Brazil Welcomes Chinese InvestmentRegardless of the Consequences
Monica Piccinini charts the rise of Chinese investment in Brazil and how important it is becoming for the economy and the Brazilian Government
China is keen to challenge the United States’ dominance of Latin America and between 2002 and 2019 it has boosted trade with the region from $17 billion to $315 billion. Chinese President Xi Jinping’s goal is to increase it to $500 billion in the next 10 years.
Beijing has already signed a number of bilateral partnership agreements in the region, including with Venezuela, Chile, Argentina, Ecuador, Peru, Uruguay, Costa Rica and Mexico. The COVID-19 pandemic has also offered more opportunities for China to engage with Latin America, providing medical aid throughout the region and offering loans to help pay for the purchase and distribution of vaccines once they have been developed.
Chinese banks have become the largest lenders in Latin America, and the majority of lending, 67%, has been for energy projects while almost 20% has been focussed on infrastructure projects. These loans have less vigorous environmental guidelines and lack policy conditions with less stringent terms compared to the majority of international financial institutions. It has been suggested that heavy investment in the region combined with large amounts of lending could have a strategic value for future military uses, especially investments in ports and infrastructure.
But nowhere has welcomed China more warmly than in Brazil under President Jair Bolsonaro. So much so that China has become the largest foreign investor in the country. Data provided by the Ministry of Foreign Affairs released in 2019, shows that between 2003 and 2019, the Chinese invested $72 billion in Brazil, and many think this is an underestimate. China seems to be especially keen to dominate the energy, transport and agribusiness sector.
“There are dozens of Chinese companies that have come to see the country as an investment opportunity,” said Brazil-China Chamber of Commerce spokesman, Charles Tang. “They have been prospecting Brazilian market for months”.
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The Economic Invasion
This is purely an economic ‘invasion’ and China’s ‘soft power’ is less apparent in Brazil than virtually anywhere else in the world. Perhaps this is because Bolsonora is not keen to publicise a nation that has been challenging Trump’s America for ‘super power’ status.
As Bosonaro has been trying to reinvigorate Brazil’s economy, he needs investment in infrastructure, electricity and telecommunications sectors and agribusiness to generate employment. Brazil’s traditional American and British investors have not been forthcoming as they seem to be losing confidence in his populist agenda and especially the way he has handled, or not handled the pandemic.
There has been an outflow of American investment capital in these sectors. China has willingly taken up the slack and invested. It has given loans, purchased Brazilian mining, petroleum and agricultural products and acquired assets in strategically valuable sectors. It also helped that China has been prepared to pay more than anyone else for these assets.
The energy sector has been one of the most significant areas for Chinese investment. State Grid, which is Chinese-state owned and the largest Chinese energy transmitter, took over CPFL, the third largest and most profitable Brazilian electricity utility company, paying $4.5 billion for 54% of the company. In fact, 60% of State Grid’s investments outside China were made in Brazil, reaching a total of $12.4 billion. The company now controls 10% of the high voltage networks and 14% of the distribution segment in the Brazilian market.
Chinese energy giant China Three Gorges has also acquired Companhia Energética de São Paolo (CESP), which is the largest private energy generator in Brazil, owning 14 hydroelectric plants as well as 11 wind farms.
Meanwhile, the impact of Chinese investment in the agribusiness is already having consequences for the Brazilian population. China was the largest buyer of Brazilian agribusiness in 2019, according to a statement released by the Ministry of Agriculture, investing approximately $24 billion into the Brazilian agribusiness. Between January and July, Brazil exported 50.5 tons of soy to China with between 90% and 95% of the soybean crop sold.
The Chinese rapacity for imports of beef, pork, poultry and soya beans, no doubt benefits a lot of businesses in Brazil, but on the other hand it creates enormous pressure on the prices of these products for the Brazilian population. As a result, Brazil, which is the largest producer of soybeans in the world, had to import 400,000 tons of soy.
This is good news for Brazilian farmers but not for anyone else. “This year I cannot complain, it was possible to earn money”, said a Brazilian corn producer in Paraná. “I sold practically the entire soybean crop for an average price of R$100 a bag, 42% higher than I received last year, paid off debts from previous years and still have money left over.”
It has resulted in an explosion in consumer prices, for example in the first half of 2020 it rose by 15.7%. At the same time, the Brazilian currency the “Real” devalued almost 40% over the last 12 months and many experts believe this is a consequence of the Chinese demand.
China’s Easy Target
The current wave of Chinese investors in Brazil have lots of money to spend and have surrounded themselves with a support system including financial and legal advisers. “There is a client who set up a representative office and has been studying the Brazilian market for three years”, explained Demarest law firm lawyer Mário Nogueira. “They travel so much in search of business, they already know the country more than I do”.
While there has been little public awareness of the growth of Chinese investment and ownership and no signs of the ‘soft power’ tactics, this might soon change. Last year, a partnership was announced between Rede Bandeirantes, owner of a TV and Radio station in Brazil, and China Media Group. The agreement was for joint television productions and content sharing and specifically mentioned the partnership would help promote the development of relations between the two countries.
There is no doubt that China has targeted Brazil as the ‘softest’ entry point into Central and South America while at the same time, they are investing heavily across the region. They know that in Bolsonaro, they can deal with a man who has few scruples about environmental concerns, food prices or strategic worries as long as he can get the investment he needs to keep the economy moving to shore up support for his populist administration – whatever his hero President Donald Trump thinks.