Wednesday 16 December 2009

China And Brazil: A Burgeoning Relationship

Brazil is one of the largest developing countries in the world and China is THE largest developing country. They are members of BRIC (Brazil, Russia, India and China) which is regarded as the future powerhouse of the world economy. Brazil and China are members of the G20 and normally participate as observers in G8 summits. The G20 has now emerged as the pacesetter for the transformation of financial relations between the developed and developing countries. President Luiz Inacio Lula da Silva of Brazil is now on his second official visit to China.Relations between the two countries go back to the 1840s when several hundred Chinese tea growers were shipped out to Brazil. Entrepreneurs were keen to find a substitute for the emancipated slaves. In 1880 a treaty was signed which established diplomatic relations and the free flow of trade.

Brazil and China established diplomatic relations in 1974. The first visit to China by a Brazilian President took place a decade later. Deng Xiaoping, China’s paramount leader, stressed the need to reduce the gap between the developed and developing world. A strategic partnership was then agreed.

The two economies complement one another. China has a voracious appetite for natural resources and Brazil needs electronics and other consumer goods. Brazil has almost every raw material needed by industry (bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, etc.). For instance, iron ore reserves in Brazil amount to 22.5 per cent of world reserves.

Brazil has embarked on an ambitious upgrading of its infrastructure and since China is doing the same Beijing is in a strong position to help. For instance new Chinese roads and highways are world class and their new railways and rolling stock are of high quality. Brazil’s population of 192 million and GDP of $1.66 trillion make it a very attractive market for Chinese goods. China’s 1.3 billion population and GDP of over $4 trillion GDP make it an even more seductive market for Brazil.
Trade turnover between the two countries in 2007 almost reached $50 billion. Brazil is now exporting more to China than to the US. The good news for Brasilia is that Beijing runs a trade deficit with it. In 2008 it reached almost $9.3 billion. In 2001 it was only $1 billion. Almost all Brazilian exports are raw materials and commodities. China exports mainly electronics and textiles.

China is investing in downstream production. For instance, it is involved in a $3 billion steel plant in southern Brazil. Chinese companies also have stakes in the production of aircraft, compressors, automobile parts and hydroelectric equipment. During Vice President Xi Jinping’s visit in February 2009 an agreement was reached whereby the China Development Bank will lend Brazil $10 billion to explore and exploit huge hydrocarbon reserves off Brazil’s south east coast. Brasilia will supply Beijing with 100,000 barrels of oil a day until the loan is repaid.

However, not everything in the garden is rosy. Inevitably Chinese goods compete successfully with domestically produced products. This is a common problem in the developing world. Brazil’s solution has been to accuse China of dumping and impose tariffs. Regulations are in place to restrict the import of Chinese consumer goods until 2013. Criticism of Chinese practices is strongest in São Paulo, the heartland of Brazilian industry.

China and Brazil agree on the origins of the present world crisis: unregulated financial markets. Both countries want the developing world to have a greater say in framing the new world financial architecture. This has led to more and more cooperation between the two states.
Brazil has realised that it can benefit considerably from a closer relationship with China during the present world economic downturn. The future looks bright for Sino-Brazilian relations.

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