Sino-Brazilian Relations & Economic Imperialism
By Snigdha Thatikonda and Salah Nawar, 5/12/2020
Over the last decade, Brazil and China’s economic relations have rapidly increased, leading to high concern among the Brazilian population. Brazil was the first Latin American country to receive the designation of “Strategic Partner” from China, helping establish a significantly cooperative trade relationship. Brazil’s main concern is the trade between the two countries and foreign direct investment (FDI), as China imports their unrefined natural resources and Brazil imports manufactured Chinese products at higher prices. The developmentalist and state-centric model of China’s economic growth is the basis for Brazil’s economic policies, with the privatization of SOEs and adoption of a monetary regime making up some of the several reform efforts.
Brazil’s exports to China are based on commodities and include semi-processed goods, but their imports are of high-value-added materials such as machinery and textiles. This trade relationship interferes with current developmentalist and reform methods because the long-term goal requires Brazil to be exporting the same high-value-added goods that they are importing. The trade pattern has had protectionist effects, namely deindustrialization. China’s long-term plan is to diversify its export markets, but Brazil’s current administration is moving to protect domestic industries. The Brazilian government has also been exceptionally welcoming of Chinese minority equity investments, mainly because it makes Brazil look more appealing to other investors without pushing political ownership of Brazil’s resources. Chinese companies are allowed to sell their products under strict local content rules, and the investments provide jobs for the population. However, as China moves towards acquiring majority stakes in Brazilian natural resources, public and political discourse arises, especially as Brazil doesn’t have reciprocal manufacturing investment in Chinese industries.
Brazil accounts for 94% of China’s export expansion from 1999 to 2004, but cannot access the Chinese market because of China’s international strategy - to add value to a product internally. As long as Brazil is unable to shift its economic trend towards a diversified expansion, tension will increase in its trade relationship with China. In regards to capital flows, the few Brazilian companies that do have a presence in China are mostly joint ventures, so China is still receiving economic gain from Brazil’s efforts.
During the Lula administration, Brazil started relying on Chinese support with the belief that it would provide them with economic gain and potentially exchange economic advantages for a greater projection of Brazilian foreign policy internationally. This new trade configuration was largely unsuccessful and led to several internal conflicts within the national business community. The rise of Chinese involvement in Brazilian equity has surprisingly led to a polarization among the citizens of Brazil, as some see it as a threat, while others see it as a wealth of opportunity. Industrial sectors make up the former group, as they lose market share and influence, but for companies that produce the low-value-added products and have a commercial interest in the market, and for citizens focused on building their careers, China’s involvement is a positive development. The Brazilian government has remained ambiguous on the matter because both groups hold a lot of financial power, but as long as their trade relations with China remain unregulated, Brazil’s national growth will be significantly mitigated.
The balance between competitor and partner is hard to navigate for policymakers and analysts of both regions. As the countries continue to grow, the economic side of their relationship will influence the political-strategic correspondence. For over two decades, the competitive nature of both countries’ efforts was overshadowed by what both countries received from the singular growth of China. Even though Brazil has made tremendous improvement, the only way it can become a global player and attract foreign investment is by moving towards good governance and expanding its trade partners with other major economies. The future of Brazil-China relations is conflicting because both countries need each other to attain the same goal, and without delicate handling, both countries will lose more than what they hoped to gain.
Brazil’s exports to China are based on commodities and include semi-processed goods, but their imports are of high-value-added materials such as machinery and textiles. This trade relationship interferes with current developmentalist and reform methods because the long-term goal requires Brazil to be exporting the same high-value-added goods that they are importing. The trade pattern has had protectionist effects, namely deindustrialization. China’s long-term plan is to diversify its export markets, but Brazil’s current administration is moving to protect domestic industries. The Brazilian government has also been exceptionally welcoming of Chinese minority equity investments, mainly because it makes Brazil look more appealing to other investors without pushing political ownership of Brazil’s resources. Chinese companies are allowed to sell their products under strict local content rules, and the investments provide jobs for the population. However, as China moves towards acquiring majority stakes in Brazilian natural resources, public and political discourse arises, especially as Brazil doesn’t have reciprocal manufacturing investment in Chinese industries.
Brazil accounts for 94% of China’s export expansion from 1999 to 2004, but cannot access the Chinese market because of China’s international strategy - to add value to a product internally. As long as Brazil is unable to shift its economic trend towards a diversified expansion, tension will increase in its trade relationship with China. In regards to capital flows, the few Brazilian companies that do have a presence in China are mostly joint ventures, so China is still receiving economic gain from Brazil’s efforts.
During the Lula administration, Brazil started relying on Chinese support with the belief that it would provide them with economic gain and potentially exchange economic advantages for a greater projection of Brazilian foreign policy internationally. This new trade configuration was largely unsuccessful and led to several internal conflicts within the national business community. The rise of Chinese involvement in Brazilian equity has surprisingly led to a polarization among the citizens of Brazil, as some see it as a threat, while others see it as a wealth of opportunity. Industrial sectors make up the former group, as they lose market share and influence, but for companies that produce the low-value-added products and have a commercial interest in the market, and for citizens focused on building their careers, China’s involvement is a positive development. The Brazilian government has remained ambiguous on the matter because both groups hold a lot of financial power, but as long as their trade relations with China remain unregulated, Brazil’s national growth will be significantly mitigated.
