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Washington Should Take Note of Chinese Advancement in Brazil

Image: Washington Should Take Note of Chinese Advancement in Brazil
Brazilian President Michel Temer delivers a speech ahead of the signing ceremony of the BRICS Business Council at the BRICS Summit in Xiamen on September 4, 2017. (Kenzaburo Fukuhara/AFP/Getty Images)

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Monday, 09 October 2017 04:02 PM Current | Bio | Archive

In the official photo from the 9th annual BRICS summit, held September 2017 in Xiamen, China, few of the assembled leaders appear more uncomfortable than Brazil’s President Michael Temer, standing at the side of the group, holding the hand of Russian President Vladimir Putin. Largely unnoticed in the U.S., in spite of his conservative orientation, but in part because that orientation is also pro-business, President Temer is presiding over a significant advance in the commercial position of the People’s Republic of China (PRC) in his country.

In a little more than a decade Chinese companies have realized 87 confirmed projects in Brazil, with a cumulative investment of $46.8 billion. Since 2015 alone, the Chinese have invested over $19 billion in the country, and in 2017, surpassed the U.S. as Brazil’s largest source of foreign investment.

The enormous potential of PRC economic activity in Brazil was showcased in 2009 by then President Lula de Silva, who negotiated a $10 billion loan from China Development Bank for the Brazilian company Petrobras. Yet true investment began to take off in 2010, with a series of major acquisitions, including Sinochem’s $3.1 billion purchase of the Brazilian oil holdings of the Norwegian company Statoil, the 2010 purchase of 7 power transmission facilities in Brazil by China’s largest electricity company, State Grid, and an acquisition of 7 more such facilities from the energy company ACS in 2012. China’s initial entry into Brazil as an investor “on the ground” also included a series of large dollar value purchases of minority interests in Brazilian companies, including Sinopec’s injection of $7.1 billion into the Brazil operations of the Spanish company Repsol’s, Sinopec’s $5.2 billion 2011 purchase of a 30 percent stake in the petroleum company Galp, Sinochem’s 2012 purchase of a 10 percent stake in Perenco, and the 2011 purchase of 15 percent of the rare-earth metals mining company CBMM by the Chinese group Baosteel.

In manufacturing, the growing new Chinese presence also included the establishment of final assembly facilities in the country by Chinese automakers JAC and Chery, and heavy equipment manufacturers Sany and XCMG, among others.

The mutually reinforcing political, economic, and corruption crises which have beset Brazil since 2014 eclipsed, and to some degree paralyzed the advance of Chinese investment in the country. Yet during the past year, the Chinese commercial position in Brazil has progressed considerably, largely beyond the attention of Washington, which has been distracted by other matters. Such advances have occurred, in part because of Brazil’s economic crisis, which has forced a selloff of corporate assets. In part, it has also been driven by the political crisis, which has made the PRC an attractive vehicle for helping the unpopular Temer government show results on the economic front.

Some of China’s most impressive advances have come in Brazil’s power generation and transmission sector. The growing Chinese presence there includes State Grid, which in 2017, completed a $10.8 billion purchase of the power company CPFL, and during the September 2017 BRICS summit, was granted permission by the Brazilian government to proceed forward with its $3.5 billion transmission line project, connecting the new Belo Monte hydroelectric facility in Pará state, with the country’s major urban centers in the south.

Not to be outdone, in 2016, China 3 Gorges invested $1.2 billion to acquire the Brazil assets of Duke Energy company, while another Chinese electricity giant, State Power Investment Corporation (SPIC) spent $2.5 billion to acquire Pacific Hydro, giving it important electricity generation assets in Brazil and Chile. In 2017, SPIC further spent $2.4 billion to acquire the São Simão hydroelectric facility being auctioned off by the Brazilian state, and has offered to take over the stake of Centrais Energéticas de Minas Gerais (Cemig) in the San Antonio hydroelectric project.

In Brazil’s nuclear power sector, during the September 2017 BRICS summit in Xiamen China, China National Nuclear Corporation (CNNC) signed an agreement to study completing the Angra 3 nuclear reactor, in progress for more than 30 years, but stalled since 2015 for lack of money.

