China and Brazil: one to watch

Brazil's Pavilion at the 2010 Shanghai Expo. Image from triplefivedrew's Flickr photostream. Used under a Creative Commons license.

A topic that has been rapidly picking up speed and column space is China’s ever expanding relationship with Brazil. Since China surpassed the US to become the Latin American giant’s largest trading partner in May 2009, more eyes have been following this shift in global power from the developed to developing economies.

However, as this special report from Reuters recently pointed out, this relationship is also notable for for its profound inequality. Luciana Lopez writes,

The sheer size of the Chinese economy means its needs have begun altering Brazil’s, in ways both salutary and worrisome. The lopsided relationship underscores the profound challenges that China’s emergence as an industrial force poses for developing nations.

In the first half of 2010, China’s investment in Brazil topped $20 billion, more than 10 times all of China’s previous investment in the country. On Friday, Chinese state-owned oil company Sinopec inked a deal with Spain’s Repsol to buy 40% of its Brazilian business for $7.1 billion, giving China access to Repsol Brasil’s estimated reserves of 1.2 billion barrels of oil and gas. Another example of China’s growing presence is the Superporto do Açu, a £1.6bn port and industrial complex undergoing construction along the coast of São João da Barra, Rio de Janeiro state, dubbed ‘Little Shanghai.’ Due to open in 2012, Açu’s pier – or, the ‘Highway to China’ – will be two miles long, accommodating huge vessels known as Chinamaxes that will transport iron ore, grain, soy and barrels of oil to the East.

In order for China to continue its unabashed growth (over the past 30 years it has averaged 10%, with the nation recently surpassing Japan as the world’s second largest economy), its industries need to be supplied with sufficient energy and raw materials. Hence, investments such as the Superporto do Açu. They are evidence of China’s ‘going-out strategy’, as the Guardian’s Tom Phillips explains:

An economic and, some say, diplomatic push for Chinese companies, many of them state-run, to invest abroad, snapping up access to minerals, energy and food by pouring the country’s colossal foreign reserves into overseas companies and projects.

But Lopez argues that China has gone from positively influencing the Brazilian economy to in fact reshaping it.

One case is the soy industry. Exports of soy to China, used for tofu and fuel, have increased by around 18 times in value from 2000 to 2009. In Mato Grosso, western Brazil, exports rocketed by 27 times by tonne in the same period, with China buying approximately one-third of the soy grown in the state. This, Lopez concedes, has brought considerable benefits:

[It] has helped everything from local schools to Brazil’s trade balance. The boost is much needed, as Brazilians, now with a strong currency and economy, are importing and spending abroad more — without soy the numbers would be even more skewed.

The agricultural boom has also helped Brazil outshine more developed nations, with surging growth even as much of the rest of the world continues to struggle. The country notched its fastest annual growth in at least 14 years in the first quarter, a pace that has only slightly slowed as the year progresses.

However, the other side of the coin is that China is purchasing soy grains from Brazil, rather than the more expensive soy oil. An analyst at Agroconsult, an agricultural consulting firm based in southern Brazil, told Lopez, “crushing a tonne of soy beans and separating it into oil and soy meal would add about 12 percent to the pricetag.” As a result, Brazil’s soy industry has been stagnating: while there has been more bean production, crushing has seen little investment.

Another industry facing problems is shoemaking. A town in Rio Grande do Sul that was once known as the shoe capital of Brazil has seen its workforce depleted, with Chinese companies inviting Brazilian workers abroad, particularly to the industrial powerhouse of Dongguan, Guangdong province. The results of this were not pretty:

Brazil’s shoe exports fell almost in half by weight from 2004 to 2009, or 22 percent by dollar value. Over the same time, Brazil’s footwear imports from China more than doubled through last year, when anti-dumping measures kicked in. The government has also slapped tariffs on goods ranging from tires to drillbits.

All this activity has produced quite a fanfare. At the 2010 BRIC Summit in Brasilia, Brazil and China both spoke of the need to diversify bilateral trade, lest the Latin American nation become over-reliant on commodities exports. That China continues to invest so heavily in Brazil is also stirring up anxiety in the West, not least since the US was knocked off its pedestal as Brazil’s major trading partner by the Middle Kingdom itself. China has been, and doubtless will continue to be, blatant in its challenge to the US hegemony in Latin America.

Parallels are also quick to be drawn between China’s Brazil – and wider Latin America – policy and its perhaps more controversial one in Africa (a relationship detailed in this brilliant piece by Howard French). Here, too, the East has displayed its thirst for natural resources, while Chinese firms investing in Africa have notoriously preferred bringing in a Chinese workforce rather than using local labour, therefore not benefiting the communities of the host nations.

The Brazil-China relationship is an important one that requires far more attention as global clout continues to shift. How sustainable Brazil’s incessant sale of commodities to China will prove to be is an ongoing issue open to debate.

Brazil is also undergoing a shift of its own: today the country goes to the polls to elect its new President, with Lula’s successor widely tipped to be his protegee, economist Dilma Rousseff. How the country’s new leader will manage China’s growing presence in the world’s eighth largest economy and, as planned, diversify bilateral trade is an exciting prospect to keep an eye on.

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One thought on “China and Brazil: one to watch

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