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The Dragon and the Anaconda

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Tensions are growing between BRIC countries Brazil and China.


BY LORO HORTA

When President Lula Da Silva took office in 2002 he made relations with the People’s Republic of China (PRC} one of his main foreign policy priorities. In the past decade relations between the quasi super power and the South American giant have expanded beyond anyone’s expectations. In April 2009 China became Brazil’s largest trading partner after 85 years of American dominance with trade between the two nations reaching $36 billion. Both countries have cooperated in very sensitive technology sectors launching four jointly developed satellites. In 2009 Chinese navy pilots began training at the Brazilian aircraft carrier Sao Paulo in preparation for the deployment of China’s first aircraft carrier.

In 2010 the Chinese government granted Brazil a $10 billion loan to assist in the development of the newly discovered Tupi oil fields in southern Brazil. Chinese companies have won very lucrative contracts in Brazil in areas such as infrastructure, telecommunications and the service sector with Chinese FDI reaching $17 billion in 2010. China has also invested over $2 billion in the steel industry. In August 2010 China’s steel giant Wuhan Steel & Steel pledged to invest another $5 billion in the country’s steel sector. In 2009 Brazilian agricultural exports to China reached $4.8 billion making Brazil China’s main source of such imports. The economies of both countries seem to have a great degree of complementarity and offer both countries ample opportunity for mutual benefits.

Both countries also grew increasingly close politically supporting each other’s position on issues such as the world trade regime, human rights, UN reform and climate change. In 2009 in the wake of the world economic crisis and a weakening American dollar, both countries signed a currency swap agreement under which both nations pledge to increasingly conduct their bilateral trade in their respective currencies. China is quite keen on reducing the influence of the U.S. currency and Brazil seems to share the same desire. Both countries have challenged the United States and its allies on issues such as Iran and nuclear proliferation and have cooperated very closely on the transfers of nuclear technology. Meanwhile Brazilian companies such as mining giant Vale and aircraft manufacturer Embraer have invested heavily in China.  In 2004 an enthusiastic President Lula said: "China and Brazil don't have overwhelming muscle, but by cooperating they do improve their position."

This growing economic and political interaction between the two giants led some observers to conclude that a growing political alliance was being forged between two rising powers to balance American global influence. While indeed Sino-Brazilian ties have witnessed a remarkable increase closer scrutiny shows that things are far more complex.

Sino-Brazilian relations benefited enormously from the personal enthusiasm of long serving Brazilian foreign minister Celso Amorim and President Lula. Amorim confronted serious reservations and opposition from the Brazilian political establishment and the business sector who feared the negative impacts of Brazilian recognition of China as a free market economy and opening of Brazil’s market. The Brazilian business sector has been highly critical of the country’s trade policy towards China. Brazilian steel manufacturers complain that Brazil has been naïve at opening its markets to China while so far China as failed to reciprocate. Since 2005 Brazil has lodged 140 anti-dumping complains against China at the WTO.

Brazilian textile manufacturers have been hard hit by Chinese cheap imports and the once thriving sector is struggling to survive. Joze Gomes da Silva, president of the Brazilian Textile Association complains: “The openness of the Brazilian economy can't just lie on opening imports to every country while not getting anything in return.”

Many in Brazil resent the “neo colonial” nature of the relationship. There seems to be an asymmetric dimension to Sino-Brazilian ties witnessed in the nature of bilateral trade. While Brazil exports to China some high-end manufactures such as aeronautics and gas turbines most of the country’s exports to the PRC consisted of primary goods and energy resources. Agriculture products account for 70 percent of Brazilian exports with timber and minerals accounting for over 20 percent, while China exports to Brazil low to mid end manufactures such as TVs, phones, textiles and machinery.

