Peru exposed to Chinese slowdown

30 August 2015

The stock market malaise in China, the devaluation of the Chinese currency and the general slowdown in growth there spell problems for the Peruvian economy. Peru’s stock market has seen a steady fall since August 10 (though there was a slight recovery at the end of the last week of August), accelerating a decline that began back in 2012. Although Peru may grow slightly faster this year than last (due largely to a few large mining projects coming on line), Peru’s economic wellbeing is now highly dependent on continued growth in Chinese demand for Peru’s mineral production.

China is now Peru's principal trading partner, having increased its share two and a half times since 2000. By 2011 its share had outstripped that of the USA, rising to 15%. China is Peru's top market for copper, iron and animal feeds, and is growing in importance for a range of agricultural products (IMF Peru Selected Issues Report 2013: http://www.imf.org/external/pubs/ft/scr/2013/cr1346.pdf ). The last month saw the first exports of avocados to Shanghai, for example, exported by Mission Produce Ltd of California.

Peru's largest and most important mining project, currently under construction at Las Bambas in Apurímac, is owned by Chinese investors. It is estimated the mine will double Peru's copper output when production starts in 2016. Other important Chinese mining operations are the copper mine of Toromocho and the iron ore enterprise Hierro Perú.

A huge Chinese project, the east-west railway linking the Pacific and the Atlantic through the Amazon, is also being studied for feasibility by the three countries concerned, Brazil, China and Peru (one hopes the evaluation will look closely also at the environmental dimension). The project would involve a Chinese investment of over £6.5 billion. See www.bbc.co.uk/news/world-latin-america-32858944

China’s slowdown serves to underline yet again the importance of diversifying the Peruvian economy to reduce vulnerability over the longer term, a problem with the underlying model rather than simply with the events of the last few weeks (http://larepublica.pe/impresa/economia/699610-bruno-seminario-seguir-con-el-modelo-significaria-ir-hacia-el-desastre).

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