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The New Trade Routes

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China’s yuan is kept artificially low
while Brazil’s real
soars. What
are the
implications?

BRAZIL & CHINA


FINANCIAL TIMES SPECIAL REPORT | Monday May 23 2011
Samantha
Pearson
FT.com/brazil­
china­trade­2011

www.ft.com/brazil­china­trade­2011 | twitter.com/ftreports

Drawn into an ever closer embrace


To a large extent, it Shoulder to shoulder:
Dilma Rousseff and
is a relationship of Hu Jintao meet in Beijing
opposites, fraught Reuters

with challenges and has been from a minimal


misunderstandings, base. Today, it comprises 15
per cent of Brazil’s interna-
writes Joe Leahy tional trade.
“Brazil has diversified its

T
his month the exports – it is also a big
vessel that will supplier to Europe. It isn’t
come to define early as if it’s only dependent on
21st century trade China,” says Pamela Cox,
between Latin America and vice-president for Latin
Asia arrived in Guanabara America and the Caribbean
Bay, the picturesque har- at the World Bank.
bour of Rio de Janeiro. That may be so, but with
The Vale Brasil, commis- every new shipload of
sioned by Vale, the Brazil- resources that leaves Brazil
ian miner and the world’s for China, this dependence
largest exporter of iron ore, is set to increase.
is the first of a new breed of Vale says that, while its
bulk carrier, known as the first seven Chinamaxes will
Chinamax. With a capacity come from South Korea, it
of 400,000 tonnes and meas- has ordered the next 12
uring 362m in length and from China. The vessel of
65m in width, this goliath early 21st century trade will
can carry twice as much carry Brazilian natural
iron ore as most vessels resources, but the ship
now plying the route wrote Standard & Poor’s, prise India and Russia. ity wealth. The IMF calcu- The people of both coun- national forums on issues dominant power in Latin itself will be made in China.
between Brazil and China. the credit rating agency, in For Mr Lula, the rise of lates that if commodity tries are painfully ignorant such as the unrest in the America, while China’s For Brazil, the message
Just as the caravel sym- a paper late last year. trade with China provided prices were to moderate to of each others’ customs. Middle East, it is unclear increasing trade with the from the metaphor is clear.
bolised the age of discovery The trading relationship the economic tailwind that 2005 levels, Brazil’s current Unlike most cities in how long this will last. Bra- region is turning it into a China is at the helm of the
and early colonial trade is rapidly being duplicated helped him win re-election account deficit could double Europe and North America, zil is a liberal democracy competitor. But others say global economic super-
between Portugal and Bra- in investment. Last year, in 2006 after this first four- from a comfortable 2.3 per it is difficult to find one that increasingly wants to it may be too soon for Bra- tanker of the future. It is up
zil, the Chinamax encapsu- China became Brazil’s larg- year term and then to pro- cent today to a worrying 5 Chinese restaurant on the uphold human rights, while zil to press the panic button to Brazil to decide what role
lates China’s growing hun- est foreign direct investor pel his protégée, Ms Rouss- per cent. streets of São Paulo. China is authoritarian and on its relationship with it will play in the voyage
ger for the natural for the first time. eff, to office last year. China also represents While Brazil and China brutally repressive of dis- China. While trade between and how it wants to pay for
resources of Latin Amer- China accounted for With billions of dollars other challenges for Brazil. often see eye-to-eye in inter- sent. Brazil wants to be the the two has grown fast, it the ride.
ica’s largest economy. about $17bn of Brazil’s total rolling in from commodities
As these two leading foreign direct investment exports and Chinese invest-
emerging economies draw inflows of $48.46bn in 2010, ments, Mr Lula was able to
each other into an ever up from less than $300m in start a credit-fuelled eco-
closer embrace – one of the 2009, according to Sobeet, a nomic boom in 2009 and
first overseas trips by Bra- Brazilian think-tank on 2010 without having to
zil’s new president, Dilma transnational companies. worry about the current
Rousseff, was to China – This FDI, much of which account deficit.
few doubt that the world is For the first time, the
witnessing the birth of one lower middle classes had
of the great commercial Brazil’s discovery money to spend. At the
relationships of the future. of vast offshore same time, they could sud-
“Brazil will export a lot of denly afford to buy house-
the strategic commodities oilfields is also hold goods thanks to a flood
that China needs and China
will export manufactured
of increasing of cheap imports from
China. For Mr Lula’s Work-
goods and invest in assem- interest to China ers Party, trade with China
bly plans in Brazil,” says provided a seductive for-
Charles Tang, head of the mula for staying in power.
Brazil-China chamber of was channelled through tax “The long Chinese boom
trade and industry. havens such as Luxem- has affected virtually every
But far from being a bourg, was related to com- part of the world. But Brazil
smooth passage, it is a rela- modities and energy. The is arguably the country
tionship that will be biggest transaction was where it has made the
fraught with challenges and Chinese oil major Sinopec’s greatest difference,” wrote
misunderstandings along $7.1bn purchase of a 40 per Perry Anderson in an essay,
the way. It would be diffi- cent stake in Repsol Brazil. “Lula’s Brazil”, in the Lon-
cult to find two large coun- The growing commercial don Review of Books.
tries in the modern world relationship with China was Today, there are growing
that are less familiar with fostered by Brazil’s previ- signs that the honeymoon
each other than China and ous president, Luiz Inácio is over. While Brazil
Brazil or that are more dif- Lula da Silva, a proponent reported a trade surplus
ferent socially, politically of the rise of the so-called with China of $5.2bn last
and culturally. Already Bric nations, which aside year, this was because of
there are growing tensions, from Brazil and China com- commodity exports, accord-
with most of them originat- ing to industry lobby Fiesp.
ing from the Brazilian side. On the industrial front,
While Brazil welcomes Inside imports of manufactured
Chinese demand for its Martin Wolf goods from China rose by
commodities, it is angry at Brazil what Fiesp called a “devas-
an influx of cheap Chinese faces tating” 60 per cent last
manufactured imports that challenges year. The deficit in manu-
it says undermine Brazilian as the factured goods was a record
industry. Brazilia also centre of $23.5bn, up from only $600m
accuses Beijing of closing the global seven years ago.
its market to imports from economy Today, it can be hard to
Brazil and of maintaining shifts find something made in
an artificially cheap cur- towards Asia Page 3 Brazil. About 80 per cent of
rency to make its exports costumes used at Brazil’s
more competitive.
Infrastructure carnival festival this year
Private companies are
“China has a clear posi- trying to improve the were imported, nearly all of
tion on what it wants from system Page 2 them from China: from the
Brazil,” says Geert Albers, more traditional creations
general manager for Brazil Profile Vale’s new chief flaunted by competing
of Control Risks, a consul- will have to steer a samba schools to the less
tancy. “But Brazil needs to difficult course Page 2 traditional Osama bin
clarify somehow what it Laden masks. And it is not
wants from China.” Financial flows only textiles that are being
The speed with which The extent to which made in China. Brazilian
this relationship has devel- Brazil will allow China steel producers suffered a
oped has meant that most to invest in strategic sharp fall in prices last
potential flashpoints are resources is still to be year, which they blamed on
only emerging now. decided Page 2 a sharp rise in cheap
Between 2000 and 2009, imports, mainly from
Brazil’s exports to China Profile China.
rose 18-fold, driven by com- CDB is Brazilian manufacturers
modities such as iron ore the warn the country faces
and soya beans. In 2009,
driving “deindustrialisation” if it
force
China surpassed the US as behind does not introduce more
Brazil’s biggest trading Chinese protection measures in the
partner, accounting for 12.5 investment overseas face of what they call the
per cent of the Latin Ameri- Page 3 dumping of artificially
can country’s exports. cheap Chinese products in
Bilateral trade rose a fur- Profile Hong Kong­ Latin America. Of 144 anti-
ther 53 per cent last year to based ZTE says dumping investigations
$56bn, while Brazil’s trade manufacturing locally started by Brazil in the
with the US increased 30 makes sense Page 4 fourth quarter of last year,
per cent to $45bn. 50 were against China.
When it comes to com- Olympics Lessons to During her recent trip to
modities, Beijing has dis- be learnt from Beijing’s China, president Rousseff
covered that Brazil offers hosting of the games in urged Beijing to accept
something of a one-stop 2008 Page 4 more Brazilian industrial
shop. Latin America’s big- goods. Beijing agreed to buy
gest economy is the world’s Richard Lapper Rise of more regional jets from
largest exporter of iron ore China has enabled Brazil’s Embraer, while a
and of a host of agricultural
Brazil to rise Page 4 Taiwanese company with
products, including coffee, Beyond Brics A extensive operations in
sugar and – of special inter- selection China, Foxconn, said it
est to China – the “soya of related would invest $12bn in a
complex” of beans, oil and stories manufacturing complex in
meal. from the Brazil to make iPods.
Brazil’s discovery of vast FT’s Like the US before it,
offshore oilfields, which are emerging which became addicted to
set to catapult it into the markets Chinese credit and cheap
top ranks of the world’s oil hub Page 5 manufactured goods, some
producers, are also of are arguing that Brazil is
increasing interest to Online Embraer has on course for a full-blown
China. faced difficulties getting economic crisis if it does
“The economic benefits of approval for its aircraft not rein in an excessive
Brazil’s and China’s trade in China spending spree driven
relationship remain high,” by its new-found commod-
2 ★ FINANCIAL TIMES MONDAY MAY 23 2011

