CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN CONDITIONS AND CHALLENGES C H IN A’ S FO R EI G N D IR EC T IN V ES T M EN T IN L AT IN A M ER IC A A N D T H E C A R IB BE A N . C ON DI TI ON S AN D CH AL LE NG ES Edited by Enrique Dussel Peters UNIVERSIDAD NACIONAL AUTONOMA DE MEXICO CENTRO DE ESTUDIOS CHINA-MEXICO China ’s increasing international presence in the 21st century has re- sulted in substantial outflows of foreign direct investments (ofdi), parallel to foreign direct investment inflows. The scale and dynamism of China ’s ofdi have been explosive: in 2018 Chinese ofdi accounted for almost $us 130 billion —a more than six-fold in- crease since 2005, and only second to the United States— and foreign direct investment inflows and outflows have been practically equi- valent in the last years. This book will examine the characteristics of China ’s ofdi in Latin America and the Caribbean (lac) against the background of this global context. The book is divided in two sections, totaling 15 chapters. The first section discusses general trends of Chinese overseas foreign direct investments (ofdi) in Latin America and the Caribbean (lac) from a Chinese perspective and includes the most recent strategies and re- gulations of China ’s ofdi, while other chapters focus on destination countries for Chinese ofdi that provide relevant points of compari- son with lac: the European Union, Africa and Australia. Section II concentrates on country-level case studies of China´s ofdi in lac. In addition to the regional lac experience, 10 analysts reflect upon coun- try-specific experiences: Argentina, Uruguay, Brazil, Colombia, Vene- zuela, Panama, Costa Rica, Dominican Republic, Jamaica, and Mexico. The book is also a continuation of the Academic Network of Latin America and the Caribbean on China ’s (Red alc-China) more re- cent and systematic research highlighting the substantial differences between trade, financing, infrastructure projects, and ofdi. These contributions are relevant to improve the learning process between lac and China. UNIVERSIDAD NACIONAL AUTONOMA DE MEXICO CENTRO DE ESTUDIOS CHINA-MEXICO CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN CONDITIONS AND CHALLENGES Edited by Enrique Dussel Peters UNIVERSIDAD NACIONAL AUTÓNOMA DE MÉXICO Enrique Luis Graue Wiechers Rector Leonardo Lomelí Vanegas Secretario General Leopoldo Silva Gutiérrez Secretario Administrativo Alberto Ken Oyama Nakagawa Secretario de Desarrollo Institucional Raúl Arcenio Aguilar Tamayo Secretario de Prevención, Atención y Seguridad Universitaria Mónica González Contró Abogada General UNIÓN DE UNIVERSIDADES DE AMÉRICA LATINA Y EL CARIBE Henning Jensen Presidente Roberto Escalante Semerena Secretario General http://www.udual.org FACULTAD DE ECONOMÍA Eduardo Vega López Director Alberto Morales Sánchez Secretario General María del Carmen Aguilar Mendoza Secretario Administrativo Juan M. M. Puiz Llano Coordinador de Publicaciones CENTRO DE ESTUDIOS CHINA-MÉXICO Enrique Dussel Peters Coordinador Yolanda Trápaga Delfín Responsable http://www.economia.unam.mx/cechimex RED ACADÉMICA DE AMÉRICA LATINA Y EL CARIBE SOBRE CHINA Enrique Dussel Peters Coordinador General y del Eje Temático Economía, comercio e inversión José Ignacio Martínez Cortés Coordinador del Eje Temático Relaciones políticas e internacionales Yolanda Trápaga Delfín Coordinadora del Eje Temático Recursos naturales y medio ambiente Liljana Arsovska Coordinadora del Eje Temático Historia, cultura y aprendizaje del chino http://www.redalc-china.org CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES Enrique Dussel Peters Coordinador Megan McLean Edición Socorro García Diseño y formación de interiores D.R. ©2019, Universidad Nacional Autónoma de México, Facultad de Economía Ciudad Universitaria, 04510, México, D.F. Primera edición: agosto 2019 ISBN: 978-607-8066-45-2 “Prohibida la reproducción total o parcial por cualquier medio sin la autorización escrita del titular de los derechos patrimoniales” Impreso y hecho en México/Printed and made in Mexico 253 CHINESE FDI IN COSTA RICA Rafael Arias R. and Luis Vargas M. Introduction Costa Rica is a small and very open economy. These tendencies were strengthened by structural reforms implemented during the second half of the 1980s. Macroeconomic stabilization poli- cies were complemented by a development strategy that focused on the attraction of foreign direct investment (fdi) and the pro- motion of non-traditional exports to non-traditional markets. This process allowed the Costa Rican economy to position itself as one of the Latin American countries with the best indicators of fdi attraction in recent decades and a very dynamic export sector (Arias and Muñoz 2007). Costa Rica’s competitive advantages, especially its geographical location, political and social stability, legal system, and human capital, contributed to the consolidation of its attractiveness as a destination for fdi. Intel’s investments in 1997, generated a very positive impact on the economy and marked a turning point in the growth of investments in the technological and services sectors. Nevertheless, at the beginning of the new century, the country faces the exhaustion of the easy stage of the