Latin America is firmly on Chinese companies’ mental map. But what will they find when they get there? China Business Law Journal offers an analysis of the latest state of play, followed by a unique country-by-country guide

By Alfred Romann

There is an old joke that Brazil is the country of the future, and always will be.

“For Brazil in particular and for many South American countries in general, the future has now arrived,” says Scott Schwind, a partner at Thompson & Knight in the US. “Brazil, Chile, Colombia and Peru are enjoying sustained periods of economic growth fuelled by political stability, domestic consumer demand, a growing middle class, an investor-friendly business environment, abundant natural resources, well-prepared attorneys, bankers and businessmen and sophisticated companies.”

It all sounds idyllic and profitable. Economic growth rates over the last couple of decades have not been anywhere near the levels seen in China, but that now seems to be changing. More widespread political stability, coupled with inflows of funds from places beyond the US and Europe, are giving many countries here a significant booster shot.


In 2008, the 20 countries in Latin America had a combined gross domestic product (GDP) of US$6.1 trillion, making it the second largest economy in the world. In 2010 economic growth across the region was expected to top 5%. The continent’s population is close to 600 million.

“The emerging markets in South America offer business opportunities in a wide array of industries with incredible growth potential,” says Carlos Treistman of Morgan, Lewis & Bockius, a US-based law firm with offices in Beijing that has worked with companies from almost every country in the continent.

Anthony Oldfield, the managing partner of Clifford Chance’s Sao Paulo office, is similarly upbeat. “There are countries in South America – Brazil, specifically – that are booming in a way that you’re not seeing right now in other parts of the world”.

China symbiosis

While Latin America is growing, China’s own growth has made it hungry for resources, and for markets in which to sell its never-ending stream of manufactured goods. Latin America has both. It has massive deposits of minerals, huge parcels of arable land, a plentiful supply of fresh water, and markets that are already much larger than countries in Africa and often Asia. Many countries have well-educated populations and reasonable infrastructure to go alongside well-developed legal systems.


“Like a well-tailored suit, China and Latin America are made for each other,” says Michael Diaz, managing partner of Diaz Reus & Targ in Miami.

China’s first steps have been into the infrastructure sector, with Chinese companies constructing roads and other projects to facilitate the exploitation of natural resources. Other Chinese investments have been in factories to produce automotive components and IT-related products. And, according to Sergio Michelsen Jaramillo, a partner with Brigard & Urrutia in Bogota, Chinese companies are also setting up farms and focusing on agriculture.

With growing economic involvement has come increasing political influence. “For many years, the United States exercised unrivalled political and economic power in South America. However, President Hu Jintao’s visits, towards the end of 2004, attested to Beijing’s interest in South America,” says Artur Badra of Jones Day in Spain, who recently returned from a business trip to Brazil. “China’s growing presence [in Latin America] is of the greatest economic and geostrategic significance.”

A set of annual bilateral summits started in Chile in 2007. A second summit was held in Harbin in 2008 and a third last November in Bogota, attended by representatives from Argentina, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador and Mexico as well as Chinese conglomerates like Chinalco, CITIC, Baoshan Iron & Steel and China Road & Bridge Corporation.

China issued its first Policy Paper on Latin America and the Caribbean in 2008, and in October 2009 the China Development Bank opened an office in Colombia. President Hu made another trip to the region this month, visiting Brazil, Venezuela and Chile.

Again, it all sounds friendly and lucrative. But Latin America presents many challenges. The continent’s approach to deal-making is a tropical cocktail of savvy financial models; lack of actual funds; people with strong educational backgrounds intermingled with buffoons in positions of authority; corruption; and a healthy dose of egomania. Regulations can be restrictive, and government interference in the economy can be intrusive. The bureaucracy in many countries can be overwhelming. Labour regimes are often antiquated and paternalistic. Taxes are high and confusing. Corruption is never far away.

