Sino-Brazilian economic ties
Is this an example of South-South cooperation?
Rob Keizers S1518038 Master of Arts Thesis Program: International Relations Specialization: Global Political Economy Supervisor: Dr. Karen Smith Word count: 14826 Leiden, January 2019
Contents
Chapter 1 Introduction 2 1.1 About the topic 1.2 Methodology 1.3 Conceptualization 1.4 Chapter Overview Chapter 2 Literature Review 10 Chapter 3 A historical overview of the Sino-Brazilian economic relation 15 3.1 The first decades of economic ties between China and Latin America 3.2 Sino-Brazilian trade 3.3 Chinese investments in Brazil Chapter 4 Case studies 20 4.1 Brazil’s soybean exports to China 4.2 Brazil’s import of Chinese manufactured goods 4.3 The Twin Ocean Railway 4.4 China’s investments in Brazil’s oil sector Chapter 5 Brazil’s and China’s views on South-South cooperation 28 5.1 China’s view on South-South cooperation 5.2 Brazil’s view on South-South cooperation 5.3 China and Brazil their view towards each other regarding SSC Chapter 6 Conclusion 34 Bibliography 37
Chapter 1 Introduction
1.1 About the topic After the 2017 BRICS summit in the Chinese city of Xiamen, Xi Jinping talked positively about South-South cooperation. He framed, among others, the Sino-Brazilian relation as mutually beneficial and said to be in favor of South-South cooperation (XinhuaNet, 2017). A few weeks before, Jair Bolsonaro, a federal deputy of the State of Rio de Janeiro argued: ‘’A China não está comprando do Brasil, está comprando o Brasil’’ (Bolsonaro, 2017). This means that the Asian country is not buying from Brazil, but it buys Brazil itself. At the end of October 2018, after counting the votes of the second round of the presidential elections in Brazil, it became clear that Jair Bolsonaro won the elections, which made him president-elect.
According to the Group of 77 and China (2009) that tries to foster development among the developing countries, South-South cooperation has to benefit mutually, which means that both countries that work together on a project have to reap the benefits of it. This seems logical because if the objective of ‘cooperation’ is taken into consideration, one will notice that no form of cooperation will exist if a certain kind of commitment is not beneficial for the party that one represents. However, Jair Bolsonaro frequently has warned Brazilians for the Chinese dominant way of acting in Brazil. Nevertheless, later on, while being the new president-elect of Brazil, Bolsonaro revealed that he is in favor of Chinese investments and a growing Sino-Brazilian trade (Reuters, 2018). His distrust towards the Chinese economic influence in Brazil was, at least for the most part, lifted by this statement. The Sino-Brazilian economic relation is of relevant importance given that China, the second biggest economy in the world after the U.S., is Brazil’s main trading partner. On top of that, in Latin America, Brazil is China’s main trading partner either. One of the characteristics that has to be taken into account concerning world trade is that nowadays manufactured goods are likely to come from China. In 1980 only 49,7% of its export consisted of manufactured goods, while in 2006, more than 94% of China’s exports existed of manufactured products (Chen, 2017).
During the last three decades, China developed from a poor country with a relatively high agricultural population to the world’s leading possessor of metropolises in the world (Economy & Levi, 2014). Between 1978 and 2014, the Chinese urbanization degree increased from 17,9% to 54,8% (Huang; Yan; Wu, 2016). In addition, the Chinese government estimates that by 2030, an extra 300 million people have moved from the countryside to the city. The development that China experienced, has led to a significant demand of resources. Regardless the kind of resources the Asian country needs, it will pursue what is considered necessary to fulfill the economic, political and military requirements (Economy & Levi, 2014).
