How Brazil is increasing its trade to China

How Brazil is increasing its trade with China


Brazil has long been among the countries that have benefitted most from the relationship with China. It continues to run a trade surplus, one that has increased over the last years, mainly due to the booming price of iron ore. However, there is a tendency that also Brazil is affected by the bias towards primary products. 


Brazil differs also from its neighbouring countries in the kind of investment it attracts from China. Whereas in the rest of the region, the bulk of the investments has been  focusing on oil and gas, agriculture, forestry and mining. An analysis of the official Chinese portfolio in Brazil has included a large share of investments in wholesale and retail, manufacturing,  in addition to agriculture and mining . This means that China is developing a broader economic relationship to Brazil. This has given reason for optimism as well as fear of letting too much of Brazil’s economy being controlled by the Chinese


The increasing importance of China as a main investor and trading partner to Brazil has not been a process without tensions between the two countries. The first main worry is the risk of de-industrialization of the national economy.  In the last years, the competitiveness of the industrial private sector in the face of Chinese imports is subject to three main factors. First, the overvaluation of the Brazilian currency, second the lack of reforms on labour market regulations, and third the lack ofimprovements in infra-structure conditions in order to enhance productivity. All three factors have long been factors known to reduce competitiveness .


The strong demand for primary goods as iron ore and soy beans, and the resulting rise in the prices of these commodities in international markets,created the incentives for the expansion of these activities in Brazil. In the case of the soy bean production, its expansion has destroyed a considerable part of the original grassland ecosystem in 
the cerrado Centre-West region.  As a consequence, the expansion of the production was directed towards new lands located in the northern part of cerrado - the south border of the Amazon forest - adding pressure to the deforestation process.


The expansion of mining activities, mainly iron ore, is another case of a sector in which Chinese demand has played an important role. As iron ore during the last two years became the most important export product of Brazil, many investments are taking off in the expansion of existing mines and the exploration of new sites. There are plans announced in Brazil to invest almost 10 billion USD in an expansion of the mining activities in order to double the output by 2015. However,the project, located in the state of Para, is in the south-eastern part of the Amazon forest has been criticized by environmental groups and indigenous peoples’ organisations because of the negative impacts of residues produced along the process.


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