The New Trade Routes | Brazil & China

Poor logistics
present a
problem for
partnership
The speed at which trade
Infrastructure between Brazil and China has
grown is even more remarkable,
Private companies are considering the long journey
trying to improve the those Chinese noodles had to
undertake to reach São Paulo’s
transport system, says supermarkets.
Samantha Pearson More than 10,000 miles apart,
China and Brazil are separated
by the Pacific Ocean and the

W
ith its towering red Andes, one of the longest moun-
torii gate and graf- tain ranges in the world.
fiti of girls in kimo- Brazil’s infrastructure is also
nos, the neighbour- creaking under the strain of
hood of Liberdade in São Paulo the country’s rapid economic
looks like most Japanese out- growth, presenting further
posts around the world. difficulties for importers and
But over the past few years, exporters.
packets of seaweed have been “The cost of logistics is huge
pushed aside to make room for in Brazil,” says Richard Dubois,
Chinese noodles on supermarket infrastructure partner at PwC in
shelves, and Mandarin voices São Paulo. For example, it is
now fill the crowded streets. more than three times as expen-
“It was mostly just the Japa- sive to transport soyabeans,
nese here before, but then the Brazil’s second-biggest export to Insatiable demand: trucks carrying soyabeans line up on the highway to the port of Paranagua Reuters
Chinese came and starting buy- China, overland in Brazil than it
ing everything,” says Jessica is in the US, he says. the country’s more enterprising the country is capable of mov- traversing Latin America east to dangers of making too many
Chen, a Taiwanese shopkeeper “It is the same for almost companies, and even the Chi- ing 43,000 tons of iron ore an west is expected to be completed sacrifices, as Brazil opens the
in the district who moved to every other commodity,” he nese themselves, to take matters hour. this year, giving Brazil access doors to its new top trading
Brazil in 1982. “It won’t be long says, adding that the main prob- into their own hands. This month, Vale also for the first time to Pacific ports partner.
before China dominates the lem is the lack of rail networks As a result, a handful of ambi- announced that it had received and helping to link the country The low cost of many Chinese
world,” she says, laughing. and the poor quality of roads. tious construction and infra- delivery of the world’s largest closer to China and other Asian imported goods has been blamed
It is not uncommon to hear Brazil’s railways have seen structure projects have sprung iron ore carrier, a ship the economies such as South Korea for crushing some parts of Bra-
people in Brazil talking about some improvement since the up across the country over the length of about four football and India. zil’s domestic industry, while
the growing Chinese presence in national system was privatised years, increasing pressure on pitches, costing the company Meanwhile, one of the favour- the new highway across Peru
the country as an invasion. in the late 1990s, but still only the public sector to catch up. $748m and made in South Korea. ite points of entry for Chinese risks encouraging deforestation
Looking at the government’s about a quarter of the country’s “The exception to the high Eike Batista, Brazil’s richest goods coming into Brazil as it gives ranchers access to
foreign trade data, it is easy to cargo transport went by rail last transport costs is iron ore, man, together with China’s remains Manaus, the Amazo- more of the forest.
understand why. year, forcing exporters on to the because Vale created its own Wuhan Iron & Steel and South nian city whose duty-free status The challenge now for Brazil’s
Brazil sent $30.79bn of exports roads. railway and port infrastruc- Korea’s Hyundai Heavy Indus- helps keep costs low. president, Dilma Rousseff, is to
to China in 2010, almost 30 “There is also the question of ture,” says PwC’s Mr Dubois. tries, are also building Açu “The product arrives in pieces find ways of making the most of
times as much as a decade ear- the bottlenecks at the ports,” Vale, the world’s largest iron superport, which is set to be the and then it’s assembled in the China’s demand for commodi-
lier, when it exported only says Otávio Nese of the Project ore miner, has laid about largest in the Americas on com- free-trade zone in Manaus to ties while leaving a positive
$1.09bn worth of goods. Over Management Institute’s Brazil 10,000km of track across nine of pletion. make the most of the tax exemp- legacy for the country.
that 10-year period, imports division. “There has been a lack Brazil’s 26 states, and is now The project, off Rio de tions,” says Raphael Martello, “Brazil has to watch carefully
from China also surged more of investment as well as a lack responsible for transporting Janeiro, is expected to attract an economist at Tendencias how this evolves,” says Sérgio
than 20-fold to $25.60bn. of long-term planning.” ‘There is also about 16 per cent of Brazil’s up to $40bn in total investment Consultoria in São Paulo. Amaral, former minister of
Once a relatively obscure However, there are some the question of total rail cargo. and should serve both miners “Most of the goods from China development, industry and for-
force in Brazil, China is now its exceptions to the poor state of The Rio de Janeiro-based com- and oil companies. come in bits and then they’re eign commerce.
biggest trading partner after Brazil’s transport infrastruc- the bottlenecks pany has also built nine port Efforts are also being made to assembled there.” “It’s important we understand
knocking the US off the top spot
in 2009.
ture. China’s insatiable demand
for commodities has led some of
at the ports’ terminals. Its Tubarão port
complex in the south-east of
improve road networks.
The inter-oceanic highway
However, economists and
environmentalists warn of the
the contribution China is mak-
ing to Brazil.”

