enthusiasm for China among Brazil's business community. But it also draws attention to an economic trend with potentially huge geopolitical implications. The link between Brazil and China connects the biggest emerging markets of the western and eastern hemispheres. In the words of Celso Amorim, Brazil's foreign minister, it could be part of a "certain reconfiguration of the world's commercial and diplomatic geography." That could pose a challenge for George W. Bush's administration, with its obsession with the Middle East and its myopia about developments in its own backyard. Some of the rhetoric about this new relationship may be reminiscent of meetings of the old non-aligned movement. But the new connection is more important, because it is based on economic fundamentals. China may pose a competitive threat to Mexico and countries in the north of the region that have benefited from exporting manufactured goods to the US. But countries such as Brazil and Argentina are a rich source of the food and raw materials that China needs to feed its growing urban population and fast-expanding industries. China has the savings rates and the capital that Latin America has always lacked. There are signs of the China effect across the region. Soya farmers from Argentina, Brazil, Paraguay and even Bolivia have enjoyed a bonanza in recent months. The copper mines of Chile and Peru are booming. China's demands last year were one reason most commodity prices soared. Now there are signs of a reciprocal Chinese investment boom in the region. In the next few days, Mr Lula da Silva will discuss plans for Chinese investment in roads, ports and railways - projects that would secure supplies of raw materials. According to a recent study by the United Nations Conference on Trade and Development, China will be the world's fifth largest provider of direct foreign investment this year. Next year, China is set to join the Inter-American Development Bank, giving its construction companies access to the bank's infrastructure projects. There are obvious risks for Latin America. Commodities seem to have peaked and a very sharp deceleration in Chinese economic growth from its current level of more than 9 per cent a year could push prices down further. The bigger worry, though, is that the commodity boom might lock Latin America into a new cycle of dependence on raw material production, further distorting development patterns. Both fears are probably overdone. China's current investment rates are certainly unsustainable. But however disruptive it would be in the medium term, a slowdown - or even a crash - would not stop China's inexorable modernisation. Commodity dependence may create vulnerabilities, but the boom also offers Latin America the best opportunity since the early 20th century to capitalise on its comparative advantage as a competitive producer of commodities. The way forward is to focus on areas that add value - to produce wine, oil and steel, not just grapes, seeds and iron ore. The challenge for the US is more complex. The inter-American system, modified at the end of the cold war to promote market economies and democracy in the region, is looking tattered. Under Mr Bush, the US has watched helplessly as one country after another has stumbled into financial or political crisis. Countries such as Mexico and Colombia have enjoyed preferential ties with Washington as a result of trade agreements or security considerations, but relations with other countries, including Brazil, Argentina and Venezuela, have deteriorated. Chinese influence with this latter group of commodity-rich nations could eventually aggravate these divisions and even lead to the formation of new power blocs within the region. To avoid this outcome, the US - together with Europe and Japan - needs to stop excluding South American farmers from its markets. It needs to recognise that its labour markets need Latin American workers and to offer a more secure regime for migrants. And it needs to lend more support to multilateral efforts to improve infrastructure. That agenda may be politically costly but failure, too, would have a price. At best, the region's low level anti-Americanism, which resulted in grudging and inconsistent support for the US in its fight on terror, would grow. At worst, the more visceral anti-American politics demonstrated by Venezuela's President Hugo Chávez might gain in popularity. That is why, at the very least, Washington needs to pay attention. The writer is the FT's Latin America editor