export promotion strategy that presented important challenges in terms of attract- ing investments with a greater impact on added value. Likewise, structural lags in the infrastructure, logistics, and transport sectors CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 254 have limited possibilities of further growth and become obstacles to the country’s competitiveness. In view of the need to boost the country’s rate of economic growth and attract investment in key sectors, former President Oscar Arias Sánchez (2006-2010) decided to establish diplomatic relations with China. This diplomatic outreach was followed by the signing of a free trade agreement in 2010, which consolidated po- litical and economic relations between the two countries. Among the objectives of the free trade agreement, the following stand out: a) Achieve new and greater trade opportunities between the Parties, both for the current exportable offer, and for the po- tential supply of goods and services. b) Create a stable legal framework to promote and develop investments and strategic alliances in the territories of the Parties. c) Promote cooperation and economic complementarity among the State Parties, through the implementation of specific projects on priority issues for each of the countries. China immediately became the second biggest commerce part- ner of Costa Rica, behind the United States of America. Arias’ administration expected that China’s growing importance in the world economy would make China a strategic partner for the pro- spective growth and the productive transformation of the Costa Rican economy, based on investments in strategic sectors (Arias and Vargas 2017). The following pages seek to address economic relations between China and Costa Rica since the establishment of diplomatic relations and the evolution of Chinese investments in Costa Rica in recent years. Chinese Relations with Costa Rica 2000-2017 Two historical milestones, the establishment of diplomatic rela- tions and the signing of the 2010 Free Trade Agreement (fta) with China, signaled the growing importance of the Chinese market 255 for Costa Rica. In 2007, Costa Rica became the first Central Amer- ican nation to establish diplomatic relations with China (Chen, 2016). The political realism of this decision was based on recogni- tion of China’s importance in the global restructuring of capital and its great potential in terms of economic growth and opportu- nities for development (Burgués 2009). In 2010, after six rounds of negotiations, Costa Rica and the People’s Republic of China (prc) signed a fta, the second such agreement between Costa Rica and an Asian country, intended to achieve greater insertion of Costa Rican goods and services in the Asian giant’s market (comex 2010). Exports from Costa Rica to China grew ten times between 1994 and 2012 (Dussel Peters 2014). Between 2000 and 2007, exports to the Asian country grew at an annual rate of 42%, with most of those exports concentrated in integrated circuits and microstructures (Matarrita 2008). China’s importance as a trade partner for Costa Rica is even more significant when viewed from its impact on the import sector. Costa Rica has increased its participation in global value chains thanks to its commercial exchange with China (Rodil 2017). China is an important supplier of inputs to produce in- termediate and finished goods and this trend has become more evident in new global trade dynamics, specifically with the con- solidation of global value chains (Arias and Vargas 2017). From 2000 to 2017, it was a net importer of goods from China (Figure 1), except in 2006, 2007 and 2009, when its exports to China slight- ly exceeded their imported value. As shown in Figure 1, the formalization of diplomatic relations in 2007 coincides with higher levels of trade between the two countries. However, this growth was barely sustained until 2009. By 2010, when both economies signed the fta, Costa Rican ex- ports to China fluctuated downward, while their imports main- tained a clear tendency in the opposite direction. Costa Rican exports to China in 2014 and 2015 suffered a significant drop which coincided with the partial closure of the Intel’s operations in Costa Rica (Arias and Vargas 2017). Exports from Costa Rica to China in the last two decades have been highly concentrated in seven sub-sectors. The electrical and CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 256 electronic subsector represents 89% of the value exported from Costa Rica to China, a concentration that, although it fell to 38% in 2017, is still relatively high. The additional six sub-sectors listed in Table 1 have shown significant growth in their exports’ partici- pation in the last eighteen years, ranging from 20% in the case of Food industry to 6% for Metalworking and Medical and precision equipment in 2017. According to data from procomer (2018), seven hundred and twenty-one companies –Chinese, transna- tional, and national– operating in Costa Rica exported to China in this same period. In terms of imports as well exports, the Electrical and electron- ics, Metalworking and, Textiles, leather and footwear are posi- tioned as three of the main subsectors in bilateral trade (procomer 2018). Chemistry, Transport materials, Other industrial and Plastic complete the list of the seven main subsectors that import Chinese products to Costa Rica. These subsectors account for 85% of Costa Rican imports from China, which, although still a high concentration, is not as significant as exports from Costa Rica to China. In general, trade exchanges between the two countries are associated with low levels or no intra-industry trade (Yong and Figure 1. Costa Rica. Exports, imports, and trade balance with China in billion of us dollars (2000-2017) Source: author´s elaboration with data from Matarrita (2008) and procomer (2018). -2500000 -2000000 -1500000 -1000000 -500000 0 500000 1000000 1500000 2000000 2500000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Exports Imports Trade Balance 257 Table 1. Costa Rica. Exports to China by subsector in thousands of us dollars. (2000-2017) Year / Subsector Electrical & electronics sector Metalworking Food industry Textiles, leather & footwear Meat industry Logging sector Medical and precision equipment 2000 6.209,01 234,69  n.d. 56,49 87,45  n.d. 190,00 2001 8.985,01 262,16 0,04 39,61 14,44 n.d. 908,53 2002 28.793,52 317,58 n.d. 3,60 4,11 136,87 1.997,40 2003 83.672,08 634,74 6,74 29,00 n.d. 440,55 239,63 2004 155.874,06 1.487,18 34,48 2.128,02 n.d. 542,46 3,78 2005 233.300,44 3.654,24 54,31 795,02 12,31 751,21 685,07 2006 543.420,59 8.376,95 761,66 784,47 45,82 273,43 623,41 2007 827.201,14 9.965,24 1.841,83 456,27 22,75 1.032,81 992,45 2008 655.257,64 10.309,53 2.531,89 3.569,72 n.d. 883,49 3.112,27 2009 743.495,94 7.846,76 3.781,21 6.779,10 n.d. 422,33 518,59 2010 247.793,75 13.300,68 4.160,83 8.279,57 178,86 1.326,79 161,16 2011 159.699,77 8.661,40 6.749,99 5.380,15 98,45 4.860,67 464,35 2012 284.563,05 14.081,43 14.902,17 4.468,46 15,00 3.886,51 1.358,40 2013 316.527,62 10.331,78 16.572,22 11.008,05 1.205,57 3.341,82 3.062,78 2014 267.184,75 6.912,49 7.591,50 10.998,90 10.806,41 8.784,66 3.635,44 2015 23.447,14 7.100,05 1.838,27 10.962,04 10.679,49 5.242,38 8.659,61 2016 60.205,16 7.187,13 817,66 4.507,95 9.763,68 7.527,62 4.403,39 2017 67.018,92 10.526,58 35.498,76 5.765,36 16.947,88 12.195,09 10.856,75 Total 4,712,649.60 121,190.64 97,143.56 76,011.79 49,882.24 51,648.71 41,873.00 Average 261.813,87 6.732,81 6.071,47 4.222,88 3.563,02 3.228,04 2.326,28 Source: authors elaboration with data from procomer (2018). Villalobos 2009; clacds 2014), which may be the result of the lack of complementarity between the productive structures of both economies, which hinders the integration of companies located in Costa Rica with Chinese value chains (clacds 2014). That lack of integration has been one of the reasons why trade between both countries has not shown greater intensity and depth over the years. In recent years China has positioned itself as one of the main providers of international cooperation resources and infrastruc- ture projects for Costa Rica. However, China’s development coop- eration in Costa Rica is characterized by low levels of investment in CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 258 infrastructure projects, instability, and lack of interest in the stra- tegic sectors for productive transformation based on technological change, innovation, and a greater articulation between productive sectors and global value chains (Arias and Vargas 2017). As indicated by Armony, Dussel Peters and Cui (2018), infra- structure projects are the last and most ambitious phase in the complex relations between China and Latin America and the Ca- ribbean (lac). These authors add that the region represents a learning opportunity for Chinese companies and that, in turn, lac could find an opportunity in the infrastructure projects of the Asian giant to close its structural lags in terms of infrastructure for development. According to the authors’ estimates, the region should be investing 5% of its Gross Domestic Product (gdp) in infrastructure, instead of just 3%. Chinese infrastructure projects in Costa Rica include the con- struction of the National Stadium, an oil refinery, the expansion of a national highway, the construction of a police academy and pro- posals for Special Economic Zones (sez) and distribution centers for global service providers (DeHart 2018). Of these projects, the only one that is still underway is the expansion of Route 32, the road that connects the Costa Rican Great Metropolitan Area (gam) with its Caribbean coast (Government of the Republic of Costa Rica 2018). In this coast is located Moin Port, the main Costa Rica’s point of access to the global economy. New invest- ments for the construction of the Moin Container Terminal (tcm) in March 2019, a concession given to the Dutch company apm Terminals, will boost port development and significantly im- prove the country’s levels of competitiveness. The improvement of Route 32 complements port development and transport and stocking logistics on a national and global scale. Another important proposal is the Chinese Special Economic Zone (sez) in Costa Rica. This project initially counted with sup- port from both governments, but it has not been realized to date. The last advance on the sez project in Costa Rica was in January 