Brazil will need massive efforts to reindustrialize its economy on multiple levels
A composite photo shows Chinese leaders Xi Jinping, Li Qiang, Zhao Leji, Wang Huning, Cai Qi, Ding Xuexiang and Li Xi during a meeting with media after the 20th National Congress of the Chinese Communist Party at the Great Hall of the People in Beijing, China, October 23, 2022.
By Marco Fernandes, at Globetrotter
Luiz Inácio Lula da Silva’s election victory on October 30 last year, which led him to become Brazil’s president for the third time, came with expectations of a review of BrazilBeijing relations. Brazil is still facing a severe economic, political, social and environmental crisis. Eradicating poverty, resuming economic growth with income redistribution, reindustrializing the country and reversing environmental damage are urgent tasks that will require unprecedented skill from the new government at the national and international levels. The economic partnership between Brazil and China, which has made great strides over the past two decades, may be one of the keys to reversing the crisis Brazil is facing. But some challenges must be met with diplomacy and strategic planning.
Despite former President Jair Bolsonaro’s government’s “insults” against China, particularly during the pandemic, and the two countries’ inevitable distancing in their diplomatic ties, bilateral trade between Brazil and China has increased. In 2021, bilateral exchanges between the countries reached $135.4 billion, with Brazil having a $40 billion surplus with China, figures surpassed only by the Taiwan region and two other countries; Australia and South Korea. China has been Brazil’s largest trading partner since 2009, accounting for nearly double the volume of trade Brazil imported in 2021 from its second largest partner, the United States ($70.5 billion), with whom it ran a deficit of $8.3 billion.
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A profitable but unbalanced business relationship
However, Brazil’s export basket is vulnerable in the long term: it is poorly diversified and based on low valueadded products. The four main products the country exports (iron ore, soybeans, crude oil and animal proteins) accounted for 87.7% of total exports to China in 2021. Meanwhile, imports of Chinese products to Brazil are highly diversified, with finished products predominating and products with a high level of technological maturity. For example, the main import item from China to Brazil (telecom equipment) accounted for only 5.9% of total imports.
The Brazilian commodities sector, which is an important part of the economy, accounted for 68.3% of Brazilian exports in the first half of 2022 and has been contributing to the increase in international reserves for years. On the other hand, the resource sector has a high concentration of wealth, is taxed at low levels, creates few and lowskilled jobs, is subject to cyclical price changes, and in many cases causes environmental damage that needs better control by the state. In this sense, the initiative announced by COFCO International the largest Chinese buyer of food produced in Brazil to monitor and ban the purchase of soy grown in areas of illegal deforestation in Brazil from 2023 was important.
But that also requires the Brazilian state — which has notoriously encouraged deforestation and invasions of indigenous reserves in recent years — to guarantee the effectiveness of the initiative. China needs Brazil’s natural resources for its development, and Brazil needs the Chinese market for its raw materials. But in the medium and long term, Brazil needs to seek greater balance in its trade agenda if it is to build a solid economy. Recall that in 2000 Embraer aircraft were the main Brazilian export, while in 2021 the main exports were iron ore and soybean. This is just one of the many symptoms of chronic deindustrialization.
Investment is necessary, but so is diversification
Chinese investments in Brazil have a similar profile to exports: robust but poorly diversified. In 2021, Brazil received the largest share of Chinese investment globally, totaling US$5.9 billion (13.6% of the world total). Between 2005 and 2021, Brazil was the fourth largest recipient of Chinese investment (4.8% of the total), behind only the US (14.3%), Australia (7.8%) and the UK (7.4%). These Chinese investments resulted in a fundamental contribution of resources to the Brazilian economy, but they were not without problems. From 2007 to 2021, 76.4% of Chinese investment was focused on the energy sector (electricity and oil and gas exploration), while only 5.5% went to industry and 4.5% to infrastructure projects; among others, some of the greatest needs of the Brazilian economy.
The electricity sector was the main target of Chinese investment (45.5% of the total), but part of this corresponded to Chinese SOEs’ purchases of Brazilian SOEs. In 2017, the Chinese company State Grid acquired control of CPFL Energia, a stateowned company in São Paulo, and in 2021 CPFL Energia acquired control of CEEETransmissão, a stateowned company in Rio Grande do Sul. It was not a good deal for Brazil, demonstrating the irresponsibility of the Brazilian Social Democratic Party’s (PSDB) neoliberal state governments, which privatized strategic public resources. China which would never sell a stateowned energy company to foreigners looked out for its own interests and took advantage of a business opportunity the market offered. It was not a privatization package imposed by the International Monetary Fund. But would Beijing be willing to accept other investment models that would bring more benefits to both countries?
The example of brothers South
Since 2021, Buenos Aires and Beijing have entered into a series of strategic investment agreements. In February 2022, Argentina became part of the Belt and Road Initiative, with expectations of attracting $23 billion in Chinese investment to the country. Before that, other investments and projects by Chinese companies included the reform of Argentina’s railway system ($4.69 billion) and massive investments in the electricity sector, such as: 1) the expansion of Parque Cauchari, the largest solar power plant in Latin America, originally a SinoArgentinian partnership was; 2) the construction of the hydroelectric power station “KirchnerCepernic” in Patagonia (cost more than 4 billion dollars); and 3) the construction of the “Atucha III” nuclear power plant (at a cost of $8.3 billion), the financing of which has a grace period of about eight years and, most importantly, provides for the transfer of Chinese nuclear technology in Hualong by 2021 for the Argentine state, the will control the facility.
Brazil can propose partnerships similar to or even more strategic than Argentina’s and mutually beneficial. Why not propose exchanges of raw materials (oil and gas) for infrastructure and technology with China, as countries like Iran have already proposed? Or the creation of more SinoBrazilian joint ventures which received only 6% of Chinese investment (20052020), while mergers and acquisitions received 70% that involve technology transfer to Brazil?
Brazil will have to make major efforts to reindustrialize its economy at various levels, such as investment in research and development, training of a skilled workforce, financing and technology transfer. No other country has the financial, industrial and technological capabilities like China to work with Brazil in a wide range of promising sectors such as electric vehicles, information technology, 5G, renewable energy, aerospace, biomedicine and semiconductors. It is up to Brazil to propose a highlevel strategic dialogue with China, which in the report of the 20th National Congress of the Communist Party of China reiterated its commitment to accelerating the development of countries in the Global South. “China is willing to invest more resources in global development cooperation. It is committed to reducing the NorthSouth gap and supporting and assisting other developing countries in accelerating development,” Chinese President Xi Jinping said during the congress.
*This article was produced by Globetrotter and translated by Pedro Marin for Opera Magazine. Marco Fernandes is a researcher at the Tricontinental Institute for Social Research. He is coeditor of Dongsheng and a member of the No Cold War collective. He lives in Beijing.
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