In recent weeks, China has been a protagonist on the international economic scene for various reasons, among them all:

– the financial crisis of the real estate giant Evergrande, which has shaken markets around the world

– the government’s decision to slow down steel production to reduce CO2 emissions

– state intervention in the private education sector

These are worrying decisions and events, which can have important consequences, as China is the main trading partner of Brazil, which boasts a considerable trade surplus, mainly based on the export of iron minerals and food commodities, in particular soybeans. .

In 2020, 32% of the value of Brazilian exports landed in China, far exceeding traditional trading partners such as the US (10%) and Argentina (4%).

Evolution of Brazilian exports (in billions of dollars)

Source: Ministry of Economy / CEBC re-elaboration

It was thanks to the growth in trade that China also identified Brazil as a destiny for direct investments by its companies. It is no coincidence that many of the Chinese investments are aimed at the energy and metal mining sectors.

Chinese investments in Brazil

First of all, it must be premised that, starting from 2017, Chinese investments abroad have suffered a significant slowdown.

The reasons?

– reduction of investments considered “irrational“, ie those that did not bring direct profits to the company;

– reduced liquidity in the financial market, which made it more difficult for companies to find funds to invest abroad;

– decrease in Chinese investments in the energy sector, the destination sector of most Chinese investments abroad

– the diplomatic and economic friction between the Trump administration and China, which made it difficult for Chinese investments to enter the United States, the largest recipient of resources in the Asian country.

However, Brazil is China’s main partner in South America, with an investment share of around 47%.

Between 2007 and 2020, 176 projects were completed, for a total investment of US$ 66.1 billion, of which:

– 48% destined for the electricity sector

– 28% for the oil sector,

– 7% to the extraction of metal minerals

– 6% to the manufacturing industry

– 5% to infrastructure works

– 6% to other sectors (agriculture, financial services and other minor activities)

Of the 176 projects, 48% entered through greenfields, 40% through acquisitions and mergers and only 12% via joint-ventures.

2019 was an interesting year in terms of Chinese investments in Brazil, up 117% compared to 2018, worth US $ 7.3 billion. There were fewer projects than in 2018 (25 instead of 32), but with a much higher amount invested. Despite strong growth, the value is still lower than in 2016 (US $ 8.4 billion) and 2017 (US $ 8.8 billion).

With the spread of the coronavirus pandemic in 2020, Chinese investment dropped dramatically: just US $ 1.9 billion, a 74% drop from 2019. Virtually all of 2020’s investments were concentrated in the power generation sector.

Electricity sector (48% of investments)

State Grid and China Three Gorges are the two large Chinese state-owned companies that concentrate most of the investments (74%) in the sector. Both have earmarked Brazil for most of their investments abroad.

In terms of energy production, the plants of the two companies generate about 16,736 Mw, equivalent to 10% of the Brazilian market.

Oil and gas sector (28% of investments)

The auctions carried out in recent years by the ANP (National Petroleum Agency) for the granting of extraction rights have attracted several Chinese companies, such as Sinopec, China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and Sinochem Holdings Corporation.

Not surprisingly, Brazilian oil exports to China grew by 180% between 2010 and 2020, from $4 billion to $11.3 billion, which turned Brazil into a strategic player for China. in this area.

Recently, state-owned companies CNOOC and CNODC paid R$ 6.81 billion for 10% of the Búzios field, in the Santos Basin pre-sal area, in consortium with Petrobras, which will control 90% of the area.

Mining sector (7% of investments)

The mining sector, for decades among the three most important in exports from Brazil to China, has attracted large investments in the field of metal ores extraction.

Among these, the purchase of part of MMX (of the Eike Batista Holding) from Wuhan Iron and Steel (WISCO) and the acquisition of 15% of Companhia Brasileira de Metalurgia e Mineração (CBMM) by a group of Chinese companies consisting of Citic Group, Anshan Iron & Steel, Baosteel, Shougang and Taiyuan. China Molybdenum Company also came to the country through the purchase of Anglo American assets.

Manufacturing sector (6% of investments)

Investments in the manufacturing industry represent 6% of the total value between 2007 and 2020, with projects in the automotive, electronics, chemical and machinery and equipment sectors. Among the Chinese companies that have invested in Brazil, there are large groups such as BYD, TCL, Gree, Midea, Sanxing Electric, Chery, Sany, XCMG and Liugong.

Infrastructure sector (5% of investments)

The Chinese have also invested in important infrastructure works, which represent 5% of the value of the projects between 2007 and 2020. In this sector, the presence of the state-owned China Communications Construction Company (CCCC), owner of Concremat Engenharia, and of China Merchants Port, which has controlled the Paranaguá Container Terminal since 2018.

In Bahia, a consortium between China Communications Construction Company (CCCC) and China Railway 20 Bureau Group (CR20) won the auction for the construction and management of the bridge between Salvador and Ilha de Itaparica. The bridge will be 12.4 kilometers long, with a public-private partnership that will require an estimated value of 5.4 billion reais on the Chinese side.

Agricultural sector (3% of investments)

Although the share of agri-food products in exports to China went from 35% in 2010 to 50% in 2020, Chinese investments related to agriculture are still relatively low.

Among the Chinese companies present in Brazil are COFCO, Tide Group and LongPing High-Tech, which range from the marketing and supply of agricultural products to the production of chemicals for agribusiness. China has also indirectly increased its presence in this sector through the purchase of large multinationals present in Brazil. The main example of this movement was the 2017 acquisition of the Swiss company Syngenta by the state-owned ChemChina. The US$ 43 billion operation was China’s largest ever overseas.

Financial sector (2% of investments)

The maturation of bilateral economic relations has generated a growing Chinese interest in the financial sector. But it was only in 2009 that the Bank of China created Banco da China Brazil SA, becoming the first Chinese bank to actually enter Brazilian territory.

 As of 2012, other Chinese banks have begun to establish themselves in the country. Of note is the direct entry of the Industrial and Commercial Bank of China (ICBC) and the purchase of Banco BBM by the Bank of Communications (BOCOM) and Bicbanco, bought by the China Construction Bank (CCB). Among the acquisitions of foreign banks operating in Brazil, it is worth mentioning the purchase of the Portuguese Banco Espírito Santo de Investimento (BESI) by Haitong.

Bilateral relations between Brazil and China

Despite Bolsonaro’s criticisms of China during the 2018 presidential election campaign, his administration’s concrete actions indicated more continuity than rupture in bilateral relations. The same Minister of Economy, Paulo Guedes, said in 2019 that Brazil would not impose barriers to Chinese investments and stated that the country would be open to receiving projects in the pre-sal and in the area of infrastructure, a fact that has been punctually verified.

The "realpolitik" prevails over ideological choices, given that China is a trading partner that Brazil absolutely cannot give up.

NOTE: the information is taken from the “Investimentos chineses no Brasil” study, drawn up by Tulio Cariello and published in August 2021. Download on the site: https://www.cebc.org.br/2021/08/05/investimentos-chineses-no-brasil-historico-tendencias-e-desafios-globais-2007-2020/