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

The recent Chinese experience in Brazil seems to be one of high expectations, followed by second thoughts.

After years of sending trade missions to Brazil, but mostly keeping their wallets closed, Chinese companies abruptly announced a flurry of billion-dollar bets in 2010. That was the year Brazil’s economy grew a torrid 7.5 percent, and seemed to have entered a new era of Asian Tiger-style growth.

The investments went beyond the extraction of commodities, traditionally China’s focus in Latin America.

Companies such as automaker Anhui Jianghuai Automobile Co, otherwise known as JAC Motors, and telecom supplier Huawei Technologies Co announced big investments focused on selling to Brazil’s rapidly growing middle class.

Most analysts agree that the sudden spurt, which was led by state-owned companies, was part of a strategic decision by Beijing to diversify its consumer markets abroad following the 2008 to 2009 financial crisis and the ensuing stagnation in the US and much of Europe.

Since then, though, little has gone right.

Brazil’s economy cooled sharply, growing just 0.9 percent last year, and its consumers are burdened with debt. Meanwhile, the government has taken several steps that have made many Chinese investors feel unwelcome.

Some measures, such as a tax increase on foreign-made cars in 2011 that led JAC Motors to threaten to suspend construction of a new factory in Brazil, were part of a broad protectionist drive that targeted all countries equally.

However, others, including a 2010 law that restricted land purchases by foreigners, were the specific result of worries that the Chinese were snapping up too many of Brazil’s natural resources, legislators said at the time.

In private, Brazilian government officials express concerns that China is primarily interested in securing raw materials in a way that barely benefits Brazilians, while also flooding the country with low-cost manufactured goods.

Meanwhile, trade data shows that just three commodities — iron ore, oil and soy — and their derivatives — still account for 80 percent of Brazil’s exports to China.

That has angered officials in Rousseff’s government who had hoped that Brazilian manufacturers like aircraft maker Embraer SA would have made greater inroads by now. Chinese officials have countered that Brazilian industry needs to become more competitive to sell in China.

Derek Scissors, an expert on Chinese outward investment at the American Enterprise Institute, a Washington think tank, said the sudden spurt in investment, followed by a backlash and then a withdrawal, was “absolutely classic Chinese behavior” that also occurred in sub-Saharan Africa in recent years.

“What happens is you start getting people saying: ‘Wait a minute, we are running a huge trade deficit with China,” Scissors said. “They are investing US$20 billion and grabbing up all our resources. Are we a colony?”

It is not just the government that has lashed out in Brazil.

Unions and industry groups regularly target China. At an international textiles fair in Sao Paulo two weeks ago, hundreds of protesters gathered to denounce what they called unfair Chinese trade practices.

Hundreds also demonstrated against foreign involvement in a Libra oil sale two weeks ago, which saw European and Chinese companies successfully bid for the right to drill in Brazil’s biggest-ever oil field.

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