Chinese Prime Minister Li Keqiang held his first meetings on his working visit to Brazil on Tuesday, laying the groundwork for China to invest some $50 billion in Brazilian infrastructure. Li’s three-day visit is part of a larger regional trip that will also include stops in Colombia, Peru, and Chile.
A key objective of Li’s visit will be to advance a $30 billion transcontinental railway linking Brazil’s Atlantic coast to Peru’s Pacific coast, thus avoiding the Panama Canal and making imports to China easier. (Most of the labor would be carried out by Brazilian firms, though Chinese firms may bid on construction of some stretches.) In addition, Li will attend the signing of a number of major agreements, including a $1 billion purchase of passenger aircraft made by Brazil’s Embraer, and a lifting of China’s ban on Brazilian beef exports after a mad cow disease outbreak in 2012. That alone is potentially worth $1 billion for Brazilian beef exporters, notes Reuters.
China has been Brazil’s biggest trading partner since 2009, and Brazil is China’s largest trading partner and investment destination in Latin America. The total volume of their trade reached $86.67 billion in 2014, and Chinese investment in Brazil totaled $18.94 billion by the end of 2014. But due in large part to China’s slowdown in GDP growth, the bumper global demand for commodities that propelled Brazil’s strong growth in most of the first decade of the 21st century has faded. With its economy struggling in the past few years, and its government enacting extremely unpopular fiscal austerity policies, Brazil is very receptive to the huge influx of Chinese investment.
And Brazil is no longer just a commodity-exporter for China; the Brazilian market is now a lucrative one for Chinese companies in many areas. These include consumer appliances, cars, and construction equipment, as well as infrastructure and oil services. Because Chinese FDI into Brazil is more politically palatable than a flood of Chinese imports into the country (which had given rise to protectionist policies in the past), many Chinese firms have set up factories in Brazil. Case in point: Gree, China’s top air conditioner producer was among the first Chinese firms to set up factories in Brazil’s Manaus Free Trade Zone. And after 15 years of development, Gree has reached the top three air conditioner producers in Brazil with an annual capacity of over 300,000 sets and annual sales of $200 million dollars, according to Xinhua.
Chinese loans to Latin America in 2014 totaled $22 billion, more than that of the World Bank and Inter-American Development Bank combined. Brazil received a total of $22 billion in loans from China between 2005 and 2014, according to the Wall Street Journal. And Chinese state-owned developmental and commercial banks have established branches in Brazil’s largest cities, with huge loan portfolios. Just last month, the China Development Bank opened a $3.5 billion credit line for Petrobras, Brazil’s state-run oil firm that is suffering through a massive corruption scandal which is also crippling suppliers and large parts of Brazil’s economy.
So even as China’s economy has slowed, reducing its demand for commodities, its influence has never been bigger in Latin America than now — as the region’s top investor and banker.