On the contrary, Brazil could rather be considered as a main exporter of commodities. Iron ore, soybeans, frozen chicken, oil and sugar are examples of Brazil’s commodity exports. During Brazil’s commodity boom of the 2000s, the prices of commodities were high. However, largely as a result of falling commodity prices, Brazil went through a grave crisis between 2014 and 2016. The Economist creatively elaborated the difference between ‘the boom’ and Brazil’s economic and political crises in Brazil by using two opposite covers, respectively in November 2009 and in January 2016. Source: The Economist Source: The Economist The left picture about the country’s take off was The Economist’s cover because by then Brazil was seen as an emerging power. Its fall was shown at the cover in 2016, the year when president Dilma Rousseff faced an impeachment. In the meantime, although China’s GDP does not experience a continuous relatively high growth anymore, Chinese Foreign Direct Investment (FDI) in Latin America (principally in Brazil) is significantly higher than during the 2000s. In addition, as has been said before, China is Brazil’s main trading partner. In this thesis China is classified as being part of the Global South. Possibly a little group of scholars would not agree on this, but generally speaking, the country is considered as a Global South country. 1.2 Methodology
To study the Sino-Brazilian economic relation and its link to South-South cooperation, a qualitative case study methodology will be used in this research. In accordance with Baxter and Jack (2008), ‘’[t]his qualitative case study is an approach to research that facilitates exploration of a phenomenon within its context using a variety of data sources’’ (Baxter and Jack, 2008: 544). Yin (2003) argues that a case study should be used when the emphasis of a study is placed on explaining why and how phenomena occurred. In addition, it should not be possible to influence the attitudes of the involved ‘actors’ in the case study. Furthermore, the contexts of the phenomena are considered as important because they have affected them. Finally the boundaries between the contexts and the phenomena are not easy to recognize (Yin, 2003). There is a lot of confusion about the meaning of a case study (Baxter & Jack, 2008). First of all it is interesting to explain the word ‘case’. According to Gerring, ‘’[it] connotes a spatially delimited phenomenon (a unit) observed at a single point in time or over some period of time’’ (2007: 19). The distinction between a case study and a study that is cross-case is not very clear to define because the more cases that are used, the less deeply studied they are, which means that it deserves the term of case study to a lesser extent. If within a research the focus is placed on several case studies instead of one single case study, a study is rather called cross-case due to the lack of intensity (Gerring, 2007). In this sense, according to Gerring (2007), this thesis would rather be based on a cross-case study because four different case studies are used in a relatively small research.
Case studies vary in their scope. Two characteristics of the case study methodology define their depth. Firstly, the amount of case studies that are used within a research. Secondly, it is important how much information is collected for each case study (Hammersley & Gomm, 2000). In accordance with Biesanz and Biesanz, ‘’[t]he case study is a form of qualitative analysis involving the very careful and complete observation of a person, a situation or an institution’’ (Mustafa, 2008: 5).
Furthermore, by taking into account quality and quantity, it is important to know the difference between statistical method and the case study method. Statistical method differs from the case study method because by using statistical method, the importance of quantity is stressed, while for the case study method, one is much freer in giving explanations. On top of that, a case study is more profound in comparison with statistical method because, if this latter method is applied, preferably one generalizes on the basis of the quantity of measurements (Mustafa, 2008).
It is also relevant to explain the different kinds of case studies. The first one is the single case study. This type entails lots of details and could be applied for instance for theory testing. The second one is the deviant case study, which differs completely from the existing detailed literature. Using this type of case study may lead to modifications of theories. The third one is the comparative case study, also called the multiple case study.
This research consists of various cases (at least two) and with the aid of a multiple case study a theory could be tested several times (Mustafa, 2008). The latter mentioned type of case study will be used for this thesis, that is to say the multiple case study. However, Gerring (2007) would rather call this research a cross case study.
Although ‘the Sino-Brazilian relation’ entails more than just economic ties, this thesis will focus on the economic relation between China and Brazil. For that reason the principal division in order to study the Sino-Brazilian economic relation shall consist of two main components, which are trade and investments. Concerning trade, Brazil’s imports deriving from China as well as Brazil’s exports to China shall be taken into account. Regarding the part that is about investments, only the Chinese investments in Brazil form part of this thesis. In contrast to China, Brazil has not sought to invest considerably in China (such as China did in Brazil). With this in mind, the most important features of the Sino-Brazilian economic relation will be brought to light by making use of the aforementioned trade and investments division.
