São Paulo – Brazil needs to build a relationship of mutual benefits with China in the short, medium and long terms, according to economist Eduardo Costa Pinto, one of the authors of the Communiqué issued this Friday (8th) in Brasília by the Institute of Applied Economic Research (Ipea) on the relations between the two countries. The release took place as Brazilian president Dilma Rousseff is about to pay a visit to the Asian nation, during which economic relations should be a highlight.
The Ipea report is based on the fact that although the trade balance between the two countries runs a surplus on the Brazilian side – a situation that should continue for some time –, Brazilian exports are mostly made of basic items, such as iron ore, agricultural prods and petroleum, whereas Chinese sales comprise industrialized goods, many of which have high rates of imported technology.
Along the same lines, Chinese direct investment in Brazil is geared towards production of commodities and heavy industry. The Asian country is a strong importer of food and inputs for its industry.
Bilateral trade has grown exponentially over the last decade. China is now the leading target of Brazilian exports, and this year, according to the Ipea, the Asian country should become the leading international supplier to the Brazilian market.
Even though the document underscores opportunities to boost trade, investment and bilateral financing, just as these two large emerging nations gain stronger presence in the global scenario, it also warns of the dangers of maintaining the current formula.
"These dynamics create short- and medium-term opportunities to Brazil, but if these are not seized well, they may bring about threats, especially long-term ones, such as a loss of share from Brazil to China in exports to third-party countries, a decline in Brazilian production structure, loss of strategic control over energy sources (oil) and loss of natural resources (land and mines) and increased external structural vulnerability," claims the report.
In other words, should the current model be maintained, the Brazilian industry is increasingly at risk of losing markets to Chinese competitors, both abroad and in the country; Brazil may see a large share of its natural resources in the hands of foreigners, compromising national strategies; and the country may also come to depend too much on commodities exports, which would increase its external vulnerability.
In that regard, Costa states that these asymmetries must be balanced, for instance by conditioning the control of agricultural enterprises to a certain degree of local industrialization of what gets extracted from the land, prior to exporting; inducing the use of domestic components in Chinese products sold in the country; and further opening the Chinese market to exploration by Brazilian enterprises.
"Brazil is a more open country to foreign direct investment than China, and the principle of equality of treatment in mutual investment is a key condition to increasing synergy and other gains between the two countries," according to the communiqué.
To Costa, Brazil has the power to negotiate more equal conditions in bilateral relations with China. First of all because it has the inputs that the Asian country needs so badly, and secondly because it enjoys stability, unlike other raw material suppliers, especially in Africa.
"If the Chinese realize that we ask little, they will give us only what we ask," said the economist. "But Brazil is a large producer [of inputs] and has comparative advantages in products that are crucial for them," he said.
He added that Chinese companies are beginning to internationalize themselves and will tend to form "global chains" of production. That should lead to products manufactured elsewhere finding their way into Chinese industrialized products.
Coordination
Aside from the economic interest, the Ipea suggests that Brazil should promote coordinate action with China in geopolitics to overcome the challenges of bilateral relations and seize the opportunities. It is worth noting that during Dilma’s trip to the Asian country, next week, a summit meeting will be held among the BRICS, a group that comprises Brazil, Russia, India, China and South Africa. The president will travel alongside a delegation of 300-plus businessmen.
The institute’s suggestions include active use of trade defence mechanisms of the World Trade Organization (WTO); negotiating with the Chinese government to create equal conditions to Brazilian companies willing to enter China; making progress in regularizing and monitoring land and natural resources purchased by the Chinese in Brazil, adapting these purchases to the country’s strategic interests; developing mechanisms for Chinese investment to comply with the Brazilian industrial policy; and increase the criticism and the means of defence against the Chinese exchange rate policy, which keeps the yuan depreciated.
The Ipea highlights that Brazil has only been negotiating with China sporadically, because " the Chinese know exactly what they want from Brazil, whereas the opposite does not hold true." "Urgent progress must be made in setting comprehensive and specific strategies, because the same hand that caresses us (loans, direct investment, trade surplus) may also lead the foreign ties of Brazilian economy in the direction of an impoverishing dynamic that will only be made visible in the medium or long term."
*Translated by Gabriel Pomerancblum
