What does Brazil expect from Li's visit

Updated: 2015-05-18 16:02

By Renato Baumann(chinadaily.com.cn)

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The world has been free of a bipolar system for two and half decades, mainly because the second-most powerful economy has refrained from engaging in a power game. This shows China prefers to be seen as “the most successful developing economy”.

Yet one sees China flexing its muscles in the international arena in a quiet but active way. Be it to try alternative ways — such as eschewing its traditional bias toward the US Treasury bonds — to maintain the real value of its foreign exchange reserves or to look for higher returns on investments elsewhere, or for sheer geopolitical reasons, China has become a major player both as a source of and destination for direct investment.

This is true for investments in other BRICS states — as, for instance, is expected during Premier Li Keqiang’s visit to Brazil — or in non-BRICS states, as illustrated by the recent agreement with Argentina, as well as those in other Latin American and African countries.

For China, it is not only the investment flows that matter. It has been building up a corresponding institutional framework to support its initiatives, too. Two such examples are the setting up of the BRICS New Development Bank — along with the other four BRICS partners — and the China-proposed Asian Infrastructure Investment Bank. It is in the background of such initiatives that Li’s visit to Brazil should be evaluated.

According to the Brazilian media, investment projects worth some $53 billion arelikely to be formally agreed upon during Li’s visit to the country in fields ranging from energy and mining to infrastructure and manufacturing. Also likely is some fostering in bilateral trade in processed foodstuff.

These data raise a number of questions with regard to Sino-Brazilian ties. Attracting Chinese investment has for quite some time been Brazil’s goal. But the idea was to attract new resources not only to food production but also to other sectors. There has been an increasing movement toward investments in ports and railways, which is most welcome given the infrastructure constraints of Brazil. Technology transfer is the ultimate goal, but these projects are an improvement on earlier investment patterns.

In recent years China has hinted its willingness to invest in Brazil but its condition of bringing in Chinese workers has always been the sticking point. But the two sides now seem to agree to each other’s terms, which will lead to a fruitful partnership benefiting both.

An NDB membership could make it easier to get funds for investment projects, but the criteria adopted by the bank remains to be seen. If for instance, the bank prioritizes resource allocation for low-income economies, Brazil may lose out as a middle-class economy, for it will find it hard to compete with India and South Africa. So ideally, there should be a limit to how much funds a country can get from the NDB.

Also, if the recently agreed investments are coupled with trade flows, they would raise a set of additional questions. Brazil, of course, wants more access to cheaper Chinese products, but it should not try to get them in exchange for only more primary exports to China. Beijing should use this opportunity to at least reduce barriers on the import of some Brazilian foodstuff and manufacturing products, which have suffered because of factors such as preferential trade treatments offered by China to some Asian countries.

Indeed, China has been increasing investments in other Latin American economies other than Brazil. If the projects help overcome inter-regional transportation constraints, they will not only benefit the countries directly involved, but also boost intense productive interactions among South American economies, which is essential for the sustainability of several regional integration initiatives.

To the extent that the new projects do not evoke reactions on the basis of the old “Monroe doctrine” and to the extent that the projects correspond to the actual national interests of Latin American countries, Chinese funds are most welcome in the region.

The author is economist at the Institute for Applied Economic Research, and professor at Universidade de Brasilia, Brazil. The views in the article are the author's own.