The
Downside of China's Lifeline to
Brazil By Fabiana Frayssinet
RIO DE JANEIRO - Over the last decade,
China has become Brazil's main trading partner and
source of foreign investment. But this apparent
lifeline at a time of global crisis could actually
aggravate longstanding problems faced by Latin
America's biggest economy.
In 2009, China
displaced the United States as Brazil's top
trading partner. Just two years later, bilateral
trade had climbed to US$77 billion a year, with an
$11.5 billion surplus in Brazil's favor.
The director of the Brazil-China chamber
of commerce and industry (CCIBC), Kevin Tang, said
this was "a huge leap" from 2000, when trade
between the two countries amounted to just $2.5
billion.
The Asian giant has also begun to
invest heavily in Brazil, as it
has in Chile and other
countries of Latin America as well.
A
study by the Brazilian Trade and Investment
Promotion Agency (APEX-Brasil) points to even
higher levels of investment than the official
statistics show.
According to Brazil's
central bank, foreign direct investment from China
totaled $3 billion between 2005 and 2011. But
unofficial figures compiled by APEX-Brasil
indicate that investment in productive sectors
amounted to nearly $17 billion between 2009 and
2011, counting funds channeled through Hong Kong
and other indirect routes.
With respect to
both imports and investment, China is driven by
the same interest that has led it to increase its
presence in other regions: with a population of
1.3 billion people - the world's largest - it has
a growing hunger for raw materials and is seeking
to guarantee basic supplies while minimizing
dependence on imports from any single country.
The study by APEX-Brasil, "The
Internationalization of the Chinese Economy; the
Scale of Direct Investment", says that Chinese
investment, which "began to intensify in the
post-global financial crisis period," has been
concentrated in natural resource-intensive
industries like oil and steel.
The global
financial crisis that broke out in 2008 did not
curtail that process. On the contrary, "it could
be suggested that the crisis has created an
opportunity to acquire depreciated assets," says
the study, which was published this month.
Most of China's investments in Brazil "are
aimed at establishing export supplies to China of
commodities of which we are large producers, such
as soy, iron ore and oil," Rodrigo Branco, an
economist at the Center for Foreign Trade Studies
Foundation (FUNCEX), told IPS.
China's
strategy to obtain the commodities it needs is
four-pronged, Branco said. In the first place, it
involves signing contracts and terms of commitment
with Brazilian suppliers, to lock in specific
quantities of exports within certain timeframes.
In second place is the creation of
Chinese-Brazilian joint ventures to produce
certain goods; third, the purchase of or merger
with Brazilian firms by Chinese companies; and
fourth, the acquisition of property and land, to
produce mainly agricultural commodities.
"The chief focus of [China's] investment
in Brazil is still to obtain regular supplies of
commodities, to cover growing demand," Branco
said.
Besides raw materials, there are
other areas of interest to China, such as the
automobile industry. Chinese car makers are
building factories in Brazil to help supply this
country's fast-growing market for cars.
But "that is not the main focus of Chinese
investment," the expert stressed.
The
CCIBC's Tang told the federal government-owned
news agency Agencia Brasil that Brazil's exports
to China are led by iron ore (45% of this
country's sales in 2011), followed by soy (25%),
oil (11%), and food.
Tang did not rule out
growing Chinese interest in other sectors, like
energy, where it has already started to invest.
The aim in those areas is to improve conditions
and lower export costs, Augusto Jose de Castro,
vice president of Brazil's Foreign Trade
Association (AEB), told IPS.
De Castro
also referred to the increase in loans to the
region by China's state banks, which have totaled
US$75 billion since 2005, at a time when credit
sources have been drying up because of the global
financial crisis and due to more specific credit
access difficulties faced by countries like
Argentina, Venezuela and Ecuador.
"We are
unfortunately highly dependent on China," de
Castro said.
"China's monthly trade
deficit has increased," de Castro said at a recent
conference organized by the Getulio Vargas
Foundation. "This is a new development that no one
expected. The Chinese can curb that deficit or
stimulate their exports. And if that happens, they
will displace exporter countries like Brazil."
He said the only way to turn the situation
around is to negotiate with China to get it to
import manufactured Brazilian goods, rather than
just raw materials.
"It is clear that if
we stay on the current track, integration with
China will deepen Latin America's dependence on
the old agro-export structure," Adhemar Mineiro,
an economist with the Inter-Union Department of
Statistics and Socioeconomic Research, told IPS.
According to Mineiro, who is an adviser to
the Trade Union Confederation of the Americas
(TUCA), with the exception of a few differences,
trade with China replicates the model of
commercial relations with Europe and Japan: Brazil
as an exporter of agricultural, mineral and energy
commodities and an importer of manufactured and
industrial goods.
"If the growth in ties
with China continues to follow this pattern, it
will mean even heavier dependence," he warned.
In general, the governments of Latin
America should seek alternatives in order to avoid
"accentuating the current pattern of economic
relations with China," he said.
"In Latin
America, the commodity export model has
historically meant the concentration of income,
wealth and power in a few hands, which runs
counter to the search for ways to deepen democracy
and improve the distribution of wealth in the
region," Mineiro said.
The Economic
Commission for Latin America and the Caribbean
issued a similar warning in 2010.
China's
presence is also felt in the gradual introduction
of its currency, the yuan, by means of loans. This
could have an influence on the regional economy,
depending on the volume of business done in that
currency, the economist said.
But "the
issue is that it further reduces Brazil's economic
power in negotiating with the Chinese, at a time
when various industrial sectors have faced
difficulties in competition with Chinese
products," such as footwear, textiles, clothing
and electronic components, he said.
Branco
warned about the future risk of fixing quantities
of sales to China, given the possibility of
changes in the external scenario that affect the
volatility of prices.
"If that happens,
there could be a change in interest in maintaining
contracts and in the focus of investments, which
would affect the multiplier effect of those
investments on the Brazilian economy," he said.
The problem, the FUNCEX economist said, is
that Chinese investments cannot be expected by
themselves to shift the focus of exports to
products with greater added value.
"If
commodities are profitable, there will logically
be an interest in investing in them, among both
foreign investors and Brazilians," he said.
In order to grow its industrial exports,
Brazil must improve internal conditions.
The APEX-Brasil report also notes that
China's strategic focus on countries rich in
natural resources is the same in Latin America as
in other developing regions, such as Africa and
the Middle East.
Trade between Latin
America and China grew from $12 billion in 2000 to
$188 billion in 2011.
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