China Makes US$100 Billion in Funds Available to Brazil

RIO DE JANEIRO, BRAZIL – China has placed at the disposal of Jair Bolsonaro’s government more than US$100 billion (R$400 billion) from at least five state funds for a new round of investments in Brazil.

In the meetings held between the countries this week in Brasília, Beijing also signaled an extension of credit through its banks in Brazil to compete mainly for agribusiness and industry clients.

In the case of investment funds, most of the resources should finance infrastructure projects.

Tarcísio de Freitas, Brazil’s infrastructure minister, signed on Wednesday, November 13th, a cooperation agreement with China’s minister of transportation and there will be a partnership to develop projects over the next five years.

This partnership could unlock a fund established by the two countries in 2017 aimed mainly at the development of the country’s logistics network.

Since Bolsonaro’s inauguration, no meeting has taken place to decide which projects would be financed by this binational fund.

The Chinese are waiting for the green light from Brazil to deposit US$15 billion. According to the agreement, Brazil will have to come up with US$5 billion in return.

A survey by the Brazilian-China Business Council (CEBC) shows that over the past decade, the accumulated Chinese investments in the country have totaled US$57 billion in 145 projects, spread over 21 states and the Federal District.

“We do not yet have updated data, but this year, surely, it should exceed US$60 billion”, said Tulio Cariello, analysis and research coordinator of the CBBC.

Most of this investment occurred from 2017, through the concessions and privatizations program of then-president Michel Temer.

The Chinese established themselves in the electric sector, acquiring generators, distributors and transmission lines. In 2018 alone, there were 12 projects from the state-owned State Grid and China Three Gorges, with disbursements of US$1.7 billion.

Despite the fact that most of the investment is centered on energy, Chinese groups are involved in various branches of the Brazilian economy, from the manufacture of machinery and equipment, through telecommunications, pulp and paper, to oil and gas, agriculture and retail.

According to Cariello, in a first investment stage (from 2007 to 2011), China sought projects called greenfield, the name given to an enterprise that starts from scratch, such as the construction of a plant.

From 2012 to 2016, priority was given to the purchase of control or minority interest in established companies. In Temer’s management, the Chinese enthusiasm increased with the concessions and privatizations program.

Relations with Brazil began to tremble with Bolsonaro’s inauguration, which reinforced the discourse used in the campaign that he would not accept China’s policy of “buying Brazil, not from Brazil”.

The situation escalated when Bolsonaro signed a partnership agreement with President Donald Trump. China and the US are fighting a trade war, with mutual increases in tariffs.

China is Brazil’s main trading partner. From January to October, Brazil exported US$51.5 billion to the Asian country and imported US$30 billion.

The change of course in the relationship with China occurred in late October, during Bolsonaro’s official visit to the country. At the meeting with the Chinese leader, Xi Jinping, the Brazilian asked the Chinese oil companies to join the pre-salt mega-auction to ensure a foreign presence. China was the only country that entered the dispute.

The opening to the Asian country occurs when the results of the alignment with the US fail to yield the results expected by the Brazilian government, which, in turn, made several concessions.

One of them, the opening of the wheat market to American producers, displeased China, which had placed the same request to Brazil, without success.

Brazil also seeks support from the US to enter the OECD (Organization for Economic Cooperation and Development). The country is in the queue, and Argentina was recently announced as a priority.

Should the change of course in relations be confirmed, the Chinese also want to expand their bank’s presence, particularly the development banks, such as the China Development Bank, to expand credit.

Banks such as ICBC (Industrial and Commercial Bank of China), the Bank of China, Haitong and CCB (China Construction Bank) should this year expand their assets, currently in the region of US$3.5 billion, to be able to compete in the supply of credit to agribusiness and industry, in particular.

Behind this strategy is the Chinese government’s policy of strengthening its currency, the yuan.

The goal is to massify the presence of Chinese financial institutions to the point of demanding from Brazil that commercial and investment transactions be made directly in Chinese currency.

“This would lead to a reduction in transaction costs at both ends,” says Sérgio Quadros, former manager of the Bank of Brazil in China, who is currently researching the benefits of Chinese currency expansion in the country.

In his opinion, Brazil can benefit from this policy. Domestic companies could finance themselves by purchasing Chinese bonds in yuan abroad, paying less, for instance.

“Today, more than 90 percent of Brazilian reserves are in dollars,” Quadros says. “I am sure that China would like a part of it to be in yuan.”

According to him, today central banks around the world keep the equivalent of US$202 billion of their reserves in Chinese currency.

Source: Folha de S.Paulo

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