By Stuart Grudgings
RIO DE JANEIRO (Reuters) - Surging Chinese
investment in Brazil is reshaping ties between the countries as
companies seek to secure resources and tap the rising consumer
class in Latin America's largest economy.
From virtually nowhere, China has rocketed to become the
biggest foreign direct investor in Brazil this year with
purchases ranging from iron ore mines to vast tracts of
farmland and the electricity grid.
Following similar forays in Africa and other parts of the
globe, Chinese firms backed by cheap state financing are
seeking a permanent foothold in Brazil, aiming to diversify
their income and meet Brazil's acute need for new
Brazil's hunger for capital is an obvious draw for China,
which has more than $2 trillion in foreign reserves and faces
low returns on its massive U.S. Treasury holdings. Brazil's
large and buoyant consumer market is a welcome contrast to
stagnant demand in China's traditional export markets in the
United States, Europe and Japan.
"China's interest in Brazil has gone from looking for
assets in resources to infrastructure. Its aim is to create a
stronger middle class so Brazil becomes a stronger customer and
partner for China," said Eduardo Centola, the Americas chief
executive for South Africa's Standard Bank.
The boom in Chinese investments in Brazil underlines a
shift of global economic power as funds increasingly flow
between fast-growing emerging markets and leave out the West.
The huge investments in Brazil announced this year are not
all confirmed, but compare to just $83 million in 2009.
AUSTRALIA, CANADA, AND BRAZIL
Ties between the emerging market giants have long been
dominated by China's voracious demand for Brazil's
Now, Chinese firms want a presence on the ground so they
can reduce their vulnerability to supply problems, and Brazil
has emerged as a favorite as its economy has stabilized and
boomed under President Luiz Inacio Lula da Silva.
"What they're looking for is countries that offer
attractive natural resource assets and which are politically
stable enough to invest in, which is Australia, Canada, and
Brazil," said Thilo Hanemann, a China analyst at the Rhodium
Group advisory firm in New York.
Big deals have come thick and fast, from Wuhan Iron and
Steel Co's around $5 billion investment to build a
steel mill in Rio state, to Sinochem Corp's $3 billion stake in
Brazilian deep-water oil fields. Chinese investors are buying
up hundreds of thousands of hectares of farmland in Brazil's
northeast to export grains and produce biofuels.
The investment has gone beyond the natural resources that
China needs to feed its industry and people to areas focused on
domestic demand in an economy that is forecast to have the
world's fifth-biggest consumer market by 2014.
State Grid, China's biggest electrical utility, is paying
$1.7 billion for seven Brazilian electricity transmission
companies. Construction machinery maker Sany Heavy Industry
is building a $200 million plant as Brazil ramps up
infrastructure plans ahead of the 2014 soccer World Cup and
2016 Olympics. Chinese firms are among the front-runners to
build a $19 billion "bullet" train line between Sao Paulo and
Rio de Janeiro.
BUYING UP BRAZIL?
Not everyone is welcoming the new Chinese wave. The big
purchases of natural resources, especially politically
sensitive land, have raised hackles among some who worry that
Brazil risks losing control over its own resources.
Antonio Delfim Netto, a former finance minister who has
advised Lula, said in an interview with the Estado de Sao Paulo
newspaper that Brazil's government was being shortsighted by
allowing China to "buy" Brazil as it had "bought" Africa.
"The Chinese investment is welcome, but not with much
enthusiasm because it is creating hardly any jobs and not
having much impact on increasing our exports," said Roberto
Giannetti da Fonseca, head of international relations and trade
at Sao Paulo business group FIESPI.
The investment push comes after years of mounting concern
that China's cheap manufactured exports and its imports of
commodities are hollowing out Brazil's industry. Investing more
in industries on Brazil's turf, sharing technology and hiring
Brazilians could help alleviate some of that tension.
But China, which last year displaced the United States as
Brazil's biggest trade partner, isn't investing to be "nice,"
said Kevin Tang, director of the Brazil-China Chamber of
Commerce and Industry in Rio. Securing more supplies of
resources such as iron ore is part of a strategic plan to
reduce its dependence on multinationals such as Brazil mining
giant Vale , he said.
"It's doing what it believes is in its best interest and
helping Brazil in the process," Tang said.
As it eyes Brazil's consumers, China is following in
Japan's footsteps as it moves from exporting components to
building its own brands.
Zongshen Power Machinery , for example, spent
$80 million last year to take over Brazilian firm Kasinski and
produce 90,000 motorbikes a year in the Amazon city of Manaus.
It aims to double that in the next two years.
On Tuesday, it unveiled a new line of electric scooters in
Rio and announced it was investing 20 million reais ($11.4
million) to build Brazil's first factory for electric bicycles
and scooters in the state.
"Zongshen wants to become a major global motorbike maker,
competing with the Japanese, and you can't think about
achieving that if you leave out Brazil," said Claudia Rosa,
($ = 1.76 reais)