By Lucy Hornby
BEIJING, Nov 12 (Reuters) - China and Peru are poised to sign a free trade agreement when the Chinese president visits Latin America this month, a sign of the growing ties between the Asian economic giant and the resource-rich countries whose exports it needs.
Latin America has traditionally been in the United States' sphere of influence. But ties with China have improved as its rapid economic growth boosts trade and investment while the United States has been distracted by the Iraq war and now the global financial crisis.
"There is a new reality of the role of China. There is not competition necessarily in trade, but cooperation in development," said Fernando Reyes Matta, ambassador of Chile, which signed a free trade agreement with China in 2006.
"That is a very important political reality."
The Sino-Peruvian free trade agreement comes as Chinese firms have committed to about $6 billion in investments in Peru's mining sector over the next three years, Peru's ambassador in Beijing, Jesus Wu Loy, told reporters on Wednesday.
But the eagerness with which mineral-rich Peru and Chile welcome Chinese investment is not matched by some of their Latin American neighbors, which remain wary that trade with China could undermine their manufacturing base.
"Colombia does not want a free trade agreement with China, because we have to protect our textiles, jewelry, shoes and toy industries. We want investment in infrastructure," Colombian ambassador Guillermo Velez said.
On Saturday, Chinese president Hu Jintao and Colombian President Alvaro Uribe will sign a bilateral investment treaty, to focus on infrastructure, primarily roads and ports, he said.
Hu will be in Washington for the G-20 summit of government leaders, which will discuss the global financial crisis.
He will then visit long-time ally Cuba and new friend Costa Rica, the first Central American country to establish ties with China instead of Taiwan, before arriving in Peru for a meeting of the Asia Pacific Economic Cooperation forum.
MONEY TO SPEND
China has become the Latin America's second-biggest trading partner after the United States, with trade between China and the region up 13-fold since 1995 to $110 billion in 2007.
Last month, China became a member of the Inter-American Development Bank and committed $350 million as a donor country.
New direct flights between China and Mexico allow businessmen and tourists to bypass the visa restrictions of the United States, Europe and Canada, and could boost tourism and investment into the region, Mexican ambassador Jorge Guajardo said.
Chinese investors are also interested in some of Mexico's mineral resources, although Mexico -- which has a "humongous" trade deficit with China -- is more interested in attracting investments in manufacturing and industry, he said.
"The Chinese authorities are aware of this, they are not aloof. They realize there must be a balance and so they promote investment," Guajardo said.
A business delegation numbering as many as 500 will accompany Hu to Peru.
"There is a possibility for trade to increase tremendously over the next five years," Peruvian ambassador Wu said.
Chinese steelmaker Shougang Group has committed to a $1
billion expansion of its Shougang Hierro Peru
That expansion will also enable new petrochemical projects along the Peruvian coast, he added.
"For years, Western multinationals have been exploiting our resources, but not taking social responsibility," Wu said.
"Shougang had a bad experience at first too, but they have learned. We have been talking to them."
Shougang has had its share of disagreements with labour unions since it bought state-owned Hierro Peru 15 years ago.
Other Chinese investments in Peru include the purchase by Minmetals Corp and Jiangxi Copper <600362.SS> of the Galeno mine, Zijin Mining Group <2899.HK> $1.4 billion Rio Blanco project, and plans by Aluminium Corp of China, or Chalco <2600.HK>, to develop the $2.2 billion Toromocho mine. (Editing by Angus MacSwan)