2015 when both countries signed a memorandum of understand- ing to carry out a feasibility study that would allow the project to continue (Government of the Republic of Costa Rica 2015). There 259 has been no progress since on either negotiations or concrete mea- sures for implementation. A final land and port transportation project in which China is a strategic partner is led by the Inter-American Development Bank (iadb) (Mueller and Li 2018). This project consists of the expansion of Route 1 in the Barranca-Limonal stretch of the Inter- American Highway and the preparation of a master plan for mari- time port activity, both on Costa Rica’s pacific coast. Conversations with representatives of the Ministry of Public Works and Trans- portation (mopt) and the Costa Rican Institute of Ports of the Pa- cific (incop) suggest that these plans are advancing according to the pre-established schedule. The iadb’s coordination is positive in terms of generating confidence in the development of the proj- ect by both projects and could provide a solution for the develop- ment of other investment projects. In short, the economic relations between Costa Rica and China at the level of trade, investment, cooperation, and infrastructure projects have not been as dynamic as expected after the formaliza- tion of diplomatic relations and the signing of the fta. However, it is premature to issue a strong opinion on the future of projects between both countries as success will depend upon both coun- tries’ actions, especially those taken by Costa Rica to strengthen its relationship with China. Impact of Chinese fdi in Costa Rica 2000-2017 The magnitude and impact of Chinese investment in lac have been widely studied by academics and international organizations. In recent decades, China has become not only one of the largest trading partners of lac but also one of the leading investors in the region (oecd 2007). Although Chinese investment in lac has been focused on extraction-oriented activities like mineral re- sources, raw materials, and energy (Dussel Peters 2014), in recent years China has diversified its interests and the overall share of raw materials and energy has significantly decreased (Dussel Peters 2018). CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 260 Despite the growth of investments in lac, China is not the main sources of investment in the countries of the region and only represents 1.1% of foreign direct investment (fdi) (eclac 2017). The only exception to this is Ecuador, where between the years 2007 and 2016, China ranked fourth as a country of origin of fdi. In general, investments in the region continue to be domi- nated by the United States, by countries of the European Union, and by countries of the lac region. Specifically, the United States, the Netherlands, and Spain are situated in the first three positions (eclac 2017). Beginning in the 1980s, Costa Rica’s economic adjustment policies prioritized macroeconomic stabilization and economic growth through export-oriented policies and the attraction of fdi (Trejos 2008). The strategy followed by Costa Rica contributed to the creation of emerging clusters in business services, medical devices and advanced manufacturing as reflected in their relative importance in the trade with the rest of the world (oecd 2012). As Figure 2 shows, investments in Costa Rica have been mainly in sectors of the economy with higher added value and more so- phisticated exports, which positions the country in proximity to Figure 2. Costa Rica. Foreign direct investment according to the main sectors of destination in millions of us dollars (2000-2017) Source: author´s elaboration with data from bccr (2018). -200 0 200 400 600 800 1000 1200 1400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Real estate Manufacture Insurance and �nance Electricity, Water and Sanitation Services Wholesale and Retail Commerce 261 economies like those of Croatia and Norway but below similarly oriented economies like those of Malaysia and Ireland. This ten- dency coincides with the outlook of the Costa Rican external sec- tor towards knowledge-intensive activities, in which the country has managed to position itself worldwide. As can be seen in Table 2, most of these investments are located in the regimes Companies Definitive Regime and Free Trade Zone, which, have attractive incentives for foreign investors. Table 2. Costa Rica. Foreign direct investment according to regime of investment in million of us dollars (2000-2017) Year/ Regime Companies Definitive Regime Free Trade Zone Real Estate Tourism Sector Financial Sector Inward Processing 2000 134,6 453,9 15,0 51,3 27,1 -15,0 2001 184,2 241,0 9,0 111,5 43,1 19,9 2002 427,8 294,0 21,0 76,0 17,2 -11,5 2003 218,8 359,8 31,0 88,0 2,2 -7,7 2004 174,5 555,5 178,4 41,0 22,6 4,0 2005 474,0 514,9 234,6 53,2 53,3 34,1 2006 448,9 415,1 364,0 124,0 343,4 7,2 2007 603,5 457,8 631,3 321,3 73,9 0,7 2008 987,7 503,2 472,2 291,5 28,9 36,4 2009 530,2 335,0 241,7 253,5 86,9 -3,8 2010 411,8 957,7 147,0 81,0 70,0 15,9 2011 1.158,2 828,4 228,1 113,5 107,4 25,9 2012 1.019,9 568,1 431,8 143,0 72,6 22,7 2013 808,5 536,5 1.160,7 139,7 91,9 3,8 2014 957,5 1.055,3 762,1 34,0 157,3 -39,7 2015 1.516,7 666,4 320,0 