China’s President Hu Jintao has just returned home from his first trip to Latin America, where he sought new long-term sources of supplies for his country’s booming economy. These new ties offer Latin America and the Caribbean both a new market and an example of how a dynamic economy can reduce poverty.

But Latin America should also be on its guard. While China may be a ravenous importer of Latin American commodities, it is also a formidable competitor. Both the public and private sector throughout the region should take immediate measures to face up to this new competition and to work toward cooperative projects with the Chinese.

Ordinary people in Latin America are only now recognizing China’s importance as a global economic player. Indeed, until recently, most people took little notice of China. But China’s soaring growth, seen in contrast with stagnation in Latin America’s economies, has awakened governments and businessmen across the region.

Comparisons between China’s economy and that of Latin America are stunning. The World Bank estimates that dire poverty in China, calculated as individual income of $1 per day, has been reduced from about 500 million people at the start of the 1980’s to less than 90 million in 2000. Meanwhile, poverty rates in South America have remained relatively constant.

Economic growth rates reveal the same gap. From 1978 to 2003, annual real GDP growth in China averaged 8.1% while growth in Mexico – the fastest in Latin America, barely reached 1% a year.

Although growing, China’s trade with Latin America and the Caribbean remains small, representing less than 2% of both exports and imports in 2002. The nature of that trading relationship differs substantially from country to country.

Brazil and Argentina have, for example, significantly increased agricultural exports to China, while Central America and Mexico have seen their imports from China increase dramatically. This is important because it illustrates the dissimilar regional impact that trade with China has on Latin America and the Carribean, owing to the export of South America’s basic goods, coupled with the growth of Chinese imports into Mexico.

In the 10 years between 1993 and 2003, China’s and Hong Kong’s exports to Mexico rose from 1.12% of total Mexican imports to 5.8%. Since 2003, China has become Mexico’s most important trading partner after the United States. Indeed, Mexico’s trade deficit with China reached $9 billion in 2003. In the second quarter of 2004, Chinese exports to Mexico grew by 67%, while Mexico’s exports to China fell by 1.3 %.

These changes have also had a severe impact on Mexico’s trade with the US. Although Latin American and Chinese exports to the US have both grown significantly since 1990, China replaced Mexico in 2003 as the second-leading exporter to the US in value terms after Canada.

Mexico’s competition in the US market from China has increased particularly in light manufacturing – mostly clothing and electronics. In Central America and Mexico clothing production is vitally important – generating 400,000 and 600,000 jobs, respectively – and represents the heart of Central America’s maquiladoras (free trade zones), which account for more than 70% of regional exports to the US. Losing this sector of the economy to the hyper-competitive Chinese will be a hard hit, as textile exports are often the first step on the development ladder.

With respect to other goods, including computers, Chinese-made products are set to replace Mexican output in overwhelming numbers. Mexico’s so-called “Silicon Valley South” companies in Guadalajara have, by their own estimates, already lost more than $500 million worth of projects and approximately 20,000 jobs to Asia, especially to China, and this trend will continue in the short term.

If Latin America fails to deal with its new competitor, the peoples of the region will lose jobs and opportunities to develop as they should. But there are lessons to be learned and advantages to be gained from China if Latin American governments and businesses are willing to think creatively.