The opportunities offered by the large Chinese market to Brazilian companies were expected to offset and compensate for losses caused by Chinese penetration of the Brazilian economy. However, argue the critics, excessive Chinese protectionism had made it very difficult for Brazil’s companies to operate in China. For instance the much acclaimed joint venture between Brazil’s aeronautic company Embraer and China’s Harbin Aviation Industry for the production of a middle size jet liner is now marred in controversy.  The joint venture was to benefit both sides by allowing China to obtain the technology no Western nation is willing to share, while Brazil would benefit from a promised order of 1,000 planes. Embraer officials interviewed by the author on the condition of anonymity complain that by 2009 China had made far fewer orders than originally promised and was instead producing its own plane with Brazilian technology

The Brazilians also accuse the Chinese of having lured them with the promise of big sales to the growing Chinese domestic aviation market to get their technology and then left them in the cold. In 2008, Embraer sales were so low that the company seriously considered terminating its operation in China after just four years of presence. Tensions were aggravated when in April 2010 an Embraer jet fall in China killing 42 people. The Chinese authorities accused the successful Brazilian manufacturer of low quality controls. Irate Embraer officials pointed out that its planes are being used in far larger numbers in Europe, the United Sates and Australia and so far have had no problems. The Brazilians in turn pointed to China’s dismal maintenance and safety record.

Brazil is also increasingly uneasy at China’s growing penetration of Brazil’s traditional markets in South America.  In 1995, Brazil exported $5.7 billion in industrial goods to the region while China exported $1.4 billion. In 2004, China had exported $7.8 billion while Brazil’s exports were $6.5 billion. The fact that cheaper Chinese imports are quickly replacing Brazilian products in neighboring countries further exacerbates concerns from Brazilian business interests. For instance, in 2003 88 percent of Argentina’s TV sets imports were from Brazil, while China accounted for a mere 1 percent. In 2009 Brazilian TVs accounted for 37 percent while Chinese imports reached 42 percent. In recent years the trade deficit between the two countries has been on the rise. In 2010 Brazilian exports to China fell 3 percent while Chinese exports to Brazil grew 89 percent.

Sino-Brazilian competition is now fast spreading to former Portuguese Africa where Brazilian companies are now faced with a surge in Chinese investments. Brazilian mining giant Vale is aggressively competing with the Chinese in coal rich Mozambique. Since 2009, Vale invested $1.3 billion in coal mines in the central provinces of Zambezia and Tete, while Chinese steel giant Wuhan Steel & Steel has invested a $1 billion. Brazil has been investing heavily in oil rich Angola where China is now the largest trading partner of that nation. In 2008 the director of the Brazilian state investment agency denied reports of Brazilian and Chinese competition over resources in Africa. During President’s Lula da Silva visit to Africa in July 2010 the Brazilian newspaper Globo ran a story entitled “Lula exacerbates competition with China” in which it described the growing tensions between the two giants.

In February 2011 Brazilian media reported that the government was planning to introduce protective legislation to safeguard the steel and mining sector in the country. Among the legislation are laws establishing limits for foreign investment in certain sectors of the economy and laws establishing quotas forcing foreign companies to meet domestic market needs. The media reports clearly state that these measures were directed mainly at China. In November 2010 in a long interview with the Brazilian newspaper Estadao Amorim, the main architect of the Sino-Brazilian partnership, said that Brazil needed to rethink its relationship with China. After carefully nurturing this important relation one of Brazil’s longest serving foreign ministers and one of its most brilliant thinkers seemed to be consumed with doubts and regrets.

Despite all the tensions there are still many benefits that both countries have and will continue to take out of this relation. For instance Chinese agriculture imports are crucial for Brazil’s economy in light of protectionist policies in the United States and Europe. Brazil needs Chinese capital to develop its new oil fields and is likely to side with China in many international issues such as climate change and international trade negotiations.

However, one thing seems to be certain the enthusiasm for an alliance between two developing world giants to counter the United States seems to be dead. Sino-Brazilian relations are likely to be marked by pure pragmatism as the ideological idealism of the Lula administration seems to have been badly misplaced. When Obama visited Brazil in March he was warmly received with the tone of the visit being quite conciliatory and diplomatic.

Brazil thought of using China to balance the United States, but it may now need the United States to balance China. In October 2010 -- in perhaps an indication of the current state of relations -- a friendly basketball game between the Chinese and Brazilian national teams ended in a massive brawl. As the Brazilian saying goes:

“Amigos amigos amigos, negocios a parte (There is no such a thing as friendship in business)”

The Chinese seem to understand this better than the Brazilians

Loro Horta is a graduate of the People’s Liberation Army National Defense senior officer’s course and the Chinese Ministry of Commerce Central School. He is also a graduate of the United States National Defense University and is currently pursuing further studies at the US Naval Post Graduate School.

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