Blog Asia Pacífico por Carlos Aquino: China and Peru relations after 41 years of diplomatic links and three years of a FTA (1)

China and Peru relations after 41 years of diplomatic links and three years of a FTA
Carlos Aquino Rodríguez*

On November 2nd, 2012 Peru and China celebrated forty one years of modern diplomatic relations. On March 1st, 2013 it was the third anniversary since the Free Trade Area, FTA, agreement between the two countries entered into effect. Much has been achieved in those years. China became in 2011 the biggest trade partner of Peru, over the United States, which was the traditional dominant partner, and given present perspectives that position will continue in the future.

As China economy is the second largest in the world and continues growing at high rates, its need for raw materials from Peru will continue, but Peru expectations is that ever more affluent consumers in China will also buy value added goods from Peru.

Peru has a longer history of relations with China. In this paper first, a look to those old relations is given; second, there is a review of the present state of economic relations; third, the perspectives of those relations with the FTA in force are outlined; fourth, some features of Chinese culture influence in Peru are outlined; and last some conclusions are given.

Peru and China old relationship

The first contact between these countries began in 1849, when Chinese immigrants began coming to Peru. From that year up to 1872 around 100,000 Chinese came to Peru, mostly from the southern part, in present day Guangdong province. At that time Peru needed labor force to work mainly in the sugar cane and cotton plantations along its coast line. There was scarcity of labor because the laborers working there until that time, mainly black people brought before as slaves by the Spaniards from the XVI century, were given freedom in 1845 (abolition of slavery) and most of them left the fields for the cities.

Peru became the first country in Latin America to receive Chinese immigration in a large scale. China has been opened by force by England in 1840 after the Opium War and some of its people began leaving the country.

But Chinese immigration to Peru came to a sudden halt for an incident in one of the ships carrying them to Peru. In 1872 the Peruvian ship “Maria Luz”, during a stop in the port of Yokohama, Japan, suffered the desertion of one Chinese on board. He escaped throwing himself into the sea, where he was rescued by the crew of a British warship in the port. He complained of mistreatment in the Peruvian ship. In fact, in the long journey from China to Peru, conditions of the travel were so harsh that sometimes more than one third of the human cargo died in the way[1].

After the British captain of the warship complained to Japanese authorities, they ordered the Peruvian ship and the laborers to return to China. After that the Qing Imperial Government forbade Chinese immigration to Peru.

Because of this incident China and Peru began negotiations to have official contacts, and in 1874 diplomatic links were established.

From 1990s onward again more Chinese have immigrated to Peru. Peru now is home to the largest Chinese community in Latin America.

Peru became in 1874 the first Latin American country to establish diplomatic relations with China. After a hiatus, on November 2th 1971 diplomatic relations between both countries were established again.

During the 1990s economic relations began to increase. In 1993 the amount of Peruvian exports to China was only of 140 million dollars, but in 2003 they reached 676 million dollars. In the same period imports from China increased from 90 million dollars to 646 million dollars. See table 1.

Peru became in 1998 a member of the Asia Pacific Economic Cooperation forum, APEC, joining China and other Asian economies in this important organization and making possible closer relations between the two countries. In 2009 a FTA agreement was signed between them and entered into effect the following year. In 2011 China became the largest trade partner of Peru. Exports to China reached 6,961 million dollars and imports were 6,321 million dollars that year. In the year 2012 trade with China keep increasing (even if Peru exports to the world did not increase) and exports to that country amounted to 7,692 million dollars with imports valued at 7,795 million dollars.

State of economic relations

As we have seen, trade, and in general economic relations between Peru and China increased during the last two decades. The reasons for this were the following: First, after Peru suffered a long period of economic stagnation and political instability, in 1990 the new government introduced economic reforms that opened the economy to foreign trade and investment, and at the same time political stability was attained. So the economy began to grow again. See Graphic 1. Second, China need for raw materials began to increase in that period and so Peruvian exports to China, that are, most of them, even now in more than 95%, raw materials, mainly minerals. And also Chinese investment in Peru began. In the 1990s a process of selling state owned companies to foreign investors began and the first to be sold was the mining company exploiting iron ore, Hierro Peru, which was bought by Shougang Corporation of China (one of the first biggest purchases of a foreign company by a Chinese firm outside Asia). Third, the same decade of the 1990s the Peruvian government began putting emphasis in the establishment and strengthening of relations with Asian countries, and as a result in 1998 Peru became a member of the Asia Pacific Economic Cooperation forum, APEC; and Forth, Peru signed in the year 2009 a FTA agreement with China that came into effect in March 1st 2010.

Graphic 1: Peru Gross Domestic Product growth, 1992-2012 (annual growth average)

Source: Peru National Statistics Institute http://www.inei.gob.pe/perucifrasHTM/inf-eco/cuadro.asp?cod=3842&name=pr01&ext=gif

China is important for Peruvian economic growth. As we will see below our exports have increased to China more than to any country in the last 20 years, price of the primary goods that Peru sells are high because of China strong demand, and also cheap manufactured goods from China have helped improve the living standards of many Peruvians, especially of poor people.

Peru’s Minister of Economy Mr. Luis Castilla said on October 2011 that he “prays every day” for China economy to continue growing at high rates because that way Peru will benefit from that[2]. If China economy reduces its pace of growth there will be less demand for Peru raw materials, prices, of specially minerals, will decrease, exports will decrease and the country will be greatly affected. Peru is now more dependent of foreign demand. In 1993 exports represented only 12% of Peru GDP, in the year 2010 it was 23%. In the year 2012 Peru exports to China represented around 17% of the total, and several products, like minerals, are exported mainly to China.

Trade:

Actually China is the biggest market for Peruvian exports. China buys most of the iron ore, copper, zinc, fishmeal, lead, tin, that Peru sells abroad. And China is the second source of imports, after the U.S. and most of the textiles and garments imported by Peru came from China as are also toys, footwear, electrical appliances and most of the consumer goods, and increasingly cars. See Table 1.

Table 1: Peru main trade partners in the last three years, in million dollars

Country	2010	2010	2011	2011	2012	2012
	Exports	Imports	Exports	Imports	Exports	Imports
China	5,436	5,140	6,963	6,325	7,692	7,795
United States	6,087	5,811	5,903	7,350	6,032	7,921
Switzerland	3,845	118	5,937	150	5,062	154
Canada	3,329	539	4,232	583	3,358	588