1

Chile-China: Strategic PartnersFrancisco Silva

March 2014

MexicoUSD 1.178 B

ColombiaUSD 370 B

ChileUSD 268 B

BrazilUSD 2.253 B

PeruUSD 197 B

ChilePeru

ColombiaMexicoBrazil

•Macroeconomic imbalances•Poor political stability•Institutional uncertainty•Non Investment grades•Shallow financial markets

ArgentinaVenezuelaParaguayEcuadorothers

• Good macroeconomics• Good Institutions• Flexible exchange rates• Investment grades• Deep financial markets

2

LATAM has Two Different Stories with Two Different Models

Source: IMF. Per Capita GDP, PPP adjusted (1990 = 100).

100

150

200

250

300

350

40019

90

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

GDP per capita (PPP) Chile

Colombia

MéxicoBrazilPeru

Venezuela

Argentina

3

Chile and the Andean countries have outperformed…

Source: IMF and Bloomberg.

050

100150200250300350400

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

GDP per capita (PPP) vs CRB Chile

CRB IndexArgentinaVenezuela

4

…and they are NOT only a Commodity Story

Source: Heritage Foundation, World Economic Forum. # out of 180 countries.

0

40

80

120

160

200

Chile

Colombia Pe

ru

Mex

ico

Braz

il

Arge

ntina

Vene

zuela

Economic Freedom Ranking (2013)

0

10

20

30

40

50

60

70

Chile

Braz

il

Peru

Mex

ico

Colombia

Arge

ntina

Vene

zuela

Financial Development Ranking (2012)

5

Chile: Institutional Strength is KEY

0

20

40

60

80

100

120

140

160

Mal

aysi

a

Kore

a

Chile

Phili

ppin

es

Braz

il

Mex

ico

%

Private credit/ GDP Stock market capitalization/ GDP

0

10

20

30

40

5060

70

Chile

Mex

ico

Mal

aysi

a

Braz

il

Kore

a

Phili

ppin

es

%

Financial strength index

Private bonds/ GDP

Source: Betancour, C. De Gregorio, J. Jara A. “Improving the Banking System: The Chilean Experience”. BIS Papers. No. 28, 2006.

Financial Strength Index based on Moody’s index of financial system strength, based on a numerical scale assigned to weighted average bank ratings by country.

… and Financial Development

Source: IMF.7

Chile’s Macro: Low Inflation and steady Growth

GDP pc2013 (IMF)

GDP2013

GDP 2000-2013

Inflation 2000-2013

Curr. Acc. 2010-2013

Public Debt Net 2013

USD Billions USD Growth Av, % Average, % (%GDP) (%GDP) Argentina 11,679 484.596 4.2 9.1 -0.3 na Brazil 10,958 2,190.218 3.3 6.6 -2.5 34.0 Colombia 7,831 369.225 4.2 5.3 -3.1 25.6 Mexico 11,224 1,327.021 2.3 4.8 -1.0 38.5 Peru 6,797 210.349 5.6 2.7 -3.2 3.6 Venezuela 12,255 367.482 3.5 23.1 4.1 na Chile 16,043 281.666 4.4 3.2 -2.0 -6.1

China 6,569 8,939.327 9.9 2.3 2.7 na Hong Kong 38,605 279.654 4.2 1.0 3.9 na

Alemania 43,952 3,593.238 1.3 1.7 6.3 56.3 España 29,409 1,355.660 1.6 2.8 -2.0 80.8 Francia 42,991 2,738.676 1.2 1.9 -1.7 87.2 Italia 33,909 2,068.366 0.3 2.3 -1.8 110.5

Source: IIF, CIA, IMF.

