Alisha Sud: China’s Investments in Brazil Spark Public Concern

Alisha Sud is an intern for Asia Studies at the Council on Foreign Relations.

In October, Baidu, China’s top search engine, bought Peixe Urbano, Brazil’s largest internet marketplace for local commerce. According to the Peixe Urbano website, the deal “represents one of the most important acquisitions to date in the Brazilian internet and technology sector.” Earlier in July, Baidu even launched a Portuguese version of the site. The goal is to capitalize on the increasing number of internet users in Brazil; it is projected that upwards of 43 million Brazilians will be online within the next three years. Baidu is just one example of a company growing China’s presence in a Brazilian market and providing access to capital and technological expertise. The acquisition is also illustrative of China’s trade and investment strategy shifting from a focus on natural resources to include the industrial and service sectors.

China’s efforts to ramp up economic ties are due to Brazil’s growing consumer base. The country’s middle class now includes 55 percent of the population, and the number of Brazilians living in poverty has declined from 26 percent in 2002 to 10 percent in 2012. Chinese companies see it as an opportune time to increase the supply of manufactured goods and services. In addition, weak manufacturing capacity in Brazil makes Chinese products more competitive for Brazilians with newfound, yet still limited, purchasing power.

Brazilian President Dilma Rousseff has strongly supported expanding economic activity with China, and before her recent reelection, she signed more than fifty energy, finance, and industry accords with Chinese President Xi Jinping. When China pledged more than US$8.6 billion in investments and loans in Brazil this past July, Rousseff stated that the accords “consolidated China as a great partner in Brazil’s development.” Since 2009, China has been the country’s largest trading partner.

President Rousseff’s enthusiasm notwithstanding, challenges to the economic relationship have also emerged. The China-Brazil investment gap continues to widen as deals between Rousseff and Chinese President Xi Jinping have led to three of China’s biggest state-owned banks lending billions of reais for infrastructure development. In 2012, Brazil also had roughly a $19 billion trade deficit with China. In addition, there are also concerns that Chinese products will replace those produced domestically. Demand for solar technology, for example, is on the rise in Brazil, but homegrown companies have lost out to Chinese company Yingli Solar, which has come to dominate the market after its sponsorship of the 2014 FIFA World Cup in Rio de Janeiro. Also, the recent launch of a Chinese Chery Automobile plant in Sao Paolo has allowed the company to avoid high government taxes on imported vehicles, a measure that had been intended to support the domestic car industry.

Marcos Troyjo, codirector of the BRICLab at Columbia University, points out that the relationship with China is putting Brazil at an enormous disadvantage, no matter how bullish Rousseff might be. He argues, “One ton of Brazilian exports to China are worth about US$200. One ton of Chinese exports to Brazil are worth more than US$3,000. One would have a hard time calling that a ‘partnership.’” Roberto Giannetti da Fonseca of the Federation of Industries of Sao Paulo State similarly believes “the relationship with China is important for Brazil, but from the point of view of industry, it’s abysmal.”

While Chinese companies reap the benefits of a significant presence in Brazil’s domestic market, the risk of public outcry runs high. Demonstrations have already occurred: in 2013, the Chinese acquisition of Brazil’s largest oil field sparked violent protests in Rio de Janeiro. That same year, Brazilian textile workers protested in Sao Paulo over the loss of manufacturing jobs to China; one sign read “In defense of national industry and our jobs.”

Friction will continue to grow as China expands investment in additional facets of the Brazilian economy. While Rousseff shows no sign of diminishing support for Chinese investment and trade, public concern may cause the government to review its policies. Back in 2011, in the face of China’s growing interest in large-scale land acquisition, Brazil sought to tighten up laws that impose limits on farmland purchases by foreigners. Allowing Chinese companies free reign to invest now might come with the immediate benefit of increased access to capital, but it will make it that much harder to win back control when, and if, Brazilian leadership feels that China has overextended its welcome.