Brazil sells less to China, but the price is worth it

Despite having remained practically stable in value, exports to China this year lost steam and fell in quantity, in a movement different from the average and contrary to other important markets.

Brazilian exports to China totaled US$55.1 billion from January to July this year, dropping only 0.2% against the same months last year. However, in terms of volume shipped, it fell 12.8%.

The prices remained high, with an expansion of 13.6%, which neutralized the effect of the drop in quantity in export revenues to the Asian country.

China was the only destination with a drop in quantum when looking at the main markets of the country, according to data from the Foreign Trade Index (Icomex), in a bulletin that should be released today by the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre).

The stronger than expected slowdown of the Chinese economy in 2022, the displacement of Brazilian oil exports to China by Russia, and the high basis of comparison help explain the reduction this year, indicate experts.

China has been increasing its purchases of products from Russia and other close partners, which displaces imports from other regions, reducing its relative participation in Chinese arrivals. In this new regime, Brazil is hit by oil.

“There is a leakage of Russian crude oil that used to go to Europe and now starts to go more intensely to China,” points out economist Livio Ribeiro, partner at BRCG.

In total Brazilian exports, still according to Icomex, the volume shipped increased by 0.6%.

Still, in terms of quantity and keeping the comparison from January to July against the same period in 2021, the shipments to the United States grew by 3% and the European Union by 11.9%.

For Argentina, the expansion was 13.9%, and for the other South American countries, 14.3%. For Asia, excluding the Middle East and China, there was stability.

For economist Lia Valls, a researcher at Ibre, the drop in quantities shipped to China follows the slowdown of the Asian country’s economy and can also be explained by the high base of comparison.

The quantum of exports to China grew 31.1% from January to July 2020 against the same period of the previous year. In 2021, in the same period, there was a 5.7% drop, but the volume shipped remained relatively high.

The performance followed the behavior of the Chinese economy, Valls points out, which advanced 2.2% in 2020, when the covid-19 pandemic broke out. In that year, according to data from the International Monetary Fund (IMF), the global economy shrank by 3.1%, and the economy of advanced countries fell by 4.5%.

In 2021 the Chinese advance at a rate of 8.1%, while the global economy rose 6.1% and that of advanced countries, 5.2%.

For this year, the Chinese government maintains its target of 5.5% economic growth, but the most recent market projections point to about 4% to 4.2%, which is a significant slowdown for China, says Welber Barral, a partner at BMJ Consultants.

The former Secretary of Foreign Trade explains that the estimates have become more pessimistic after the release of the most recent activity data from the Asian country and the reduction of interest rates by the Chinese Central Bank earlier this week as a way to reactivate the economy.

The July data showed a generalized slowdown, with a housing crisis and the zero covid policy impacting industrial and retail activity.

Besides the displacement of Brazilian crude oil exports by the Russians, the performance of the Chinese economy is one of the factors that explain the drop in the quantum of Brazilian exports, Ribeiro agrees.

Ribeiro says that the Chinese economy faces relevant difficulties in robustly resuming growth. In the second quarter, Chinese GDP grew 0.4% year-on-year, below the median market estimate, and data at the start of the third quarter was not good.

“This makes us expect an economy with difficulty achieving even 4% growth this year.” The BRCG this week, it points out, lowered its Chinese GDP projection for 2022 from a high of 3.9% to a high of 3.4%.

There is also the effect of the composition of the Brazilian export agenda, says Ribeiro, a researcher at Ibre.

The cycle of Chinese investments in infrastructure may support shipments of iron ore, but for meat and soybeans, which are inputs for protein production, the situation tends to be more complicated in an economy that shows difficulty in consistently boosting domestic demand, he says.

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), remembers that the Chinese demand for iron ore increased considerably in 2021, contributing to the historical-high quotations for the commodity.

This year, he says, what has been happening is an adjustment of volumes and prices. According to AEB’s projections, total Brazilian iron ore exports should drop 10% this year against 2021. Last year, the item accounted for a third of the value exported by Brazil to China.

With information from Valor Econômico