Thursday February 21, 2019

CHINA, BRAZIL ECONOMIC RELATIONSHIP

January 9, 2013

Over the last 20 years, China and Brazil have both experienced significant development, both domestically and internationally. Domestically, both nations’ GDPs have risen significantly since the late 1990s, leading to the rise of th

e middle class in both countries.  Internationally, they are seen as emerging global leaders and have enjoyed more recognition and participation in international forums and organizations such as the G20 and the World Trade Organization.  Additionally, along with Russia, India, and most recently South Africa, they constitute the BRICS, an organization aimed at promoting mutually beneficial economic growth and cooperative development between these five countries.  Moreover, China views Brazil as a key component to its rhetoric of promoting a “south-south” relationship.

Based on these terms, it would appear as if China and Brazil should be natural partners not only in the developing world but also in the global arena.  However, recent trends and developments suggest the emergence of a North-South relationship or big power- smaller power relationship, with China exploiting the Brazilian economy to achieve its aims without much concern for the development of the internal Brazilian economy.

An Introduction to Sino-Brazilian Trade

In 2006, China became Brazil’s third largest trading partner and export market, as well as Brazil’s second largest import market. [i] A short two years later, bilateral trade volumes exceeded $40 billion, making China Brazil’s second biggest trading partner.[ii] Then, in 2009, China became Brazil’s largest export market and second largest source of imports, thus making China Brazil’s largest overall trading partner.[iii] China has maintained this status with Brazil since 2009.

According to the Department of Policy Planning Ministry of Foreign Affairs of the PRC, since 2004 total trade volumes between China and Brazil have increased from $12.4 billion in 2004[iv] to $85.6 billion in 2012.[v] Although approximately 79% of Brazilian exports to China in the first quarter of 2010 were basic goods (soy, iron ore, and oil), Brazil’s imports from China consisted of primarily electronic and capital goods.  Brazil is unique in its trade relationship with China in that it runs a trade surplus with China, exporting more Brazilian goods than it offsets with Chinese imports.

Along with the increase in trade, Brazil has experienced a rise in concerns and tensions regarding China’s pervasive economic involvement.  These concerns, coming from not only the general public and business owners, but also from the Brazilian government, have become increasingly vocal since 2010.  Fears of the “Dutch disease” and “dumping” as well as frustration over incomplete projects and investments characterize Brazilian concerns. The term “Dutch disease” refers to the increase in the exploitation of natural resources and decline in the manufacturing sector, while “dumping” is a type of predatory pricing, which occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production.

For Brazil, there are some obvious positives and negatives that have resulted from this type of relationship.  On the positive side, many Brazilian agribusinesses experienced a boost in productivity and record-level exports. In the last decade, Vale, a Brazilian mining company, has become one of the largest mining companies in the world, and Petrobas, a Brazilian oil company, has benefited not only from Chinese demand for oil but also from Chinese investment in its Brazilian exploration and development projects.[vi]

Despite these positive gains, over the last few years the bilateral trade relationship has proved increasingly challenging for Brazil.  Although China has been Brazil’s leading trade partner since 2009, Brazil does not even rank among China’s top ten trading partners.[vii] Moreover, as mentioned before, despite the fact that China has welcomed massive imports of Brazilian commodities, it has severely limited the importation of Brazilian manufactured goods.  Soy trade highlights this contradiction.  Although China buys large quantities of unprocessed soy from Brazil, it refuses to purchase already processed soy, essentially denying Brazil the opportunity of adding value to one of its own commodities.[viii]

This has led Brazilian firms to worry about how to compete against the invasion of Chinese goods. According to a survey conducted by the Brazilian National Confederation of Industry in 2011, between 2006 and 2010 45% of Brazilian firms that competed against Chinese firms lost domestic market shares.  Additionally, 67% of Brazilian exporters that competed against Chinese counterparts lost market share abroad.[ix]

These trends have given rise to the Brazilian fears of the aforementioned “Dutch disease.”  Such an increase in revenues from natural resource exportation will make a given nation’s currency strong compared to other countries, resulting in the nation’s other export goods becoming relatively more expensive for other countries to buy; thus depressing the manufacturing sector’s competitiveness as a whole.  In regard to the Sino-Brazilian relationship, this would mean that the Chinese exploitation of Brazilian natural resources has strengthened Brazil’s currency but resulted in a loss for the Brazilian manufacturing sector.

This type of unbalanced trade relationship has also led to a rise in grievances about Chinese dumping of goods.  Complaints from Brazilian unions and industry groups, including toymakers and textile producers, have compelled the Brazilian government to enact twenty-nine anti-dumping measures aimed at Chinese goods since 1988, more than those directed at any other country and four times more than directed at the United States.[x]

Brazil’s President,, has begun to take a firmer hand against unfair Chinese trade practices.  After coming into office, she adopted an economic strategy that enhanced the use of available WTO trade barriers and measures to reduce the influx of imports (mainly Chinese) in sectors where Brazilian firms produce similar products.[xi] For example, in September 2011, in an effort to protect Brazil’s economy and industrial sector from low-priced Chinese goods, she placed a tariff on some imports of Chinese steel, saying that it would defend domestic producers against unfair competition.[xii]

