China invests in Brazilian tech and manufacturing

The Asian giant’s showering of business deals on Rousseff contrasts sharply with a trip to Brazil by President Obama, who offered much praise for Brazil’s rising economy but few concrete agreements.

Rousseff had gone to China with complaints from Brazilian manufacturers ringing in her ears about a wave of cheap imports that have decimated some Brazilian export sectors even as China became Brazil’s largest direct investor last year.

Those complaints have received a more favourable hearing since Rousseff was sworn in on January 1 as her government has sought a more balanced relationship with the country that is now its biggest trade partner and has long been the main buyer of Brazil’s huge farm and mining output.

Thorny currency and trade issues were largely left untouched in Beijing. They will continue to dog ties, but Brazilian officials say Rousseff advanced her main objective – to diversify trade and investment ties beyond raw materials to include more value-added goods.

She avoided bringing up the touchy issue of China’s currency in public, but secured a host of business deals that signaled Chinese sensitivity to Brazilian concerns over their lopsided relationship.

“The agenda with China looks much more promising than that with the United States,” said Andre Nassar, head of Icone, a Sao Paulo-based trade think tank.

Obama’s visit to Brazil in April was partly aimed at taking advantage of Rousseff’s more critical stance toward China, whose growing influence in Brazil and Latin America has eroded traditional US economic dominance in the region.

Obama’s concrete pledges were slim though, especially compared with China, which last year invested about $17bn in Brazil in areas from oil to manufacturing.

Rousseff, a career bureaucrat who has adopted a more pragmatic foreign policy than her predecessor, returned from China with billions of dollars of investment pledges in areas ranging from research and development to food processing.

Matching words with money
Taiwan-based Foxconn Technology Group, which has a heavy presence on the mainland, is eyeing a massive investment in an assembly line for electronic displays in Brazil, precisely the type of labour-intensive industry that Rousseff’s administration aims to promote.

Brazilian aircraft manufacturer Embraer secured an order of up to $1.4bn for its mid-sized E-190 commercial jet and authorization to assemble its Legacy corporate jet in China.

After years of neglect, high-level communications channels between the two governments have been revived, allowing differences to be addressed more swiftly, Brazilian Foreign Minister Antonio Patriota told reporters.

“It exceeded expectations, I think they genuinely understood and addressed Brazil’s concerns,” he said.

China’s Communist government is free of the congressional restraints that Obama faces in granting trade concessions and also sees more at stake in Brazil, a crucial supplier of food and metals for China’s economy, said Nassar.

“Brazil provides them with food security. They need and want this relationship to work.”

In a sign that Brazil will remain on Beijing’s radar screen in coming months, China’s Trade Minister Chen Deming is to lead a business delegation here during the second quarter to consolidate potential business deals.

These include Chinese interest in a planned $21bn, high-speed railway linking Rio de Janeiro and Sao Paulo as well as a line of credit that Brazil’s oil giant Petrobras is negotiating with Chinese banks.

In exchange for the business deals, Brazil agreed to speed up its recognition of China as a free-market economy, which could make it harder to apply anti-dumping tariffs on imports.

Despite pledges by both sides to promote trade in value-added products, Brazilians say several tariff barriers remain on products such as steel, poultry, and processed soy.

“I don’t think they were simply trying to be nice but we’ll have to see in coming months whether they carry through on their pledges,” said Energy and Mines Minister Edison Lobao, who participated in Rousseff’s meetings in China.

Rousseff largely skirted the issue of China’s cheap yuan by saying it was best discussed by the G20 group of major economies.

The currency imbalance, heightened by a rallying real, has fueled a wave of Chinese imports from white goods to car parts and helped erode Brazil’s trade balance.

The issue of contraband Chinese imports, one of the biggest problems facing Brazilian manufacturers, was also not addressed during Rousseff’s visit. Customs officials say boatloads of Chinese goods enter the country with doctored documents, understating price and quantity.

“Much was left undone. They’ll need several more of these summits to build on trust and really unleash the huge potential of this relationship,” said Welber Barral, a former Brazilian trade secretary.