Moody's: Chinese investment increases in LatAm

According to the credit rating agency, the increasing investment is supported by Latin America's low barriers to foreign investment; low asset prices, especially in post-recession Brazil; advantages in commodities sectors; and a growing middle class.

Yet Latin America attracted only about 13% of China's FDI during 2003-16 period —about US$110 billion— compared to 70% directed elsewhere in Asia.

"We estimate mergers and acquisitions made up more than half of China's total investment in Latin America since 2003. In general, investors have preferred to operate through companies already established in regional markets over making large greenfield investments, but the amounts directed to greenfield infrastructure projects have been increasing considerably over the last few years," Moody's expressed.

"We estimate Brazil drew about 56% of China's FDI in Latin America during 2003-16, followed by Peru (17%), Mexico (5%), and Argentina (5%). The oil and gas and metals and mining sectors received each about 25% of the US$110 billion of FDI in Latin America during 2003-16," it added.

In Brazil, Chinese FDI targeted mainly the oil-gas (24%) and electricity (23%) sectors, followed by mining (12%) and steel (9%). 

"China's sizeable investment in Latin America's natural resources reflects its effort to secure reasonably priced energy and raw materials for its domestic manufacturing," it noted.

Latin American non-financial, non-regulated companies will continue to benefit from Chinese investments, giving regional companies more options for asset sales, partnerships or financing, particularly in the commodity and energy sectors and increasingly in the service sector.

China's growing FDI in Latin America offers potential asset buyers and long-term partners for metals and mining projects, mostly in Peru and Brazil. Greenfield copper mines in Peru have attracted some US$11.7 billion in Chinese investment, including China Minmetals Corporation's (Baa1 stable) investment in Las Bambas.

"We estimate Las Bambas accounts for about 15% of total copper production in Peru, the number-two producer worldwide since 2016," it concluded.