Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

BRAZIL-CHINA: The Temptation Posed By a Giant Market

Mario Osava

RIO DE JANEIRO, Nov 11 2004 (IPS) - The visit to Latin America by Chinese President Hu Jintao, which began Thursday in Brazil, places the government of this South American country in a dilemma: whether or not to recognise the Asian giant as a market economy.

It is difficult to turn down the request of a country that offers an insatiable market of 1.3 billion people and an economy that is growing at 9.5 percent a year, which opens up enormous possibilities for growth in exports, investment and cooperation.

Being regarded as a market economy by Brazil “would help accelerate the development of bilateral trade and investment” and would deepen “the strategic partnership between the two countries,” Jintao said in an interview published Wednesday by the Folha de Sao Paulo newspaper.

China joined the World Trade Organisation (WTO) in 2001, but as a “non-market” economy, which makes its exports more vulnerable to restrictions and anti-dumping measures in other countries.

Chile is preparing to recognise China as a market economy, joining more than 20 countries that have already done so. But Brazil has delayed taking that step.

“China is not yet a market economy; it is in the midst of a transition in which the state still intervenes heavily in prices and exchange rates,” said Mario Vilalva, head of the trade promotion department in Brazil’s Foreign Ministry.

But the question is open to negotiation. In exchange for treating China as a market economy, Brazil would gain greater access to the Chinese market for its beef, fruit, and other products still subject to sanitary restrictions, which Brazilian exporters complain are unfair.

This year, several shipments of soybeans were turned away by China, which alleged the presence of fungicides at levels higher than those accepted by international standards.

Nevertheless, trade between the two countries is growing fast, rising threefold – to a total of 6.68 billion dollars – between 2000 and 2003, according to official Brazilian figures. And this year, it is projected to reach 10 billion dollars.

However, Brazil currently only provides one percent of Chinese imports, said Vilalva.

By 2010, the bilateral trade flow will have climbed to 35 billion dollars, Li Minglin, head of the Department of Machinery and Electronics in China’s Ministry of Commerce, predicted Thursday in Sao Paulo at the inauguration of the China Trade Centre, which will support Chinese business endeavours in Brazil.

But it is important to not be carried away by “euphoria” because of the impressive prospects, and it is necessary to negotiate with care to avoid falling into traps like concentrating commodity exports too heavily in China, thus creating over-reliance on the giant Asian market, Mario Marconini, executive director of the Brazilian Centre for International Relations, commented to IPS.

He also underlined the necessity to diversify exports, to include products with greater value added, and to avoid mixing trade questions with geopolitical concerns, as Brazil’s current foreign policy towards “emerging” powers like China and India has tended to do, said Marconini, a foreign trade secretary in the previous administration of Fernando Henrique Cardoso (1995-2003).

China exports 40 times more goods to the United States than to Brazil, he noted, in order to dispel any possible misconceptions about Brazil’s influence on the decisions adopted by China.

In the meantime, soybeans and iron ore made up almost half of Brazil’s exports to China last year.

But Brazil has also begun to export processed and manufactured goods as well, such as car and airplane parts, steel and orange juice, Vilalva added.

Brazil is China’s largest trading partner in Latin America, followed by Mexico and Chile. Brazilian President Luiz Inacio Lula da Silva visited China this year (as did Argentine President Néstor Kirchner).

President Jintao, accompanied by a delegation of 230 people, including 150 business representatives, chose Brazil as the first stop on a 12-day tour of four Latin American countries, which will also take him to Argentina, Chile and Cuba.

In addition, he will be announcing his government’s new Latin America policy during a visit to Congress in the capital, Brasilia, on Friday.

This serves to demonstrate China’s marked interest in further cementing bilateral relations with Brazil, which have been significantly strengthened in recent years but “are now beginning to really grow,” according to Paul Liu, chairman of the Brazil-Cuba Chamber of Economic Development, based in Sao Paolo.

Insufficient infrastructure, excessive red tape and laws that hinder foreign investment in Brazil have been obstacles to greater expansion of economic ties between the two countries. Added to this is the “culture shock” entailed in getting accustomed to the “Chinese way of doing business,” which has yet to be assimilated by members of the Brazilian business community, Liu told IPS.

But the two countries have had very little time to get to know each other, whereas the United States has had companies operating in China for 30 years, he added.

Among the 11 agreements to be signed during Jintao’s visit, one involves the establishment of Brazil as an official destination for Chinese tourists, and should contribute considerably to increasing mutual knowledge and understanding.

It is hoped that in the near future, as many as one million Chinese visitors will come to Brazil every year. At present, 20 million Chinese travel abroad annually, but only 10,000 visit Brazil.

Other agreements, in the legal, health and science sectors, are aimed at expanding trade, investment and cooperation. One encompasses the joint construction of a satellite to be launched in 2006 and the regulations for the sale of satellite images to third parties, through which Brazil could earn 500 million dollars a year as of 2008.

With regard to trade, one of the products that will particularly boost Brazilian exports to China is ethanol, which China has now begun to add to its gasoline to reduce air pollution in its cities.

As for investment, China could devote up to 8.5 billion dollars over the next few years to a number of different projects in Brazil, primarily in sectors like mining, energy and railways, Vilalva said.

China, whose natural resources are being rapidly depleted by the country’s dizzying economic growth, needs to ensure a constant supply of foodstuffs and raw materials, and will have to invest a great deal in mining, agriculture and transportation infrastructure, noted Marconini.