1. Introduction

The arrival of May set an historic landmark in the Caribbean with the announcement of the beginning of diplomatic relations between the Dominican Republic (the “DR”) and the People’s Republic of China (“China”). Although, on a trade sense both countries have been partners for a while (the products imported from China -ranging from clothes to vehicles- are an important way of life in the DR), there were no formal business and political relationship between the two nations. Moreover, despite this apparent distance, China is one of the main trading partners of the Dominican Republic, as shown on the table below:

From China From Dominican Republic
Motorcycles and vehicles Raw materials: ferronickel, copper,
bauxite, scrap brass and iron
Electronic devices Waste paper Electronic devices Waste paper
Footwear and apparel Cardboard Cardboard
Machinery and equipment Animal skins

Considering the future ahead, DR has many more goods and products to offer to China including but not limited to, local tobacco, alcoholic beverages, as rum and beer, which are positioned among the best kind worldwide. Also, potential joint-ventures between DR entrepreneurs and China investors, may provide the latter with clear access to other markets with which the DR has current trade agreements, mainly the US-DR-CAFTA, and CARICOM (a free trade of the Caribbean region with Canada) etc.

2. Background

What began as an agreement to establish commercial relations on October 15, 1993, which took a leap with the establishment of trade missions in July 1997, culminated a few days ago with the termination of diplomatic relations with Taiwan and the formalization of diplomatic relations between the Dominican Republic and the People's Republic of China. The Dominican Republic has finally recognized the one-China principle, noting that Taiwan is an inalienable part of China and breaking diplomatic relations initiated on May 21, 1946, when the Dominican government appointed the first ambassador to the former capital of Taiwan.

The Chinese and Dominican foreign ministers signed the document that establishes the new relationship between Beijing and Santo Domingo. During the ceremony held in the People's Republic of China by both countries, the Chinese Minister, Wang Yi, stated that the agreement "will provide enormous opportunities for the development of the Dominican Republic", besides noting that, "this will give new impetus to the relations between China and Latin America". The country has taken this important decision as a result of a long process of study and weighed in consultation with the main national productive sectors, arriving at the conclusion that the establishment of relations with Beijing will be extraordinarily positive for the future of both countries.

The first step of the agreement will be the reciprocal installation of the embassies in the respective capitals. This creates the basis for a broad benefit for both parties, with the understanding that the Dominican Republic reaffirms its bilateral relationship with the second world economy, which opens up a broad framework of commercial benefits and, for its part, the People’s Republic of China strengthens its presence in the Caribbean, formalizing its relations with one of the most stable and growing economies in Latin America.

3. Impact of direct investments for both the DR and China

The Dominican Republic has continuously been one of the top investment destinations in the Latin American and Caribbean region for more than 5 years. The country’s political stability, a strong economy and a pro-investment legal climate are key factors that have been considered for foreign investors. With a long-standing electoral process, and free enterprise tradition, the DR has placed itself among the investors most sought economies in the region. Adding to that, the DR economy has grown increasingly, averaging close to 7.0% during the last three years, with very low inflation and a stable currency. Overall, the DR's legal system is quite sophisticated, and favors’ foreign trade and direct investment1.

With the most strategic location for trade routes and given that our legal system provides many tax benefits on manufacturing, tourism, agriculture, free trade zones and other sectors, it is obvious that China would greatly benefit with this opening. Current trade operations between DR and China represents 65.8% of all commercial operations between the Dominican Republic and Asia, being the Asian country the second most important source of imports (1,930 million US dollars, equivalent to 10.04% of the total volume of imports) and the third most important export destination of the Dominican Republic (356 million US dollars, equivalent to 5.4% of the total volume of exports). Furthermore, Legal Counsel of the Executive Power when announcing the establishment of formal diplomatic relations between the two countries, stated that the opening would allow for many opportunities to invest not only in trade but also in technology, education, tourism, energy and financial industries2.

4. Different investment strategies

There are many ways, a Chinese company or Chinese investors, may approach the DR market. By setting up a local corporate vehicle, they will enjoy the same benefits of local companies, i.e., increase their market share in the United States, Canada, or many countries in Latin America. Also, the DR is member of different trade treaties, of which Chinese joint-ventures may benefit from.

For the DR, the greater benefits would be oriented towards: (i) the increase of employment via the establishment of new industries; (ii) capital injection to the economy; (iii) diversification of foreign trade investments; etc.

5. Conclusions

Certainly, it may still be too early to foretell the whole impact of the Chinese -DR new relationship. However, we don't need a crystal ball to realize that Chinese investors will enjoy a fairly-educated workforce, and many different venues to increase their profits and expand their businesses.

1 Dominican Republic 2018 overview: https://www.chambersandpartners.com/guide/latin-america/9/72/1.
2 Dominican Republic established diplomatic relations with China, and breaks them with Taiwan: https://acento-com-do.cdn.ampproject.org/c/s/acento.com.do/2018/actualidad/8560637-republica-dominicana-establece-relaciones-diplomaticas-china-popular-las-rompe-taiwan/amp/.