It is important to understand the goal of the Sino-Brazilian economic relations. Without doubt, the goal pursued by China with its investments is to generate profits in Latin America. Within the region, as has been mentioned earlier, Brazil is its main target for investments, followed by Argentina. On top of that, Brazil serves as a selling market, mainly for manufactured goods. However, much more money is involved regarding the imports of Brazilian commodities. The growing population of China and its rising middle account for a high demand of commodities, coming from, among others, Latin America’s biggest country. This means that for Brazil, China is the prime destination for its commodities and Brazil also receives Chinese investments for, among others, the development of its infrastructure and energy sector.
By analyzing the Sino-Brazilian economic relation by taking into consideration both perspectives, it has to become clear to what extent Brazil benefits from the trade with China and the Chinese investments in Brazil. In addition, in this thesis it has to become clear as well to what extent China benefits from the economic relation with Brazil. The results of this research have to make clear whether the Sino-Brazilian economic relation is a form of South-South cooperation. For that reason, the title and the included research question is the following: Sino-Brazilian economic ties: Is this an example of South-South cooperation? As has been mentioned before, this thesis divides the Sino-Brazilian economic relation into two main components, which are trade and investment. Case studies are used to explain whether the Sino-Brazilian economic relation could be seen as an example of South-South cooperation. Given that the trade between two countries is analyzed, imports in Brazil coming from China and Brazilian exports to China shall be clarified. For both imports and exports a case study has to clarify whether the Sino-Brazilian trade is
beneficial for both countries, which makes clear if it could be called South-South cooperation. Concerning exports, in addition to providing general information about Brazil’s exports to China, the exports of soybeans to China will be used as a case study. This is one of Brazil’s most exported commodities to China. Brazil’s import of Chinese manufactured goods is the second case study regarding trade.
The part about Chinese investments in Brazil focuses on two different themes. The first one consists of information about Chinese investments in Brazil’s infrastructure. The ‘infrastructure case study’ is the Twin Ocean Railway, a plan about a railway that would connect the Atlantic coast with the Pacific coast, or more specifically, the Brazilian coast with the Peruvian coast. The second theme is the Brazilian energy sector in which Chinese enterprises have invested. The fourth case study of this thesis, related to the Brazilian energy sector, exists of the Chinese economic involvements regarding Brazil’s oil sector.
Case studies are key elements for this research. Nevertheless, they have strong but also weak sides. Advantages of case studies are their comprehensiveness and their intensiveness (Mustafa, 2008). For that reason, the context of a case study could be considered as wide. According to Naumes and Naumes (2012), it is not only possible to explain what occurred with the help of case studies, but also why something occurred. Moreover, a case study provides a framework for researchers in which they can seek phenomena that are detailed and complex (De Lange et al., 2016). The aforementioned case studies of this thesis lead to insights that are analyzed from various angles, given that, although related to the Sino-Brazilian relation, soybeans, manufactured goods, the Twin Ocean Railway and oil differ in their nature. One of the disadvantages of using a case study for a research project is that people may generalize the outcome of a particular case study (Simons, 2014). By using four different case studies, the ‘risk of generalizing’ is limited to a certain extent. Nevertheless, given that the case studies are about different subjects within trade and investments (commodity export versus manufactured goods import for instance), the risk is that readers tend to generalize the outcome of a single case study for the whole ‘subtopic’. For example, if the export of Brazilian soybeans to China turns out to be beneficial for both countries, people may assume that in general the Brazilian exports of commodities to China are mutually beneficial. Moreover, a case study lacks objectivity, as the researcher analyzes intuitively instead of statistically. Furthermore, the selection of the cases, which derives from subjectivity, could be wrong. Additionally, the researcher could have too much confidence. That is to say that he has the idea that he has a lot of knowledge of the subject he writes about, although ignorance during his research could still play a role. For instance, this could happen when the case study is about a person, who will be interviewed, but the interviewee himself leaves out necessary information (Mustafa, 2008). Regarding the
trade of soybeans between Brazil and China, it could be the case that some trade statistics are missing in the existing literature, which may lead to underexposed assumptions.