Mining giant Commodities are central to


must keep defining the relationship
government Financial flows
Ties between the
about $300m in 2009, accord-
ing to analysis by Sobeet, a
Brazilian think-tank on
multinational companies.
external affairs. I do not
want to create an incident,”
the minister of agriculture,
Wagner Rossi, told the FT
suspicious of Chinese
investment, it needs addi-
tional inflows of longer
term financing to help fund

onside two are only going Mergers and acquisitions in an interview earlier this its growing current account
contributed $12.53bn of this year. “Some of these coun- deficit.
to strengthen, total, Dealogic, the data tries are great partners in At about 2.3 per cent of
says Joe Leahy company said. Aside from
the Repsol deal, these
other areas, but having
them buying land in Brazil
gross domestic product, this
is not yet alarming. But if
included a $3.07bn invest- creates some sort of sover- commodity prices were to
ore and one of Brazil’s When Repsol sold a 40 per ment by Sinochem, a Chi- eign risk for us. This is not ease, the current account
Profile largest companies. If it cent stake in its Brazilian nese state-run group, in oil part of our plan and we are deficit could deteriorate
Vale were not for Vale’s exports,
the Latin American
arm to Chinese rival
Sinopec last year, the Span-
and gas assets in Brazil’s
Peregrino Field.
not going to allow that.”
In recent months, China
rapidly, leaving Brazil on
the verge of a debt crisis.
The new chief will country would have run a
trade deficit last year
ish oil producer says the
deal would create one of
Another Chinese group,
East China Mineral Explo-
has indicated it is prepared
to diversify its investments
Many believe that for this
reason, financial relations
have to steer a rather than its $20.3bn Murila Ferreira: new man at the helm of Vale Bloomberg Latin America’s largest ration and Development into Brazil beyond the between Brazil and China
difficult course, says surplus.
However, the sheer size revenues, with 29.7 per highest-quality iron ore
energy companies. The deal
was a sign of things to
Bureau, invested $1.22bn in
Itaminas Comercio de Mine-
resources and agriculture
sectors. During a visit to
are only
strengthen.
going to

Samantha Pearson of Vale has proved to be cent coming from China. and copper reserves. come, as Brazil began the rais, a mining company, China by President Dilma A key part of this could
the company’s biggest The company’s insistence “The problem, like with exploitation of the recently while State Grid Corp of Rousseff in April, Foxconn, be achieved through
challenge. The miner’s on building many of its all projects in Africa, is the discovered oil and gas China spent $1bn in an elec- increasing the use of
With its own 10,000km American depositary cargo ships in Asia rather political risk they face – reserves in the basins off its tricity grid deal. China’s currency, the ren-
railway network, nine receipts are trading at up than Brazil also made Mr not only with the local south-eastern coast. Investments by Chinese Having countries minbi, in trade with Latin
private port terminals and to a 30 per cent discount to Agnelli few friends in the government, but also with “Brazil’s offshore boasts companies in previous buying land in American economies. This
revenue last year that was its peers, partly because of government. the tribes,” says Bernardo one of the world’s fastest- years include a $362m could be done by replacing
bigger than the gross concerns that Brazil’s This month, Vale Lobão, an analyst at Studio growing oil and gas anchor investment by Brazil creates some the dollar with a basket of
domestic product of
Bulgaria, Vale appears
government will not sit by
and let such a strategically
announced that it had
received delivery of the
Investimentos.
In April last year, Vale
reserves,” Repsol said at
the time. “The deal high-
Wuhan Iron & Steel in
MMX Mineracao e Metalicos
sort of sovereign currencies that
include the renminbi.
would

more like an empire than important company follow world’s largest iron ore bought a mining lights the enormous inter- a Brazilian miner. risk for us Fernando Pimentel, Bra-
a company. its own path. carrier. Despite its tactfully concession in Guinea for national interest in this For Brazil, these invest- Wagner Rossi, zil’s trade minister, said
The Rio de Janeiro-based Murilo Ferreira took over nationalist name, Vale $2.5bn, giving it access to historic moment for Brazil.” ments were at first wel- Minister of agriculture after meeting Mr Chen: “We
miner is the world’s this month as Vale’s chief Brasil, the ship was made Simandou, which is Repsol could have just as come. But increasingly, mentioned to the minister
biggest producer of iron executive, replacing Roger in South Korea and will considered the world’s easily have swapped the they have become a source the importance of beginning
Agnelli, who was in effect help shift even more richest undeveloped deposit words “international inter- of concern for policymak- a Taiwanese company with a discussion in interna-
forced out by the chunks of Brazil to China. of iron ore. est” for Chinese interest. ers. When rumours sur- extensive operations in tional forums about the
government. Investors are However, analysts have However, the project was While every country in faced last year that Chinese mainland China, promised necessity to change the
Contributors waiting to see if the taken a relatively relaxed thrown into uncertainty the world wants to invest in government-backed compa- to invest $12bn in Brazil in international monetary
Joe Leahy company’s loyalty remains approach to the after Guinea’s transition to Brazil’s natural resources nies were looking at buying a facility to make Apple standard.”
Brazil Correspondent with its shareholders or is civil rule late last year. and agricultural industry, up tracts of Brazilian farm- products. Many analysts believe
shifting to the state. Vale also faces the few are keener than energy- land, the government drew Mr Chen’s delegation that the sooner Brazil real-
Jamil Anderlini “It’s too early to tell for One of the challenge of building the deficient and food-hungry the line. Reinterpreting an sought to strengthen this ises that its financial des-
Beijing Bureau Chief sure, but I don’t think government’s main ports and railways to China. existing law, it introduced impression with promises tiny is tied to China’s, the
much will change. They access the reserves, as it This interest led China to restrictions on FDI invest- that Geely, a Chinese small better. Once Brazil starts
Samantha Pearson
Brazil Reporter have so many big complaints has has done in Brazil. become Brazil’s biggest for- ment in farms. car maker, might build a producing oil from its off-
investment projects on the
go that will double the size
been that Vale is Geographically, it would
make more sense to build
eign direct investor last
year, a position that is only
These laws were ostensi-
bly not directed at China.
plant in Brazil. But he
stressed that Brazil must
shore “pre-salt” fields, its
currency will become even
Kathrin Hille
Beijing Correspondent of Vale. I’ll think they’ll turning its back a railway through Liberia expected to grow. But like Brazil was also concerned keep its side of the bargain more linked to commodities
just get on with it,” says to the coast but that could other aspects of the Brazil- that sovereign wealth funds by reducing the cost of and energy prices.
Martin Wolf Pedro Galdi, a mining
on Brazil prove difficult because of China relationship, the two or companies backed by doing business in the coun- China will be one of the
Chief Economics analyst at SLW Corretora. political instability. countries will have to agree other governments were try, such as by streamlining main buyers of these prod-
Commentator The government retained management shake-up, For this reason, analysts on what form this new part- buying farmland. But the its notoriously sluggish ucts, meaning that it will
Richard Lapper
a majority stake in Vale partly because the shares believe the mining giant nership will take – in partic- main target is believed to ports and improving its make sense for Brazilian
Editor, Brazil Confidential after it was privatised in are cheap and the will focus on exploiting ular, how far Brazil will be have been China. logistics. and Chinese companies to
1997, but grew increasingly fundamentals of the iron Brazil’s reserves first, such willing to let China invest “I am not the minister of While Brazil might be trade in renminbi and even-
Tom Griggs frustrated at how the ore market remain very as the south side of the in its strategic resources tually to save in renminbi.
Commissioning Editor company was run under attractive. Carajás mine in the and agricultural land. Brazil will become part of
Mr Agnelli and earlier this The choice of Mr Amazon region. “There is a big interest a “renminbi block” of coun-
Steven Bird year put enough pressure Ferreira, a discreet and But Vale’s empire is among Chinese executives tries that use the Chinese
Designer on the remaining technically minded former likely to keep expanding, in investing more in Brazil. currency to trade.
shareholders that his executive of Vale, also says Mr Galdi at SLW. There has to be an environ- Tony Volpon, head of
Andy Mears
Picture Editor contract was not renewed. came as a relief to most “Vale has huge cash ment favourable for foreign Latin America research at
One of the government’s investors, who had feared reserves, so it could look investment. That way we Nomura, says: “Pre-salt oil
For advertising, contact: main complaints has been someone directly linked to for acquisitions to can create more jobs in is one big thing that is
John Moncure on: that Vale is turning its the government might be reinforce its position in the Brazil,” said Chen Deming, going to happen in Brazil in
+1 212 641 6362; back on Brazil by put up for the job. world, perhaps in the area China’s trade minister, the next few years and it’s
fax: +1 212 641 6544; exporting ever more iron In fact, Vale’s real of fertilisers,” he says. during a visit to Latin going to double down on
e­mail: ore to China rather than problem with politics lies “It depends what comes America’s biggest economy the China bet:
john.moncure@ft.com developing a domestic steel across the Atlantic Ocean up, but with the crisis in in May. “If you think the Brazil-
or your usual industry. in Africa, where the the eurozone, there are China accounted for ian real is a commodity
representative In the first quarter of company competes with some interesting about $17bn of Brazil’s total currency right now, wait a
this year, Asia accounted Chinese groups to tap opportunities around,” foreign direct investment of couple of years – it’s going
for about half of Vale’s some of the world’s Mr Galdi says. $48.46bn in 2010, up from Deep well: China wants access to Brazil’s oil Getty to be much worse.”
FINANCIAL TIMES MONDAY MAY 23 2011 ★ 3