41,1 195,5 12,1 2016 1.041,8 646,2 270,0 102,6 112,6 30,7 2017 593,6 1.307,3 250,0 443,3 130,6 17,6 Average 649,6 594,2 320,4 139,4 90,9 8,5 Source: author´s elaboration with data from the bccr (2018). Costa Rica’s strategy for attracting fdi also becomes apparent when fdi flows by country of origin are analyzed (Figure 3). The United States remains the main investor in the Costa Rican econ- CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 262 omy, surpassing the volume of investment by the Netherlands, the second country of origin, by about six times in the period between the year 2000 and 2017. Mexico, Spain, and Colombia complete the list of the five countries with the highest investments in Costa Rica in the last eighteen years. This result is consistent with what has happened in the rest of lac, where the main fdi flows come from North America, Europe, and countries within the same region. Figure 3. Costa Rica. Foreign Direct Investment according to the main countries of origin in million of us dollars (2000-2017) Source: author´s elaboration with data from the bccr (2018). China has increased its relative participation as an investor in the Costa Rican economy, as it has in the rest of lac. However, in the analyzed period, China occupies position twenty-two as a country of origin of investments in the Costa Rica. Chinese in- vestment in Costa Rica peaked in 2014, at a rate six times higher than the average investment between 2000 and 2017. Chinese companies Huawei and zte entered the Costa Rican telecom- munications market that year (Ellis, 2014).1 1 It should be noted that at the time, the Costa Rican telecommunications market rep- resented a turning point, since there was fierce competition among telecom operators due to the recent opening of the market in 2009, effective until 2012. -100.0 100.0 300.0 500.0 700.0 900.0 1,100.0 1,300.0 1,500.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US Netherlands Mexico Spain Colombia China 263 Contrary to what happens with other business partners in Costa Rica, the case of China is interesting because although it is its second most important trading partner, its direct investments are not that significant (Arias and Vargas 2017). Costa Rica has not been a major recipient of investment flows from China because of the lack of compatibility between the in- vestments attracted by the Central American nation and the industries in which the Asian country has focused its investments abroad. As noted earlier, Costa Rica has concentrated on attract- ing companies with knowledge-intensive activities. This approach has been most successful in attracting companies from the Unit- ed States because of Costa Rica’s geographical proximity (oecd, 2012). China, in contrast, has designated most of its fdi in the region to the natural resources and energy required to sustain its high rates of industrialization in recent decades (López and Ramos 2014; de Freitas, Tepassê and Neves 2014). In addition to the misalignment between the needs and ex- pectations of foreign investment of both economies, cultural and legal institutional frameworks differences, generated by different political and social realities, have also been a factor. A decision- making process so mediated by different political forces has dis- couraged Chinese capital investments, causing stagnation and even a decline in the number of Chinese state companies operating in Costa Rican territory. According to figures from the Embassy of the People’s Republic of China in Costa Rica, there are currently only ten companies with Chinese state capital in operation.2 Legal institutional differences have become a barrier to realizing infra- structure projects financed by Chinese companies. Another factor is the lack of interest the Costa Rican govern- ment has demonstrated in capturing investments from Chinese companies. According to interviews conducted with experts from 2 Although it was not possible to access official data from the ccpit and the Economic Council Office of the Chinese Embassy in Costa Rica, a Chinese specialist and repre- sentatives of the Embassy itself points out that there has been an erosion in the Chi- nese companies that operate in Costa Rica. These same people point out that five years ago there were more than fifteen Chinese state-owned companies operating in the country. CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 264 the Coalition of Investment Initiatives (cinde), this agency does not prioritize the monitoring of Chinese capital investments. Chinese investment data in Costa Rica, as in other countries, is underestimated. This underestimation is explained by the bias generated by the Chinese investment flows to companies located in the Cayman Islands and the British Virgin Islands, through which Chinese companies invest in Central America and the non- obligation of Chinese private equity companies to declare their investments (clacds 2014). In the case of Costa Rica, even when there is no data on the private companies located in the country, observations and interviews with national and Chinese experts suggest that there is a significant amount of capital from China that is not identified and registered in the Costa Rican fdi