M&A preferred

Chinese investment in Latin America is unusual in that it is much more frequently done through mergers and acquisitions than in other parts of the world. In just about every other region, including Africa, the Middle East, Oceania and North America, virtually all Chinese foreign direct investment (FDI) between 2003 and 2009 was in greenfield projects. Over the same period in Latin America, a full quarter of the investment took the form of M&A, according to FDI Markets. No other region in the world came close, with Western Europe in second place at 5.4%.

“For a host of different reasons, whether they are political or cultural, when a Chinese company is looking at investment opportunities in Latin America, to the extent that local laws allow, [it will prefer] to have control of the operation,” says James Hsu, a China-based partner at Squire Sanders, who speaks fluent Spanish.

In 2008 and 2009, Wuhan Iron & Steel acquired a minority stake in Brazil’s MMX Mineracao e Metalicos for US$362 million. China’s Mayer Holdings is negotiating a US$163 million stake in Argentina’s Maxipetrol HK while Nanjinzhao Group acquired Cardero Hierro del Peru for US$100 million. China Hengtian Group paid US$57 million for Worldbest (Mexico) Textile Industrial, and China Fishery Group paid a total of US$57 million for four companies and plants in Peru, according to Dealogic. Last month CNOOC announced a US$3.1 billion deal for half of Bridas, an oil and gas company in Argentina.

M&A can also provide investors with an indirect route into the continent. Sinochem’s push into Colombia, which has rich energy resources, is a good example. Sinochem started looking a few years ago, when Colombia opened its oil exploration market and announced a number of finds.

In the background was a concerted Colombian government push to attract capital and convince the world that it had turned a political corner. The message was – and is – that the country is no longer an unstable haven for drug lords, but a viable economic force. Since around 2006, it has placed considerable emphasis on attracting Chinese capital. Part of this effort has been the establishment of an office in Beijing of Proexport, Colombia’s investment promotion agency.

Sinochem talked, looked and talked some more, but Colombia’s complicated legal system proved to be an almost insurmountable challenge. Rather than investing directly and dealing with the legal hurdles, Sinochem chose the long way around. Last year, it bought UK-listed and headquartered Emerald Energy, which had made significant finds of oil in Colombia and Syria. Emerald had a good track record and people on the ground, and its public listing in the UK made the transaction more straightforward. The deal gave Sinochem a considerable presence in Colombia and the local knowledge it needed to leverage local energy resources.

Uphill struggle

As Sinochem discovered in Colombia (see M&A preferred, opposite), Chinese investors can face something of an uphill struggle in Latin America when compared to their competitors from Europe or North America, which may more easily understand the local legal systems, says José Astigarraga of Astigarraga Davis in Miami.


“Many of the laws in Latin America are rooted in European legal systems, or to some degree, the US legal system. Investors from Spain share a common language with most of the region, and many of the businesspeople speak English,” says Astigarraga. “Those bonds do not exist when it comes to Chinese companies.”

Problems can centre on the procedure-heavy legal cultures that “Chinese investors may have a hard time understanding,” says Carlos Camacho, an associate with Arias Muñoz, a firm with representation in various central American countries. Arias Muñoz worked with Bank of China to provide financing for Chinese telecommunications equipment manufacturer Huawei Technologies in Costa Rica, the first transaction in that country involving both Chinese companies and financing.

One example of potentially problematic legal procedures is the requirement, under Costa Rican law, that contracts be signed by both parties rather than stamped with a seal or chop. Another surprising difficulty has to do with the apparently simple procedure of filing documents. China is not a signatory to the Hague apostille convention, which means that certifying the authenticity of a document can take months. A company that needs to file a document in, say, Costa Rica, may have to take it to a local chamber of commerce for certification, then to the national chamber of commerce to certify that the local chamber is legitimate, then to a government ministry to certify the national chamber and finally to a consulate to certify the ministry approval. If a translation is needed, the process may start all over again.

Regulatory environments can be difficult to fully grasp and there is always the chance of a sudden change, says Felipe Kim, a partner at Tauil & Chequer, a Sao Paulo firm associated with Mayer Brown. According to Sergio Michelsen Jaramillo, a partner at Bogota law firm Brigard & Urrutia, many countries in Latin America, like Colombia, “have a very complex tax system with regulations that are constantly modified and create uncertainty”.

