Wednesday, April 25, 2018

More (Chinese) Money, More Problems: Will Increased Chinese Investment In Latin America Have Unintended Consequences?

Data from the Economic Commission for Latin America and the Caribbean reveals that Chinese foreign direct investment to the region increased from a total of $5 billion during the timeframe from 1990-2009 to an average of $10 billion per year between 2010 and 2012.  In 2016, China became the second largest investor in Latin America after the U.S., and in 2017, China represented around 15% of the total foreign direct investment in the region.  New Chinese acquisition appears to focus on a few sectors, such as energy and mining.  Argentina, Brazil and Peru are the biggest beneficiaries, having received more than 80% of overall Chinese investment since 2005.  Brazil alone has received approximately 55% of Chinese investment in Latin America during this timeframe according to data from the World Economic Forum on Latin America.  It is anticipated that China’s penetration into the Brazilian economy and the economies of other countries in the region will continue, which begs the question: what other consequences will this rapid grown acceleration have for the region?  It seems likely that the ripples will be felt in the insurance industry. With the increase in industry and market expansion, an increase in the demand for energy coverage in these markets, and a larger number of claims, would also be expected.