Brazil, China and Their Relations

The China Card

While the prudent policies of the Brazilian government faithfully applied for a decade-and-a-half are unquestionably the primary cause of Brazil’s extraordinary economic successful growth, there is also the fact that it could not have happened, or at least not as smoothly and quickly without the rise of China. China’s role in the story of Brazil’s success plays out in two ways.

First, China’s demand for resources, notably iron ore and soya, has fueled Brazil’s greatest export sectors. Second, Chinese demand for commodities (and broader Asian demand generally) is the cause of the broader rise in commodity prices. It has been this demand and the wide effects on other commodities that provided the basis for Brazil’s economic transformation—in effect, causing a US$100 billion spike in export income that allowed the country to pull through its debt crisis at the beginning of the century.

Similarly, Chinese imports are significantly less than Brazil’s exports to China, thus providing Brazil with a positive trade balance Paradoxically, however, this trade surplus has the effect of strengthening the Brazilian currency—the real—which in turn makes Chinese imports even more attractive. This has prompted defensive tariffs on some products. Nevertheless, the number of Brazilian companies importing products from China rose in one year alone—2010 to 2011—by 24%.

In addition, 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. Besides sometimes competing with local manufactures, these activities have prompted claims that China is gaining more from its trade with Brazil than Brazil is.

Picture Credit: Agencia Brazil