For this thesis, interviews or fieldwork will not make part of this thesis, but the existing literature will be used, that is to say, books, articles and possibly theses or dissertations. Furthermore, Portuguese documents of the Brazilian government will be used either, which is important to become to know more about the view of the Brazilian government towards its role with China. Moreover, English written documents of the Chinese government will be used too. On top of that, an interview on YouTube in which Jair Bolsonaro gave his opinion about china will be used as a source as well. Websites of several organizations could offer valuable information as well for my thesis such as organizations that form part of the United Nations. Also a small amount of information coming from news agencies will be relevant, especially those related to China, given that XinhuaNet for instance is a state-owned news agency. 1.3 Conceptualization In the first place it is worth taking a look at the latter mentioned concept, which is Global South. According to Reis da Silva et al. (2016), the countries of the Global South were colonized and all experienced imperialism. Furthermore, they are facing, what is called by Silva et al. ‘‘common dilemmas‘’ (2016: 170). Unfortunately Reis da Silva et al. do not explain what these ‘’common dilemmas’’ (2016: 170) entail. One may have to think about corruption and higher crime rates than in most ‘Western countries’.
In accordance with Slovic et al. (2015), three characteristics could refer to the concept Global South. First of all, the Global South is a concept that came into existence during the time when dominant countries faced opposition of movements that sought to decolonize. The second characteristic is that the Global South could be considered as a composition of third world countries. Since the Soviet Union does not exist anymore, instead of talking about third world countries, one speaks about the Global South as a replacement. The third characteristic is that the Global South is not present only in the southern part of the world but also in the northern part. This means that as a consequence of migration, that people from the south are present everywhere (Slovic et
al., 2015).
Although Slovic et al. (2015) suggest that third world countries are rather mentioned countries of the Global south since the dissolution of the Soviet Union, Reis da Silva et al. (2016) argue, by contrast, that both references could be made when South-South cooperation and emerging nations such as Brazil and South Africa are being studied.
After having explained the concept of Global South, it is important to focus more into detail on the South-South cooperation. South-South cooperation came into existence
when African and Asian countries came together in Bandung for the Bandung conference in 1955, to speak about cooperation that would cause independence of ‘foreign’ (global) (super) powers such as countries that had colonized parts of Africa or Asia. This means that although South America is seen generally as a part of the Global South, it was not included by then.
According to the United Nations Office For South-South Cooperation, this office ‘’enables developing countries to effectively face their development challenges and harness opportunities to address them’’ (UNOSSC, 2018a). At least, this means that the United Nations sees South-South cooperation as a type of cooperation among developing countries. The World Health Organization, which is also part of the United Nations explains the concept by arguing that ‘’South-South cooperation refers to the exchange of expertise between actors (governments, organizations and individuals) in developing countries’’ (World Health Organization, 2018). This implicates that the developing countries are all situated in the Global South.
Another UN organization, which is the Food and Agriculture Organization (FAO), argues: ‘’South-South Cooperation is a broad framework for collaboration among developing countries based on the concept of solidarity that breaks the traditional dichotomy between donors and recipients’’ (FAO, 2018). The definition given by the FAO (2018) implicates that for each traditional donor or recipient, there is more going on than just receiving money from other countries or giving money to other countries, which could imply a benefit that goes beyond just donations and receipts.
In accordance with Gray and Gills, ‘’South-South cooperation (SSC) has been a key organising concept and a set of practices in pursuit of these historical changes through a vision of mutual benefit and solidarity among the disadvantaged of the world system’’ (2016: 557). These ‘’historical changes’’ (Gray & Gills, 2016: 557) imply ‘’[…] the liberation of peoples and nations from the vestiges of colonialism, poverty, oppression and underdevelopment’’ (Gray & Gills, 2016: 557). Furthermore Gray & Gills argue that ‘’[South-South cooperation] conveys the hope that development may be achieved by the poor themselves through their mutual assistance to one another, and the whole world order transformed to reflect their mutual interests vis-à-vis the dominant global North’’ (2016: 557). This means that Gray & Gills (2016) see the nations that pertain to the group that makes use of South-South cooperation, is poor. Notwithstanding the economic power of China that is destined for foreign direct investment (FDI) for example, rural China still faces challenges to alleviate poverty.
