China-Brazil Relations and Dilma’s China Trip

I have an article on China-Brazil relations in the latest edition of Harvard Asia Quarterly, which you’ll be able to check out here later at some point. Meanwhile, here’s a long quote that sums up the spirit of the article:

China-Brazil relations have attracted a great deal of interest in recent years. This is due to significant changes in the intensity of bilateral relations in the last decade – with China becoming Brazil’s largest trade partner in 2009 – and China’s growing presence in Latin America. It is also due to the hype surrounding so-called “emerging countries”. I argue that while China’s economic presence in Brazil is unmistakably increasing, this should be interpreted neither as a consequence of close political ties nor as a development that invariably contributes to this end. In fact, the intricacies of managing the complex and asymmetric interdependence that results from this increase, especially its domestic political reverberations, have actually worked against Brazil-China political relations.

Some of the similarities that were supposed to bring them together, such as their partial rejection of “liberal” norms and principles and the adoption of more state-centered, nationalistic and mercantilist development models, actually create friction and push them apart. The global financial crisis amplified and cast a light on these ambivalences and paradoxes that were already present in the Brazil-China relationship.

The increased competition Brazil faces from China in its domestic and third markets has sparked fears of “de-industrialization” or “primarization”. Even if this anxiety is largely unfounded, it has empowered already strong protectionist voices and fueled resistance to China, making it harder to sustain a strategy of non-confrontation, mainly where trade and currency issues are concerned.

A particularly useful illustration of this strained relationship is the controversy surrounding Chinese investments in Brazil. Lauded by many as a sign of new times, the surge of Chinese investment last year didn’t assuage Brazilian grievances regarding bilateral trade, but instead reflected the general anti-China feeling predominant in Brazil.

[When Chinese investments finally began to arrive in Brazil in 2010,] enthusiasm gave way to deep suspicion of Chinese intentions and the prospect of Chinese companies holding a relevant stake in Brazilian natural resources and critical industries. The anti-China lobby, which used to complain about the lack of Chinese investment in Brazil, started to vocally denounce these investments as attempts by the Chinese government to buy up Brazilian land and resources, distort markets and destroy Brazilian industry “from within”. Sinophobia has also played a part in recent legislation approved by the Brazilian Congress limiting land purchases by all foreign companies and individuals. These actors argue that Chinese FDI is qualitatively different from that of traditional sources because of the controlled nature of the Chinese economy, China’s selectivity in allowing inbound FDI, and the close association between the investing companies and the Chinese state.

Apart from the contentious issues of bilateral trade and investment, Brazil and China are finding themselves pressed to abandon grandstanding rhetoric and abstract notions of “multipolarization” and South-South cooperation in favor of a more pragmatic discussion of the issues at hand, such as the rules of international trade, currency, nuclear non-proliferation, UN Security Council reform, climate change and human rights, where interest clearly don’t respect an imaginary “North/South” divide. Furthermore, both countries’ growing capabilities and interests abroad could also create new frictions. Some Brazilian officials are wary of China’s growing economic presence in South America, a region that Brazil has come to consider as its own sphere of influence, and in Africa, where Brazilian companies are falling behind the Chinese in the rush for resources, business deals, and markets.

These problems are unlikely to dissipate or be resolved, and in fact seem poised to worsen in coming years. China’s continued growth and persisting domestic imbalances will make sure that its demand for commodities, exports of industrial goods, and outward expansion of capital maintain a rising trajectory.

Internal political dynamics, including the coming leadership succession, will probably make China less prone to compromise and more nationalistic. Brazil’s own economic and political environment also seem to be moving in ever more nationalistic and protectionist directions. President Dilma Rousseff and most of her new staff are generally more hawkish on China than their predecessors and have declared rethinking relations with China a top priority.

At first glance, this contrarian view of Brazil-China relations seems very gloomy but what it suggests is actually not extraordinary. What it means is that there are very real opportunities for cooperation and mutual benefit in trade, bilateral investment, and cooperation in various fields; yet before they can seize these opportunities, there are daunting challenges that need to be addressed and legitimate disagreements with which both countries will just have to learn to live. Their success or failure in doing so will have an important impact on political and economic relations in Latin America and, to some extent, in the world.

The article actually discusses at some length the controversy surrounding Chinese investment in Brazil, but for that  you’ll have to read the whole piece.

I’m still mulling over Dilma’s recent China trip and how it relates to all of this, but overall I think the results from that fit my argument quite nicely (though I admit that there may be some confirmation bias at work here). Despite all the talk about recasting relations with China, there were no surprises or major advances. The two most important topics on the political agenda – Brazil’s bid for a permanent UNSC seat and China’s demand for market-economy status recognition – got a lot of attention but didn’t get any closer to being settled. Some other treaties and agreements were signed, but most of them were just fillers.

On the business side of the trip, important announcements were made and two relevant disputes were settled, kinda: Embraer gets to stay in China, sell some US$ 1.4 bn worth of regional jets over the next few years and eventually start assembling its luxury jets there, but that doesn’t really solve their problems with intellectual property protection and procurement biases; also, China will finally start to buy pork products from Brazil, but only from 3 of the 13 suppliers that applied for licenses last year.

Some very interesting investment projects were disclosed, and many Chinese companies made their interest in Brazil very clear. But as with other announcements over the past year – not to mention years before – some of these investments will take a while, if they happen at all. One of the most widely cited items to come from the trip was Foxconn’s declared intent to invest around US$12 bn to assemble iPads in a new plant in São Paulo and perhaps start producing some components in the near future, employing dozens of thousands of engineers and about 100 thousand workers in total. While this makes for a great headline, experts suggest that these figures are substantially inflated and that despite the impression of finality given by Brazilian officials, this is still a vaguely defined plan that will have to be negotiated with other parties involved (like Apple).

Overall, Dilma’s trip provided an opportune occasion to seal certain deals, and may even have been necessary for a couple of them, but trade and investment flows will keep trending up regardless of presidential visits,and one would be remiss to expect any significant change in the structure of bilateral trade or in the investment strategies of Chinese companies. That is, the “imbalances” that so worry Brazil will not be corrected overnight (assuming there’s even something to be corrected) by any number of deals.

The unusual length of the trip (almost a week) is certainly a positive factor that suggests real political will on the part of Brasilia, but the sloppy, last-minute, work that was done in preparation for the trip and the severely flawed analysis that informs some of the premises that guided the Brazilian team reveal that Brazil is not quite ready to engage China more actively.

Many analysts were positively surprised by the generally warm tone adopted by Brazilian officials during the trip, but why should they? Bilateral exchanges and BRIC summits are hardly the venues for serious criticism or real problem solving, and the resulting speeches and communiqués notoriously paper over disagreements and tensions and exaggerate the prospects for cooperation. As I suggest in the article mentioned above – and in more detail in a forthcoming chapter here -, it’s crucial to look beyond diplomatic doublespeak and take into account the distributional effects of bilateral economic relations and how the relevant interest groups and bureaucratic actors in Brazil mobilize to affect policy and set the – mostly negative – tone of public discourse with regard to China.

In sum, the trip was as productive as one could realistically expect it to be, but despite calls for a “new phase” of China-Brazil relations the visit was overwhelmingly marked by continuity, not change. By overemphasizing its few significant accomplishments both parties will likely miss once again the opportunity to soberly assess what went wrong, what was missing and what has to be improved, not only in preparation for the next bilateral exchange but also in the development of a more solid and coherent engagement strategy with a strong institutional framework.