Over the last two years (2015 and 2016) China has witnessed a strong growth in Foreign Direct Investments (FDI).
Source: MOFCOM – Bradesco
But why, in a few years, China has become an international "net investor", making important acquisitions in companies around the world?
There are many factors, but they are fundamentally based on the need to survive the slowdown in the growth rate of its economy.
To support its growth, China needs to increase efficiency and productivity in low-value industries where it is traditionally strong, but also to expand its presence in the most technologically advanced sectors with higher added value.
Investing abroad means ensuring presence in markets where actually there is a low participation; means incorporating technology and knowledge through the control of leading companies (hence the preferred form of investment is direct purchase or merge); means ensuring the supply of strategic semi-manufactured and raw materials.
The decision to reduce US Treasury Bonds investment and currency devaluation expectations (revalued until 2014 and now gradual descent), together with the reduction of domestic investment opportunities (real estate crises and oziosity of industrial plants, above all) stimulated the appetite for foreign investment.
Yuan Renminbi / US $ exchange
Source: XE
2016 was the year that marked the surge in Chinese FDI: from $ 100.6 billion in 2015, it went up to $ 225.6 billion in 2016.
In this context, Brazil has been (and still is) one of the countries most favored by the investment flow from China.
In the ranking of the major FDI recipients, Brazil is just behind US, Australia and Canada and accounts for 49% of investments in South America during 2005/2016:
The crisis that invested Brazil in 2014/2015 did not deter Chinese investors: on the contrary, thanks to the devaluation of the real and the sharp decline in the value of many Brazilian assets, exceptional opportunities for investors have been opened for those who prefer a prospect of medium/long term to a more speculative short term.
The ones listed in the table below have been the main acquisitions since 2015 (the “Sistema Produtor Sao Lourenço” acquisition happened at the end of April 2017).
In addition to the acquisitions, there are some (few) greenfield projects; the greatest one refers to Chery (car manufacturer), which announced the construction of a new assembly line and a new industrial complex In the city of Jacareì (SP), for a total value of $ 800 million.
According to Exame magazine, a further increase in Chinese investment in Brazil is expected in 2017, which could reach $ 20 billion.
Among the companies ready to land in Brazil (through acquisitions / mergers) there would be the following companies in the electrical sector:
– China Southern Power Grid
– Huaneng
– Huadian
– Shanghai Eletric (purchase of Eletrosul transmission lines – US $ 3.3 billion)
– SPIC (purchase of Hidrelétrica Santo Antonio)
– Guodian
Also, according to Exame magazine, among the Chinese companies already present in Brazil, the “China Communication Construction Company” would have plans to purchase new assets in civil and railway construction, while Pengxin would negotiate the purchase of a Indusval Bank and an $ 1 billion investment in the agricultural sector.
According to Dealogic (consulting company), considering the period from 1/1 to 17/4/2017, Chinese acquisitions in Brazil already amount to US $ 5.67 billion, or 37% of the total and even exceed the value of acquisitions made with Brazilian capital, at US $ 4.23 billion.
In a time of uncertainty over US abroad investment (given the Trump government’s pressure to repatriate US investment), it is important that Brazil backs this flow from China, in particular by making safer and more stable the regulatory environment that defines governing concessions in the infrastructure area (airports, energy, transport, etc.).
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For further information, I suggest reading the research carried out by CEBC (Conselho Empresarial Brasil-China) with the coordination of Fabiana D’Atri:
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