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China-Brazil: a long term relationship?

March 15, 2014

 

There is more than one reason why China and Brazil have a powerful attraction for one another. However, the most prominent reason seems quite simple to understand: China needs natural resources and Brazil wants and needs capital. Brazil is rich in natural resources and China is rich in capital. On the surface it appears to be a match made in heaven. The Brazilian economy is growing and this growth is organic. The middle class is expanding. As this new middle class grows, they are also becoming more educated. The new Brazilian middle class has developed into a dynamic purchasing force, creating a huge demand for all consumer products and services. This growth also requires significant improvements to the infrastructure of the country. The Chinese middle class is also growing, creating the challenge for the government of maintaining a sufficient supply of food and energy for its citizens. There are certainly logical reasons for this mutual attraction between the two countries but, will this blossoming Sino-Brazilian relationship be long-term or is it simply a passing fling?

 

Brazil and China began to strengthen their relations in the late nineteenth century. Formal relations were established in 1880 by a Treaty of Friendship, Commerce and Navigation. In 1913, Brazil recognized the Republic of China. In the period from 1911 to 1949, the relations between the two countries were mainly diplomatic. In 1949, relations were disrupted by the Chinese revolution and the creation of the People's Republic of China. Diplomatic relations between China and Brazil were officially reestablished in 1974 with agreement for the setup of Brazil’s Embassy in Beijing and China’s Embassy in Brasília. This allowed a new coming together of Brazil and China which established an environment to begin a process of economic, political, technological and trade cooperation between the two countries. Over the last twenty years Brazil and China have been cooperating in many fields, such as production of satellites to monitor terrestrial resources, biotechnology research, genetics, nanotechnology, information technology, telecommunications, agriculture and healthcare. In the 1990’s, with the opening of the Brazilian economy, and economic reforms in China, the bilateral trade between the two nations deepened rapidly, showing the importance and possibilities of the future for these countries.

 

Today, China is Brazil’s largest commercial partner in addition to being a major source of investment capital. Both countries bet on the increase of their exports and imports to supplement their profits. Brazil exports to China soy and its sub-products, iron ore, rolled and semi-manufactured iron and steel, automobiles and products related to this industry, leather, wood and paper. China is a prime investor in Brazil’s oil and gas industry. This past October, Brazil held its auction of rights to drill in its huge, recently discovered “pre-salt” oil fields. Some forty oil companies were expected to participate, but Brazil’s new regulatory framework discouraged most of them and the auction drew only four foreign bidders, two of which were Chinese firms. Without China’s participation, this sale of drilling rights would have been viewed as a major failure. In the electrical energy sector, PowerChina was recently awarded a power transmission project valued at about $156 million in the Brazilian state of Para. The project will see PowerChina transmit electricity from the Belo Monte hydro-power station to the high-demand regions in the southeast of the country. Recently, infrastructure projects such as roads, high-speed railways, ports and manufacturing facilities are being viewed as hot targets for investment by the Chinese.

 

There are some issues of concern that need to be addressed in order for the Chinese-Brazilian business relationship to obtain longevity. Geographically, the countries are very far apart, causing some logistical and time zone difference problems. Culturally, Brazilians are more accustomed to the American and European styles of doing business. Very few understand the Chinese culture and, at times, this can lead to miscommunication and distrust. Some in Brazil are also concerned that Chinese industrial exports are cutting into Brazil’s market share worldwide and making inroads into its domestic markets. Brazil is also concerned that China’s manufactured export success may lead to a shrinking of Brazil’s industrial sector in some segments. China is worried about Brazil’s protectionist policies in certain sectors. A reinterpretation of Brazil’s land ownership laws in 2010 seemed directed to Chinese investors—as was a recent import tax on motor vehicles, a well-known protectionist practice that Brazilian government uses in several industry segments. These are challenges for both countries but, with continued mutual need, patience, and a long term business vision, these obstacles could be overcome.

 

Despite the enormous geographical distance separating the two countries, and the difference between Eastern and Western cultures, there are more reasons for China and Brazil to continue and expand its economic ties than not. The slow recoveries of the European and American economies have given China and Brazil the time to mature their relationship and to enter into serious long term engagements. Both Brazil and China appear to be looking to the long term, and the relationship should endure the eventual improvement of the economies of the West.

 

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