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China, Brazil Coop. Widens

China, Brazil Coop. WidensChina, Brazil Coop. Widens

A total of 35 agreements and contracts were signed during Chinese Prime Minister Li Keqiang’s visit to Brazil, as part of the growing ties between the two countries. But there is one project that drew all the attention: the Transcontinental Railway.

The railroad will stretch over 5,000 km from the port of Acu, 300 km northeast of Rio de Janeiro, to a port in Peru. The Peruvian port will be selected after feasibility studies are carried out to determine the viability of specific sites, according to the memorandum of understanding signed by Brazil, China and Peru, IPS reported.

Other accords signed by President Dilma Rousseff and Li, or by some of the 120 businesspersons who accompanied the Chinese leader, are more concrete and opportune for the Brazilian government, which is facing a fiscal adjustment and does not have the resources to carry out necessary infrastructure projects and revive the stagnant economy.

The accords involve a total investment by China of $53 billion – a figure mentioned by the Brazilian government without confirmation from China or a detailed breakdown because it covers initiatives in different stages – some still on paper, such as the inter-oceanic rail corridor, and others which will go out to bid.

But the participation of Chinese companies and capital will make it possible to jumpstart many infrastructure projects that have been delayed or stalled, such as railroads for the exportation of the soy grown in Brazil’s midwest and northeast regions.

A $50 billion fund will be established toward that end by the Industrial and Commercial Bank of China (ICBC) and Brazil’s Caixa Economica Federal.

Prime Focus on Industry

Industry, meanwhile, will be the prime focus of the government’s Bilateral Productive Cooperation fund. China will provide $20 to 30 billion and Brazil will later decide what its quota will be.

The industrialization of Latin America is one aim of China’s development finance, Li said in Brasilia, in response to complaints about the asymmetry of trade relations, with Latin America’s exports practically limited to commodities.

Li’s visit to Brazil represented the first part of his first Latin America tour, which is taking him to Colombia, Peru and Chile until his return home on May 26.

The agreements signed in Brasilia for financial cooperation accentuate the much-criticized asymmetry. Chinese banks granted seven billion dollars in new loans to Brazil’s state-owned oil company Petrobras, which come on top of earlier credits that guarantee oil supplies to China.

Another beneficiary of the agreements is Brazil’s mining giant Vale, included in a four billion dollar credit line for the purchase of ships to transport 400,000 tons of iron ore.

Brazil's Exports to China

Oil and iron ore make up nearly 80 percent of Brazil’s exports to China. Hence China’s interest in improving this country’s transport infrastructure, to reduce the cost of Brazil’s exports, besides providing work for China’s construction companies now that domestic demand is waning.

Another agreement opens up the Chinese market to exports of cattle on the hoof from Brazil.

Brazil has exported some industrial products to China, mainly from the aeronautics industry. The sale of 22 planes from the Empresa Brasileira de Aeronautica (Embraer) to a Chinese company was finalized during Li’s visit. A prior accord had established the sale of a total of 60.

Bilateral trade amounted to $77.9 billion in 2014, with a trade surplus for Brazil, although it is shrinking due to the fall in commodity prices. The goal is to reach $100 billion in trade in the near future, according to the Chinese prime minister.

Positive to Brazil

The stronger relations, especially the increase in Chinese investment, “could be positive for Brazil, but we have to control our enthusiasm over the closer ties,” said Luis Afonso Lima, president of the Brazilian Society of Transnational Corporations and Economic Globalisation.

“China may have more to gain than us in this process: they are seeking suppliers (of raw materials) throughout Latin America, but without any urgency because their economy has slowed down; they can think things through strategically, with a view to the long term,” the economist told IPS.

With nearly four trillion dollars in foreign reserves, they can finance the development of any country, he said.

 

Financialtribune.com