The New Trade Routes | Brazil & China

Manufacturing at risk from global shift to Asia


middle of the last decade decade to 46 per cent in comes via its role in what trade; it has played a role
and 15 per cent in 2010. the 12 months up to and Guido Mantega, Brazil’s in improving the country’s
In 2002, the US market including April 2011. If one finance minister, described terms of trade; and it has
absorbed as much as 26 adds in semi-manufactured last year as an probably played a
per cent of Brazil’s exports. products, the share reached “international currency significant role in the
By 2010, the US market 60 per cent. Meanwhile, the war”. With advanced appreciation of the
share was down to a mere share of manufactures has economies experiencing Brazilian real exchange
Martin Wolf 10 per cent. The share of tumbled from 58 per cent low interest rates and rate, as well.
the Chinese market in of exports at the beginning financial worries, money is For Brazilian
The centre of the global Brazil’s exports is not so of the 2000s to just 38 per pouring into emerging policymakers the challenge
economy is shifting far below that of the entire cent in the 12 months to economies that have bright ahead is to position their
towards Asia. This European Union, which April 2011. prospects. China’s massive country to benefit from the
presents both new absorbed 21 per cent of The shift in the currency interventions much improved trading
opportunities and new Brazil’s exports in 2010, composition of Brazil’s deflect the impact of that opportunities, while
challenges for established down from close to 25 per flow towards other preventing excessive
high-income countries and cent in 2007. countries, including Brazil. shrinkage of the country’s
for emerging economies, The US and the China’s rise has The swings in the real manufacturing industry.
such as Brazil. European Union have already had a big value of Brazil’s currency Brazil is never going to
In Brazil’s case, the dominated global trade have certainly been large. be competitive in exports
opportunities are evident, negotiations for decades impact on Brazil Between May 2004 and of labour-intensive
because China’s
comparative advantage in
because their markets were
far bigger than those of
and is likely to have April 2011, Brazil’s trade-
weighted real exchange
manufactures. But, being a
large middle income
manufacturing is other economic powers. an even bigger one rate calculated by country, it must manage to
complementary to Brazil’s This is true no longer. JPMorgan rose by 119 per expand its presence in
relative advantage in Yet the impact of China cent, while China’s real sophisticated
commodities. on Brazil is not just a exports went hand in hand exchange rate appreciated manufacturing.
But the challenges to matter of scale, important with a big improvement in by just 20 per cent over The pressure from a
Brazil are quite as big as though that is, but also of the country’s terms of the same period. rising China is bound to
the opportunities. The composition. trade – the price of its Brazil has been losing become more ferocious.
dynamic source of demand China has an open, large exports relative to its external competitiveness to Nor is China the end of
for Brazilian commodities and fast-growing economy. imports. a startling and disturbing the story. India is also
is a good thing, but But it is also a middle- Thus, in March 2011, its degree. likely to become a growing
deindustrialisation is not. income country with a terms of trade were 30 per In short, China’s rise has source of competition for
The speed and scale of huge supply of cheap cent about their average already had a big impact Brazilian companies.
China’s rise is labour. Its arrival as a level since the beginning of on Brazil and is likely to But this is a challenge
breathtaking. In 1990, its global economic power has the 1990s, and 34 per cent have an even bigger one in Brazil has to meet if it is
share in world been shifting the pattern of higher than in early 2003. the years ahead: it has to generate the sustained
merchandise trade (the global trade and The final impact of shifted the direction and rise in incomes its
sum of exports and production: in particular, it China on Brazil’s trade composition of Brazil’s population needs. Eastern approaches: China is a far more important market for Brazil than the US Reuters
imports) was just 2 per lowers the prices of
cent. In 2000, it was below relatively labour-intensive
4 per cent. By 2010, it had manufactures and raises
reached 10 per cent. those of commodities.
Its share of world These twin effects of
exports had risen even China’s entry into the
faster than this, from world economy are also of
below 2 per cent of world huge importance for Brazil.
merchandise exports in Thus the most striking
1990 to close to 11 per cent feature of Brazilian trade
in 2010. is the shift in its
Amazingly, China is composition towards a
already a far more pattern one would
important market for normally associate with a
Brazil than the US. The rather less advanced
share of the Chinese economy. The share of
market in Brazil’s primary commodities in
merchandise exports the country’s exports has
jumped from 2 per cent in soared from 22 per cent at
1990, to 5 per cent in the the beginning of the last

