Deals with Brazil seen as inroads to Latin America

2015-05-20 08:52Global Times Editor: Li Yan

Brazil potential continental hub for yuan-based trade: economists

Chinese Premier Li Keqiang on Tuesday met with Brazilian President Dilma Rousseff in Brasilia. The two leaders are expected to sign billions of dollars in investment deals that would boost bilateral cooperation in infrastructure and equipment, and benefit economic development of the two sides in a complementary manner. [Special coverage]

The new round of trade deals, which focus on manufacturing and infrastructure, will help Brazil, which has been struggling with slow growth and spiraling inflation, to undergo industrial restructuring. Earlier trade deals with China had focused on raw materials and farm produce.

Observers say the new deals fit in with China's new economic policy that encourages domestic consumption, dubbed "the new normal."

China, Brazil's largest trade partner, invested $18.94 billion in the Latin American country in 2014. Bilateral trade between China and Brazil increased 13-fold in value between 2001 and 2013, according to Brazilian statistics.

"The trade agenda is very important, but at the moment the investment agenda is to a degree still more important," Brazilian Trade Minister Armando Monteiro was quoted by AFP as saying.

"Chinese technology and equipment are necessary for Brazil to realize industrial restructuring as the country is relatively lagging in manufacturing and its exports have been suffering from the volatility in bulk commodity prices this year. It is understandable that Brazil would prioritize infrastructure investment over trade at this critical stage," Chen Fengying, director of the Institute of World Economic Studies under the China Institute of Contemporary International Relations, told the Global Times.

The closer ties would also create a spillover effect that would allow China to use Brazil as a production and trade hub to enter wider markets and build trade and industrial zones in other places in Latin America, she added.

The deals would provide opportunities for overseas expansion for China's railway, heavy mechanical equipment, automobile, steel and construction sectors, Chen Duqing, former Chinese ambassador to Brazil, told the Global Times, adding that Chinese enterprises should explore transferring quality excess capacity, such as in the steel industry, by localizing production in Brazil.

"Brazil favors China's vast market and has shifted to purchasing Chinese industrial products instead of US and European equipment in recent years. China's new consumption-oriented economy still provides a huge demand for Brazilian products ranging from farm products including beef to mineral resources, due to China's ambitious urbanization goals," he said.

As members of the New Development Bank, formerly the BRICS Development Bank, and the China-spearheaded Asian Infrastructure Investment Bank, Brazil will be a key country for the internationalization of the yuan in Latin America, said Chen Fengying. "There is still no offshore trading hub for the yuan in Latin America. With closer financial ties, Brazil may become the first such hub, and further explore other cooperation including settlements with the local currency, and for Chinese banking institutions to open more branches in Brazil," she noted.

Li's visit and the deals are highly expected by both Brazilian enterprises and Chinese businesses operating locally as a strong impetus to pull the Brazilian economy and Chinese business out of a slump, Oscar Wei of the Brazil-China Economic Trade Promotion Association told the Global Times.

"The visit would further improve the image of Chinese products and technologies. Apart from infrastructure, we also expect to see new opportunities in e-commerce and transportation after the deals are signed," said Wei.

Chen Duqing reminded Chinese enterprises in Brazil to do enough research and obey local labor and tax laws, which are stricter and more complicated, when they enter the market, and not to blindly make investments and expect "supernational treatment."

"The biggest challenge lies in the differences in commercial culture. Brazilian companies highly value credibility and would like to see concrete outcomes and takeaways out of each round of negotiations. Chinese companies should be careful not to make empty promises or plans," said Wei.

Chinese companies must focus on innovation, brand building, steady market strategy and localization in order to thrive under the fluctuating Brazilian economic environment, Xie Dongbo, general manager of the Brazilian branch of Chinese home appliance giant Gree, wrote in an article on on May 5.

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