China to be Brazil's Number One Investor, Trading Partner

Consistently adding to its long list of “world’s largest fill-in-the-blank,” China – having already invested more than $20 billion in Brazil so far in 2010 — is now projected to become Brazil’s biggest investor. Although China’s year-to-date investment is an enormous increase over last year (when it was 29th), China had already become Brazil’s number one trading partner in 2009.

Last year, the Netherlands was China’s top investor. However, the US… despite its ongoing decline in Latin American influence… was at that time still its biggest trading partner. Change is happening fast.

From The Washington Post:

“In the first half of this year, China’s investment in Brazil topped $20 billion, more than 10 times all of China’s previous investment in the country. That puts China on track to be Brazil’s No. 1 investor for 2010, compared with 29th in 2009. China’s investments are also booming elsewhere — from Peru, where one-third of the minerals sector is in Chinese hands, to Japan, where Chinese mergers and acquisitions quadrupled from 2008 to 2009.

“‘They do not want to be perceived as just natural-resource eaters,’ said Eike Batista, the Brazilian billionaire behind the port project and one of the world’s richest men. ‘To them, it’s common sense’ […] Chinese firms have bought stakes in Brazil’s electrical grid; they are building steel mills, car plants and a telecommunications infrastructure in that country. Chinese grain companies are negotiating to buy huge tracts — some larger than 600,000 acres — of Brazilian outback to plant soybeans. Chinese firms have the inside track on landing a huge high-speed-rail contract. They want to help realize Brazil’s gargantuan plans — estimated at more than $250 billion — to tap its offshore oil reserves.

“The China Development Bank has given Petrobras, Brazil’s main oil producer, $10 billion as a down payment on future business. Starting last year, China became Brazil’s biggest trading partner, replacing the United States.”

According to the Post, China’s success in trade negotiations is partly driven by its ability to compete in a way considered unfair by much of the Western world. Specifically, China can undercut financing offers made by other nations (at times offering under 1 percent interest rates) because it’s not part of the Organization for Economic Cooperation and Development (OECD). The understanding among the OECD’s 32 members is they are to offer market interest rates, as opposed to competing on the basis of financing. China, on the other hand, with the deal-making flexibility afforded by its outsider status, and its over $2 trillion in foreign reserves, can continue to quickly snatch up unique access to valuable assets worldwide.

You can read more examples of Chinese deals in Brazil and elsewhere in The Washington Post’s coverage of China investing heavily in Brazil in pursuit of political heft.


Rocky Vega,
The Daily Reckoning

The Daily Reckoning