Lender with a
global reach
Together with the much
Profile smaller China Export-
CDB Import Bank, CDB has lent
more to developing
Jamil Anderlini on countries over the past two
years than the World
the bank’s role in Bank, according to
the drive overseas Financial Times research.
The two “policy banks” –
as they are called in China
When the Chinese – signed loans of at least
government agreed in May $110bn to other developing
2009 to lend $10bn to governments and
Petrobras in exchange for companies in 2009 and
a guaranteed supply of oil 2010, compared with
over the next decade, $100.3bn lent by the
China Development Bank equivalent arms of the
was in charge of handing World Bank from mid-2008
over the cash. to mid-2010.
In almost every large Unlike most of its state-
deal involving preferential owned financial institution
Chinese loans to foreign peers, CDB does not
governments or companies, answer to the country’s
CDB is at the top of the banking regulator, but
list of Chinese financial reports directly to the state
institutions distributing council, or cabinet.
the funds. This special status,
While CDB is combined with the
theoretically supposed to personal political power
lend money based on wielded by Mr Chen has
commercial considerations, allowed the bank to do
these often seem to come things that other Chinese
second when it extends lenders can only dream of.
mega-loans to the likes of In mid-2007, CDB took a
Russia, Venezuela and 3.1 per cent stake in
Brazil in exchange for Barclays Bank as part of
guaranteed supplies of oil. an even more ambitious
Other favoured recipients plan to fund Barclays’
of CDB funding are such unsuccessful takeover bid
for much of ABN Amro
Under Chen and take a nearly 10 per
Yuan, CDB is cent stake in the combined
one of the entity.
world’s most Even as the global
powerful financial crisis gathered
banks pace in mid-2008, CDB
made another aggressive
attempt to buy Germany’s
state-owned groups as Dresdner Bank, although
PetroChina and Chinalco, that plan fell through
which are attempting to when China’s top leaders
“go global” by acquiring became worried about
overseas companies and spreading financial
assets. contagion.
China’s outbound foreign Similar concerns stopped
direct investment reached CDB from taking a huge
$220bn in the five years stake in Citigroup, as the
between 2006 and 2010, US financial group
according to government desperately sought fresh
figures. sources of funds.
That is close to 10 times While it did not
the total cumulative $26bn achieve its goal of global
that Chinese companies domination through
had invested in 150 offshore acquisition, the
countries at any time up bank has become an
until the end of 2005. integral part of China’s
Most of the new increasingly influential
investment was funded by foreign policy strategy,
preferential loans from particularly in
state-owned Chinese banks developing countries in
with CDB leading the way. Africa, Asia and Latin
Under the charismatic America.
leadership of Chen Yuan, The CDB is not
the CDB’s chairman – the publicly listed and rarely
“princeling” son of a releases any figures, but
Communist Party founding some analysts believe it
father – the bank has has also served as a
morphed from a piggy conduit for some of the
bank for state construction country’s $3,000bn in
projects such as the Three foreign exchange
Gorges dam into one of the reserves to be lent out to
world’s most powerful state companies that are
financial institutions. expanding abroad.
4 ★ FINANCIAL TIMES MONDAY MAY 23 2011

The New Trade Routes | Brazil & China

Telecoms manufacturer makes move to Latin America


investment, sources familiar such as handsets and data first part of the factory, which ZTE also intends to continue in terms of networks and
Profile with the situation put it at cards. Last year, its turnover will focus on handsets, ready its co-operation with Evadin, terminals,” says Mr Avila.
ZTE several hundred million US
dollars.
was Rmb70.3bn.
Analysts emphasise that
to start production within six
months.
its contract manufacturing
partner, for certain devices
Worldwide, ZTE ranks fifth
among network infrastructure
The HK­listed group “Our plant will serve as
ZTE’s base for Latin America
despite the distances involved,
manufacturing in China for the
A second phase is planned to
become operational in late 2012
even as its own factory begins
operations.
vendors behind Ericsson of
Sweden, its Chinese peer
finds it makes sense to and will employ more than South American market would or early 2013. That part will Strong demand is driving the Huawei, Nokia-Siemens
have a local factory, 2,000 people,” says Eliandro
Avila, chief executive of ZTE
still be more cost-effective for
most technology products.
produce network infrastructure
gear such as routers.
expansion in Brazil. This year,
the company said its standing
Networks, and Cisco. It is also
one of the world’s top five
writes Kathrin Hille Brazil. However, Brazil’s high import Apart from production, ZTE’s in the country had been raised handset vendors.
That is a big expansion from tariffs are starting to force industrial park will also considerably, following a Like Huawei before, it has
When Dilma Rousseff, Brazil’s the company’s current presence Chinese companies to expand include research and “significant sales boost” driven been outgrowing some of its
president, visited China last in South America. So far, ZTE in the country. development. Some 200 of the by large-scale contracts for western rivals such as Nortel
month, she signed 20 bilateral has only got a sales force on “Basically, our products cost Brazil-based employees are to wave-length-division and Alcatel-Lucent and steadily
trade and investment deals. the ground, and has some local an average 70 per cent more work in a new R&D centre, one multiplexing, a technology that rising through the global
Among the big-ticket items contract manufacturing done when imported,” says Mr Avila. Our plant will serve of 15 worldwide, with a total combines different carrier industry’s ranks.
was a commitment by ZTE, by Evadin, a Brazilian He adds that the main as ZTE’s base for headcount of 30,000. signals on to one optical fibre. If ZTE’s ambitious Brazilian
China’s second-largest telecom company. advantages of setting up shop For the time being, ZTE’s Last year, the company plans work out, there might be
equipment maker, to build an However, “Brazil represents locally include incentives Latin America and will Brazilian operations are likely launched a low-cost cell phone space for other manufacturers
industrial park in Hortolândia,
close to São Paulo.
50 per cent of the South
American market,” says Mr
provided by the government
which allow the company to
employ more than to rely heavily on Chinese
staff. Twenty per cent of the
with digital television through
Vivo, the Brazilian operator, in
to follow.
Although the Chinese
Although ZTE, a state- Avila. avoid high import taxes. 2,000 people 2,000 are expected to come the Latin-American market. company says its own factory
controlled company listed in ZTE is one of the world’s Construction of ZTE’s facility Eliandro Avila, from Shenzhen, the company’s Therefore, ZTE has big will be the only one in its
Hong Kong, refuses to put a leading makers of telecom is well under way, and the ZTE Brazil headquarters in southern ambitions. “Our goal is to be facility for now, it is setting up
figure on its planned total infrastructure gear and devices company plans to have the China. among the top three companies an entire industrial park.

Material demand
shaped economy
of regional giant
Guest Column
RICHARD LAPPER
Brazil’s growing consumer markets
and resource-rich economy make it
impossible to ignore at the high
tables of international business. Yet
the country’s dynamic image hides
an uncomfortable truth. None of its
economic transformation of the past
decade or so would have been
possible without the rise of China.
Brazil’s democratic consolidation,
social progress, and consensual
commitment to economic stability
may be deep-rooted and home-grown,
but, without the turbo-charged
economic expansion of China, its ‘Ching lings’ can take many sim cards
economic fortunes could not have
improved as quickly. China matters loudspeakers. But the results have
to Brazil for two reasons. been mixed. For example, tariffs
First, its demand for iron ore and were imposed on shoe imports in
soya is fuelling the development of 2009. But although the import
Brazil’s two biggest export sectors. numbers have subsequently fallen,
The same could happen also with oil, the Brazilian Footwear Association
as Brazil organises the exploitation says that the rise in imports from
of its giant offshore reserves. other Asian countries reflects the
Second, Chinese – and Asian fact that Chinese exporters are
demand more generally – is the simply rerouting sales through third
fundamental reason for the sharp countries.
upward movement in commodity There are concerns, too, that
prices in recent years. considerable quantities of cheaper
Octavio de Barros, the research Chinese products are being smuggled
director of Bradesco, Brazil’s in through neighbouring Paraguay.
second largest bank, says that the Giant semi-formalised markets in
shift in the terms of trade has been Brazilian cities are stuffed full of
the foundation stone of the counterfeit telephones, fashion items,
transformation. It provided a $100bn DVDs and watches, the vast majority
windfall that has “saved the of which are made in China.
country” from the debt crisis at the In a recent survey of 300 mobile
beginning of the century and made telephone users, Brazil Confidential,
possible the social spending – on the the Financial Times’s premium news
bolsa familia social plan and the and analysis service, found that one
minimum-wage legislation that have in 10 Brazilians had bought so-called
underpinned social improvement. ching lings – pirate phones that can
Brazil’s dependency has – in Mr De be fitted with up to four SIM cards
Barros’ words – been “chemical”. Yet (a facility that allows consumers to
the danger is that it could also benefit from discounts offered by
become corrosive. Of late, multiple operators and therefore
policymakers have begun to worry reduces overall costs).
about the impact of Chinese imports Brazilian manufacturers face
Generation game: Joao Havelange, Fifa honorary president, is shown a model of the Olympic Village for Rio 2016 Getty and manufacturing investment on additional challenges on another
local industry. front, as China channels growing

