In the Global South, developing countries, the working class and progressive forces are advancing – dramatically symbolised recently in the victory of Lula in the Brazilian presidential election. This is sharply unlike the situation in the Global North where the imperialist bourgeoisie is continuing its offensive. But for developing countries a crucial issue is their economic and political relations with China – which gives to them increased room for manoeuvre, to pursue a path independent of the US and of social progress. This article by Marco Fernandez looks at the relation between Brazil and China. Marco Fernandes is a researcher at Tricontinental Institute for Social Research, the co-editor of Dongsheng, an international collective of researchers interested in Chinese politics and society, and a member of the No Cold War collective.
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Could China help Brazil overcome its economic crisis?
By Marco Fernandes
The October 30 election victory of Luiz Inácio Lula da Silva for a third term as the president of Brazil is expected to revise the relations between Brasília and Beijing.
Brazil is going through a serious economic, political, social, and environmental crisis. Fighting poverty, resuming economic growth with income redistribution, reindustrializing the country, and reversing environmental abuses are urgent tasks, which will demand unprecedented national and international finesse from the new government.
The economic partnership between Brazil and China, which has advanced greatly in the past two decades, may be one of the keys to reversing the crisis that Brazil faces. But some challenges will need to be faced with diplomacy and strategic planning.
Despite the “insults” directed by the government of former Brazilian president Jair Bolsonaro toward China, especially during the Covid-19 pandemic, and the inevitable distancing of diplomatic relations between the two countries, bilateral trade has increased.
In 2021, bilateral trade between the two countries reached US$135.4 billion, with Brazil recording a trade surplus of $40 billion with China, which was only surpassed by Taiwan, Australia and South Korea. China has been Brazil’s largest trading partner since 2009, accounting for almost double the volume that Brazil imported from its second-largest partner in 2021, the US ($70.5 billion), with which it recorded a deficit of $8.3 billion.
A profitable but unbalanced relationship
Brazil’s export mix, however, is vulnerable in the long term: It is not very diversified and is based on products of low aggregate value.
The four main products it exports (iron ore, soy, crude oil, and animal protein) accounted for 87.7% of total exports to China in 2021. Meanwhile, the exports of Chinese products to Brazil are highly diversified, with a predominance of manufactured products, and with a high technological index. For example, the main import item from China to Brazil (telecommunications equipment) accounted for only 5.9% of imports.
The Brazilian commodities sector, which is an important component of the economy, represented 68.3% of exports by Brazil in the first half of 2022 and has contributed for years to the increase in international reserves.
On the other hand, the commodities sector has a high concentration of wealth, pays few taxes, generates relatively few and low-skill jobs, is subject to cyclical price changes, and, in many cases, causes environmental damage, which needs to be better controlled by the state.
In this sense, the initiative announced by COFCO International – the largest buyer of Brazilian food in China – to monitor and prohibit the purchase of soybeans planted in areas of illegal deforestation in Brazil beginning from 2023 was important.
But it will also require the Brazilian state – which has become notorious in recent years for encouraging deforestation and the invasion of Indigenous reserves – to guarantee the effectiveness of the initiative.
China needs Brazil’s natural resources for its development, and Brazil needs the Chinese market for its commodities. But in the medium and long terms, Brazil will need to seek greater balance in its trade agenda if it wants to return to being a solid economy.
Let’s remember that in 2000, the main Brazilian export product was Embraer’s jet planes, while in 2021, the main exports were iron ore and soybeans. This is just one of the many symptoms of chronic deindustrialization.
Investing necessary, but so is diversifying
Chinese investments in Brazil have a similar profile to its exports: robust, but not very diversified.
In 2021, Brazil received the most Chinese investments in the world, amounting to $5.9 billion (13.6% of the global total). Between 2005 and 2021, Brazil was the fourth-largest global recipient of Chinese investments (4.8% of the total), only behind the US (14.3%), Australia (7.8%), and the United Kingdom (7.4%).
These investments by China have resulted in a fundamental contribution of resources to the Brazilian economy but have not come without its set of challenges. From 2007 to 2021, 76.4% of the Chinese investments were concentrated in the energy sector (electricity, and oil and gas extraction), while only 5.5% went to the manufacturing industry and 4.5% went to infrastructure works, among other greatest needs of Brazil’s economy.
The Brazilian electricity sector was the largest destination for Chinese investments (45.5% of the total), but part of this corresponded to the purchase of Brazilian state-owned companies by Chinese state-owned companies.
In 2017, the Chinese company State Grid acquired a controlling interest in CPFL Energia, a state-owned company in the state of São Paulo, and in 2021, CPFL Energia bought control of CEEE-Transmissão, a state-owned company in the state of Rio Grande do Sul.
For Brazil, these were not good deals and demonstrated the irresponsibility of neoliberal state governments of the Brazilian Social Democratic Party (PSDB), which privatized strategic public assets. China – which would never sell a state-owned energy company to foreigners – took care of its own interests and took advantage of a business opportunity offered by the market.
It was not a privatization package imposed by the International Monetary Fund. But would Beijing be willing to accept other investment models that would bring more benefits to both countries?
The Argentine example
Since 2021, Buenos Aires and Beijing have entered a series of strategic investment agreements. In February this year, Argentina joined the Belt and Road Initiative, which is expected to attract $23 billion in Chinese investments for Argentina.
Before that, other investments and projects by Chinese companies included the reform of the Argentine railway system ($4.69 billion) and voluminous investments in the electric sector.
These included construction of the Atucha III nuclear plant (costing $8.3 billion), whose financing has an approximately eight-year grace period and, most important, provides for the transfer of Chinese Hualong nuclear technology – mastered in 2021 – to the Argentine state, which will control the plant.
Brazil could propose partnerships similar to those by Argentina that are just as or even more strategic, with mutual benefits. Why not propose to exchange commodities (oil and gas) for infrastructure and technology with China, like Iran has already proposed? Or the formation of more Sino-Brazilian joint ventures – which received only 6% of Chinese investments (2005-2020), while mergers and acquisitions received 70% – that provide for technology transfer to Brazil?
Brazil will need a gigantic effort to reindustrialize its economy at several levels, such as investment in research and development, training of skilled labor, financing, and technology transfer.
No other country besides China has the financial, industrial, and technological conditions to cooperate with Brazil in numerous promising sectors, such as electric vehicles, information technology, fifth-generation telecom (5G), renewable energy, aerospace, biomedicine, and semiconductors.
It is up to Brazil to propose a high-level strategic dialogue with China, which reaffirmed in the report of the 20th National Congress of the Communist Party of China that it is committed to helping to accelerate the development of Global South countries.
President Xi Jinping said during the Congress: “China is prepared to invest more resources in global development cooperation. It is committed to narrowing the North-South gap and supporting and assisting other developing countries in accelerating development.”