Fiddian-Qasmiyeh (2015) understands South-South cooperation as the effort that is taken by countries of the Global South or non-state actors within the Global South, which are beneficial to single human beings and communities in the Global South. In this case too, the definition of the concept of Global South is crucial to understand South-South cooperation. If one assumes that third world countries compose the Global South, as has
been written by Slovic et al. (2015), the definition becomes clearer. Ultimately, it is important to mention again, such as has been expressed by the Group of 77 and China (2009), that South-South cooperation means that both developing countries benefit from the cooperation. However, South-South cooperation could be multilateral as well instead of only bilateral.
Due to the large scope of the concept ‘South-South cooperation’, it is relevant to take the ‘requirements’ of South-South cooperation into account. According to the UNOSCC (2018c), ‘’[t]he South-South cooperation agenda and South-South cooperation initiatives must be determined by the countries of the South, guided by the principles of respect for national sovereignty, national ownership and independence, equality, non-conditionality, non-interference in domestic affairs and mutual benefit’’. These ‘requirements’ seem to be hard to fulfill, given that respecting ‘’mutual benefit’’, ‘’equality’’, and ‘’non-conditionality’’, as has been argued by the UNOSSC (2018c), is difficult when it comes to trade and investments because there is already no ‘’equality’’ if one country benefits more of SSC in a bilateral SSC project. On top of that, it is the question to what extent the involved parties in a South-South cooperation project agree on whether these principles of the UNOSSC (2018c) indeed are respected.
1.4 Chapter Overview
The first chapter of this thesis consists of an introduction. So far, the topic has been introduced, the methodology that is going to be used has been brought to light and the meaning of South-South cooperation has been explained. On top of that, a chapter overview forms part of the first chapter either. The second chapter is a literature review. Although the concept of South-South cooperation has been explained already in chapter one, the focus of the literature review is placed on the existing scholarship concerning South-South cooperation.
Chapter three gives a historical overview of the Sino-Brazilian economic relation. Although Chinese investments and Sino-Brazilian trade has risen principally during this century, their relations exists longer. The fourth chapter involves the four different case studies, which will be analyzed further in chapter five. Chapter five involves of Brazil and China towards South-South cooperation in general. On top of that, it will analyze whether China and Brazil their view towards each other regarding SSC. Finally in chapter six, the research question will be answered as part of the overall conclusion.
Chapter 2 Literature Review
According to the United Nations Development Programme, South-South cooperation is evolving since 1955 (Calvento & Lis Rolandi, 2015). Freres (2013) argues that during the start of South-South cooperation, Latin American countries were strongly linked to western countries. For that reason, they were not present during the Bandung
conference (Freres, 2013). On top of that, Freres (2013) argues that Latin American countries did not have such strong anti-colonial feelings such as Asian and African countries, which is another reason for not being present at the conference (Freres, 2013). Nevertheless, Ayllón Pino (2010) asserts that since the 1970s, SSC became more visible. One specific region, which is Latin America, experienced the most intense forms of South-South cooperation and the strongest development of it according to Ayllón Pino (2010).
The existing literature about South-South cooperation usually focuses on a specific region or a specific topic such as transfer of knowledge, investments, humanitarian aid, or on a broader concept such as development. Although Calvento & Lis Rolandi (2015) focus on South-South cooperation in Latin America, they explain the basis characteristics of SSC as well. They argue that SSC could be characterized by three main principles. The first one is horizontality, which declares that the cooperation between the countries goes beyond development and includes that partner countries help each other voluntarily without economic or political conditions. The second one is that all involved parties have to have reached consensus before the implementation of their initiatives. The third one is equity. This means that the benefits of South-South cooperation have to be divided equally, which means as well that costs should be reasonably shared (Calvento & Lis Rolandi, 2015). Furthermore, Calvento and Lis Rolandi (2015) argue that the execution of SSC has to be quick, flexible and without conditionality.