Olympics and World Cup


They fear it could be contributing quantities of direct investment into
to a hollowing out of the industrial
infrastructure and accelerating a
reorientation of the economy back There are concerns that
towards raw materials. quantities of cheaper
Chinese imports are still

require a robust approach significantly less than Brazil’s


exports to China. Last year, Brazil
recorded a positive trade balance of
about $5bn after registering a
surplus of about $4bn in 2009. But its
Chinese products are
being smuggled in through
neighbouring Paraguay
try such as China could pull off the the whole world,” says Wang Haiping, The lesson for Brazil will be not to exports are heavily biased towards
Sport kind of spectacle it did, while manag- deputy director of Beijing’s city plan- get too ambitious with the “optional commodity products. the country. A good deal of this
ing to ignore the colossal waste and ning department, who was speaking extras” when it comes to preparing The installations at giant open-pit capital is earmarked to guarantee
There are lessons to be upheaval that went with it. at a press conference just before the for the World Cup and Olympics. mines in the Amazon state of Pará, supplies of raw materials and is
learnt from Beijing’s Tens of thousands of people were
relocated just to make way for the
Games kicked off.
“Even if we did not host the Olym-
Just ensuring that the core venues
are ready on time and within budget
railway lines to Atlantic ports and
the ore carriers that ship the metal
frequently in partnership with local
operators.
hosting of the 2008 Olympic green and stadium complex pic Games, we would still do this. We will be a hard enough task and, in a constitute nothing less than a giant Wuhan Iron and Steel plans to
Games, reports and countless more were shifted from
their homes in the complete makeover
can only say that the preparations for
the Olympic Games have sped up our
democratic country with a relatively
free media, any extravagant and
conveyor belt between Brazil and
China. So do the clogged roads that
work with Eike Batista, the
entrepreneur, on plans to produce
Jamil Anderlini of Beijing that preceded the Games. pace of city planning, development expensive plans that fail to meet link the soya fields of the centre- steel. China’s development bank has
While many were content to move and construction.” expectations will prove far more west with Paranagua port: two-thirds loaned $10bn to Petrobras, the state

I
n the centre of Beijing’s spectac- to modern apartments and accepted The pace of construction in the politically costly than they did in of all Brazilian soya went to China oil concern, while two Chinese
ular “bird’s nest” Olympic sta- the compensation given by the gov- run-up to the August 8 2008 opening China. in 2010. groups – Sinochem and Sinopec –
dium four or five Chinese tour- ernment, many others were unhappy ceremony was indeed frenetic and Another lesson from Beijing is the By contrast, Chinese exports to have agreed joint ventures to exploit
ists beetle slowly along the run- at being evicted but were given little with the full might of the state behind problem of rampant corruption. Brazil tend to be manufactured offshore fields.
ning track on rented imitation Seg- choice and in some cases were even it, the programme was completed well Right next to the Olympic green items. Low value-added items such However, in other areas, Chinese
way scooters or negotiate small removed by force. ahead of schedule. and the bird’s nest stadium is a row of as footwear and clothing all figure businesses are potentially competing
obstacle courses set up next to the The city went into overdrive in the tall white towers culminating in one prominently. Overall, Chinese with local companies.
long-jump pit. years leading up to the Games, which taller building, shaped at the top like exports grew from a few hundred For example, machinery
The forlorn scene on a recent Mon- were viewed by the Communist Party Just ensuring that the an Olympic torch with a gravity- million dollars in 2000 to $20bn in manufacturers, such as Sany Heavy
day afternoon is a far cry from the as the ultimate international coming- core venues are ready defying lick of flame protruding into 2008. Between 2006 and 2008, the Industries, car companies and
images of the 2008 Olympic Games out party and an unparalleled propa- space. number of pairs of Chinese shoes motorbike makers have all set up
playing out on giant screens 100m ganda opportunity to convince its sub- on time and within budget This row of buildings was also imported into Brazil more than operations in Brazil.
above the tourists’ heads.
The footage of Usain Bolt smashing
jects of the benefits of one-party rule.
Beijing budgeted more than
will be a hard enough task empty when the Games kicked off and
today houses a “seven-star hotel” that
doubled to 34m pairs, for example.
But Chinese companies are also
Not surprisingly, perhaps,
industrialists want tougher action.
the world 100m record is proof to the Rmb280bn ($43bn) for the building of appears not to have any occupants. exporting more complex products Paulo Skaf, the head of the São
trickle of people willing to pay Rmb50 Olympic venues, as well as upgrades The contract to develop this project such as machine tools and Paulo Federation of Industries, goes
to step inside the stadium that the for urban transport, energy and water But many of the auxiliary facilities on the choicest bit of real estate avail- equipment, often competing directly as far as to argue that China
place really has been filled to its infrastructure and widespread tree – such as apartment blocks, shopping able in the run-up to the Olympics with local manufacturers. For “benefits much more” than Brazil
91,000 capacity at least once since it and flower planting to turn the dusty malls, subway lines and hotels – that was originally granted by Liu Zhihua, example, China supplied 12.9 per from the relationship and that for
was completed early in 2008. capital green. were supposed to be finished in the vice-mayor of Beijing in charge of cent of THE machines and Brazil the “risks are much greater
Today, the stadium is home to a Without a free press or any kind of time for the Games were not Olympic construction, who was equipment imported in 2010, a rise than the opportunities”.
procession of increasingly eccentric electoral oversight, the government completed until well after the opening detained in 2006 in a corruption scan- from only 2.1 per cent in 2004, And even within the government
attempts to recoup some of the $423m faced little outside scrutiny over the ceremony. dal. according to Brazil’s capital goods there is a recognition that despite its
it cost to build – most recently an enormous expenditure and the demoli- Some are still not ready even now. Mr Liu was found guilty of taking industry association. broader benefits, Brazil’s engagement
equestrian riding display that drew tion of most of the ancient neighbour- The iconic China Central Television bribes and handing huge construction The strength of the real in the past with China has an unpalatable
little interest from the public. hoods that gave the city its unique building, designed by Rem Koolhaas, projects to his numerous mistresses two years has added to concerns, dimension.
As Brazil gears up to hold the 2014 character. a Dutch architect, was supposed to be and was given a suspended death sen- because it has made Chinese products Fernando Pimentel, the minister of
football World Cup and the 2016 Olym- But the greening of the city and the operational in time for the Games, but tence in 2008, later commuted to life much cheaper relatively than their development, industry and
pic Games, officials are no doubt stud- improvement in public transport and it was still under construction in in prison. Brazilian counterparts. The number commerce, is heading a working
ying the experience of Beijing’s Olym- other infrastructure were clearly February 2009, when a fire gutted an Given the scale of investment and of Brazilian companies importing group looking at the issue. But he
pics and trying to work out how to appreciated by many of the city’s resi- adjacent structure, built to house the the opportunities for corruption from China rose by 24 per cent from has been quick to recognise that
recreate the successes and avoid the dents. Mandarin Oriental hotel. presented by Brazil’s big coming 9,267 in January-February 2010 to China inflicts “harm on Brazilian
pitfalls of the 2008 extravaganza. “This type of infrastructure con- Reconstruction on the blackened events, the government of Dilma 11,469 in the same period of 2011. manufacturing”.
The Brazilian committees will struction is what Beijing wanted to shell has only just begun and the Rousseff would do well to heed the This has prompted alarm. Tariffs
almost certainly conclude that only provide to benefit the residents and CCTV building next door remains lesson of the corrupt Mr Liu and his have been imposed on items ranging The writer is editor of
an authoritarian undemocratic coun- the citizens of the whole nation and largely empty to this day. construction concubines. from shoes and textiles to Brazil Confidential.
FINANCIAL TIMES MONDAY MAY 23 2011 ★ 5