According to Adriano Chaves, a partner at Campos Mello Advogados in Brazil (which has a link with DLA Piper), the wide variety of markets creates plenty of opportunities, but it also makes grasping the essential tenets of business practice more difficult. “Many Latin American countries are at a different stage in terms of democracy and market development … which has advantages and disadvantages,” says Chaves.

“Generally speaking, Chinese investors will encounter a business environment that is not as open as the one they are used to facing in Europe or in the US,” says Francisco Soler Caballero, a Shanghai-based partner with Spanish law firm Garrigues. “Chinese investors should be prepared for more restrictions.”

And if Chinese companies can be uncomfortable with Latin American ways, the opposite is often true as well.

“There is a lack of information and understanding of what China represents, particularly in a region of high entrepreneurial activity that looks at China’s presence with anxiety,” says Bernardo Rodriguez, a partner at Rodriguez & Cavelier in Colombia. “This can easily be solved with the participation of local lawyers with capacity beyond the purely legal, to establish effective channels of communication between investors and recipients.”

Advisers assume central role

In this atmosphere of mutual unfamiliarity, the role of advisers can assume central importance. Vaughn Barber, a tax partner at KPMG in Hong Kong, says investment banks are almost a constant presence alongside Chinese investors, bringing deals to any company with sufficient funds, and offering their full range of advisory services. “Chinese companies are often not very effective at pursuing these deals by themselves,” says David Xu, a partner in the firm’s M&A practice in Beijing.

Sino-Latin Capital, a boutique investment bank based in Shanghai, focuses solely on China-Latin America deals.

Law firms, too are finding a role. Firms with strong Latin American practices or connections are setting up shop in China. International firms are increasingly promoting their Latin American practices to their Chinese clients and setting up dedicated desks.


The increasing deal traffic is certain to create work for knowledgeable lawyers in China itself, according to Omar Puertas, at Cuatrecasas Gonçalves Pereira in Shanghai. “We will have a greater role advising companies from Spain, Portugal, Latin America and continental Europe. We will need to advise not only on the local regulatory system but also in Chinese M&A legislation,” says Puertas.

One prominent firm that is taking a gamble on this growing relationship is Uría Menéndez, a Spanish firm with offices in five Latin American countries. Uría spent five years planning its office in Beijing, says lead partner Juan Martín Perrotto.

As far as Perrotto is concerned, the rationale is clear. Almost all of the 177 foreign law firms in China followed their foreign clients there and are only now taking work from China abroad. Chinese law firms, in the meantime, have maintained their domestic clients but often don’t have the resources or know-how to operate elsewhere. So Perrotto is looking to provide the missing link. “The whole system of outbound investment is based around domestic firms,” he says. “That is the space we want to occupy.”

International law firm Squire Sanders is also expanding its Latin American desk in China. Shanghai managing partner Daniel Roules sees a lot of opportunities for growth in that particular space. “There isn’t enough knowledge in China today about the system in Latin America,” he says.


Practical difficulties

Legal matters aside, what are the practical difficulties awaiting Chinese investors in Latin America? “The main challenge for this first wave of Chinese investors is cultural,” says Chaves. “Many Chinese companies would like to receive documents in Chinese, which is a great challenge for Brazilian law firms.”

Take the example of Argentina. “In the first place, there is the language barrier,” says Alejandro Anderlic, a partner at Buenos Aires law firm Estudio O’Farrell. “Very few Chinese speak Spanish and many don’t speak English or feel at a disadvantage using it, which forces them to use a negotiator who speaks Mandarin to reach certain companies.”

Lack of understanding of the nuances of the various markets, and differing approaches to negotiation, can aggravate the difficulties of language. “Even in big companies, they don’t always understand, and you have to explain things very clearly,” says Gustavo Rabello, a partner at Brazilian firm Noronha Advogados, which has offices in Shanghai.

But beyond language and time zones – an often-mentioned issue – not all is conflict in how the two sides approach business.

