Chinese investors target Latin American startups as U.S. VCs shy away
Traditionally, Latin America has turned to the United States for trade and financing opportunities from institutions such as the World Bank and the Inter-American Development Bank (IDB). However, under the Trump Administration, economic relationships between Latin America and the United States are more uncertain than ever. As a result, Latin American countries are strengthening ties with a new major trading partner: China.
Unlike many U.S. investors, Chinese investors are generally less afraid of Latin America’s past. And right after the 2016 elections, China pledged to increase trade with Latin America by $500 billion and foreign investment by $250 billion. To show they mean it, both of China’s development banks now provide more financing for development to Latin America than the World Bank, the IDB, and the Andean Development Corporation (CAF), combined.
China has also set up $35 billion in multilateral finance platforms for Latin America – the $20 billion China-LAC Industrial Cooperation Investment Fund and the $10 billion China-Latin America Infrastructure Fund, which were established in 2015. China also pumped another $5 billion into the China-Latin America Cooperation fund set up in 2014.
While trade between the U.S. and Latin America has doubled since 2000, China’s trade with Latin America has multiplied 22 times, according to OECD economist Angel Melguizo. China is now the top trading partner for the major economies of Brazil, Chile and Peru. Furthermore, Argentina, El Salvador, and Guatemala are well-placed to profit from China’s booming demand for global food. In Mexico, China’s JAC Motors invested over $200 million in a factory with Giant Motors, a company backed by billionaire investor Carlos Slim.
Tech giants like Alibaba are making their move
In addition to trade deals, Latin America’s burgeoning tech scene is also capturing the attention of China’s biggest technology companies and venture capital firms.
Alibaba, the largest internet retailer in China and the world, has been steadily examining the Latin American market over the past few years. So far, the e-commerce giant has signed three memorandums of understanding with governments in Latin America. It agreed to establish a partnership with Brazil’s national postal service, Correios in 2014. Then, earlier this year, Jack Ma flew to Argentina to work out an agreement that would help bring food and wine from Argentina to China. In September, Alibaba also created a special program specifically for Mexico, in which it agreed to share best logistics and payment practices with Mexican companies so they can bolster their cross-border business activities.
So why does Alibaba have such a strong interest in educating and helping online merchants in Latin America? The main reason is that the e-commerce space in Latin America is incredibly underdeveloped compared to other regions of the world, and Latin American consumers are already buying direct from China on AliExpress. The region’s e-commerce market is forecast to grow 18 percent annually over the next five years; however, it still represents just 2 percent of the world retail market despite being home to 9 percent of the world’s population.
After almost 40 years of development, China’s middle class is one of the largest and most powerful in the world. There is an increasing demand from Chinese consumers for the best products from all around the world, for example Argentine wine. Bringing those products to Chinese consumers is just one more part of Alibaba’s strategy.
MercadoLibre, the largest e-commerce marketplace in Latin America, with 174.2 million users in 15 countries, will try to make it very challenging for Alibaba to grow its presence in the region without a fight. Still, considering Amazon doesn’t yet have a widespread presence in Latin America, it makes sense that Alibaba is strategizing early. It could decide to ramp up its presence, or even acquire MercadoLibre, as some have rumored it might try to do.
Growing VC interest in Latin American startups
Founded in 2012 by young Brazilian entrepreneurs, 99 (formerly 99Taxis) is an app-based, on-demand ride service much like Uber. 99 took off quickly in Brazil, reaching more than 10 million user downloads in the world’s second-fastest-growing Internet market. 99 is available in 550 cities in Brazil and is the leader in both São Paulo and Rio de Janeiro, two of the largest consumer markets in all of Latin America.
This year, Didi Chuxing, China’s largest ride-sharing company, announced a sizeable investment in 99 to help the company expand its services into other countries in South America. Though the exact size of the deal wasn’t disclosed, a 99 spokesperson claimed the investment was in excess of $100 million.
“We welcome Didi to Latin America. Didi’s financing, state-of-art technology, and operations knowledge will play a key supporting role as 99 actively expands our network and services in Brazil and reshapes the competitive landscape in Latin America,” said 99 CEO Peter Fernandez. Didi founder and CEO Cheng Weihighlighted his company’s cooperation with more global partners: “China and Brazil are the world’s foremost emerging markets with enormous opportunities for our rideshare industry.”
In 2013, Brazilian antivirus company, PSafe, raised a $30 million Series C round led by Qihoo, the largest online security service in China. $25 million of that was earmarked for efforts to take the company’s security services worldwide.
And early this year, Bluesmart, a smart luggage startup with back offices in Latin America, announced a $12 million Series A round led by Tsing Capital, one of the largest venture capital firms in China.
The biggest names in China are already making their mark outside of China, and now they’re ready to make their mark in Latin America, too.