The New Trade Routes | Brazil & China

A strong currency is government’s best friend Possible


The trouble with high rates is they credit, currently expanding at a rate weak “currency measures” – the real the fight against inflation, and you
U­turn
Interest rates
Jonathan Wheatley asks
drive the currency higher and that
hurts competitiveness – hence the
whole currency war. But you cannot
of 22 per cent a year – the
government reckons 12 to 15 per cent
would be “adequate”.
burst through the R$1.60 barrier
against the US dollar and kept right
on going. It now looks likely to settle
have a popular revolt. Give up on
investment, and the World Cup and
the Olympics will be disasters for a
over price
whether a muscular real
may not be beneficial to the
have everything and, with inflation
pushing higher, Brazil appears to
have decided that the strong real is
And what about inflation? The
central bank’s weekly survey of about
100 market economists has it above
into a new band of R$1.55 to R$1.60 –
not far from where it was in pre-crisis
days. So far, the government has not
start – and never mind all the other
infrastructure needed irrespectively.
Give up on competitiveness –
controls
country’s economy after all its friend, after all.
With consumers paying 238.3 per
six per cent by year-end. The survey’s
five top-rated economists say it will
reacted.
What is the pay-off? The
well . . . Who will be hurt? What
commodities exporters lose on the
cent a year for credit card debt, it is be 6.4 per cent. Not only is inflation government has three macro currency, they regain in part from Commodities
Another day, another macro- hard to see how an extra 1.5 points way above the government’s 4.5 per priorities: low inflation, investment, rising prices. What manufacturers lose
prudential measure from Brazil. In will make much difference. But as cent target. It is threatening to breach and competitiveness. All of those can in competitiveness, they regain in Jonathan Wheatley
early April, Guido Mantega, finance
minister, announced a doubling in the
Tony Volpon at Nomura points out,
the measure may curb supply of
the upper limit of its two percentage
point tolerance.
be addressed by micro-prudential
measures: overhauling the tax system
part on the components they import.
A stronger real will hurt, no doubt
looks at the meaning
tax due on personal loans, from 1.5 to credit (rather than demand) because The government has been right to and the labour code, improving public about that. But perhaps not that behind a statement
3 per cent a year. Measures like this
have let Brazil reduce its reliance on
wider spreads provoke more defaults,
so banks may lend less.
look beyond interest rates for ways to
fight inflation. Now, it seems, its
education, and so on. Fat chance.
If you limit yourself to monetary
much. In the fight against inflation, it
is the government’s friend. And right
from Brazil’s finance
high interest rates, formerly its only In any event, it does not look like reach has embraced the currency policy and macro-prudential measures, now, the government needs all the minister about
weapon against inflation. this will slam the brakes on consumer itself. The day after the surprisingly you cannot have all three. Give up friends it can get. commodity regulation

Scramble beyondbrics
One of the few points of
substance to come out of the

for oil in
Brics summit was a statement
calling for regulation of
The FT’s emerging markets hub commodities prices.
Bringing together news and views from over 40 This is odd.

its old correspondents all over the emerging markets world


Earlier this year, Guido
Mantega, Brazil’s finance
minister, specifically ruled out

backyard the idea of regulating

Renminbi
commodities prices, saying to
do so would stand in the way
of growth and production.
What is going on?
US relations Here is part of paragraph 17

revaluation
of the Sanya declaration:
Joe Leahy says Brazil’s “Excessive volatility in
reserves are likely to commodity prices, particularly
those for food and energy,
make it the setting for poses new risks for the
a tussle over resources continuing recovery of the

So why did President Barack


Obama make a beeline for
Brazil within the first 100 days
cannot solve world economy.
“We support the
international community in
strengthening co-operation to
ensure stability and strong

nation’s woes
in office of the country’s new development of [the] physical
president, Dilma Rousseff? market by reducing distortion
The obvious answer is and further regulate financial
because he wanted to get in markets.”
early to build a more
constructive relationship Guido Mantega:
between the US and Brazil agricultural and mineral wealth excessive
than existed under Ms Commodities to satisfy China’s thirst for volatility in
Rousseff’s predecessor, Luiz resources for decades, is so commodity
Inácio Lula da Silva. Joe Leahy asks if indispensable to Beijing that it prices poses
But why the rush? The
answer might lie in this
a spat over imports can dare to have a voice.
“I think in the past there
risks for the
world economy
passage from Mr Obama’s and exports could hasn’t been a unified global
remarks during a joint press
statement with Ms Rousseff
derail the relationship voice on these issues,” says
Eric Farnsworth, vice-president
And here is what Mr
Mantega said in the run-up to
after their mid-March meeting. with China of the Council of the Americas. a G20 meeting in Paris in
“We’re creating a new “Nobody wants to upset the February: “If there’s one thing
strategic energy dialogue to Chinese.” that has to be done, it’s to

