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Brazil faces trade deficit with China

"Brazil likely will be one of the big losers because it sells a lot of inexpensive cars."

Fernando Ribeiro, Foreign Trade Studies Center economist

First came the boom in exports of Brazilian raw materials to China. Then, greater competition from Chinese manufactured goods began to trouble Brazil. Now, for the first time, its trade surplus with China is becoming a deficit.

"China came to Brazil in 2001, 2002 looking for raw materials, and then it kept coming to explore the Brazilian market," explained Rodrigo Maciel, who leads the Brazil-China Chamber of Commerce.

While Brazilian exports quadrupled from 2001 to last year, to US$8.4 billion, imports of Chinese goods surged by six times to US$7.99 billion.

Since January, China even has edged out Argentina as Brazil's No.2 supplier of imported goods behind the US.

"This year we definitely are going to mark a trade deficit with China," Fernando Ribeiro, lead economist at the Foreign Trade Studies Center foundation, told reporters.

The trade balance for January and February was a US$390 million deficit for Brazil, a symptom of the new trade relationship: What was a US$2.4 billion trade surplus for Brazil back in 1983 by last year had shrunk to US$410.5 million.

According to the National Confederation of Industry, Chinese products are competing with 54 percent of Brazil's exports.

In Brazil, one out of four businesses is competing with imported Chinese merchandise. Some have stopped exporting or lost clients.

"There is a great deal of similarity between the goods the two countries export," Maciel said. "But China has created a much more competitive environment than Brazil looking at tax structure, infrastructure, capital costs or labor legislation."

China is well known for the low cost of its work force, but it also has one-upped Brazil on investment: its investment rate is double Brazil's, Ribeiro said.

China invests enormously in education, infrastructure and technology, noted Maciel, while "a lot of people have the mistaken impression China's competitiveness is a result of cheap labor and piracy."

Chinese competition is felt particularly in some sectors requiring a lot of manual labor such as footwear, textiles and small appliances.

In 2005 shoemakers in Brazil sold 23 million pairs fewer than the previous year and cut 15,000 jobs.

But in the next five years, the auto industry -- in which China has big ambitions -- is the looming new threat for the world's number nine car manufacturing country.

"Brazil likely will be one of the big losers because it sells a lot of inexpensive cars," Ribeiro said.

In the auto parts markets, Chinese competition already is making Brazilian manufacturers feel the pinch.

"It is just a taste of what we have ahead of us," Ribeiro sighed.

Brazilian exports led by raw materials continue to move at a reasonable rhythm, he added.

Rodrigo Maciel bemoans what he sees as a lack of initiative on Brazilian businesses' part.

While President Luiz Inacio Lula da Silva made the controversial decision of recognizing China as a market economy in 2004, Chinese investors have not stampeded into Brazil, often citing bureaucracy or Brazilian tax burdens.

"Brazil is lacking a long-term strategy vis-a-vis China," Maciel said.
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