Some scholars choose to write about a specific topic related to South-South cooperation within a particular region as well. Muhr (2016) argues, with Brazil as an exception due to BRICS, that Latin American and Caribbean efforts to enhance South-South cooperation are not sufficiently enough represented in the Anglophone literature about SSC. Muhr (2016) uses then theses to examine the prospects of South-South cooperation related to the promotion of a different kind of development. That is to say, a kind of development that is not based on North-South initiatives, but on South-South initiatives. In his theses he mentions other protagonists of SSC in addition to BRICS and the emancipation of the third world. Furthermore, he questions whether interests and solidarity among Southern actors are indeed mutually beneficial (Muhr, 2016).
Erthal Abdenur et al. (2014), referred in their article specifically to the South Atlantic region. They argued that in the past, this region was controlled by North-South ties, while currently more and more developing nations within this region cooperate. Erthal Abdenur et al. (2014) suggest that the aforementioned region will be influenced by South-South cooperation and that norms of the south will dominate there. Gudynas (2016) argues that South-South cooperation projects are, to some extent, always related to development. The facilitation of trade and the allocation of investments for instance, are considered as being part of a development process. Words such as welfare or
progress are used, which imply development, are used in relation to SCC as well (Gudynas, 2016).
Freres (2013) takes into consideration the countries of the South Atlantic either. He states that, during the last couple of years, Latin America and Africa have put their mark on the world economy. The relations between Africa and China account for South-South relations (Freres, 2013). According to Freres (2013), the emergence of China as a global power contributed to the rebirth of South Atlantic countries due to its investments and purchases of natural resources in the mentioned region. The South Atlantic region was important during colonial and neo-imperial times, but was never a strategic region of a global level, although nowadays it is classified as such (Freres, 2013). Freres (2013) asserts that it remains to be seen whether other South Atlantic countries, that is to say, countries that are not considered as regional powers in the South Atlantic, are determined to unite their forces to pursue a relevant place in the global system. He argues that this depends on a lot of factors, on which South-South cooperation could have a relevant influence, given that the principles of SSC go beyond power or economic influence. In accordance with Freres (2013), the basis of South-South cooperation exists of seeking initiatives of interest and mutual benefit.
According to Esteves and Assunção (2014), international development has become a fight since the 1990s, given that South-South cooperation caused that international development was not centralized anymore. Although Southern countries were still recipients of development in the 1980s during the debt crisis, SSC created another reference to Southern countries. In their new ‘position’, they became recipients as well as partners (and donors) for other countries in the Global South (Esteves and Assunção, 2014). Rampa et al., (2012) argue that emerging countries such as Brazil, India and China have contributed to Africa’s potential as a continent of growth. However, Rampa et al. (2012) assert that when African countries seek for South-South cooperation, they have to insist that their strategic relations with other developing countries really turn out to be mutually beneficial. According to Santander and Antonio Alonso (2017), South-South cooperation is one of the key causes of change in the international system. At the end of the previous century, but principally during this century, developing countries have enhanced their own policy of international development. With South-South cooperation, they are challenging the countries that are part of the Economic Cooperation and Development (OECD) (Santander & Antonio Alonso, 2017). However, developing countries such as Mexico and Chile, although belonging to the Global South, are member states of the OECD as well, such as a significant amount of ‘countries of the North’. Additionally, Santander & Antonio Alonso (2017) argue that there is a shortage of empirical research on South-South cooperation. Instead of focusing principally on descriptions and analyses of the phenomenon, more research attention should be paid to empirical evidence according to Santander and Antonio Alonso (2017). They consider that it is necessary to use case
studies that take into consideration the variety of SSC forms. On top of that it should be relevant according to them, to verify whether the different characteristics of South-South cooperation indeed are applied in the policies of countries that recently have been involved in South-South cooperation (Santander & Antonio Alonso, 2017).
