Chinese investments in Brazil plummet 74% in 2020 due to pandemic

RIO DE JANEIRO, BRAZIL – After more than doubling in 2019, the inflow of Chinese investments in Brazil failed to withstand the shock of the crisis triggered by the Covid-19 pandemic plummeting 74% last year to its lowest level in 6 years.

The data are shown in a recently published study by the China-Brazil Business Council released on Thursday, August 5.

The flow of Chinese investments to Brazil reached US$1.9 billion in 2020, compared to US$7.3 billion the year before. The contraction in the period was larger than the total drop in net direct investments in the country in the year – around 50% – according to Central Bank data.

Despite pointing out damages to political relations between Brasilia and Beijing with the escalation of tensions between then U.S. president Donald Trump in 2020 due to the Bolsonaro administration’s alignment with the former president, CEBC’s research study rules out a blow to economic relations.

The report, which is released annually but was delayed in 2020 because of the pandemic, ascribes last year’s lower inflows to the global recession that impacted foreign investments in Brazil and the world in general.

“This slump can be interpreted more as a cooling of global outward investment flows, which fell 35% in 2020, than by bilateral political frictions,” the document states. “The deterioration of the political climate between Brazil and China in 2020 does not seem to have affected bilateral economic relations.”

Tulio Cariello, the study’s author and director of content and research at the Brazil-China Business Council (CEBC) says that despite Bolsonaro’s criticism of China during the presidential campaign, his government did not promote practical disruptions in the relationship and there were even institutional developments, with the reactivation of COSBAN, a commission representing the main mechanism for bilateral dialogue.

The report also highlights the action of Brazilian states, particularly in the Northeast, in pursuing Chinese investments. In 2019, 7 governors or vice-governors of the region’s 9 states made official visits to China, and Maranhão organized a delegation with 54 entrepreneurs to the Asian country.

“I think that Brazil’s states have realized that they don’t necessarily need to go through Brasilia to undertake this kind of initiative, to attract foreign investments. I think that in the case of the Northeast this is quite clear,” Cariello said, pointing out that the decentralization of efforts contributes to increasing investments.

For the first time, the Northeast was the region receiving the most Chinese investments in the country in 2019, accounting for 34% of confirmed projects. However, considering the stock of investments China has made, the Southeast is the main recipient, with the state of São Paulo concentrating 31% of the total number of projects.

China has been alternating with the U.S. as the main investor in the country since 2010.

ELECTRICAL SECTOR CONCENTRATES INVESTMENTS

The electricity sector increased its leadership in attracting Chinese investments last year, absorbing 97% of the total value. The highlights were projects from the State Power Investment Corporation (SPIC) – involved in the development of the Açu thermoelectric park in the state of Rio de Janeiro – from CGN Brasil Energia – which is implementing wind power plants in Bahia – and from State Grid.

In the financial sector, the study draws attention to a capital injection of R$222 (US$43.2) million by the Bank of China in its Brazilian subsidiary, and the inauguration of a banking operation by XCMG, China’s largest construction machinery manufacturer, with an initial investment of R$100 million.

Looking ahead, the assessment of the CEBC study is that China’s presence in the electrical sector tends to predominate over the next few years, but with the perspective that investments will also grow in areas such as logistics, ports, construction and transportation.

Cariello points out that the Chinese have also presented proposals for sanitation projects, indicated as a priority by the Brazilian government after the revision of the sector’s legal framework. “In the entire infrastructure sector overall, and also the natural resource exploration sector, you can be sure that there is a Chinese company interested in investing,” he said.

The study makes discreet mention of potential investments in 5G, where China and the U.S. are engaged in a globally complex political and economic dispute.

“There are innovation opportunities in the bilateral agenda that could benefit from China’s growing advance in the new frontiers of information technology,” the document states, highlighting the potential of projects linked to topics such as artificial intelligence, digital economy, internet of things, and 5G networks.