China and Peru relations: China growing presence in Peru

Peru is home to the second largest destination of Chinese investment in Latin America, and in 2023 around 36% of Peru exports of goods went to the Chinese market, consolidating its position as the biggest trade partner of Peru. In this way Peru is the country with the closer relations with China in Latin America, at least in economic terms. To understand the extent of Peru relations with China, it is necessary to know something about the history of that relations. Besides the fact that Peru has one of the more liberal regimes for welcoming foreign investment (and plenty of natural resources, especially in the mining sector), there is a special relationship between both countries. History and Peru strategic geographical situation in South America also explain China big involvement in Peru. And there is an economic complementarity between both countries. Peru is home to the largest Chinee community in Latin America because from 1849 Chinese labourers began coming to work in the large estate or plantation (hacienda, where sugar cane and cotton was cultivated)) in Peru, and to collect guano, the accumulation of bird excrement , used as fertilizer. Peru established diplomatic relations with the People´s Republic of China (PRC) in 1971, being the third in Latin America, after Chile and Cuba, but in 1874 Peru was the first country in the region to establish diplomatic relations with the Qing Empire. In 2008 Peru and China signed its Strategic Partnership. The aim with this is not only to be trade partners, but also to increase and consolidate relations in areas of politics and cooperation. For example, among different public entities, political parties, civil society. This included consultation and cooperation in the international forum where both countries participate. In 2009 they signed its Free Trade Agreement, the second country in Latin America after Chile to have one with China, which come into effect in 2010. In 2013 Peru and China signed a Comprehensive Strategic Partnership. This allowed both countries the people-to-people cooperation in areas technical and cultural. Relations have increased not only in the trade and investment field but others like the Chinese cooperation to build the National Emergency Operation Centre , an institution under the National Institute of Civil Defense. The first travel abroad of Pedro Prado Kuczynski, as Presidente of Peru, was to China in September 2016 First vaccines against Covid-19 received by Peru were of China´s Sinopharm in February 2021. President Pedro Castillo visited the Chinese Embassy, even one week before assuming his post, in July 2021. Peru´s President Dina Boluarte met President Xi Jinping in November 2023 during San Francisco APEC (Asia Pacific Economic Cooperation forum) meetings. This year 2024 Peru will host APEC meetings and Chinese President will come to Peru and will visit Chancay port for the opening ceremony of the first stage of the seaport. The last week of February this year, Hua Chunying, PRC Assistant Foreign Affairs Minister, visited Peru. On foreign trade: In the year 2023, Peru exports of goods to China amounted to 23.15 billion dollars, or around 36% of the total sold by Peru abroad. China is from the year 2011 the largest market for Peru goods. To United States, exports of goods in 2023 totalled 9.12 billion, being the second largest destination (14% of the total). Peru´s trade in goods (exports plus imports) with China that year was 31.7% of the total and it was 17.1% with United States . Peru has a large trade surplus with China, of around 10.5 billion dollars in 2023, accounting for 67.3% of the total trade surplus of Peru that year. Cooper is the main product exported by Peru, and this represented 35.7% of the total goods sold abroad in 2023. And China is the main market for copper, accounting for around 73% of the total that year. Peru has a Free Trade Agreement with China, in force from 2010, and negotiations are ongoing to update that agreement. Given the economic structure of Peru, with no big manufacture sector, and exporting mostly natural resources, more than 70% of the total, exports to China will continue increasing. In foreign investments: By the end of the year 2020, China has already invested more than thirty billion dollars in Peru, according to data from its own Embassy in Lima . But, according to a study by the American Enterprise Institute, AEI, published in January this year 2024, between 2005 and 2023 China amount of investment and construction in Peru was thirty-one billion dollars, being Peru the second largest destination for China´s money in Latin America, after Brazil . China has invested in several sectors of Peru economy, in the natural resource sector at the beginning, but now also in infrastructure. In 1992 a Chinese company bought Hierro Peru, a Peru state owned company that the government began to privatize. This was the first state owned company sold to the private sector, and for China this represented the