RIO DE JANEIRO, BRAZIL – The closure of cities in China in recent months due to the pandemic of covid-19 has already affected Brazil’s trade balance.
From January to May, the total volume of products exported from Brazil to China fell 11.2% compared to the same period last year. The drop of iron ore – the most affected product – was 7.76%.
Data from Secex (Secretariat of Foreign Trade) of the Ministry of Economy show that exports of iron ore from Brazil to China totaled 77.62 million tons accumulated from January to May this year. In 2021, the volume had been 84.15 million tons in the same period.
Considering all exported products, the volume for the first five months of 2022 was 124.92 million tons. In the same period in 2021, the sum was 140.61 million tons.
Below are the monthly volumes of iron ore and soy (the two main products) shipped to the Asian country and the total exports (considering all products).
IMPACTS OF THE LOCKDOWN
China’s largest city with 25 million inhabitants, Shanghai, was in lockdown for two months. During this period, the population was advised to stay home, and the government maintained strict control over circulation. The restrictions were lifted on June 1 for some 22.5 million people.
On June 9, however, the Shanghai administration again closed seven districts after new cases of covid-19 emerged. Only one of the districts had 2.5 million residents, which gives an idea of the measure’s impact on the general population and economic activity.
In addition to Shanghai, the capital Beijing has been targeted for lockdown recently, as have dozens of other Chinese cities. The closure of the cities was a consequence of the “zero covid” policy implemented by the government.
International Economics expert Professor Simão Davi Silber from USP (University of São Paulo) says that the closure of Chinese cities, which impacts economic activity in the country, affects trade with Brazil.
The lockdown hurts Brazil because China will have a lower growth this year with opening and closing the cities. As each outbreak closes the Chinese ports, both for exports and imports, this doubly hinders Brazil: in selling and purchasing products, says Silber.
The lockdowns have reduced expectations for China’s economy in 2022. Silber recalls that the Chinese government’s estimate for GDP (Gross Domestic Product) growth this year was initially 5.5%.
“The latest estimate is that instead of growing something around 5.5%, China will grow 4.7% or 4.8% in 2022,” says the professor.
Economist Lia Valls, an associate researcher at the Ibre FGV (Brazilian Institute of Economics of the Getulio Vargas Foundation) in Rio de Janeiro, also cites the decrease in projections for the Chinese GDP.
China had grown a lot in 2021, a percentage of 8.1%. The government was already expecting some deceleration. It is just that the commitment that the Chinese party had set, which was for a GDP of 5.5% in 2022, is more difficult to achieve.
As China shuts down cities, it reduces activity. Even because the country was already in the process of changing its development model, from investing in infrastructure to an economy based on the internal market, says Valls.
IRON ORE
With the cities closed, China paralyzed works in general – from the construction of bridges to the erection of buildings. Thus, the country started buying less iron ore, one of the main products exported by Brazil.
For example, in May last year, Brazil exported 16.48 million tons of iron ore (iron ore and concentrates) to China. A year later, in May 2022, the volume was 15.92 million tons, a drop of 3.4%. “This is already a reflection a little of the slowdown in Chinese growth,” says Valls.
The undersecretary of Foreign Trade Intelligence and Statistics at the Ministry of Economy, Herlon Brandão, confirms that smaller iron ore shipments to China are being identified.
“What we observe is a lower activity in China, which may be associated with lower ore activity,” said the undersecretary last Monday, June 13, during an update of the Secex (Secretariat of Foreign Trade) figures for the Brazilian trade balance.
Brandão says, however, that the issue is cyclical. According to him, China will continue to be a major trading partner for Brazil, “with growing importance.”
“We do not believe that the drop in exports to China is a question of a change in trend. China has been going through lockdowns, which causes economic activity to decrease. In addition, only 4.4% GDP growth is expected this year, which in Chinese terms is low. A lower activity influences the import [by China] both in volume and values,” says Brandão.
Secex data show that, in dollar terms, iron ore exports are also being affected. From January to May, product shipments to China totaled US$6.87 billion. The value is 30.3% lower than the US$9.85 billion in the first five months of last year.
SOYBEANS
Soybean shipments -another important export product from Brazil to China- also dropped at the beginning of 2022.
Secex figures indicate that soybean exports totaled 28.74 million tons from January to May. The volume is 28% lower than the 40 million tons recorded in the first five months of 2021.
In this case, according to Brandão, the lower exports are not linked to the lockdowns in China. “What explains the lower export of soybeans is a smaller supply from Brazil. Food is always in demand worldwide, even more so in a moment of crisis and supply bottlenecks, with the war in Ukraine,” said the undersecretary. “It’s just a smaller harvest in Brazil.”
The most recent data from Conab (National Supply Company) reveal that the estimate for the current soybean harvest in Brazil is 124.3 million tons of grain. The volume is 10% less than the 138.2 million tons of the previous harvest.
With less soy available, Brazil has also made fewer shipments to the Asian continent.
WILL BRAZIL’S GDP BE DAMAGED?
Despite the impacts of China’s slowdown on trade with Brazil and the smaller soybean harvest, economists interviewed by UOL believe that the effects on the GDP do not worry. The most recent estimate from the Ministry of Economy for Brazilian GDP growth in 2022 is 1.9%.
Silber, from USP, reminds that Brazil is also a large importer of Chinese products, including inputs for industry. But he believes that the impacts, in this case, will be localized.
“The lower exports to China should not substantially affect the GDP,” says the professor. “And the Brazilian industrial production should have a growth of 1.5%. It should not be affected by China.”
Lia Valls says that the Brazilian GDP depends more on the domestic market than on exports. “The dynamics of the economy are not given by exports and, in any case, Brazil continues to produce trade surpluses,” she says. “Of course, China weighs, but it will continue to be our main trade partner.”
With information from UOL