statistics. Academics and international organizations indicate that Costa Rica’s recent strategy to attract investment must change if the coun- try wants to continue taking advantage of capital flows to drive its economic and social development (Trejos 2008; oecd 2012). The scaling of Chinese capital towards investments in more knowledge intensive industries and infrastructure could allow Costa Rica to capitalize on a series of competitive advantages in the region to attract these investments. Costa Rica could leverage two characteristics that initially at- tracted the attention of the Chinese government: 1) its geographi- cal location in the middle of the continent as a possible hub of investment with a “market seeking” orientation to the rest of the continent, emphasizing knowledge-intensive industries and; 2) its extensive experience managing natural resources. As a laboratory of agribusiness, the generation of clean energy, and the conserva- tion of natural resources, Costa Rica’s results could then be applied and scaled in China (Chen 2016). Costa Rica has seen significant growth in recent years in its business services market. Costa Rica has the potential to become a financial and business center for Chinese companies in the region, especially in light of the potential for expansion of Chinese com- panies like Alibaba. Attracting China’s interest in industries of this nature could boost investment in physical and digital infrastruc- ture (ports, airports, roads, canals, railways, telecommunications 265 infrastructure, among others), all of which are strategic sectors for the development of the lac countries (Niu 2018). Conclusions and Policy Suggestions The beginning of diplomatic relations in 2007 and the signing of the fta in 2010 constitute the institutional arrangements that the government of Costa Rica has implemented to promote a closer relationship with China. A decade later, economic results and Chi- nese capital investments in the country have not produced the expected results. Although commercial relations have grown, they do not present the pace or intensity required to transform invest- ment patterns and cooperation in sectors in which both countries have interests (Arias and Vargas 2017). Investment volumes have been considerably low in the period analyzed, unlike the experiences of other commercial partners and in spite of the relevance of China as a partner in Costa Rica’s com- merce. The little data available, combined with interviews with experts, indicates that the volume of fdi has not reached the levels of investment necessary to boost the growth of strategic sectors for the Costa Rican economy. This situation may have a pragmatic explanation, given that Chinese direct investments in lac have been concentrated in sectors related to natural resources and raw materials. In recent years there has been growth in investments in the service and manufacturing sectors. China also provides financing in the form of loans to boost large infrastructure projects but this must not be confused with direct investment. In the case of Costa Rica, the information available indicates that Chinese investment is still incipient. At first, it was thought that Costa Rica would be strategic for Chinese investments, not because of the size of the Costa Rican economy or because of its wealth in mineral resources, but rather because of its geographi- cal location and legal security, which offered China competitive advantages to expand operations in the region. Costa Rican rela- tions with China offered the possibility of investments in physical CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 266 infrastructure, telecommunications, transport logistics, and stock- ing and energy. To date, no infrastructure project of significant scale has been executed with Chinese direct investment. Failed attempts on behalf of both governments are found in the infrastructure and transport sector (roads), as well as in en- ergy (oil refining). Perhaps the most promising project in terms of direct investment was the development of a Special Economic Zone in the Central Pacific of Costa Rica, which was promoted as the central project of the Development Bank of China for Costa Rica. It has remained stagnant for almost five years. Within the context of this “cooling” in economic relations be- tween the two countries, particularly in terms of China’s interest in increasing direct investment in Costa Rica, the following policy suggestions may be useful: 1. The most important challenge for Costa Rica is to improve its legal institutional framework for doing business. Costa Rica’s political process means that making decisions and fi- nalizing contracts and investment projects with third countries can take more time than usual. It is necessary to establish clear rules of the game and a more efficient decision-making process. 