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China is the powerhouse of Asia, and as such, developments regarding the Chile-China international relationship not only impact Latin America and China, but they also ripple through the rest of the Asian market. Particularly in today’s challenging times when Asian markets are building new relationships to reduce their reliance on Europe and the United States, Chile is becoming an increasingly popular choice for Asian entrepreneurs looking to grow and unlock new revenue streams, both by importing and through brand expansion.
The relationship between the two countries dates back decades, with Chile being the first country to establish diplomatic ties with the Republic of China on December 15, 1970. Since 2015, Chile and China have also worked together under a free trade agreement that allows both countries’ businesses to trade goods freely, which not only offers benefits to Asian firms looking to export goods into Latin America but to businesses that have incorporated in Chile and seek international trading partners.
Many suggest that the agreement also benefits the wider Asian continent, as a trade deal builds trust and an understanding between two very different cultures, and encourages further trade and dialogue between Asian and LATAM companies. The new amendments to the Free Trade Agreement that went into effect on Mar. 1, 2019, increase the coverage of tax-exempt items to an impressive 98%, according to the Chinese Ministry of Commerce; 20 new sectors in China opened their doors for Chilean investors, and, in return, 40 new sectors opening theirs in Chile.
Other Asian countries
Following the Chile-China trade agreement, we have seen several other free trade agreements with Asian countries, offering better economic conditions and a reduction on import/export tariffs — an incentive to do business and encouraging significant investment.
The economic relations between Chile and China has also encouraged other Latin American countries to form partnerships with Asia, with many reigniting old friendships or forging ties with countries they once would never have expected. Indeed, Latin America and Asia were on the brink of entering into the Trans-Pacific Partnership (TPP), however, the United States abandoned its involvement and the deal fell through. Still, it echoes the need for strengthening such relationships and encourages future bilateral and multilateral negotiations.
No-headache entry into Chile
Chile has a visa-free policy in place for Chinese citizens who are free to travel and spend time in the country. Those who have previously been issued a Canadian or US visa can enter the country, which has not only boosted tourism but encouraged new investments, particularly in manufacturing and retail businesses where exporting low-cost goods to Chile from China would result in a significant return on investment. Aside from China, numerous South Asian countries have access to the visa-free policy as well, including India and Japan.
Such policies make it easier when doing business in Chile and encourage entrepreneurs in Asia to visit Chile and other Latin American markets to look for new investment and business opportunities, and this has been fueled by business marketing campaigns in Asian markets.
Exporting billions in copper and produce
One of the biggest reasons for Asia’s interest in Chile is its export market. China is Chile’s biggest export and import partner at present with more than US $42.8 billion in 2018 bilateral trade per year, showing a 24% increase compared to the prior year. Chile’s most popular exports include copper ore and gold, as well as grapes, fish fillets, wine, and wood pulp.
With a keen interest in domestically produced products, Chinese investors should find significant opportunities in Chile ranging from copper-related products to produce.
The Latin American mining sector is a key area of interest, with the territory of Latin America as a whole offering big opportunities in the natural resource sector. Chile is the number one miner of copper worldwide, illustrated by the production of approximately 5.5 million cubic meters of copper in 2015, constituting about 30% of the world production of the popular mineral. Chile’s copper industry is expected to attract a staggering US $65 billion over the next 10 years through 44 different projects, according to a new report from Chilean Mining Minister Aurora Williams.
China’s new Belt and Road Initiative (BRI) is expected to increase the demand for copper by 26%, according to the International Copper Association. The initiative aims to connect multiple continents, from Southeast Asia to Africa and West Europe, increasing the opportunities for international trade. The resulting major projects in 71 different countries put a big demand on copper.
Besides copper, the Chilean government expects a sharp rise in investments in the mining of lithium due to the rise of demand for lithium batteries used in electric cars. With the increasing demand for electrical cars worldwide, industry analyst expects an increase of 19%.
Since Chinese production is not able to provide enough produce for its citizens, Chile’s food segment is providing solutions. With no tariffs levied on the export of produce to China, and China’s middle-class growing, and with that, its demand for higher quality imported food, many expect the export of produce to only increase further.
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Chile is ever-expanding
While Asian markets continue to perform well in comparison to other territories, Chile is also enjoying significant growth. According to the Central Bank, foreign investment in the country hit US $8.475 billion in the first four months of 2018, up 655% on the previous year. The investment was the highest ever recorded and the first four months of 2018 saw more FDI than the whole of 2017 when the investment was measured at US $6.419 billion.
Chile was, and still is, the first South American country to join the Organization for Economic Cooperation and Development (OECD) in 2010, and achieved 33rd place in the Global Competitiveness Report in collaboration with the World Economic Forum for both 2017 and 2018 from a total of 137 examined countries.
With a growing number of successful Chilean startups and trade agreements that strengthen the relations between Chile and countries such as China (additional relationships exist with Australia, Canada, Mexico, the United States, Singapore, Brunei, and New Zealand), there has never been a better time to make an investment.
Although growth slowed between 2014 and 2016, Chile is now showing signs of recovery thanks to a rise in consumption and private investment that was fueled by increased wages, reduced interest rates, and more confidence in the market.
The International Investment Forum, organized by InvestChile, is another major coup for the country, representing investment worth more than US $7.2 billion and creating 1,500 jobs. More than 100 companies from 21 countries around the world attended this year’s forum, including companies like Amazon, Google, and locals Cornershop and Notco, demonstrating a growing global appeal in the Chilean economy. As appetite builds in Asia, hunger grows too around the world; agile entrepreneurs should not wait to capitalize on opportunities.