Tue, Nov 05, 2013 - Page 9 News List

Chinese investors sour on Brazil, and projects melt away

Of the Chinese investments in Brazil that were announced between 2007 and the middle of last year, only one-third have been completed or are being implemented

By Brian Winter and Caroline Stauffer  /  Reuters, SAO PAULO, Brazil

Illustration: Yusha

For Chinese investors, Brazil is no longer the promised land. After making a big push into the South American giant in search of raw materials such as iron ore, as well as a promising market for their consumer goods, Chinese executives have grown frustrated with stagnant economic growth, heavy costs and what they see as a political and popular backlash against their presence.

As a result, Chinese investment is falling, and as much as two-thirds of the about US$70 billion in projects announced since 2007 is either on hold or has been canceled, according to recent studies and interviews with Chinese and Brazilian officials.

The unexpected decline, which investors and analysts say has little hope of reversing itself anytime soon, will deprive Brazil’s struggling economy of what once seemed like a sure-fire source of growth for years to come.

“The ardor for investment in Brazil is fading. Operating in Brazil is a huge challenge,” said Zhang Dongxiang (張東向), chief executive of the Brazilian unit of Bank of China, one of China’s four largest state-owned commercial banks.

In a rare interview in his Sao Paulo office that included some of the sharpest criticism of Brazil by any Chinese business leader to date, Zhang complained of growing hostility from the Brazilian public, as well as “protectionist” policies passed by Brazilian President Dilma Rousseff’s left-leaning government.

“Public opinion sometimes seems to be against foreign investment ... as if it makes local industry less competitive,” he said. “There are some antiquated ideas.”

While some Chinese companies are succeeding in Brazil, he said, “many are having doubts.”

The shrinking investment flows between two of the world’s biggest emerging markets raises questions about the strength of the so-called “south-south” capital movement, and comes as China undergoes a broad shift away from investment-focused policies and toward a more consumer-based economy.

To be sure, Chinese investment in Brazil remains well above what it was last decade. Companies such as China National Offshore Oil Corp and China National Petroleum Corp, which two weeks ago bought rights to drill for oil in Brazil’s huge Libra offshore area, continue to see opportunities in Brazil.

Others with an eye on expansion include China Construction Bank Corp, which reached an agreement last week to buy 72 percent of Brazil’s medium-sized lender Banco Industrial e Commercial SA for 1.62 billion reais (US$726 million).

Also, China remains Brazil’s largest trading partner, thanks to demand for its commodities, and exports have been steady.

However, the euphoria of three or four years ago, when politicians hoped Chinese investment would fundamentally reshape Brazil’s trade flows and generate billions of dollars worth of badly needed new infrastructure, has clearly faded.

And while investors from all over the world have become less bullish on Brazil in recent years, evidence suggests the rise and fall in Chinese interest has been particularly abrupt.

The outcome is especially disappointing for Brazil’s farming sector, which until recently saw China as its most likely savior for a dilapidated network of roads, railways and ports that make it very challenging to export crops.

“I don’t know of a single Chinese infrastructure project that has gotten off the drawing board,” said Edeon Vaz, who monitors logistics for Aprosoja, the country’s largest cooperative of soybean growers.

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