What to expect from China-Brazil relations in the coming years

A long-term look at Chinese investments in Latin America shows that the Asian giant has been increasing its footprint in the region, and especially in Brazil. 

In 2007-20, Brazil represented 35% of China’s stock of investments in Latin America, according to a report from the China-Brazil Business Council (CEBC). Of the total invested in the country, 48% went to the electricity segment and 28% to the oil and gas sector. 

BNamericas spoke to the report’s author, CEBC research director Tulio Cariello (pictured), about China’s relationship with Brazil and the rest of Latin America at a time when US foreign policy is focused on other parts of the world.

BNamericas: What are the main conclusions about the nature of Chinese investments in Brazil?

Cariello: What we have seen in recent years, and today, is a complementary nature of opportunities and needs between China and Brazil.

Talking specifically about the electric energy area, which is the sector where China has invested most in Brazil in recent years, what happened was that the installed infrastructure of this sector in China was already reaching a limit and companies there started to look at other countries where they could use all that expertise to continue expanding their footprint. 

As a result, they entered the electricity sector in Brazil very strongly and this was replicated on a smaller scale in other areas of infrastructure as well.

What we see happening now in China is that it must expand in other countries and that the investment focus is on another type of infrastructure. Today the focus is on technology infrastructure, construction of data centers, 5G expansion; we are already seeing a shift in the focus from traditional infrastructure to technology infrastructure.

BNamericas: What can we expect from China in terms of investments in Brazil's traditional infrastructure?

Cariello: Brazil’s transport and logistics sectors should attract a lot of Chinese investment because we still have a lot of need for investment in these areas.

Perhaps no other country in the world brings together the combination of factors that China does in relation to investing in infrastructure in Brazil. They have capital, they have expertise and they are willing to invest.

BNamericas: Are there other sectors in Brazil where China could also increase its investments?

Cariello: Another sector that has the potential to attract Chinese investment is the technology area. China currently competes with an advantage in the technological race against the US and they are interested in the Brazilian 5G market.

But in terms of technology, the possibilities for China in Brazil are very ample, they are not only focused on 5G. 

Brazilians like to use apps, make financial transactions via the internet, mobile phones, and China has a lot of knowhow in the development of payment apps, for example.

BNamericas: Do you expect Brazil to continue to be a Chinese investment hub in Latin America? And is the focus of China’s investing in other countries in the region similar or different from Brazil in terms of business sectors?

Cariello: Chinese interest in terms of assets throughout the region is very similar to the scenario in Brazil, with a strong focus on the areas of energy and natural resources.

Due to the size and diversification of the Brazilian economy, the trend is for the country to remain the main destination for Chinese investment in the region.

BNamericas: To what extent can Latin America benefit from geopolitical and trade frictions between the US and China?

Cariello: Looking from a historical perspective, the US is present here in the region, it knows the reality of Latin America much more than China. However, in recent years China has greatly increased its presence.

What is happening is that China already has an important dialogue with the region, at a time when the US does not have Latin America as a priority.

Latin America is not a focus for US foreign policy, which today is focused on China, on issues in the Middle East. With this the US left a vacuum in the region that has been increasingly occupied by China.

BNamericas: The administration of President Jair Bolsonaro has on several occasions taken a critical stance towards China. How has this affected relations between Brazil and China?

Cariello: The [political] narrative and the policy adopted by the Brazilian government are quite asymmetric so it has no impact on the relationship.

At the same time that Brazil adopted a critical stance towards China, the governments of both countries made official visits, with the Brazilian president visiting China and the Chinese president visiting Brazil.

During the current administration the agriculture ministry created an intelligence area focused on China, which shows that despite the criticism the Brazilian government is well aware of the importance of relations with China.

BNamericas: Can state governments in Brazil take a leading role in relations with China?

Cariello: This has been going on for a few years now. Northeastern state governments have made official visits to China and have attracted investments to their states.

The São Paulo state government is very active in its dialogue with China. It was the São Paulo government that partnered to develop a vaccine against COVID-19 with a Chinese laboratory and recently it also opened a commercial office in Shanghai. 

These state governments are seeking a dialogue with China that is independent of the federal government. This is positive because Brazil is a very large country, it is necessary to have decentralized dialogues.

BNamericas: Brazil will hold presidential elections in 2022, which according to recent surveys is likely to be a highly polarized race. Could the outcome of this election affect relations with China?

Cariello: In practice, little would change. The Chinese have a state and long-term vision regarding Brazil. Whoever occupies Brazil’s presidency during a term does not have much influence on this agenda and on the perception of the Chinese investor.

It is obvious that a friendly dialogue is always good. But more than knowing if Brazil with have a government of the left or the right, the important thing for Chinese investors is to have pragmatic relations.

BNamericas: How relevant are ESG [environmental, social and governance] aspects to Chinese investors?

Cariello: This is very important because for China the issue of the environment is now a number one priority. This is very clear in the long-term plans they have announced.

China has gone through a very fast growth process in recent decades and this has generated a series of environmental problems, and now they are reversing the course.

China is now, in absolute terms, the country that invests most in renewable energy and that opens up a great opportunity for Brazil, because we have enormous potential in the area of renewable energy. And again, the Brazilian economy has lots of synergies in terms of the needs of the Chinese economy.