I
make sure that the highest f the old marketing cliché But even if Brazil does join encourage growth and
levels of our governments are “the customer is always the US in taking a stand on production and not hinder it.”
working together to seize new right” was true in all China’s allegedly undervalued Amado Boudou, Argentina’s
opportunities. In particular, situations, then Brazil’s currency, what is next? finance minister, was in accord:
with the new oil finds off latest moves regarding China Brazil has already taken “We agree to increase supply
Brazil, President Rousseff has would look like madness. numerous trade-related in our countries or transfer
said that Brazil wants to be a When a country is your actions in line with World technology to other
major supplier of new stable biggest trading partner, is it Trade Organisation rules countries . . . But the discussion
sources of energy, and I’ve told really a good idea to complain? against Chinese goods, such can in no way look at
her that the United States That is what Brazil is doing. as increasing tariffs on regulating commodities prices.”
wants to be a major customer, Even though China’s purchases footwear and launching anti- What does this tell us?
which would be a win-win for of its iron ore, soy meal and dumping actions. Brazil Mr Mantega was not in
both our countries.” other commodities helped would be unlikely to take Hainan, so it may just be that
Brazil weather the global more radical action against the right hand does not know
economic crisis, Latin such an important business what the left hand is doing.
US President
America’s biggest economy is partner, and is particularly Balancing act: China’s purchases of commodities helped Brazil weather the economic crisis Or it may be that those in
Barak Obama
now crying foul as cheap likely to avoid any moves that Hainan did not really mean
would like a
Chinese imports flood its might violate global trading While China’s purchase of problems always seems to be what they were saying.
strong
markets, undercutting domestic rules. commodities has strengthened the same. But there was certainly no
relationship
producers. Empty bluster is unlikely to the real, Brazil’s real interest Cut government spending need to talk about regulating
with Brazil’s
If Brazil makes public its bother China. But even if rates (nominal rates adjusted and reduce the role of the state commodities markets.
Dilma Rousseff
concerns at an international China did allow some for inflation) are the highest of in hogging national savings And if anyone would benefit
forum, it will mark a shift in appreciation of the renminbi, any large economy. and many of Brazil’s industrial from such a thing, it is not
So it was about oil – Brazil’s the world order. Until now, few would this really help soften This, together with ills will cure themselves. likely to be the producers. It
“pre-salt” finds, which are just countries other than the US Brazil’s currency, the real, Latin America’s breakneck economic growth Blaming the customer may looks as if China has been
starting to come on stream. have had the confidence to against the dollar and result in biggest economy is fuelled last year by government go down well with the public exercising its persuasive
And not just any oil but one complain about China for fear lower levels of cheap imports spending, has drawn in in the near term, but it will powers.
the biggest offshore discoveries that Beijing might simply pull flooding into Brazil? now crying foul overseas investors, adding only be a matter of time before As ever, its actions rather
in history and all of it located
in a stable democracy in the
up stumps and leave if it gets
upset.
The answer is probably no.
Brazil has homegrown
as cheap imports further pressure on the real to
appreciate.
people realise that more
fundamental reforms are
than words that count.
But the words seem to
western hemisphere, not the Only a country such as problems that have contributed flood its markets Whichever way you look at needed if Brazilian industry is suggest that Brazil has been
Middle East. Brazil, which has enough to the currency’s strength. it, the solution to Brazil’s to become more competitive. heavily leant on.
Fast forward to April and Ms
Rousseff is visiting China.
Among the corporate deals on
the sidelines of the trip, a
proposal by Foxconn, the
Taiwanese-owned electronics
Appetite for meat grows in Asia Knock­off rings
group with large operations in
China, to invest $12bn in Brazil
caught the headlines.
But perhaps more important
Food exports
along with the world’s appetite.
Agriculture minister Wagner Rossi
announced China had approved 25 new
from 134,000 tonnes in 2010.
Behind iron ore, soya, and oil, chicken
meat competes with coffee to be Brazil’s
and posh frocks
Diet changes are giving a boost
in the long run was the
courting during the visit of
Petrobras, the Brazilian oil
major, by Chinese peer
to Brazil’s food producers,
writes Vincent Bevins
chicken processing plants and five new
beef refrigerators for export, more than
doubling the total number of each to
49 and eight, respectively.
fourth-largest commodity export.
Beef trails a bit behind, while pork does
not play a large role at the moment.
Scoring deals for meat producers in a
fill the shelves
Sinopec. Petrobras already has Francisco way achieves some of the diversification of
a deal to supply oil to Sinopec Turra, the China-Brazil trade connection that Ms
from the pre-salt fields. But When Dilma Rousseff, Brazil’s president Dilma was aiming for. Royal wedding
Sinopec has gone further by president, visited China recently of the It does not, however, provide the lifeline
finalising a joint venture with she said she would be pressuring Brazilian for her country’s manufacturing sector, Iona Stevens says
Petrobras to explore off the Brazil’s largest trading partner to Chicken battered by the overvalued real, that the São Paulo’s streets
coast of northern Brazil. import more than just iron ore and Producers and Embraer deal does.
The US is realising that soya. Exporters Brazil’s agricultural sector is enjoying have been flooded
strategic competition with In response, China seems to have Association, told the benefits of the current high food prices with imitation
China for scarce resources is said: “Sure, we’ll have more chicken, Beyondbrics this that are also contributing to inflation
no longer something it does far and a little more beef. Oh, and we’ll try could easily mean worries, but animals have to eat too: the products
from home. Latin America, the pork.” Apart from aircraft producer that the total price of corn and soy used to raise
once the backyard of the US, is Embraer, which scored a deal for up to amount of chicken chickens is cutting into margins.
shaping up to become the stage $1.4bn, the big Brazilian winners so far exported directly At the very least, Brazil is increasing its Britain’s royal wedding has
for the next tussle between seem to have been the country’s meat to China from Brazil share in the huge Chinese meat market, done its part, however small, to
these two giants. producers, which are growing quickly will double in 2011, up which is not likely to go away soon. increase Brazil’s trade deficit
with China. Cheap Chinese
versions of Kate Middleton’s
engagement ring were sold by

Carnival: celebrated in the dozen in the week before


the marriage ceremony.
It is another sign of the
ability of Chinese

Brazil but made in China manufacturers to respond


rapidly even to individual
events and turn their factories
to mass production of the most
Engaging: a rack of fake rings

business spectrum: its


surprise to learn that up to 80 pressures. The sector is varied items. It makes you increasingly haute couture
Textiles per cent of costumes worn comprised of a small number of wonder what cheap Chinese fashion industry. With the São
during Brazil’s festival have companies, which have failed imports will flood shopping Paulo Fashion Week becoming
Samantha Pearson actually been imported, almost to keep up with booming streets around Brazil during a bigger and more international
reveals that costumes exclusively from China.
Others may just be surprised
demand from the country’s
ever-richer consumers. The
the World Cup in 2014.
On Rua 25 de Março, one of
event each year, the new
Duchess of Cornwall’s blue
for Mardi Gras are that it is worth shipping the government has made things the busiest mass-market engagement dress came in good
manufactured overseas skimpy outfits they see on
television, some of which are
more difficult through a lack of
investment. And, to top it off,
exchange rate, but the bigger
picture is that Brazilian
China doll: Brazil’s
domestic textile industry
shopping streets in São Paulo,
you can buy an imitation of
time. It was created by
Daniella Helayel, a Brazilian
barely more than a string of the rapid appreciation of companies need to concentrate has failed to keep up with the sapphire and diamond ring designer who owns the brand
Ask anyone what comes to sequins, thousands of miles. Brazil’s currency means that it on producing high-value goods demand from customers for about R$10 ($6.30) and Issa London.
mind when they think of Brazil But for those familiar with makes more sense for retailers rather than cheap stuff. Getty imagine yourself for a while as The dress has been sold out
and they will probably tell you Brazil’s textile industry, this is or distributors to get what they But the party must go on the new Duchess of Cambridge. since last year. So for now,
it’s Pelé, the footballer, or not news. It has been suffering need from abroad. and, for the next few carnivals But the Royal wedding has Brazilian girls will have to
carnival. for years, both as a result of The government worries at least, it looks like China is also turned the world’s eyes to indulge their romanticism with
So it may come as some internal problems and external about trying to control the going to steal the show. another end of the Brazilian cheap imitation rings.
6 ★ FINANCIAL TIMES MONDAY MAY 23 2011