The balance between competitor and partner is hard to navigate for policymakers and analysts of both regions. As the countries continue to grow, the economic side of their relationship will influence the political-strategic correspondence. For over two decades, the competitive nature of both countries’ efforts was overshadowed by what both countries received from the singular growth of China. Even though Brazil has made tremendous improvement, the only way it can become a global player and attract foreign investment is by moving towards good governance and expanding its trade partners with other major economies. The future of Brazil-China relations is conflicting because both countries need each other to attain the same goal, and without delicate handling, both countries will lose more than what they hoped to gain.
Though separated by oceans and continents, China and Brazil have nurtured strong bilateral cooperation over the years, especially focused on investment, trade and finance. In 1993, Brazil was the first country to build a strategic relationship with China. In 2009, China became Brazil’s largest trading partner in the world, accounting for over 15 per cent of total Brazilian exports and supplying over 14 per cent of its imports. Brazilian exports are increasing at a fast rate to meet China’s increased demand for commodities and raw materials. On the other side of this trade relationship, cheaper goods imported from China are opening new roads for Brazil’s growing middle class and have helped to improve their standard of living. In 2019 August, China and Brazil will celebrate the 45th anniversary of the establishment of diplomatic relations.
The figures in the above table show that Brazil has joined late as a destination for Chinese FDI. 2010 was the year China emerged as a prominent investor in the Brazilian economy. A total amount of US$ 59.4 billion was invested by China in Brazil from 2008 – 2018. China’s bloom in Brazil has fostered prospects in the country of developing infrastructure and of high value-added industrial projects in Brazil. Although expectations related to the investment in high-tech industrial projects and the creation of qualified jobs has not been that fruitful, Chinese capital has been flowing mainly to the energy and electricity sector in Brazil, nevertheless. There are four different waves of the trajectory of Chinese investment in Brazil. The first wave dealt with large investments essentially resource seeking, while the second wave timed between the years 2011 – 2013, there was a sectoral diversification of Chinese FDI in Brazil, oriented by market-seeking interests, here Chinese companies focused more on areas such as machinery equipment, and electronics. Financial services were the main destinations of Chinese capital in the third wave. In 2013 – 2015 Numerous banks started operations in Brazil by greenfield operations. In 2015 the fourth wave began, Chinese companies have heavily invested in the energy sector in Brazil. The energy sector has resulted in capturing 71% of the stock accumulated by the Chinese FDI in 2018.
Recently Chinese Vice Premier, Hu Chunhua, declared that China is willing to increase its agricultural and industrial goods from Brazil to improve their bilateral relations further. However, decisions might not follow the planned route due to the recent outbreak of the Corona virus (COVID-19) disease. China mainly imports commodities such as iron ore, soya beans and crude oil from Brazil, as there are restrictions on goods being imported to and from the countries both are being affected to an extent. As the Chinese economy is showing signs of a slowdown, Brazil might be very prominently affected by this as it depends on the import of components for many of the motor vehicles, as well as electronic goods. Many factories in Brazil have been shut down due to the supply interruptions. Also, as ports in China are closed for the time being restricting movements to and from both the countries, goods are being stuck in huge amounts mainly containing meats, notably beef, poultry and pork, remain unloaded in China and are being sent back to Brazil. This might lead to lower export revenue for China. One of China and Brazil’s most prominent trade agreements is none other than the one China has with the Brazilian giant state-owned oil company – Petrobras. Brazil was China’s second-fastest-growing source of crude supply in January- November 2019, with imports rising by 180,000 b/d year-on-year to 810,000 b/d in the 11 months. Petrobras has experienced a significant fall in prices due to decreased demand from China which may further cause uncertainties in their trade as Petrobras depends on stability in three main countries one of them being China. As the global economy is facing a huge crisis since the disease broke all we can do is wait and see what the future holds for China and Brazil’s relations.
Recently Chinese Vice Premier, Hu Chunhua, declared that China is willing to increase its agricultural and industrial goods from Brazil to improve their bilateral relations further. However, decisions might not follow the planned route due to the recent outbreak of the Corona virus (COVID-19) disease. China mainly imports commodities such as iron ore, soya beans and crude oil from Brazil, as there are restrictions on goods being imported to and from the countries both are being affected to an extent. As the Chinese economy is showing signs of a slowdown, Brazil might be very prominently affected by this as it depends on the import of components for many of the motor vehicles, as well as electronic goods. Many factories in Brazil have been shut down due to the supply interruptions. Also, as ports in China are closed for the time being restricting movements to and from both the countries, goods are being stuck in huge amounts mainly containing meats, notably beef, poultry and pork, remain unloaded in China and are being sent back to Brazil. This might lead to lower export revenue for China. One of China and Brazil’s most prominent trade agreements is none other than the one China has with the Brazilian giant state-owned oil company – Petrobras. Brazil was China’s second-fastest-growing source of crude supply in January- November 2019, with imports rising by 180,000 b/d year-on-year to 810,000 b/d in the 11 months. Petrobras has experienced a significant fall in prices due to decreased demand from China which may further cause uncertainties in their trade as Petrobras depends on stability in three main countries one of them being China. As the global economy is facing a huge crisis since the disease broke all we can do is wait and see what the future holds for China and Brazil’s relations.