2. The Government of Costa Rica should create a high-level technical secretariat to follow up on its economic relations with China and define a policy of attracting Chinese direct investment in sectors and economic activities of interest to both countries. This technical secretariat should have repre- sentation from the Ministry of Foreign Trade of Costa Rica (comex), private investment promotion agencies like the Foreign Trade Promoter (procomer) and the Coalition of Investment Initiatives (cinde), along with input from the Chinese Association of Costa Rica and the commerce representatives of the Chinese Embassy in Costa Rica. 3. The Costa Rican fdi authorities should identify produc- tive sectors in which Costa Rica is a world leader that also have potential for attracting Chinese investment, such as clean energy, bioprospecting for the pharmaceutical 267 industry, research tourism in biodiversity, health tourism, clean transportation, and infrastructure for sustainable de- velopment. 4. Costa Rica should strengthen its commerce office in China by increasing the human resources present in China and focusing on Chinese companies with compatible interests to invest in Costa Rica, especially in knowledge-intensive activities. Greater inter-institutional coordination integrat- ing the work of the Costa Rican “foreign trade triad” (co- mex, procomer and cinde) might achieve the kind of results that have been attained in markets such as the United States and some European countries. References Arias, Rafael and Juan Muñoz. 2007. “Reforma económica y mod- elo de promoción de exportaciones: logros y vacíos de la políti- ca de desarrollo de las últimas dos décadas”. Revista de Ciencias Económicas de la Universidad de Costa Rica 25-No. 1, pp. 15-39. Arias, Rafael and Luis Vargas. 2017. “Relaciones Económicas Costa Rica y China. In, Dussel Peters, Enrique (edit.). América Latina y el Caribe y China: Economía, Comercio e Inversión 2017. Red alc-China, udual, unam/Cechimex: México, pp. 215-234. Armony, Ariel, Enrique Dussel and Shoujun Cui. 2018. “Introduc- tion” In, Dussel Peters, Enrique, Ariel Armony and Shoujun Cui (Ed.). Building Development for a New Era: China’s Infra- structure Projects in Latin America and the Caribbean. Mexico: Asian Studies Centre, ucis, Red alc-China, pp. ix-xi. bccr. 2018. Inversión directa, economía declarante, anual (por actividad) [data]. Retrieved from https://gee.bccr. fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro. aspx?idioma=1&CodCuadro=%202184. bccr. 2018. Inversión directa, economía declarante, anual (por país de origen) [data]. Retrieved from https://gee.bccr. fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro. aspx?idioma=1&CodCuadro=%202185. CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 268 bccr. 2018. Inversión directa, economía declarante, anual (por régi- men) [data]. Retrieved from https://gee.bccr.fi.cr/indicadores- economicos/Cuadros/frmVerCatCuadro.aspx?idioma =1&CodCuadro=%202183. Burgués, Antonio. “Introducción”. In, Trejos Montero, Marta (edit.). Relaciones China-Costa Rica: Una referencia para Cen- troamérica. cidh: Costa Rica, pp. 7-12. Chen Sui, Susan. 2016. “The Impact of Costa Rica’s Relationship with China”. Revista Estudios 33, pp. 1-32. clacds (2014). Comercio e Inversión entre América Central y China. Costa Rica: clacds. comex. 2010. Tratado de Libre Comercio Costa Rica-China: Docu- mento Explicativo. Costa Rica: comex. De Freitas, Alexandre, Ângela Tepassê and Marina Neves. 2018. “Las relaciones económicas entre Brasil y China a partir del desempeño de las empresas State Grid y Lenovo”. In, Dussel Peters, Enrique (coord.). La Inversión Extranjera Directa de China en América Latina: 10 casos de estudio. Mexico: Red alc-China, udual, unam/cechimex, pp. 61-132. DeHart, Mónica. 2018. “1. China-Costa Rica Infrastructure Proj- ects: Laying the Groundwork for Development?” In, Dussel Peters, Enrique, Ariel Armony and Shoujun Cui (Ed.). Build- ing Development for a New Era: China’s Infrastructure Projects in Latin America and the Caribbean. Mexico: Asian Studies Centre, ucis, Red alc-China, pp. 3-23. Dussel Peters, Enrique. 2014. Política económica –comercio e in- versiones– de Guatemala hacia la República Popular de China: Hacia una estrategia en el corto, mediano y largo plazo. Mexico: United Nations. Dussel Peters, Enrique. 2018. “Introducción”. In, Dussel Peters, Enrique (Coord.). La Inversión Extranjera Directa de China en América Latina: 10 casos de estudio. Mexico: Red alc-China, udual, unam/Cechimex, pp. 7-12. Dussel Peters, Enrique. 2019. Monitor de la ofdi de China en América Latina y el Caribe 2018. Mexico: Red alc-China. eclac. 2017. La Inversión Extranjera Directa en América Latina. Santiago de Chile: eclac. 269 Ellis, R. Evan. 2014. China on the Ground in Latin America-2014: Challenges for the Chinese and Impacts on the Region. London: Palgrave Macmillan. López, Andrés and Andrea Ramos. 2018. “Argentina y China: nue- vos encadenamientos mercantiles globales con empresas chi- nas. Los casos de Huawei, cnooc y Sinopec”. In Dussel Peters, Enrique (Coord.). La Inversión Extranjera Directa de China en América Latina: 10 casos de estudio. Mexico: Red alc-China, udual, unam/Cechimex, pp. 13-60. Matarrita, Ricardo. 2008. “Relaciones comerciales de Costa Rica con China”. In, Estado de La Nación (coord.). Decimocuarto Informe Estado de la Nación en Desarrollo Humano Sostenible. Programa Estado de La Nación: Costa Rica. Muller, Sven-Uwe and Fan Li. 2018. “Chinese Infrastructure Proj- ects in Latin America and the Caribbean: The Experience of the Inter-American Development Bank”. In, Dussel Peters, En- rique, Ariel Armony and Shoujun Cui (edits.). Building Devel- opment for a New Era: China’s Infrastructure Projects in Latin America and the Caribbean. Asian Studies Centre, ucis, Red alc-China. Mexico, pp. 164-179. Niu, Haibin. 