{"id":50040269,"date":"2021-02-18T13:50:35","date_gmt":"2021-02-18T13:50:35","guid":{"rendered":"https:\/\/stage.dialogochino.net\/?p=40269"},"modified":"2023-05-15T16:07:57","modified_gmt":"2023-05-15T15:07:57","slug":"39954-brazil-china-fund-yet-to-back-one-project-six-years-on","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/39954-brazil-china-fund-yet-to-back-one-project-six-years-on\/","title":{"rendered":"US$20 billion Brazil-China Fund yet to back one project six years on"},"content":{"rendered":"

Announced with great fanfare six years ago, the Brazil-China Fund has not yet financed a single project with the $20 billion it has available. Fluctuating exchange rates, a high degree of bureaucracy and scant interest from the Brazilian government prevented the fund from attracting market interest, analysts say.<\/span><\/p>\n

Brazil and China announced the fund in 2015 when the latter needed to export its surplus industrial capacity and had cash to do so in strategic locations. That same year, Chinese authorities<\/span> travelled the world,<\/span><\/a> inking agreements with the European Union, Russia, Indonesia and several other countries.<\/span><\/p>\n

For Brazil, which was witnessing an abrupt end to a near decade-long commodity supercycle and seeing investment shrink, it was the right time to create a fund tasked with expanding the country’s productive capacity.<\/span><\/p>\n

“At this time of slowdown in the international economy, reciprocal trade and investment between Brazil and China can and will mean an improvement in our economic situation,”<\/span> said<\/span><\/a> President Dilma Rousseff when the agreement was signed.<\/span><\/p>\n

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Dismissed<\/strong><\/p>\n

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\nThe Brazil-China Fund committee reviewed six consultation letters between 2016 and 2018. No proposals went ahead
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The fund was only officially incorporated two years after its announcement and foresaw a contribution of US$15 billion by the Chinese fund for financing in Latin America (Claifund), which was established at the same time, and another $5 billion from Brazil\u2019s Federal Savings Bank or national development bank BNDES. Meanwhile, <\/span>equivalent<\/span><\/a> Chinese<\/span> funds<\/span><\/a> were already financing dozens of projects worldwide.<\/span><\/p>\n

Bureaucracy at the Brazil-China Fund<\/h2>\n

A committee consisting of three members from each country was to review projects interested in borrowing from the Brazil-China Fund. On the Brazilian side, this included the executive secretary to the president’s chief of staff, the executive secretary of the Ministry of Planning and the general secretary of Foreign Affairs at the Ministry of Foreign Affairs. Officials from the People\u2019s Bank of China, China Development Bank and the State Administration of Foreign Exchange represented the Chinese side

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\"Michel
The Brazil-China Fund was formally established in 2017 with great expectations. However, exchange rate volatility and complex bureaucracy have stymied its potential (Image: Alamy)<\/figcaption><\/figure>\n

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Renato Baumann, an economist with the Institute of Applied Economic Research (Ipea) who served as assistant secretary for international affairs at the Planning Ministry between 2016 and 2018, says the group examined six consultation letters during his time there. These proposed projects are confidential and ended up not going forward, some because they found other credit alternatives, others because of “lack of consistency”, he says.<\/span><\/p>\n

But projects were only ever analysed at the <\/span>technical<\/span> level, Baumann said, as the committee made up of higher level officials never met or created a statute for the fund. Baumann described the Chinese officials as reluctant to share any information about how the fund would work their end, and said Brazilian officials never even learned the name of their Chinese counterparts in the committee.<\/span><\/p>\n

The requirement that so many authorities approve each project made the process much slower than other credit instruments available on the market.<\/span><\/p>\n

When asked about the current state of the cooperation fund, Brazil\u2019s Ministry of Economy said that shortly after its creation it deemed that the governance model “did not achieve the expected results, nor the necessary attractiveness for the submission of qualified projects\u201d.<\/span><\/p>\n

But the government itself showed a lack of interest in getting the project off the ground. For<\/span> months<\/span><\/a> now, the ministry has said it is looking at ways to make the committee more efficient, without setting deadlines. This at a time when Brazil is attracting its<\/span> lowest<\/span> levels of <\/span>investment<\/span><\/a> in recent history.<\/span><\/p>\n

Unattractive<\/h2>\n

Alan Fernandes, president of Chinese investment bank Haitong in Brazil, said that exchange rate volatility was an important reason for Fundo-Brazil China’s lack of attractiveness.<\/span><\/p>\n

In May 2017, when the fund was officially established, the dollar was valued at around 3.25 reais (R$). Since then, markets have been bullish about the Brazilian currency and, at the time of publication, a dollar was worth 5.4 R$. This scenario can deter potential borrowers from borrowing in dollars – the currency the fund lends in – as it can be expensive and carries the risk of higher future repayments should the real fall further.  Fernandes explains.<\/span><\/p>\n


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