The Banking and Strategy Initiative

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China in Brazil:: Moving beyond Resources:: An intelligent partnership is possible?

As fellow BRIC nations or as BASIC partners in Climate change negotiations in the WTO Brazil and China have become true partners enabling China to become Brazil’s largest trading partner since 2009. Brazilian mining comapny Vale SA was one of the big winners as exports from Brazil also increased. China also imports a lot of Soy crop . Brazil, already a World leader in agribusiness with 50 mile long farms employing 100% mechanised farming was only too glad to team up with China and grow its trade

China and Brazil don’t just share the BRIC designation they have 4 firms in the Top 20 Fortune Global 500 and both want to lose the resource based economy tag effectively. A BCG study also singles out their combined digital population(The internet’s new billion)marking a growing Facebook friendly population in the BRIC nations , a majority of which is from these two countries. With a $2.2 Tln GDP for Brazil and a $6.5 tln GDP for China both easily outweigh India’s $1.5 tln and Russia’s up & down $3 Tln GDP

China and Brazil could also make equal competitors as they are friends. While Brazil is a democratic market economy, China is a predomi- nantly

Igazu falls - Brazil

Image by doug88888 via Flickr

planned economy ruled by an authoritarian regime.(Brookings) Even as Brazil tackles Amazon deforestation ( as and when it is prioritized) it has to move to stop foreigners (from China) from buying too much of Brazilian farmland(NYT) That Chinese instead provide farm credit and have improved prodctivity onsoy farms by 3 times is also not an easy bite for Brazil but Soy trade to China has surged The latest unease has even been described as a modern day colonial relaionship, Brazil supplying raw material and China supplying cheap manufactured products incl Chinese cars. Brazil’s exports incl 84% of raw materials like Soy and Iron ore  and China’s exports are 98% cheaper manufactured goods. This has prompted Brazil to rework bilateral agreements and impose new regulation to control and ensure diversification of its business with China in Rio and Beijing. At least $15 bln in farming and forestry projects have since been suspended.

Till 2009 Brazilian exports to China at $22 bln were higher than Chinese imports of $16 bln which have thence grown ahead of US imports to Rio. Again for China also a rebalancing in trade terms is imminent as its own consumption economy has reduced from 50% of GDP to almost one third and after 2012’s changes in leadership it is likely to drop reliance on mineral imports or other non food commodities imports that make 25% of Brazil’s exports(MW) Brazilian food exports however are 16% of its first seven months’ outward trade incl the soy for hogs and chicken in China A 24% of its trade with China are industrial products that Brazil wants to encourage. One of its main setbacks during the crisis was the 42% drop in US exports that were 3/4ths Industrial production.

In BigTicket FDI, Embraer opened its first air- plane factory overseas in China and the country became the company’s second largest consumer, behind the United States. Furthermore, Brazil’s infrastructure benefited from Chinese investments in the steel sector (Companhia Siderurgica do Atlantico), a major gas pipeline (Gasoduto Gasene), and a thermoelectric power plant (Candiota). Chin aalso directly invested in Petrobras’ adventure in deep sea oil drilling. (Brookings p.3) However, Brazil does no figure amon g China’s Top 10, and its contribution in industrial products imported into China has in fact decreased since 2009

Later decrease in Brazilian exports since 2008 also have been blamed on China’s flooding the Brazilian markets with its cheaper goods aided by the Chinese foreign exchange policy and may be eligible for state action by Brazil

However, another discriminating factor of late for both the economies has been their use of state development institutions. While Chin ahas been growing its state spending internationally through EXIM Bank and China Development Bank since 2006 when it began investing in ASia and Africa, Brazil is a more recent entrant looking to finance large scale high impact projects such as hydro power or gas pipelines, beyond their borders. A little more suspect is Brazilian sponsorship of IMF through subscription of IMF bonds worth $10 bln. Even though IMF continues to court the Brazilians for the eternally bankrupted Europe, Brazil may hold back on such direct sponsoring of inflationary bailouts that might be just sunk cost. Chinese popular opinion makes it impossible for China funds to invest into a larger role in Europe. However South South Development flows give ample opportunities to all BRIC nations to cooperate with each other (WRI)








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