GDP 2012 Inflation 2000-2012

Current Account 2000-2012

General Government Gross

Debt 2012

General Government Net

Debt 2012Total External

Debt 2012Reserves

2012

US$ bn % % GDP % GDP % GDP % GDP % ImportsArgentina 475,211 8.9 -0.1 47.7 -- 30.1 40.7Brazil 2,253,090 6.6 -2.2 68 35.2 25.6 105.5Chile 268,177 3.3 -1.1 11.9 -6.7 43.9 37.9Colombia 369,018 5.5 -3.1 32.6 25.2 21.4 41.8Mexico 1,177,398 4.9 -0.8 43.5 38 29.5 36.8Peru 198,851 2.7 -2.6 20.5 4.3 29.5 99.9Venezuela 381,286 21.9 4.5 46 -- 31.2 11.1China 8,221,015 2.3 2.7 26.1 -- 8.8 149.2Germany 3,429,519 1.7 6.5 81.9 57.4 168.2 --France 2,613,936 1.9 -1.8 90.2 84 197.9 --Italy 2,014,078 2.4 -2.4 127 106.1 123.8 --Spain 1,323,500 2.9 -3.1 85.9 73.5 170.9 --

8

And (like China) Low Levels of Debt

Source: Bloomberg, 11/18/2013.

0

100

200

300

400

500

600

700

E-0

6

E-0

7

E-0

8

E-0

9

E-1

0

E-1

1

E-1

2

E-1

3

BrazilChileColombiaMexicoPeru

0

100

200

300

400

500

600

700

E-0

6

E-0

7

E-0

8

E-0

9

E-1

0

E-1

1

E-1

2

E-1

3

SpainFranceItalyGermany

CDS 5y (points)

193 192164

129 124102

86

4825 19

0

50

100

150

200

250

Italy

Braz

il

Spain

Peru

Colombia

Mex

ico

Chile

Fran

ce

US

German

y

CDS 5y (points)

9

Good Macroeconomic Policies are Rewarded with Low Interest Rates

0 20 40 60 80 100

UruguayJapanBrazilIndiaItaly

IsraelIndonesia

USAFrance

ParaguayPeru

GermanyPortugal

ColombiaArgentina

VenezuelaUnited Kigdom

MexicoMalaysia

SwitzerlandSpain

AustraliaCanada

New ZealandSweden

IrlandChina

ThailandFinland

SingaporeKoreaChile

Macro Management The Global Competitiveness and Ease of doing business index

Source: World Bank, World Economic Forum .

  GCI EoDBI Switzerland 1 29 Singapore 2 1 Finland 3 12 Germany 4 21 United States 5 4 Sweden 6 14 Hong Kong SAR 7 2 United Kingdom 10 10 Denmark 15 5 New Zealand 18 3 France 23 38 China 29 96 Chile 34 34 Spain 35 52 Italy 49 65 Mexico 55 53 Brazil 56 116 Peru 61 42 Colombia 69 43 Ecuador 71 135 Argentina 104 126 Venezuela 134 181 10

Good Environment for Doing Business

Source: Central Bank of Chile.

China’s Participation In Chile’s Trade Of Goods has Increased Dramatically…

0

5

10

15

20

25

0123456789

10

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Imports from China (% GDP) left

Exports to China (% GDP) left

Exports and Imports (% Total X+M) right

Source: World Trade Organization (2012).

By main destination (% of total exports)China EU US

Brazil 17 20.1 11Chile 23.3 15.3 12.3Colombia 5.5 15.1 36.9Mexico 1.5 6 77.6Peru 17.1 17.1 14.2

12

…and Now China is our Main Exports’ Destiny

Rest, 5.7

China, 51.6Japan, 20.6

South Korea, 11.5

India, 6.2Taiwan, 4.4

% of total exports to Asia 2013

Source: BCCh.

Chilean Exports to China so far is Mainly Commodities% of total exports to China 2013

79.0

6.0 3.411.6

0102030405060708090

Copper Other mining Agriculture, forestry and

fishing

Industry

19961993-

94 1998 1999

Economic Agreements

BoliviaColombiaEcuador

VenezuelaFTA CanadaAssociation

with Mercosur

FTA MexicoEconomic

Agreement Peru

FTA Central America

2002

Economic Association

EU

2003

FTA USA EFTA

South Korea

2005

FTA ChinaEconomic

Association P-4

2006

Partial Scope Agreement

India

Current negotiations with India and JapanStudy for an

FTA with Thailand

2007

Western Hemisphere Asia

Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.