first time they have invested abroad, outside Asia. This was the first Chinese investment in Peru. As a result, China presence in the production of some natural resource is quite important. For example, two Chinese companies have a share of 18.3% of the production of copper in 2023, and one Chinese company and its subsidiary account for the total production of iron ore that year . In infrastructure two Chinese investments are worth noting: First, the construction of a seaport in Chancay, located 55 km north of Lima, which will be the most modern port in the Latin American South Pacific, and where 60% is owned by the company Cosco Shipping Corporation. It contemplates a total investment of more than three billion dollars . This port will be the gateway to Peru from Asia and an exchange and distribution hub for the Pacific south America . Peru geographic position, in the centre of the South American region, make it the entrance for Asians to the Latin American market, and for the countries of the region, Peru is the exit door to the Pacific. For its part, China Three Gorges Corporation (CTG) and China Southern Power Grid International (CSGI), that belong to the same economic group, bought two companies in Lima, in 2019 and 2023, that generate and distribute electricity for the capital of Peru. In 2019 China Three Gorges Corporation (through its subsidiary China Yangtze Power International) bought Sempra Energy International assets in Lima for 3.59 billion dollars, and in 2023 China Southern Power Grid paid 2.9 billion dollars from Enel operations. That same Chinese economic group has also bought other regional companies in the electricity sector of Peru . According to the Gestion newspaper, these two companies, CTG and CSGI, control 55% of the distribution of electricity and 57% of the (regulated) sale of electricity at the national level . Peru has been a member of the Chinese Belt and Road Initiative since 2019. It is also a member of the Asian Investment and Infrastructure Bank, AIIB, and gave a contribution of 154.6 million dollars, the largest in Latin America (only 6 countries in the region have made contributions to AIIB: Argentina, Brazil, Chile, Ecuador, Peru, and Uruguay), and that amount given by Peru represents 84% of the total given by the countries of the region . In the technology sector: At the end of February 2023, the president of the Transportation and Communications Commission of the Congress of the Republic, together with the vice president of the Supervision Commission, travelled to Madrid for the Mobile World Congress (MWC) invited by the company Huawei. (El Comercio newspaper, July 12, 2023). In June 2023, 6 congresspeople travelled to China invited by a technology company (El Comercio newspaper, July 12, 2023). China is investing in the training of human resources for 5G technology, Huawei in particular, in universities such as San Marcos National University and National University of Engineering , two of the biggest and most prestigious universities in Peru. Relations with the academic sector The majority of those who study or research about China have studied in China, China increasingly gives more scholarships and finance the participation in conferences. Also, academic relationships with centres that research on China are mostly with institutions from that country. There are 4 Confucius Institutes in Peru, two in Lima and two in the interior of the country, located one in the North and one in the South. All these Centres are in private Universities . Peru facing competition from China and the US There is talk that the two countries are heading towards systemic rivalry, decoupling, de-risking, and the creation of two parallel supply chains, since one does not want to depend on the other. And that the competition could affect the rest of the countries if forced to take sides with one of them. And those two powers could put pressure on the rest to do just that. It is advisable not to depend too much on one of them, to diversify, although this is not easy. Some observers think that Peru now depends on China, for its exports, for example, and for investment. But given the structure of the Peruvian economy and its exports, of mostly raw materials, there are not many alternative places to sell them. And it could be becoming dependent in investment from China for infrastructure projects. But Peru needs investments in this sector and there are not many sources from which to get that money. But this competition, decoupling, can benefit the rest of the countries. For example, since onshoring is not so feasible for US companies, nearshoring, or friend-shoring, is favoured. Mexico is benefiting from that. Peru could also benefit if conditions are meet (more stable political and social environment, economic incentives) There are opportunities for investment, in railways, highways. Also, in a seaport (Corio), in the Arequipa region. And there will be Special Economic Zones, in Chancay (besides the seaport), and in Ancon, a place between Lima and Chancay.