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Brazil and China Further Strengthen Relations
Apr. 14, 2011

Published by Minyanville

China looks to increase its dominance over Latin America this week as Brazil’s President Dilma Rousseff is there for her first state visit. Brazil’s imports from China have grown from $1.2 billion in 2000 to $25.5 bullion in 2010, mostly in the form of cellphones, televisions and typical manufactured goods. Meanwhile, Brazilian exports to the eastern giant have risen from $1 billion in 2000 to $30.7 billion in 2010, primarily commodities such as iron, soy or oil.

After Barack Obama’s uneventful, and more importantly unyielding, trip to Brazil just two weeks ago in order to combat China’s growing dominance, it looks like China has won out. China last year overtook the US as Brazil’s largest trading partner.

“Rousseff is spending more than five days in China this week not because she likes the food,” says Gabriel Elizondo of Al Jazeera. “She is there because the China-Brazil trade relationship has become imperative.”

Rousseff and President Hu Jintao of China signed a statement earlier this week urging deeper cooperation between the two countries as well as announcing a series of commercial agreements. Chinese airlines have placed orders worth over $1.4 billion with Brazil’s Embraer (ERJ), including firm orders for 20 aircraft along with a possible 15 more.

Economic links are not all rosy between the two countries, however. Brazil has begun to complain that China is flooding its markets with cheap goods, restricting access to its own markets for Brazilian goods available for export other than commodities -- the iron, soy and oil that make up 80% of Brazilian exports to China.

A total of 84% of Brazilian exports to China are commodities, while 98% of Chinese exports to Brazil are manufactured goods.

“Currently, Brazil-China trade mainly concentrates on raw materials like iron ore and soybeans, and that's not bad,” said Rousseff on Tuesday. “But more diversified trade is the only way to support long-term trade relations.”

Another sore point is China’s exchange rate policy which annoy both Brazil and the United States. These were not mentioned in the joint statement. However, China has said that it will encourage companies at home to increase imports of value-added products from Brazil. Brazilian pig farmers have long sought to export pork to China but have been stifled by animal quarantine laws. The deal will increase dialogue on those.

The Brazil-China Chamber of Commerce has set up offices in 15 of Brazil’s 27 states, including in remote areas of Brazil where its natural resources -- most sought in China -- are often found.

Rousseff said this week that the world’s largest contract electronics manufacturer Foxconn is pondering a $12 billion investment in Brazil, as it eyes Latin America’s cheaper labor costs compared to rising figures in China. Brazil’s science and technology minister Aloizio Mercadante said that the company will begin producing iPads (AAPL)  in the country later this year if talks go well.

Foxconn employs just under 1m people in China, as well as many in India, south-east Asia, eastern Europe and Latin America including three plants in Brazil already. However, following Rousseff’s announcement and Mercadante’s hasty comments, both the Financial Times and Wall Street Journal questioned Foxconn’s commitment to Brazil.

The Journal highlighted an interview with Foxconn chief Terry Gou late last year. “Brazilian workers’ wages are very high. But Brazilians, as soon as they hear 'soccer,' they stop working,” he said disparagingly. “And there’s all the dancing. It’s crazy… So Brazil is okay [as a place to manufacture] for the local market. Brazil has great minerals. And it’s got the great Amazon river, so it has good hydropower. But if you want to ship things to the US, it takes more time and more money to ship from Brazil than from China.” He made similar criticisms of India and Russia.

U2’s concert last week in Sao Paulo makes their 360 tour the biggest grossing tour of all time, netting more than $700m by the time it ends on 30th July. This dwarfs the Rollins Stones’ successful Bigger Bang Tour which took in $554m.




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© Girish Gupta