EFTA: European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland.Note: TheP-4 group are: Brunei Darussalam, Chile, New Zealand, Singapore.

And we Keep Looking Towards Asia

INSTALLED CAPACITY (MW) AND AVERAGE SALES PRICES SIC GENERATION (BY TECHNOLOGY)

15*Estimation for the average energy sales price from customers contracts

020406080100120140160

-2.000 4.000 6.000 8.000

10.000 12.000 14.000 16.000

2006 2007 2008 2009 2010 2011 2012 2013

SIC SING PMM SIC PMM SING

18%

20%

0%19%

34%

4% 4% 1%

Hydro Dam Hydro ROR Gas LNG CoalBiomass Diesel Wind Solar

Looking Towards Asia: Energy is a Key Sector for Cooperation

2.63.2 3.5

4.3 4.45.2 5.2 5.6

01234567

Bra

zil

Col

ombi

a

Peru

Mex

ico

Chi

na

Chi

le

OEC

D

mem

bers

Uni

ted

Stat

es

16

Quality of port infrastructure, WEF (1=extremely underdeveloped to 7=well developed and efficient by international standards)

Looking Towards Asia: Infrastructure has Room for Improvement

17

05

1015202530354045

E-93

E-94

E-95

E-96

E-97

E-98

E-99

E-00

E-01

E-02

E-03

E-04

E-05

E-06

E-07

E-08

E-09

E-10

E-11

E-12

E-13

Departments housesMonths to deplete stock

800

1300

1800

2300

2800

3300

3800

E-97

E-98

E-99

E-00

E-01

E-02

E-03

E-04

E-05

E-06

E-07

E-08

E-09

E-10

E-1

1E-

12E-

13

Real estate sales

90

100

110

120

130

140

150

E-0

4

E-0

5

E-0

6

E-0

7

E-0

8

E-0

9

E-1

0

E-1

1

E-1

2

E-1

3

Housing Prices

-4

0

4

8

12

16

I II III IV I II III IV2012 2013

Var%12m Velocity

Activity

Looking Towards Asia: Construction and Real State

Conclusion

» So far the economic relationship between Chile and China has been highly beneficial for both countries.

» The focus of this relationship has been mainly through commodity trade.

» But they are many potential areas of further cooperation such as Energy, Infrastructure and Real State.

ECONOMIC INDICATORS: Summary

Source: Estudios Security.

Chilean Indicators 2008 2009 2010 2011 2012 2013 2014 e

GDP (Var %) 3.3 -1.0 5.8 5.9 5.6 4.0 3.5 Unemployment rate (aver. %) 9.3 10.8 8.1 7.1 6.4 5.9 6.4 CPI dec-dec (%) 7.1 -1.4 3.0 4.4 1.5 3.0 3.0 MPR (eop,%, en $) 8.3 0.5 3.3 5.3 5.0 4.5 3.8 BCP-10 base 365d (eop, % $) 6.2 6.4 6.1 5.3 5.6 5.2 5.0 BCU-10 base 365d (eop, % UF) 3.3 3.3 2.9 2.7 2.6 2.2 1.7 Exchange Rate (eop, $/US$) 629 506 468 521 479 524 580

Global Indicators 2008 2009 2010 2011 2012 2013 2014 e World Growth (PPP, %) 2.8 -0.6 5.1 3.8 3.2 2.9 3.5 Cooper Price (aver., cents US$/Pound) 316 234 342 400 361 332 324 Oil Price WTI (US$ p/b, aver.) 100 62 79 95 94 98 99 Fed Funds (eop,%) 0.6 0.3 0.3 0.3 0.3 0.3 0.3 Treasure Bonds 10-year yields (eop, %) 2.2 3.8 3.3 1.9 1.8 2.9 3.2 Euro (eop, US$) 1.40 1.43 1.34 1.30 1.32 1.37 1.33 Yen (eop, ¥/US$) 91 93 81 77 87 105 106