A one way street? Sino – Brazilian Investment

butterfly ChinaChinese firms, mostly state owned enterprises (SOEs), have poured into Brazil, even taking into account the unreliability of FDI measures the figures are impressive (US $ 68 billion announced between 2007 – 2012) and largely reflect the trade relationship with investments in oil, gas, mining and agribusiness. There is also recognition of Brazil as a consumer society with Chinese firms also looking at manufacturing products in the country for the Brazilian and wider Latin American market. But Chinese firms are in many ways still well behind their European and North American rivals who have been investing in Brazil for decades.

Brazilian firms in China…. a false start?

Brazilian firms have also made the move to China and many of Brazil’s most powerful firms moved in early, Vale, Obebrecht and Embraer all had a Chinese presence before 2000. But since then at a time when Chinese ventures have multiplied in Brazil – firms going in the opposite direction has been flat. A comprehensive report by the China –Brazil Business Council which not only analysed the historical data of investments, but also interviewed Brazilian executives in the front line of doing business in China outlined the issues. The report put a great deal of emphasis on the difficulties of doing business in China, the problems of bureaucracy, lack of intellectual property rights and the many other complaints made by foreign investors. Despite its stellar economic performance, China scores remarkably badly in the various ease of doing business surveys which are produced by the World Bank and others.

The Brazilian aircraft manufacturer Embraer set up shop in China with a view to building a jet in the world’s fastest growing market for the product, only to be prevented by the Chinese – eventually a way was found to produce the medium sized aircraft, but the uncertainty was damaging for the firm.

One interesting point made via the interviewers is that they felt it was easier for the Chinese to invest in Brazil than vice-versa (borne out by the evidence) and that the Brazilian government did not do enough to promote and help Brazilian business in China.

Chinese firms in Brazil

Chinese firms setting up in Brazil and other parts of the world, are strongly backed by the state, the majority are State Owned Enterprises (SOEs), these firms have spearheaded the Chinese global investment effort. For western firms it has been private capital that has been at the forefront of globalization, the idea that a nationalised industry would become a major overseas investor would seem rather out out of date, but it is state owned enterprises are at the cutting edge of Chinese style globalisation. Other developing countries have seen private companies take the lead in overseas expansion, with varying degrees of government support.

But for many Chinese firms the attractions of Brazil are fading fast as the country proves a difficult place to do business with poor infrastructure and bureaucratic governance. Brazil’s economy has been underperforming for a number of years now and the end of the commodity boom has meant fewer investment opportunities. Despite these problems many Chinese companies remain positive on Brazil seeing it, rightly, as a huge consumer market and its infrastructure problems as an opportunity to solve. A recent trip to Brazil by Chinese Premier Li led to the announcement of a further US$ 50 billion in infrastructure projects, including a controversial rail line from the Atlantic port of Santos to the Peruvian port of llo on the Pacific, if completed it would an engineering marvel, but an environmental disaster.

This injection of infrastructure offers an opportunity to the Brazilian government which it can use to improve the sorry state of its roads, rail and ports, plus boost economic growth. However any progress is dependent on the government handling the investment in the right way, making sure the funds are spent wisely and funneled to the best quality projects. The Chinese will be looking to ensure that their firms get a slice of the construction contracts, which might prove difficult in light of legal restrictions affecting foreign firms building in Brazil. The success or not of this program of investment is a big test for both the Chinese and Brazilian governments which will be mirrored by countries like Pakistan that are also banking on Chinese funds to modernise and drive growth in their economies.

The Chinese are also interested in the service industries, the purchase of Banco BBM a Rio based bank by China’s Bank of Communications (BoComm) for R$525 million (US$173.3 million) underlined this. This move by BoComm is reckoned to be the first in a concerted move into the Latin American market, if successful it will help cement China’s repuation as banker to the region.



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