Bilateral Relations between China and Peru

The case of Peruvian foreign relations with Asian countries is quite particular because Peru has the second largest Japanese and Chinese immigrant’s population in Latin America.

Besides, ex-president Alberto Fujimori is of Japanese heritage, which in a certain way made the connection between Peru and the Asian region much closer compared with other countries. Just looking back to history, in 1873, Peru was the first country in which Japan had established diplomatic relations in the Latin America region and currently Peru has the second largest Nikkei community in Latin America around 80,000 people. ¹⁰⁴ In the case of the Chinese community, their arrival to the Peruvian territory is much earlier than the Japanese because it was around 1849 when the first migration took place, and in a period of just 25 years there were more than 150,000 Chinese people in Peru. This explains why more than 10% of the Peruvian population has Chinese heritage. From an economic standpoint, with the rise of China, the bilateral relations between these two countries have increased dramatically to the point China marked the first most important trade partner for Peru.¹⁰⁵

104 Embajada del Japón en el Perú, “Relaciones Bilaterales Perú- Japón 2013," Embajada del Japón en el Perú, accessed Dec. 2012, http://www.pe.emb-japan.go.jp/esp/relaciones_bilaterales.htm.

105 Cámara de Comercio Peruano China (CAPECHI), “Información Comercial Perú-China 2012,"

Cámara de Comercio Peruano China, accessed Feb. 2013, http://www.capechi.org.pe/_5_1.html.

(% of GDP)

External Debt Domestic Debt

82

Economically speaking, the bilateral relations between Peru and China got closer since the opening up reforms of the Peruvian economy during the 1990s. Due to the implementation of trade policies, by 2005, Peru and China had an increasing trade flows.

From 2005-2007, the trade balance was positive for Peru, from which the amount of exports to China almost doubled the amount of imports. From the year 2005-2012, the amount of exports increased almost 700% from US$ 1.8 billion to US$ 7.7 billion. The imports increased from US$ 1 billion to US$ 7.8 billion. Because the increase of imports and exports were almost in the same proportion, the trade difference was reducing the gap in favor of China to the point that the Peruvian imports balance in 2008 was much higher than the amount of exports. This caused a negative trade balance during 2008.¹⁰⁶

As we can see in Figure 5.9, the deficit in trade balance by 2008 was US$ 5 billion;

however, this imbalance changed the following year because Peru had a trade balance surplus of US$ 8 billion. This surplus is due to an increase of 13% in exports while there was a decrease of 24% on imports. These results for Peruvian trade balance has remained positive until 2012, when imports grew more than exports. The trade deficit in favor to China by that year was US$ 1 billion.

Figure 5.9 Peru-China Trade Balance, 2008-2012 (US$ Millions)

106Ministerio de Comercio Exterior y Turismo (MINCETUR), Oficina General de Estudios Económicos, “Estudio de Aprovechamiento del TLC Perú – China: Segundo Año de Vigencia del TLC,"

MINCETUR (2012): 4, accessed May 2013,

http://www.acuerdoscomerciales.gob.pe/images/stories/china/tlc_peru_china_2_ano_ogee_oeei_mayo_12.pdf.

Exports Imports Trade Balance

Source: SUNAT, MINCETUR-OGEE-OEEI

83

In order to have a closer look to each one of trade balance components, we will make a disintegrated analysis of exports and imports between Peru and China. By the numbers showed in Figure 5.10, we can clearly see that the increasing Peruvian exports to China are composed mainly by traditional goods. For 2011, traditional exports represented 95.2% of the overall exports to China while the non-traditional exports represented only 4.8%. For 2012, there was an increase in the share of traditional exports and a slight decrease of non-traditional ones. For that year, non-traditional exports were 95.8% while non-non-traditional exports represented 4.2%.

Figure 5.10 Exports Peru-China, 2008-2012 (US$ Millions)

Regarding traditional exports to China, the majority were in the mining and fishing category, which for 2012 represented 87.6% and 12.4%, respectively. Among non-traditional products, most of them are in the fishing and wood & paper category, which by 2012 represented 52.5% and 15.6%, respectively.¹⁰⁷

On the other hand, as shown in Figure 5.11, from 2005 to 2012 the amount of overall imports had increased with a slowdown during 2009 but it recovered the year after. The imports coming from China were divided basically by commodities, consumption goods, and

Expo. TradicionalesTraditional Exports Expo. No TradicionalesNon-traditional Exports

Source: SUNAT, MINCETUR-OGEE-OEEI

84

capital goods. By 2005, those three main divisions had almost the same participation in the total amount of imports; however, since 2008, the category capital goods started to overpass more than the other two categories. For 2011, from the overall imports from China, capital goods (45.9%) represented a bigger proportion compared to consumption goods (30%) and commodities (24.1%). By 2012, even though these three import components increased due to an increase of the overall imports, the share of capital goods (45.7%) was still dominant.

Consumption of goods represented 29% and commodities represented 25.2%.

Figure 5.11 Imports Peru-China, 2008-2012 (US$ Millions)

Source: SUNAT, MINCETUR-OGEE-OEEI

Now we will deeply analyze the main products exported and imported between Peru and China by products. As mentioned in the previous paragraphs, most of the exports to China were traditional products. From this category, the main exported products for 2011 were copper ore & concentrate (36.5%), fishmeal (15.7%), iron ores & concentrate (15%), and lead ores and concentrates (10.9%). This corresponded also to the Peruvian traditional products most exported to the world by the same year with the exception of iron ores and concentrates. Comparing the same data for 2012, the shared were copper ore & concentrate (46.4%), fishmeal (12%), iron ore & concentrate (11.6%), and lead ores and concentrates

Materias PrimasCommodities Bienes de CapitalCapital Goods Bienes de ConsumoConsumption Goods

85

(10.9%).¹⁰⁸ We can see that there was an increase of around 10% in copper ores and concentrates while the share of the other goods decreased in almost 2%.

In case of non-traditional exported products to China, by 2011, the main products in this category were: cuttlefish and squid (0.06%), strips and friezes for parquet (13%), fresh grapes (5.6%), nonedible seaweeds (0.05%). With the exception of strips and friezes for parquet and nonedible seaweeds, the other two are also the most exported non-traditional products from Peru to the world. By 2012, the shares for those products were: cuttlefish and squid (33.8%), strips and friezes for parquet (9.8%), fresh grapes (8.7%), and nonedible seaweeds (7%).¹⁰⁹ From this data we can see that the shares experienced a considerable increase especially in cuttlefish and squid, almost 3200%, and nonedible seaweeds increased almost 600%.

On the other hand, the imports from China were mainly manufacturing products. By 2011, the top four imported products were: mobile phones and other wireless devices (6%), automatic machines for data processing, portable, weighing less than 10 kg (6.4%), motorcycles and cycles with auxiliary motors (2.2%), and other assembled motor vehicles (1.1%). By 2012, the same products share of the overall imports from China to Peru were:

mobile phones and other wireless networks (6.9%), automatic machines for data processing, portable, weighing less than 10 kg (5.5%), motorcycles and cycles with auxiliary motor (2.1%), and other motor vehicles assembled (1.4%).¹¹⁰

5.5 Bilateral Relations between China and Peru after Free Trade Agreement