“Latin America is very similar to China in that business is generally conducted in an informal setting,” says Vincent Li, an associate attorney with Miami-based firm Diaz Reus & Targ, which does a lot of business across the continent and has offices in Beijing. “This can be both an advantage and a disadvantage: advantage because of its similarity to the Chinese business culture, disadvantage because the Latin American business culture, like its Chinese counterpart, is sophisticated and nuanced. For newcomers, it is important to use local professionals and contacts as navigators in order to function smoothly in that market.”

Differing approaches to negotiating can be a challenge, says Eduardo Cardenas, a partner at Cardenas & Cardenas in Colombia. “We have seen a great deal of interest or participation by government entities in the biggest deals, which means multiple approval levels, which leads to delays,” says Cardenas. “A particular experience has been negotiating memoranda of understanding for investment that finally reached the approval level in China but were not respected [by China],” says Cardenas. “That did not make for a good experience.”

Labour pains

Another common problem can arise in the form of Latin America’s powerful labour unions, and labour laws that are weighted in favour of the worker.

In Argentina, for example, the unions are very strong. Laws “allow little flexibility, and taxes on salaries and social security contributions are high,” say Julio Martinez and Sebastian Maggio of Buenos Aires law firm Mitrani Caballero Rosso Alba Francia Ojam & Ruiz Moreno. The firm worked with Tenaris, a maker of tubular products, in setting up a wholly foreign-owned enterprise in Qingdao.

Roules and Hsu of Squire Sanders also emphasize the power of the unions, noting that significant deals in both Argentina and Chile last year failed to go through because of them.

Cutting employee numbers may be difficult in some settings. Sometimes, deals are publicized before they actually happen. At other times, the involvement of unions sinks deals that would otherwise have happened.

A trade union with the power to disrupt a deal is a new thing for investors from China. “It’s something the Chinese companies engaged in outbound investment are going have to learn to deal with,” says Roules, regardless of the region they are going to.

Wider horizons: Chinese investors look beyond natural resources
Wider horizons: Chinese investors look beyond natural resources


Another emerging challenge across the continent is compliance with increasingly complex anti-money laundering regulations in China, which published its first Anti-Money Laundering Strategy in December 2009.

Li at Diaz Reus & Targ says the emergence and spread of these regulations could create opportunities for law firms advising US and Latin American businesses while also “helping the Chinese institutions track down and recover unlawfully obtained assets transferred to the United States and Latin America”.


In Latin America, as elsewhere, there is often some bitterness at how Chinese companies and China in general approach new markets. Few people will go on the record on these issues, aware that China holds most of the butter for the bread. One trade official in Chile, speaking anonymously, says Chinese companies don’t understand what countries like his have to offer.

Chile has free trade agreements with China and the US, and would be a natural manufacturing base. But China is not interested, investing in the country but doing little for the communities it serves, the official said. Chinese companies are reluctant to hire local labourers, which creates an impasse as Chile doesn’t allow companies to bring in large numbers of workers. While China is the country’s largest buyer of copper and soya, he notes that this investment is doing little in terms of developing the economy in any meaningful way.

He says Chinese investors are unwilling to bend but expect their target countries to perform all kinds of regulatory gymnastics just to direct the big flow of capital their way.

There is also constant tension between competing desires for investment and national independence. Another trade official, Juan Carlos Martinez of the Costa Rican trade mission in Beijing, said his country is keen to bring in more investment but reluctant to give everything and the kitchen sink away.

Chinese investment in Latin America is still a new phenomenon, and teething troubles are surely to be expected. Perhaps greater sensitivity (on the part of the investors), and greater acceptance (on the part of the recipient countries and their people), will gradually evolve.

“Chinese investors may know about business opportunities; however, business relationships within the region are only beginning. Building market intelligence and a trustworthy network may take some time,” says Camacho of Arias Muñoz.

Christian Roschmann, a Brazil-based partner at Linklaters, points out that Chinese companies, which are often government-owned or linked, may not be subject to commercial pressures from shareholders, and can take a long-term strategic view of how they spend money.

