The Chinese push into Brazil and Latin America has expanded the continent’s resource base and injected competition into its commodity sector, as investors from China tend to be more willing to take on risky projects that others pass over. At the same time Chinese demand has been responsible for increasing the supply of both Latin American and Brazil commodities – unprecendented amounts of everything from iron ore to soya to beef have left the ports of the continent, destined for Asian markets.
As Chinese firms expanded ties with Brazil new varieties of manufactured goods, textiles, machinery and toys have made their way into the hands of Brazilian people, much of which would have been unaffordable twenty years ago. While critics of the China – Brazil trade relationship are right to point out the inequality in the relationship and highlight its potentially neo-colonial structure (commodities for manufacutured goods), they also perhaps overlook a number of points; that the relationship is young, significant trade and investment ties have only developed in the last fifteen years, it is perhaps unrealistic to expect a fully “mature” relationship of trading high value goods and services between two countries which until recently were fairly marginal to the global trading system.
For Brazil this means they have the opportunity to get to grips with the Chinese market and adapt in order to offer more valuable goods and services, taking advantage of the revaluation of the renminbi and the increasing weight of the economy to services and consumer goods within China. In order for Brazilian firms be become a success in China they will have to learn more about an unfamiliar country, find niches in one of world’s most fiercely competitive markets and then make a successful push to launch products or services in a place which is surprisingly difficult to conduct business. All this will take time.
Now China is Brazil’s biggest trade partner, there is a risk of dependence, the country’s mining and agribusinesses have done well from China and the risk of a fall in the price of commodities would seriously impact on the country’s economy. But there is also an advantage in being a large country with other major trade partners such as the EU, US and other Latin American countries, which reduces the risk of over reliance on China.
Brazil is not like Sudan or Zambia, which have virtually a single export, such as oil and copper, this is dangerous enough in itself, but compounded with an overreliance on Chinese demand for the material means your economy is highly exposed. Sudan lacking other friends because of its supposed terrorist connections has sold a great deal of its oil to China and relies upon it for diplomatic protection. Zambia has had no end of problems with its industrial relations between Chinese owned mines and local mine workers, who are badly mistreated and paid by the owners, but the Government, even one headed by a onetime critic of China – Michael Sata has been unable to clamp down on the excesses of the mine owners. Both these countries have done well from the China connection, but face the risk of dependence on Beijing’s demands and political favour, both of which can be withheld at little cost to the Chinese.
Brazil’s size and complex economy means that it is unlikely to fall into this trap, but the overarching theme of their relations with be managing economic ties to ensure both countries benefit from them, this means increasing investment in both directions, (the Brazilians have not done so well in this regard) and for Brazil avoiding overdependence on commodities and trying to increase the flow of manufactured goods to China will be key.
The two countries have teamed up to start the New Development Bank (aka the BRICS bank), this should help cement their relationship in a formal manner. The two nations have a common goal of creating a more multilateral world (i.e. non-US dominated) – and the new bank is a major step in that direction.
If Brazil can manage economic relations with China successfully then we are likely to see a strong bond grow between the two states, but if the current trade and investment pattern continues – Brazil will become disillusioned in what they see as a Chinese dominated relationship.