The Banking and Strategy Initiative

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China in Brazil:: Moving Beyond Resources :: Increasing FDI to $27 bln

China’s own FDI has been increasing exponentially since 2006. In 2007 itself, much at aa time when Euro and Dollar were the only active currencies with a global acceptance, China, with its currency now in global infancy had started spreading investments in Africa and Asia While its financial FDI is more cognisant for global business models, it has been invested in business projects worth $14 bln in Australia in just one quarter in 2009, even when its CNOOC bids of an equal amount was rejected by the Bush government as predatory in 2007. In 2009, Chinalco’s $15 bln bid for Rio in Brazil was also rejected. Despite protestations by global transnationals and unseeming fears of indigenous innovation, FIEs ( Foreign Invested Enterprises) traded a $1.5 Tln in the first 11 months of 2011 across Imports and Exports according to China’ s official statistics.

Português: Presidenta Dilma Rousseff, durante ...

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China has also recently tweaked its FDI regulations to allow FIEs to raise Dimsum bonds and bring in investment in the local Yuan, whence lower funding costs make expansion not only possible but attractive despite the slow Economy. Its role in the WTO however will remain against the State backed Economic model that it uses for domestic and international investment and production for which it is now growing into the role of a member without such in built penalties hoping for a sponsorship from Europe or others to revoke the limitations before 2016.

As resource based economies, China’s early years and its trading partners till as late as 2010 were predicated on trade of Oil, Iron ore and other commodities and thus it built strong trade channels with both Brazil and Australia. However as it grows into an international role, its own predications and the diktats by its partners like Brazil , it’ sdevelopment focus buildiing a complete factory town with a 2 mile port north of Rio and now its planned FDI in pharmaceuticals give it a leg to stand on in its desire to take Yuan global and offer a new big brother for the global business community. While State owned Enterprises remain the majority investors in FDI from China ( not Financial FDI from its SWFs)

Automakers BHYD and JAC from China also eye the Brazilian market and while BYD aims to start selling BYD cars in the state from 2013, JAC is planning an investment of $500 mln in the city of Bahia with its local partner SHC. Brazil is going to tax cars not made with more than 65% domestic Brazilian content.  This month Sinopec has agreed to a $4.8 bln investment in Portugese Galp Energia for a 30% stake in Petrogal Brasil while last year it had bought an interest in Repsol (Spain) for $7 bln for 40% in Repsol Brasil. In FDI terms, China is funding a Venezuelan firm PDVSA’s Oil refinery in Brazil with an investment of $1.5 bln.

Its latest rebuttal to WTO constructs by protective interests in US and Europe may also qualify for a more diversified opinion and diplomacy, including its latest investigations into US solar panel companies for unseemly subsidies and grants pushing prices down.This year China builds a $27 bln financial pipe into Brazil from less than $1 bln in 2010. Though its imports from Brazil and Latam remain predicated on Iron Ore, commodities(metals) and Energy, it has already invested in infrastructure in Brazil and as per its home economics, it is state owned enterprises making the move. Coming next are its banks, looking to grow into international franchises with purchases in Brazil.

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Brazil’s status as a BRIC nation helps China much more in this regard after its failed enterprise in US and Europe, and mostly reliant on Financial stewardship by CIC and other SWFsChina has recently averred that it is equal to the task of taking its manufacturing international, looking for bases in Asia, Africa and of course Brazil to offset its local labor equations, despite being a low cost base for others like Caterpillar, GM ( uses 350 local suppliers) and others from the US (as FIEs)

Whether Chinese healthcare, with its known predilection for low quality and often fatal infarctions with “bad medicine” will ever be able to produce low cost high quality drugs in its international avatar may be doubtful but one, these suspect manufacturing establishments are a manifestation of private enterprise and secondly, Lady Dilma Roussef and others in the Brazilian government would welcome such investment in manufacturing after its larger investment in Serv ices ( Banking/ Lending) for their effect in balancing the bilateral equation still walking into the sharp imbalances characteristic of China’s relationships and longstanding pushbacks and/or its own imbalances in international trade with next to no domestic markets in both countries and resource based economic models facing volatile movements that destroy more longstanding economic value in fragile governance models in Brazil and shallow state monster diplomacy from China. Brazil has also been active in negotiating a larger role for China at hom e in Brazil and for incoming FDI into Beijing beyond low priced Chinese goods for Iron and Oil

Brazil and lately South Africa among the BRIC nations have also showed the same spine as China in walking to State Backed Economic models for their planned future and China may also look to strengthen that new common spine to rebuild its own international strength in the face of the limited and old fasjhioned ” Market friendly” WTO that continues to look more and more like a G7 tool thrust ont he South for its own lack of real estate and consisently failing to grow in acceptance since 2009 in the face of US and Europe’s own bailout decade working out the new International equations. Xi Jinping and Li Keqiang are expected to take over as President and Prime Minister in Fall 2012 as fifth generation leaders of China’a Politburo for the next 10 years, and leadership changes will continue to be committed to 31 Provincial governments and all the Large State owned enterprises as part of the same exercise thru 2011 and 2012

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