Peru expects to diversify exports to China

Peru expects to significantly expand its non-traditional exports to China over the next five years as it strives to reduce the nation's reliance on mineral trade with the world's second-largest economy, a senior trade official said.

Peruvian Vice-Minister of Foreign Trade Carlos Posada Ugaz said that he hoped that non-traditional goods, including fruit, coffee, asparagus and fishery goods, could increase from the current 5 percent of the nation's exports to China, to at least 30 percent over the next five to eight years.

Currently, 95 percent of Peruvian exports to China are traditional goods, such as minerals and textiles, with minerals accounting for around 60 percent.

"Peru's exports have mainly been mineral goods, but we are committed to expanding sales of non-traditional goods, as this could help us create more jobs," said Ugaz.

And China would be a "big contributor" to the shift, he stressed.

The world's second-largest economy has set its sights on expanding domestic consumption to help sustain its economic growth, given that the export sector, a key driver of China's economic expansion in recent decades, remains weak amid the eurozone debt crisis.

The China-Peru Free Trade Agreement, which came into effect in March 2010, is also expected to give a boost to bilateral trade in non-traditional goods.

"We have the world's best organic food and products," said Ugaz.

Peruvian Minister of Economy and Finance Luis Miguel Castilla said that China's slowing economic growth would affect its demand for the Latin American nation's traditional exports such as iron ore and copper.

China's strategic shift to expand domestic consumption will translate into new demand for non-traditional goods and food from Peru, helping it diversify its exports to China, said Castilla.

Although the slowdown in China's economic growth is believed to have bottomed out, experts suggest the era of rapid growth has become a thing of the past.

In 2011, Peru's total exports of traditional goods increased 25 percent year-on-year to $35.1 billion, with 20 percent of these shipments, worth $6.61 billion, going to China.

Peru's exporters have taken a hit from the slackening global economy, but the country's high-level officials expect export growth to turn positive in the first quarter of 2013, citing a series of preferential government policies.

Wu Jian, vice-president of Junefield Mineral Resources Holdings Limited, a Lima-based mining company, said: "It's understandable that Peru expects to diversify its exports and it's time to change", as "the country has been too reliant on shipments of mineral goods".

And China is playing a key role in Peru's diversification, said Wu.

Diversified investment

As Peru diversifies its exports to China, Gao Jinbao, China's commercial counselor to Peru, called for diversified investment from China in sectors beyond mining in the Latin American country.

Chinese investment in Peru is expected to hit a record high of $4 billion by the end of this year, he said.

"Chinese companies have to diversify their investment in Peru", a nation whose economic growth remains fairly high despite the slackening global economy.

More than 80 Chinese companies have operations in Peru, with investment mainly focused on copper and iron ore mining.

China's investment in Peru has been mainly in mining, autos, telecommunications and engineering equipment, with cumulative investment reaching $3 billion in 2011, said Gao.

But, "we have to diversify investment here, expanding into sectors beyond mining.

"We can see huge potential for growth in many industries, including agriculture and forestry," he added.

Peru has led Latin America's economic growth in these years, with September being its 37th consecutive month of expansion.

The Peruvian economy grew 6.3 percent year-on-year in the first nine months of 2012, mainly led by construction, which grew 16 percent, and mining, which expanded by 4 percent.

"China is an important source of Peru's FDI, and Chinese corporate investment is mainly in the mining industry," said Ugaz.

"But there are many sectors in which Chinese investment could grow, such as infrastructure, telecommunications, autos and transportation."

Research conducted by the Peruvian government showed that the nation's continued economic growth requires massive infrastructure construction, which would generate new investment projects worth as much as $88 billion for foreign companies.

The infrastructure sectors that especially need foreign investment are energy, transportation and telecommunications, according to AFIN, Peru's national infrastructure development association.

"China's investment in infrastructure will surpass $10 billion in the next 10 years," Ugaz said.

President of the Peruvian Chinese Chamber of Commerce Eduardo McBride said that Chinese investment in Peru could reach $10 billion by the end of 2015.