Protections and incentives

What else can Chinese investors do to ensure the success of their investments? Camacho suggests that investors compare the legal protections afforded to foreign investors before moving towards a specific country. “Specifically, Chinese investors should look for bilateral investment treaties, free trade agreements and membership in the Washington Convention for the International Centre for the Settlement of Investment Disputes.”

Camacho also says that Chinese investors should “keep a close watch on political trends before making a final decision on where to invest,” noting that while large international law firms based in London or New York may have experience in foreign investment generally, no such firm has an office in, for example, Costa Rica. “They simply do not have the requisite knowledge of Costa Rican business, law and politics,” he says.

Conversely, he observes that many local firms are not fully equipped to handle matters with an international dimension. “This hampers their ability to provide the level of written and verbal communication that a Chinese investor would need for a smooth transaction.”

“A local firm is, without a doubt, the best option,” says Alejandro Cofiño, a Guatemala-based partner with Centro América Abogados, a consortium of firms in Central America. “Central America is very different from Asia and the way of doing business, language and local knowledge are vital for any foreign investor.” Often, says Cofiño, a local firm will work together with an international firm to bring a project to a successful conclusion.

On the Chinese side, there are plenty of incentives that investors may be able to access through the China Investment Promotion Agency of the Ministry of Commerce. That, says Martinez, is an invaluable resource created alongside the Going Global policy that has spurred many state-owned enterprises to venture beyond the national borders.

Viva la diversidad!

“Chinese people tend to avoid confrontation and be indirect in saying ‘no’. This may mislead the Latin American party and falsely increase its expectations in negotiations”

Francisco Soler Caballero, Garrigues, Shanghai

“Chinese people have their own ‘thinking pattern’ and live in a very complex personal and business relationship structures. This is something that can only be understood through experience”

Reinaldo Ma, Felsberg e Associados, Sao Paulo

“The biggest issues Chinese investors will encounter in South America are the competing legal interests and the high level of regulation, which exists across the region. These difficulties are commonly overcome by utilizing a Cayman Islands or British Virgin Islands investment vehicle”

Simon Firth, Maples and Calder

Cayman Islands

“Each country has its own regulations. Sometimes it is difficult to explain that certain operations that have been done before in other jurisdictions are not allowed under the local laws”

Alexandre Chequer, Mayer Brown, Sao Paulo

”Where a Western negotiator might start with a reasonable position in an effort to facilitate a quick resolution to an issue, the Chinese will always start from an extreme position with the expectation that the typical give and take of the bargaining process will result in a middle of the road compromise”

Dávio Zarzana, Franceschini e Miranda, Sao Paulo

“It is important to have a stronger emphasis on clarity and expectations in dealings between business cultures with such a considerable cultural difference”

Jaime Mercado, Simpson Thacher & Bartlett, Sao Paulo

“We always try to secure arbitration as dispute resolution mechanism in the agreements we negotiate”

Hernando Diaz-Candia

Squire Sanders, Caracas

“There are a lot of opportunists looking to take advantage of Chinese capital. So a Chinese investor’s risk of having a business dispute is significant. What foreign investors discover is that disputes don’t get resolved in the region in the same way that they might be resolved in China”

José Astigarraga, Astigarraga Davis, Miami

“Even with increased regulatory pressure to behave, the same question will still be on everyone’s lips – what’s in it for me? There is no limit to ‘opportunity with impunity’ as long as there is something in that for the participants. How people capitalize on those opportunities, without losing their souls in the process, is a subject that requires its own special treatment”

Michael Diaz, Diaz Reus & Targ, Miami

Roschmann of Linklaters attended an annual investment summit in China last November, and says “it was quite impressive to see how much interest in Latin America there was”.


But some, like Michael Diaz of Diaz Reus & Targ in Miami, seem sceptical. He talks of “opportunity with impunity” as driving the engine of trade and investment between China and Latin America. “The ability to wheel and deal without paying any real concern to laws which restrict unethical business practices, promote competition, protect intellectual property and respect the environment is what drives business across the Sino-Latin American corridor,” he says. “Once you understand this, you will be prepared to successfully (and legally) navigate the opportunities available.”