Brazil – China Relations

Brazil – China Relations

While attending the BRICS summit in July this year, President Xi made a state visit to Brazil where he met with Brazilian President Dilma Rousseff. This was Xi’s first visit to the country since becoming president (he previously visited as Vice President in 2009), and comes as China and Brazil celebrate their 40th anniversary of bilateral ties.

Before leaving for Brazil, Xi stated in a written interview that he attaches “great importance to growing the global strategic partnership with Brazil” and believes “China is ready to work with Brazil under the principle of mutual benefit to promote sustained two-way trade” and reiterated these sentiments shortly after landing in the country, when he addressed reporters and stated that he is “looking forward to conducting wide exchanges with Brazilian leaders and people from all walks of life, focusing on common development, boosting practical cooperation and accelerating the development of China-Brazil comprehensive strategic partnership.”

Indeed, one of Xi’s goals during his week long stay in Brazil was to find new opportunities to boost China’s investment in Brazil’s infrastructure. Modernizing Brazil’s transportation and energy infrastructure presents a win-win scenario for Brazil and China, as modernizing infrastructure will substantially reduce the transportation costs, which will benefit Brazil’s entire economy even as it makes it a more profitable trade partner for China.

Brazil, on the other hand, used Xi’s state visit to try and reduce its trade imbalance with China. In 2012, Brazil imported almost $19 billion more from China then Beijing imported from Brasilia. Another important strategy for Brazil was to try to rebalance its exports to China away from raw materials, like soybeans and iron ores, and towards more manufactured goods. This comes in parallel to Brazil’s broader efforts in trying to move its economy up the value chain and breaking into the Chinese market will be essential for achieving this goal.

As a result of the two aforementioned strategies between both countries and the fact that both China and Brazil share similarities on the global stage, i.e. both countries are members of the BRICS bloc (alongside Russia, India and South Africa); Brazil and China are also members of the G20 and normally participate as observers in G8 summits. As a result of these increased interactions and strategic conveniences, bilateral ties between China and Brazil have increased substantially in recent years, going above and beyond their joint membership in the BRICS bloc.

In 2012, China and Brazil agreed to establish a comprehensive strategic partnership, and bilateral trade topped $80 billion last year. As a result, China surpassed the United States as Brazil’s top trading partner back in 2009, and Brazil is currently China’s 9th largest trading partner. Another sign which demonstrates increased bilateral trade between Brazil and China is the signed $30 billion currency swap last year.

However, despite the increased trade interactions between both countries, as mentioned in the fourth paragraph of this article, Brazil has a trade imbalance with China. Not only has Brazil imported more from China, then Beijing has imported from Brasilia, but China is now investing in setting up industrial plants and operations in Brazil, including heavy industries such as machinery, automobile and motorcycle factories, plants to produce steel, and offshore oil exploration and drilling, which inevitably successfully competes with domestically produced products and has prompted claims that China is gaining more from the bilateral trade relationship than Brazil is.

Brazil’s solution to this implication has been to accuse China of dumping and has imposed tariffs. Criticism of Chinese practices is strongest in São Paulo, the heartland of Brazilian industry. Indeed, the analysis suggests that even with advantageous bilateral relations, there is a pattern of growing imbalances and asymmetries in trade flows that are more favourable to China than Brazil. Therefore, it can be argued that to this extent, Brazil and China are competitors when it comes to increasing their exports and attracting FDI, but their bilateral relationship tends to shift into a partnership in multilateral settings such as in the BRICS bloc, the G20 and at the G8. Another example where political coordination between Brazil and China was deemed successful, is in the increased voting shares both countries hold in the IMF.

Nonetheless, the caveats to this strategic partnership are also visible. In the political and strategic realms, China’s main interests differ from Brazil’s. While Brazil has been considered a regional power with global ambitions, China is already a global power with nuclear weapons. Moreover the two countries confront distinct regional contexts. In contrast with rapprochement seen between South America’s two largest powers, Brazil and Argentina, in the last three decades rivalry among Asian countries still sets the tone for security concerns. To illustrate the latter, Brazil’s bid for a permanent seat on the UN Security Council was initially thought to be accepted by China, which is already a permanent member. However, when Brazil launched a collective bid with India, Germany and Japan in 2005, China immediately opposed any Security Council reform. This took Brazilian officials aback, since they had made an effort to start the process to recognize China’s market economy status the year before (a prerequisite for China’s full admission to the WTO). Although there wasn’t an explicit bargain to this issue, recognition of China’s status was the highest political card Brazil had to offer.

How these trends will evolve will be crucial, not only with regards to the economic dimension of the relationship, but also in the political-strategic aspect as well. Surely areas of cooperation and a “comprehensive strategic partnership between both countries”, as described by President Xi does exist, but the bilateral relationship should also be viewed from a more realistic nuanced perspective. There is a likelihood that persistent bilateral differences (trade imbalances, competition for FDI, differences in national main interests and so forth), may have a spill over effect on multilateral cooperation between China and Brazil, particularly on issues where core economic interests are at stake. Despite this, Brazil is conscious of the considerable benefits its country will attain, in the short and long-term, by strengthening a closer relationship and partnership with China. Indeed, the bilateral strategic partnership between Brazil and China is likely to endure and strengthen.