Another element of the Sino-Brazilian economic relationship is seen through a recent increase in Chinese foreign direct investment (FDI) into Brazil.  Prior to 2010 Chinese FDI was relatively inactive in Brazil.  This changed dramatically in early 2010 however, when China committed US $13.1 Billion in FDI to Brazil.  This is twenty times the accumulated value of Chinese investment in Brazil during the previous two years, making China one of the largest sources of FDI in the country.[xiii]

Additionally since 2007, 44 Chinese firms have initiated 60 investment projects in Brazil.  These projects are spread across a wide range of sectors such as automobile, machinery and equipment, as well as energy.[xiv] According to the China-Brazil Business Council (CBBC) From January 2007-June 2012 a total of sixty companies announced Chinese investment projects totaling $US 68.5 billion.  However, despite these commitments, the CBBC was only able to confirm thirty-nine projects, meaning that the remaining twenty-one projects were still under negotiation or being re-evaluated by either party.  The result is that the total value of confirmed investments amounts to US $24.4 billion or only 35% of the amount announced over the 5-year period.[xv]

This difference in the amount announced by Chinese firms compared to the confirmed amount can be seen through a number of scenarios.  For example, a Chinese company declared interest in building a $5 billion railroad line in the State of Mato Grosso in Western Brazil.  Mato Grosso is a major producer of Brazilian soybeans, which is one of China’s main imports.  In November 2013, this rail line had still not secured financing from Chinese development banks, and speculation has begun that the project might be taken up by South-Korean or perhaps European investors.[xvi]

South-South Cooperation?

In a speech delivered by President Hu Jintao at the first formal BRIC Summit in June 2009, Hu highlighted the importance of deepening economic cooperation between the BRIC countries (Brazil, Russia, India, and China) in order to support the growth of a “south-south” relationship. Despite this rhetoric highlighting the Sino-Brazilian relationship as a “south-south” partnership, the relationship has a definite North-South flavor with Brazil exporting commodities and China flooding Brazil with manufactured products.  This has led to an increase in significant tensions within the Brazilian corporate sectors, which feel increasingly polarized and disadvantaged.  Additionally, the emergence of a major deficit in the amount of Chinese FDI promised, as compared with the actual investment amount, has only heightened tensions and frustrations.  Push back from the Brazilian government in the form of stricter regulation on foreign investment, trade barriers, and citations of anti-dumping measures, have led Chinese companies and investors to claim an increased disenchantment for investing in Brazil.

The economic tensions, which have recently started to define the Sino-Brazilian bilateral economic relationship, should not be a severe detriment to their overall relationship.  The two countries have grown too dependent on each other to severely cut back on their economic engagement, and to do so would be detrimental to their respective economies.  These tensions will, however, force the Chinese and Brazilian governments to redefine their bilateral economic relationship more along the lines of an actual south-south economic relationship, where both countries support the other’s economy without taking unfair advantage of the other’s markets.  China, being the primary driving force behind the rhetoric of south-south cooperation and mutually beneficial economic partnership, will be forced, quite literally, to put their money where their mouth is.

Written by Madeline Fetterly


[i] “China Foreign Policy Book 2007,” Department of Policy Planning Ministry of Foreign Affairs People’s Republic of China, complied., China’s Foreign Affairs:2007, Beijing: World Press, 2007.p.97.

[ii] “China Foreign Policy Book 2009,” Department of Policy Planning Ministry of Foreign Affairs People’s Republic of China, complied., China’s Foreign Affairs:2009, Beijing: World Press, 2009.p.129.

[iii] “China Foreign Policy Book 2010,” Department of Policy Planning Ministry of Foreign Affairs People’s Republic of China, complied., China’s Foreign Affairs:2010, Beijing: World Press, 2010.p.118.

[iv] “China Foreign Policy Book 2005,” Department of Policy Planning Ministry of Foreign Affairs People’s Republic of China, complied., China’s Foreign Affairs:2005, Beijing: World Press, 2005.

[v] “Brazil China Trade Reports, 2012,” United Nations Commodity Trade Statistics Database,  2012, accessed December 1, 2013, http://comtrade.un.org/db/dqBasicQueryResults.

[vi] Pereira, Carlos and Neves, Joao, “Brazil and China: South-South Partnership or North-South Competition?” Foreign Policy at Brookings, no. 26., March 2011. p.7.

[vii] Ibid., 4.

[viii] Ibid.,.7.

[ix] Bull, Benedicte, “Brazil and China: Partners or Competitors?” Norwegian Latin American Research Network, February, 2012. p.6.

[x] Soilani, Andrea, Bristow, Matthew, “Rousseff Wants China Buying more than Soybeans, Vale’s Iron Ore,” Bloomburg, April 10, 2011, Accessed November 15, 2013, http://www.bloomberg.com/news/2011-04-10/

[xi] Ibid.

[xii] Kupfer, Davis, Hufbauer, Gary, Myers, Margaret, and Williamson, John, “How Big of an Economic Threat Does China Pose to Brazil,” Inter-American Dialogue, September 21, 2011, accessed November 16, 2013. http://www.thedialogue.org/page.cfm?pageID=32&pubID=2748.

[xiii] Frischtak, Claudio, Soares, Andre, O’Connor, Tania, “Chinese Investments in Brazil from 2007-2012: A review of Recent Trends,” China-Brazil Business Council, June 2012. p.10.

[xiv] Ibid.,15.

[xv] Ibid., p10.

[xvi] Winter and Strauffer,