After signing different agreements resulting from the visit of a delegation from that province to the South American nation, the international affairs specialist believes that if Chile wants to grow in trade in goods with China, it must focus on the diversification of its productive basket towards more elaborate products.

Although stuffed pandas were an essential part of the promotion that the Sichuan authorities carried out in Chile last week, as that Chinese region concentrates the largest population of these bears, the focus was on exports of Chilean raw materials and imports of high added value Chinese products.

The province of Sichuan bought Chilean goods worth US$658 million in 2023, mainly consisting of mining products, salmon and chemicals. Imports from said province totaled US$ 183 million, mostly machinery and electronic products or components.

Sichuan is the fifth provincial economy in China and the one that invests the most in Chile. It was also the first destination of the Chilean president on his trip to China last October, where he met with the governor. He also held meetings with senior officials of the Chinese Communist Party, gave a master class at Sichuan University, inaugurated Chile Week and visited the Tianqi Lithium Lithium Science Museum, as well as the National Center for Agricultural Science and Technology in Chengdu (NASC).

“Chile and Sichuan share similarities in key sectors such as agriculture, food industry and tourism,” said Claudia Sanhueza, Undersecretary of International Economic Relations (SUBREI) of the Chilean Foreign Ministry.

Both nations have a Free Trade Agreement (FTA) in force since 2006, which has allowed China to become Chile's first trading partner.

Undersecretary Sanhueza also indicated that Chile's National Lithium Strategy opens new investment alternatives for companies in the province that want to participate in this market, and that there are spaces for cooperation in areas such as innovation or smart agriculture, with a regional focus, similar to the one that has existed for 20 years with the government of Biobío, in the south-central part of Chile.

CHILEAN PRODUCTIVE VOCATION

Although it is direct investment that usually captures the headlines, the truth is that Chinese investments have been falling in recent years.

In January, the Inter-American Dialogue Foundation ( the Dialogue ) highlighted that the nature of Chinese foreign direct investment (FDI) in the region “is changing notably and with still unforeseen implications for the region and its many other international investors.” 

In fact, the value of Chinese investment has fallen from US$14.2 billion per year between 2010 and 2019, to an average US$7.7 billion between 2020 and 2021, and then to US$6.4 billion in 2022.

This, accompanied by recent disappointing Chinese indicators for gross domestic product data including real estate investment, retail sales and industrial production in March, showing that domestic demand remains fragile. This weighs on the overall purchasing momentum of the world's second largest economy.

In all, China grew 5.3% in January-March 2024 compared to the previous year, according to official data. This was well above the 4.6% expected by Western analysts and barely above the expansion of 5.2% the previous quarter.

In this context, hopes remain pinned on increasing trade.

“There are real possibilities that Chile's trade with this province will grow and it is not negligible if we think that it has more than 90 million inhabitants. So, it is like trading with an entire country,” academic and researcher Dorotea López Giral, master in economics from the University of Cambridge and Professor at the Institute of International Studies (IEI) of the University of Chile, tells AméricaEconomía .

“And even though [China] has a contraction, that we believe is a new normal, the governor spoke of a growth of 6%, which is still an attractive growth for our demand,” adds López Giral.

The interest of local authorities and the business community that attended the Santiago event demonstrates this, according to the academic.

At the same time, Chile's effort to focus its export efforts also allows us to think about how we diversify its productive basket towards something more elaborate.

Recent data from the Chilean Ministry of Foreign Affairs show exports excluding copper and lithium reaching US$ 12.34 billion in March 2024, where China is the main destination, with a cumulative US$ 3.6 billion, 8.4% more than in the same period in 2023.

A report by the Central Bank of Chile says that Chilean exports to China totaled US$ 37.45 billion in 2023, a decrease of 4.4% from 2022, and accounting for 39% of total exports.

Imports from China, meanwhile, totaled US$19.83 billion in 2023, 23% of the total and 25% less than in 2022.

“Having a trade balance deficit is not a problem for any country, although in our case in Chile we have a surplus. As long as the scale has the composition you are looking for, that is, if you imported many intermediate goods to produce final goods with high added value, it would not matter. Because in reality you wouldn't have to sell the same products to the same market,” says López Giral.

Given the concern that the primarization of the Chilean export basket will deepen, López Giral points out that “I don't know if it is in China's hands to add value. Rather, I think that this has to do with the productive development policy that Chile implements. And it also has to do, for example, with taking advantage of the opportunity of companies like Tianqi [in lithium] or Kaiyi [in electric vehicles] that wish to establish themselves here and that can transfer technology, and that in turn the country is capable of generating collaboration in science, technology and talent. And if you have the possibility of selling them more added value, that depends on you doing it,” she specifies, noticing that these primary products also have some degree of added value.

Therefore, Chile's challenge will be the generation of clusters that allow adding value to everything that the country produces and exports.

“Because adding value also requires someone to buy from you so you are able to invest. So, I believe that how Chile carries out its productive development policy is important here. Because if you don't sell to China, but you sell the same thing to another country, it will be exactly the same problem. This is not China's fault. This is the fault of the domestic productive matrix,” concludes López Giral.