Brazil and China Tightening Ties

By Bruno De Nicola, Contributing Reporter

RTAsk Rio TimesAsk about Latin American markets, currencies, and companies — answered from our reporting and live data.Start asking →RIO DE JANEIRO – Skyrocketing commercial transactions between Brazil and China have prompted the Asian nation to inject another US$15 Billion into South America’s largest market.  Over the past year, global recession, US Dollar drop and good relations between the countries drove China to become Brazil’s biggest business partner.

Chinese investment in Brazil focuses mainly on two fronts. Most ventures aim at Brazilian sectors complementary to China’s economy such as steel, oil and a few other raw materials industries. However, according to Mr. Charles Tang, President of the Brazil China Chamber of Commerce, the Chinese are also looking at Brazil as an important market in which to sell their products. “Now that Europe and the U.S. have lost most of their purchasing power, Asian managers have started looking elsewhere,” he offered, and Brazil seems to offer a great placement for Chinese technology and car industries.

Manaus, the capital of Amazonas state, has been attracting Asian automotive companies looking to invest in Brazilian ventures. Topping the list are CR Zongshen, looking to produce motorbikes through a US$80 Million plant, and Traxx, planning to expand its car manufacturing in Manaus through a US$20 Million investment. The car makers Chery, Jac and Byd will be coming to Brazil soon as well, while the location of their factory has not yet been disclosed.

However it isn’t only the car industry that has set its sights on Brazil: Chinese technology oriented businesses are also showing heightened activity. Huawei, from the infrastructure sector, just helped Oi – the mobile phone provider – get a US$300 Million loan from Chinese banks, hoping to favor its Brazilian client’s expansion and therefore buy power and influence in the company.

An overall look at the situation shows that China this year stands seventeenth in the foreign investment ranking with a US$66.11 Million input, whereas last year it ranked 42nd with a mere US$38.4 Million input.

President Lula’s recent trip to China may have favored the coming of such an increase, but its true reason goes way beyond diplomacy. China currently has a US$2.123 Trillion reserve, which is an awful lot of US currency to depend on, especially when America is relentlessly losing its economic power. There are two solutions for this problem, the first one is to invest or loan money abroad, the second is to swap the currency reserve for a commodity reserve. “China has US Dollars to burn and craves for alternative reserves,” stated Paulo Freire Junior, Director of the Brazil China Chamber of Commerce, as he urged Brazilian coffee producers to look for Chinese buyers.

Last March, China became the country with the largest consumption of Brazilian products. Its craving for so-called ‘natural reserves’ made Brazilian soy sales grow by an impressive 91% compared to last year. Petrobras just made a US$10 Billion oil sale to the Chinese government as well. This semester’s balance of trade between Brazil and China shows that Brazilian exports are outnumbering imports by an astonishing US$3.686 Billion, whereas last year they were down by US$1.540 Billion.

The Rio Times · Power Map

See who really holds power in Latin America

Click to open the Power Map →