China Focuses on Engaging Neighboring Latin American Countries
Argentina Seeks to Expand Currency Swap with China
FTA with Ecuador... Tariff Reductions for Nicaragua
China has begun expanding its influence in the Latin American region, often referred to as the United States' 'backyard.' While strengthening economic cooperation such as free trade agreements (FTAs) with Latin American countries, China is actively moving to settle trade payments in yuan. Amid escalating US-China hegemonic competition and conflicts, China is expanding economic cooperation with Latin American countries geographically close to the US and reinforcing the 'rise of the yuan,' directly challenging the 'dollar hegemony.'
"Argentina to Push for Expansion of Currency Swap with China"
According to Bloomberg on the 24th (local time), Sergio Massa, Argentina's Minister of Economy, plans to visit Beijing, China, on the 29th to request an expansion of the currency swap agreement. Miguel ?ngel Pesce, Governor of the Central Bank of Argentina, will accompany Minister Massa on the visit. Currently, Argentina is suffering from severe economic difficulties due to a shortage of dollars and a staggering annual inflation rate of 109%. As the value of the national currency, the peso, plummets and prices soar uncontrollably, foreign exchange reserves are nearly depleted. Argentina intends to request an increase in the currency swap with China to replenish its reserves with yuan and put out the urgent fire.
Previously, Argentina first signed a currency swap agreement with China worth 70 billion yuan in 2009, which was expanded to 130 billion yuan in 2020. The market expected Argentina not to use the currency swap, considered a last resort, but in January this year, Argentina activated 35 billion yuan of the currency swap agreement with China to stabilize the foreign exchange market. This also eased the repayment of dollar-denominated foreign debt. Additionally, Argentina agreed with China to allow its companies to pay for Chinese imports in yuan instead of dollars.
Despite these efforts, as the peso's value continues to fall and the foreign exchange market fails to stabilize, Argentina is expected to focus all efforts on increasing the size of the currency swap with China. If this happens, Argentina's foreign exchange reserves will accumulate yuan instead of dollars.
Bloomberg analyzed, "The Central Bank of Argentina is currently expanding the circulation of yuan in the foreign exchange market due to a shortage of dollars. Although the yuan's share in the foreign exchange market is less than 10%, its circulation speed is increasing. While supplying additional loans to defaulting Argentina is risky, it could be another opportunity for China, which aims to reduce the international community's dependence on the dollar and expand the use of the yuan."
China Signs Free Trade Agreement (FTA) with Ecuador... Lowers Import Tariffs for Nicaragua
While the United States is building a containment network against China by partnering with Asia-Pacific countries such as South Korea, Japan, India, and Australia, China is focusing on courting Latin American countries geographically close to the US. According to Boston University's Global Development Policy Center, last year, Latin America's exports to China reached $184 billion, and imports from China totaled $265 billion, marking an all-time high. Consequently, China has become the second-largest trading partner in the Latin American region after the United States.
As part of strengthening economic cooperation with Latin America, China signed a free trade agreement (FTA) with Ecuador this month. China and Brazil agreed to use yuan and the Brazilian real instead of the dollar in bilateral trade. For Nicaragua, China decided not to impose tariffs on imports such as beef, seafood, and clothing. In the Latin American region, there is also a trend of severing diplomatic ties with Taiwan to establish relations with China. El Salvador declared the suspension of its FTA with Taiwan last year. Honduras also severed diplomatic ties with Taiwan in March and established diplomatic relations with China. Paraguay, the only Latin American country maintaining diplomatic relations with Taiwan, has expressed readiness to trade with China and is sending a love call to China.
Hong Kong's South China Morning Post (SCMP) analyzed, "Latin America has traditionally regarded the United States as its largest market due to geographical proximity and long-standing political alliances. However, China's growing ability to jointly develop the region and promote the international use of the yuan is gradually breaking down trade barriers in this area."
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