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S. America mulls effect of China slowdown

Sept. 21, 2012 at 5:53 AM   |   Comments

SAO PAULO, Sept. 21 (UPI) -- China's slowing growth is causing concern in Latin America but the outlook remains stable, new analytical data indicated.

SinoLatin Capital equity fund said a weakening of Chinese demand for Latin American commodities had caused concern among analysts focused on the East Asian country's short-term prospects.

The correct approach, it said, would be to look at the longer-term prognoses for China's giant economy and its appetite for commodities. SinoLatin has headquarters in Shanghai and offices in Beijing and Lima, Peru.

Brazilian analysts are among economists who have set alarm bells ringing with recent drops in Chinese growth data and forecasts.

SinoLatin Capital Managing Partner Erik Bethel told the fourth annual Latin America China Investors Forum in Shanghai last week "Latin America will continue to be an indispensable commodities supplier for China."

Latin America has what China needs with the world's largest reserves of silver at 49 percent, copper at 44 percent and tin at 33 percent, he said. The region has at least 16 percent of the global oil reserves and the most arable land in the world to provide for the people of China, Bethel said.

SinoLatin Capital, focused on natural resource transactions between China and Latin America, organized the Sept. 11-12 forum.

Bethel said countries such as Brazil, Peru, Chile and Colombia "present some of the best opportunities for Chinese investors due to relatively low inflation, stable governments and a strong growth rate."

Bethel's comments followed market speculation over the slowdown of China's gross domestic product, with 2012 estimates likely to fall below 8 percent.

Bethel dispelled fears of a "China meltdown" as he addressed an audience of 500 invited delegates from Latin America and China.

"The majority of the China analysts in the Western media are focused on the short-term," noted Bethel.

"Will China's (gross domestic product) growth decline by 1 percent or by 2 percent this year? I think people are missing the more important medium and long-term picture.

"The China story is about demographics and urbanization. Despite the short-term expected drop in China's GDP growth rate, the Chinese government has been facilitating the largest wave of human migration in the history of the world."

For the last 20 years, hundreds of millions of people have moved from rural to urban areas, he said. "And there is still a long way to go. China is 50 percent urbanized, therefore there are still 700 million people living in the Chinese countryside!" he added.

China isn't only urbanizing but the country is creating a massive urban middle class, Bethel said. This middle class requires commodities such as copper, oil, and soybeans to keep up with urbanization.

"Take the refrigerator as one proxy -- of many -- for commodity consumption. Urban citizens buy refrigerators, and in less than 20 years, 1 billion more refrigerators will be needed," Bethel said.

"These refrigerators are made out of stainless steel, copper, plastics and aluminum. They run on electricity using copper and aluminum cables, and of course an electric power plant, which in the case of China is coal-fired. Meanwhile, everything inside the refrigerator is a commodity.

"A piece of meat requires animal feed. And animal feed comes from corn, soybeans, and other agro-commodities." Bethel said that refrigerators, cars, apartment buildings, and urban transportation, among others, are going to continue to drive commodity prices.

"China will continue to grow, albeit more slowly than in the past, but it is still going to consume commodities because of urbanization, and this doesn't seem to be slowing down," Bethel said.

Citing links between China and Latin America, he said, "Latin America will continue to be an indispensable commodities supplier for China. More specifically, countries such as Brazil, Peru, Chile and Colombia present some of the best opportunities for Chinese investors due to relatively low inflation, stable governments and a strong growth rate."

Bethel told a Mines and Money Beijing conference in June "Latin America has become the new frontier for China's growing commodity demands."

Chinese investment in Latin America rose by $120 billion in 2011.

SinoLatin Capital recently appointed former UBS banker Gonzalo Waldman, an Argentinian, as its managing director.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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