Political Risk Latin America Blog @PolRiskLatam

Brazil/China economy: Deeper inroads

Posted in News and Articles by politicalrisklatam on August 10, 2010

by The Economist Intelligence Unit, August 10th, 2010.

The dynamism of Brazil’s economic growth has been driven in part in recent years by demand for its products in fast-expanding China. Now, besides a source of imports, Brazil is also becoming an important destination for Chinese direct investment. Such investment is slated to skyrocket this year from the levels of previous years, deepening the expanding collaboration between the two rising global powerhouses.

Chinese investment could reach US$12bn this year, according to calculations reported by Brazil’s Globo news organisation and based on commitments announced by various Chinese companies. That compares to a mere US$82m in 2009, and a total of US$215m between 2001 and 2009, according to figures from Brazil’s Central Bank. It also surpasses the US$5.7bn invested in Brazil in 2009 the Netherlands, which last year was the biggest source of incoming foreign direct investment (FDI).

As has been the case with Chinese FDI in other developing countries, most of the outlays in Brazil will go to the natural resources industries. The motive is not only profit, but also the securing of raw materials needed to support China’s booming economy. The preferred sectors in Brazil are petroleum, mining, steel and energy. 

Yet Chinese companies are also attracted to Brazil’s macroeconomic stability and robust domestic growth prospects. They may invest in infrastructure modernisation ahead of the 2012 World Cup and the 2016 Summer Olympic games, both to be held in Brazil. Brazilian President Luiz Inácio Lula da Silva has said that the Chinese might bid to construct a high-speed train line to connect Rio de Janeiro with São Paulo.

Recently announced Chinese investments include a potential US$3.29bn outlay by Wuhan Iron and Steel Corp (Wisco), which signed a contract with Brazil’s LLX to build a steel plant in Porto do Açu, São João da Barra. This would be China’s largest investment ever in Brazil. Another investor is Sany Heavy Industry, a manufacturer of machinery for civil construction, which plans to spend US$100m to install a factory in São José dos Campos, São Paulo state. And Chinese banks, including the Bank of China, are starting to open local offices. (continue reading… )


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