A slowdown in China’s growth is a serious concern for Latin America, especially for those countries that have benefited from a record-setting boom in commodity prices since 2003. Much of the slowdown is due to structural reforms in China, partly prompted by the tepid and uncertain recovery of its large trade partners, namely, the US and EU.
Lurking in the background, however, is growing concern about possible macroeconomic instability due to China’s domestic credit boom, which has been accompanied by the emergence of unregulated and fast growing “shadow banks.” A disruption of the banking system cannot be ruled out and could result in a major growth contraction in China.
How big is this risk? And what are the implications for Latin America? What are the advantages of China’s financial expansion in the region, and how can policymakers make the most of these, while minimizing the risks?