In logistics, Chinese companies are taking over, and investing to expand major port facilities along Brazil’s Atlantic coast, from the Amazon river delta, to the nation’s population and commercial hub in the southeast. Major projects include two being worked by China Communications and Construction Co. (CCCC): the Babitonga Bulk Terminal at the port of Sao Francisco do Sul, and another facility at the port of São Luís in the state of Maranhão. In addition, in September 2017, China Merchants Port Holdings (CMPort) acquired 90 percent of the Brazilian firm TCP Participações for $922 million, giving it control over the Paranagua Container Terminal.

In aviation logistics, at the beginning of 2017, the Chinese firm HNA acquired a controlling (51 percent) stake in the Rio de Janeiro Airport (Galeão), sold off by financially troubled Odebrecht.

In agriculture, although previous attempts by Chinse interests such as Chongqing Grain to build agro-industrial operations in the country have not been able to progresss, more recently Chinese companies have been quietly acquiring companies with pre-existing agro-industrial assets and technologies of interest in Brazil. Examples include the 2014 acquisition of HK Noble by China Overseas Food Corporation (COFCO), and the latter’s 2017 interest in acquiring the bankrupt Revati sugar refinery from the Indian company Renuka. Similarly, in 2016, the once marginal Chinese real-estate group Pengxin acquired majority stakes in the Brazilian agro-industrial companies Fiagril (for $290 million), and Belagricola (for $253 million), turning Pengxin into a major trader in Brazilian soy and grains. In 2017, the Dow corporation sold its Agro Sciences operation in Brazil to the Chinese firm CITIC for $1.1 billion.

In telecommunications, for more than a decade, the Chinese companies Huawei and ZTE have made significant progress as suppliers of infrastructure and hardware, including establishing a major customer service and testing facility in São Paolo in October 2015. Beyond the growing position of these two Chinese firms in the Brazilian market, however, the resource-rich PRC-based telecommunications giant China Mobile, has threatened to enter the country in a dramatic way, with the possible acquisition of the bankrupt Brazilian firm Oi, which would potentially give China Mobile access to Oi’s more than 63 million subscribers. Beyond serving just the local market, China Unicom, and Huawei, are planning to build a 6,000 mile undersea telecommunications cable across the Atlantic, connecting Fortaleza Brazil to the African nation of Cameroon.

In medicine, a sector in which the PRC has had little presence in Latin America, in 2017 the Chinese group Meheco, backed by China Development Bank, signed an agreement to enter Ceará state to build medical facilities there, and to stock them with Chinese medical equipment — activities with a value of up to $4 billion.

In finance, Brazil has been the major recipient of loans beyond the countries of the (anti-U.S.) Bolivarian Alliance of the Peoples of the Americas (ALBA). In addition to the previously mentioned loan to Petrobras in 2009, China Development Bank provided a second $10 billion loan in 2016. In addition, the Brazilian government signed a $30 billion currency swap agreement in 2013. Beyond such loans and financial instruments, both China Construction Bank (CCB) and International Commerce Bank of China (ICBC) have entered the country to operate as banks at the local level. In addition, the Chinese capital fund FOSUN recently opened a new office in São Paolo, acquiring the Torre Sucupira building as prime real estate in the city’s financial district.

Whether China’s recent advances in Brazil are, on balance, good for the country, is a matter of perspective. Yet it is an important phenomenon, largely obscured by the drama of the country’s crises, that is transforming the business landscape of the country. U.S. policymakers and businesses, distracted by the U.S. own political turbulence, should take note.

Dr. Evan Ellis is Senior Non-Resident Fellow at CSIS, and Professor of Latin American and Caribbean Studies. His work focuses on security and defense issues, including transnational organized crime, populism, and the region’s relationships with China and other non-Western Hemisphere actors. Dr. Ellis has published over 180 works, including three books, and has presented his work in 26 countries across four continents. He has testified on multiple occasions regarding Latin America and the Caribbean before the U.S. Congress, and his work regularly appears in the media in both the U.S. and the region. Through his work, Dr. Ellis calls attention to the strategic importance of Latin America and the Caribbean for the United States through bonds of geography, commerce, and family, and how the prosperity and security of the U.S. are tied to that of its partners in the region. To read more of his reports — Click Here Now.

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EvanEllis
Largely unnoticed in the U.S., in spite of his conservative orientation, but in part because that orientation is also pro-business, President Temer is presiding over a significant advance in the commercial position of the People’s Republic of China (PRC) in his country.
china, brazil, investment, washington dc
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2017-02-09
Monday, 09 October 2017 04:02 PM
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