2018. “A Strategic Analysis of Chinese Infrastructure Projects in Latin America and the Caribbean” In, Dussel Pe- ters, Enrique, Ariel Armony and Shoujun Cui (Ed.). Building Development for a New Era: China’s Infrastructure Projects in Latin America and the Caribbean. Asian Studies Centre, ucis, Red alc-China. Mexico, pp. 180-194. ocde. 2012. Attracting Knowledge-intensive Foreign Direct In- vestment to Costa Rica: Challenges and Policy Options. oecd: France. Ortiz, Samuel. 2016. Performance of China’s ofdi (2005-2014), according to two methodological approaches: asset/liability and directional. Mexico: unam/Cechimex. procomer. 2018. Portal Estadístico de Comercio Exterior [data]. Retrieved from http://sistemas.procomer.go.cr/estadisticas/ inicio.aspx. CHINESE OFDI IN COSTA RICA CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 270 Rodil Marzábal, Óscar. 2017. “Relaciones Económicas Costa Rica y China. In, Dussel Peters, Enrique (Ed.). América Latina y el Caribe y China: Economía, Comercio e Inversión 2017. Red alc-China, udual, unam/Cechimex: Mexico, pp. 337-358. Santiso, Javier. 2007. “Introduction”. In, Santiso, Javier (edit.). The Visible Hand of China in Latin America. Paris: oecd, pp. 9-14. Televisora de Costa Rica. 2018. Terminal de Contenedores de Moín recibió segundo embarque de grúas pórticas y de patio. Retrieved from https://teletica.com/194618_terminal-de-contenedores- de-moin-recibio-segundo-embarque-de-gruas-porticas-y-de- patio. The Government of the Republic of Costa Rica. 2015. Costa Rica y China fomentan crear Zona Económica Especial. Retrieved from https://presidencia.go.cr/comunicados/2015/01/166- costa-rica-y-china-fomentan-crear-zona-economica-especial/. The Government of the Republic of Costa Rica. 2018. Inician in- tervención en Ruta 32 que dará vida útil de 10 años al tramo. Retrieved from http://gobierno.cr/tag/ruta-32/. Trejos, Alberto. 2013. Country Role Models for Development Suc- cess: the case of Costa Rica. In Fosu, A.K. (Ed.), Achieving De- velopment Success: Strategies and Lessons from the Developing World. Oxford University Press: United Kingdom.  Yong, Marlon and María Villalobos. 2009. Análisis de los flujos comerciales y el comercio e inversiones entre los países del asean, China y Costa Rica. Costa Rica: iice-ucr. 329 ABOUT THE AUTHORS Rafael Arias R., Ph.D., Associate Professor and Research Co- ordinator of the Economics School of National University and Associate Researcher of the Institute of Research of Economics Sciences of the University of Costa Rica. Member of the Red alc- China. Gustavo Bittencourt is a professor and researcher in the Depart- ment of Economics, Faculty of Social Sciences, University of the Republic, Uruguay. Author of numerous works on international economics and economic development, with an emphasis on fdi and development in Latin America, and Latin American relations with China. Alternate President of the South American Network of Applied Economics (Red Sur). Linda Calabrese is a development economist and a Research Fel- low at the Overseas Development Institute. Her research interests include trade and investment, industrial policy and economic transformation. A fluent Mandarin speaker, she is interested in China-Africa issues, in particular how Chinese and foreign invest- ment promote economic transformation in Africa through the development of the manufacturing sector. At odi she works ex- tensively on industrial policy in East Africa. Prior to joining odi, Linda worked as an economist for the Government of Uganda CHINA’S FOREIGN DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN. CONDITIONS AND CHALLENGES 334 Leonardo E. Stanley is an associated researcher at the Center for the Study of State and Society (cedes), an independent think tank in Argentina. He is a graduate in economics from the School of Economics, University of Mar del Plata, Argentina, and holds an MSc in economics from Queen Mary University, London, and an MsPhil/dea (Diplôme d’études approfondies) from Université d’Evry Vald’Essone, France. Along with membership in many pro- fessional associations, he serves as an advisory board member at the Initiative for Financial Transparency (itf) and as a member of the Institute of Latino American Centre, University of Rosario (unr). His main fields of analysis involve economic development, international political economy, international financial architec- ture, and institutional design. He recently published his first book, Emerging Market Economies and Financial Globalization: Argen- tina, Brazil, China, India and South Korea (Anthem, 2018), which provides a comparative analysis of the capital account liberaliza- tion process. Luis Vargas M., Ph.D. candidate, is a researcher at the Institute of Research of Economics Sciences of the University of Costa Rica and the International Centre of Economic Policy for Sustainable Development of the National University. Member of the Red alc- China.