China invests billions more in Brazil

Li signs 35 agreements covering energy, infrastructure and climate change on Brazil leg of tour

China will invest US$ 53.3 billion in Brazil through 35 agreements signed yesterday between Brazilian president Dilma Rousseff and Chinese premier Li Keqiang. The agreements cover infrastructure, energy, mining, finance, and the environment. One of the most important, according to the officials themselves, is the transcontinental railroad linking the Brazilian Atlantic coast to the Pacific Ocean in Peru.

“A new road to Asia will open for Brazil, reducing distances and costs with this transcontinental railroad. A path that will lead us directly to the ports of Peru and China, via the Pacific ocean.” said president Dilma Rousseff shortly after signing the agreements with Premier Li at the Presidential Palace. “Our three countries, Brazil, Peru and China (with my regards to President Ollanta Humala) are together initiating feasibility studies for this bioceanic railway connection.”

The trans-Andes railway has an ambitious price tag: between US$ 5 and US$ 10 billion. However, all three countries are keen for it to happen. Brazil hopes that it will give them an outlet to the Pacific, allowing its production to flow more easily to Asia and at a lower cost, and will be able to complete and interconnect several of its railroads. Peru will gain top-quality infrastructure railroad and port infrastructure. And China will be able to reduce the prices of products imported from the Brazilian Center-West region by US$ 30 per ton, while also unloading its excess production of steel and rails, and construction and engineering services.

The Brazilian oil and gas company Petrobras, which is mired in the largest corruption scandal in the country’s history, will receive a total of US$ 7 billion to finance projects. Another Chinese-Brazilian company which will benefit greatly is the mining enterprise Vale. Three agreements were signed to purchase 4 iron-ore ships, as well as for financing of US$ 4 billion. The two governments also announced that an agreement was signed for China’s Bank of Communications to purchase and sell shares of the bank BBM S.A. Twenty-two Embraer planes were also sold, and the embargo on sale of beef to China was lifted.

In the energy sector, ceremonial work on the line transmitting electricity from the Belo Monte hydro plant by China’s State Grid begun, and a memorandum of understanding was signed on cooperation and promotion of trade and investments for constructing solar panels. Another memorandum of understanding was signed to create a project within the legal Amazon integration program to renovate and expand the current Amazon protection system (SIPAM).

To reinforce the importance of the partnership, President Rousseff said that a bilateral China/Brazil declaration on climate change reflects “our commitment to reducing greenhouse gas emissions and determination to act together within BASIC (Brazil, South Africa, India, and China) for the success of the 21st Conference of Parties (COP 21) in December in Paris.”

Premier Li arrived in Brasilia on Monday, May 18 and was accompanied by 200 entrepreneurs on a quick visit to four Latin American countries: Brazil, Colombia, Peru, and Chile. Together, these nations accounted for 57% of trade between China and South America last year. To wrap up his nine-day visit to Latin America, the premier will address the opening of the Economic Commission for Latin America and the Caribbean (ECLAC).

In a brief statement to Diálogo Chino upon arriving in Brasilia, the premier said “I hope to encourage friendship between China and Brazil and deepen cooperation with my visit.”  After signing the agreements with Brazil, Li Keqiang was emphatic in discussing the need to intensify relations with the seventh-largest economy in the world. In addition to these affinities, the premier also made a point of mentioning the struggle against climate change as common ground.

Delegations from the two countries spent all day Monday and Tuesday morning in talks to conclude agreements in the areas of infrastructure, energy, finance, steel, and agribusiness.

“This visit is the turning point in Brazil’s relations with China,” said President of the Brazil-China Business Council Sergio Amaral, who along with the Brazilian government organized working sessions between more than 400 entrepreneurs on both sides. According to Amaral, one of the big differences between this visit and Chinese president Xi Jinping’s visit to Brazil last year was the profile of the Chinese business community: 35% are now private, compared to 10% in 2014.

Amaral, a former Brazilian ambassador to London, says another change is the significant increase in homebuilders and banks accompanying Li Keqiang. “Partnership is the name of the new chapter in the Brazil-China relationship,” believes Amaral, who stated that both sides have passed the point of reciprocal knowledge and are now taking concrete steps forward.

Since 2009, China has been Brazil’s main trading partner. In 2014, the trade volume between the two countries was US$ 77.9 billion, with a surplus of US$ 3.3 billion for Brazil. China’s interests essentially lie in high-carbon embodied commodities; iron ore, petroleum, and soybeans, commodities which it has increasingly procured form overseas in the last decade. Peru and Chile are the major suppliers of copper to the Chinese. Peru, home to the largest Chinese population in Latin America, is getting a third of the new mining projects, with Chinese investment predicted at US$ 19 billion.

Last year, China invested US$ 22.1 billion in Latin America. This amount is 71% higher than the amount lent in 2013, and surpasses loans from the World Bank and the Inter-American Development Bank combined.