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China and Brazil: partners until when?

China has assumed an important role in the global economy. The country has been the world’s greatest exporter since the end of last century, adopting a differentiated strategy to expand its share in the global economy, which is not restricted to trade. China has brought together commercial insertion and long-term investments in major partner countries. This strategy has drawn attention mainly in the development of its economic relationships with Latin American countries.

 

Problems arising from the deep political and economic crisis in several countries in Latin America do not concern the Chinese investors. According to the Brazilian Ministry of Foreign Affairs in Beijing, Latin America and the Caribbean are the second most important destination of Chinese investments, after its Asian neighboring countries. 

 

Data that characterize economic relations between China and Latin America are revealing. Currently, China is the second biggest source of foreign investment in the region, reaching US$ 100 billion for no less than 100 projects of infrastructure, including solar energy generation and a space-monitoring base in Patagonia. From 2001 to 2006, the bilateral trade between China and Latin America has shown a 23-fold increase. In countries such as Brazil, Chile and Peru, the volume of trades with Chinese agents has already surpassed those with the United States.

 

Moreover, it is remarkable how the Chinese have kept long-term relationships in Latin America. As indicated by Frederic Puglie in an interesting article at the Washington Times, the Chinese are not concerned about the size of loans and investment, and possibly because most resources come from state-owned enterprises and banks (with less need to release balance sheets to shareholders), Chinese investors have a long-term perspective, establishing decade-based goals.

 

Therefore, gradually, without relating economic participation to any issues about intervention in local policies – differently from the American diplomacy –, the Chinese have been settling comfortably and appropriately in Latin American countries.

 

As for Brazil, Chinese investments in 2016, when a serious economic and political crisis took place, amounted to US$ 10 billion, which accounted for roughly one third of Chinese investments in Brazil. The strategy suggests that fragile economies are considered interesting for the country. In the Brazilian case, the interest is higher due to its huge potential to produce food for the world and mineral raw material. Besides, Brazil has kept its distance from other countries and currently does not take part in practically no important regional or bilateral agreement.

 

Since the mid-1990s, the Brazilian government has been involved almost exclusively on commercial multilateralism, through the WTO (World Trade Organization). However, mega-regional and bilateral agreements have been advancing. As a result, the perspective of a Brazilian integration in free trade relationship with more stable and developed economies -such as the United States and Europe, which protect their agriculture - seems a remote possibility. Brazil, in turn, has kept its economy practically closed from competition of manufactured and industrialized products, frustrating any initiative of competitive approximation to step up the economic development of the country. 

 

China has been Brazil’s most important commercial partner since 2009, when it surpassed the United States. In 2016, Brazil exported US$ 35.9 billion to China: 44% of this amount accounts for soybean, 19% for iron and 12% for crude oil. China, in turn, exported US$ 30 billion to Brazil in a variety of products, mainly manufactured ones. Telephone equipment accounts for most Chinese exports to Brazil, representing 6.5% of the total.

 

The potential benefits of an evolution in the partnership with China are clear, for both Brazil and Latin America. However, the relative complexity, especially of Brazilian and Chinese economies, requires structural changes to ensure a balanced commercial and financial relationship between the countries. Data show that, despite its surplus in trade balance, Brazil’s exportations are limited to a few commodities, low-value added products whose prices are influenced by weather and market variations, reducing the volume to be imported by exported unity in time. This issue has been a great concern for the Brazilian Ministry of Foreign Affairs and a repositioning of the current economic status is of major interest for the country. However, it seems harder to shift Brazilian exportations of raw material than increase the scope of negotiations for a more balanced and solid relationship. Is it the time to attempt a first major bilateral commercial agreement with China?

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