Brazilian – Chinese trade has boomed dramatically over the last 15 years. China has overtaken the US as Brazil’s major trade partner, (trade worth $256 billion in 2011). The exchange is dominated by Brazilian export commodities, such as soya, crude oil and iron ore, with China exporting manufactured goods and textiles. Brazil enjoys a trade surplus with China totalling $11.5 billion and has consistently exported more to China than vice-versa over the last decade, following the trend of other natural resource producing countries around the world, particularly in Africa.
However Brazil wants the Chinese to open up their market further to Brazilian manufacturers so it can export goods further up the value chain. For example the Brazilian jet maker Embraer have hired Hong Kong movie star Jackie Chan to promote their private jets to a Chinese audience. The private jet market is rapidly increasing in step with China’s rising wealth and increasing number of millionaires. The Brazilian government fears that overreliance on the export of basic goods will lead to de-industrialisation. However, Brazilian ambition to move further up the export value chain may put them in conflict with China – as their export/import products become competitive rather than complementary.
Concerns about the negative impact Chinese imports will have on local manufacturing have led to a blatant act of protectionism, the imposition/increase in a tax on foreign cars – up to 55%. Brazilian industry has also been affected by the high value of the Real and domestic factors such as lack of productivity growth.
In addition to the increase in bi-lateral trade there has been direct investment, in the biggest such deal, Sinopec (a major Chinese oil firm), brought a 40% stake in Spanish oil refiner Repsol for $7.1 billion in 2011, a part of China’s strategy to purchase energy supplies around the world.
In the Brazilian state of Goias the Chinese government have signed a $7.5 billion co-operation deal to develop soya production. Soya beans are a mainstay of Asian cuisine, used for tofu, milk and sauces. Chinese demand has soared and domestic production has been unable to keep pace. The fact soya has to be imported, is an indication of the state of Chinese agricultural production, increasing demand along with decreasing amounts of farmland due to urbanisation and erosion has made China more and more dependent on agricultural imports.
Iron ore is another major Brazilian export to China and is one which precipitated the creation of the world’s biggest dry cargo carrier. At 400,000 tonnes and 362 metres and long and 65 metres wide the Vale super carrier was designed to lower the costs of transporting iron ore. However the move alienated the Chinese authorities who realised it would give Brazilian company Vale more control over the iron ore trade and so banned the carriers from Chinese ports. This meant Vale had eight ships which they are unable to use and another 20 on order in shipyards, whose future is uncertain.
The question is now whether Brazil can move away from primary production into manufacturing and how accommodating the Chinese will be in this regard. Can the Brazilians break into the Chinese (and other emerging) markets or will they continue to be out muscled by the Chinese.