Ayllón Pino (2012) focuses in his article on the role of Brazil regarding international development and South-South cooperation. He asserts that the rise of Brazil in the 21st century is not a surprise. Moreover, he argues that since the administration of Fernando Henrique Cardoso (1995-2002), Brazil’s democracy has deepened and the quality of its institutions has improved either. In accordance with Ayllón Pino (2012), these improvements continued during the administration of Lula (2003-2010) and later on they were guaranteed to continue too because of the appointment of the first female president of Brazil, Dilma Rousseff. Ayllón Pino (2012) talks merely positive about these administrations. When he wrote his article in 2012, he did not seem to take into account corruption scandals of the Workers Party (PT), the party of the two last mentioned presidents. The economic growth of Brazil, a country that was less negatively influenced because of the crisis in accordance with Ayllón Pino (2012), created space for a larger involvement in development cooperation (Ayllón Pino, 2012). Furthermore, he asserts that due to Brazil’s role as a regional leader, its global ambitions, and its achievements in sectors such as agriculture and energy, it was likely to become engaged in roles of cooperation. He assumes too that Brazil sought for joint efforts with other emerging powers in South-South coalitions and that the country occupied a central position in South-South cooperation (Ayllón Pino, 2012).
Nevertheless, as has been said before, Brazil experienced crises after the commodity boom of the 2000s. Because of its domestic struggles (corruption, impeachment of the president, an economic crisis etc.), the country was not able anymore to play this active role in seeking for international development cooperation (in collaboration with other emerging powers). Obviously, considering Brazil as an emerging power that was taking off is not relevant anymore. Nevertheless, Ayllón Pino (2012) wrote his article on the basis of this assumption. For that reason, his view on Brazil’s engagement in South-South cooperation is not up to date anymore, given that the decline of an emerging southern power results in another composition of global efforts to reinforce development.
Scoones et al. (2016) investigated the Chinese and Brazilian involvement in the agricultural sector in Africa. They argued that it is too simplistic to conceptualize such initiatives as SSC or as the expansion of neo-imperial policies. According to Scoones et al. (2016), it is important to examine why these countries are engaged in Africa’s agriculture. These reasons would declare their motives for such engagement and would decide what kind of investments is realized (Scoones et al., 2016). Nevertheless, it is obvious that political and economic reasons play a role, but these are not common or incontrovertible according to Scoones et al. (2016). They conclude that ‘’[…] the
engagements of both Brazil and China in African agriculture are going to be part of a much longer story, from which much can be learned’’ (Scoones et al., 2016: 9).
Cardoso (2013) asserts that the economic progress of big developing countries during this century belongs to the most important characteristics of SSC. As a consequence of changes in the foreign policy of southern countries they became more engaged in cooperation (Cardoso, 2013). On top of that, the decline of US power and the economic crisis that began in 2008 created opportunities for southern countries to impact global governance according to Cardoso (2013). Moreover, Gransow (2013) argues that China wants to have a firm position as a donor country in the Global South. According to her, China’s role in international affairs, which means a focus on South-South cooperation, will promote development cooperation as a field that belongs to politics. This is noticeable within area studies, given that Asian studies have to take the international affairs of China more into consideration. On top of that, also African studies, studies regarding the Americas etc., will pay more attention to subjects that are linked to China (Gransow, 2013). These other regions of the Global South, will notice too that South-South cooperation with Asia might change because of China’s more powerful role.
Such as has been argued by Santander and Antonio Alonso (2017), case studies are necessary to shed light on different forms of South-South cooperation. They argued as well that it is important to research whether South-South cooperation really is applied when countries mention that their cooperation is an example of South-South cooperation. Although this thesis is not based on empirical research concerning South-South cooperation, which lacked according to Santander and Antonio Alonso (2017), it does give a contribution to a variety of ties between two Southern countries. An important manner to explain this variety is the use of case studies according to Santander & Antonio Alonso (2017), such as will be the case for this thesis. An existing gap in the literature concerning the Sino-Brazilian economic ties will be filled through this way.
Chapter 3 A historical overview of the Sino-Brazilian economic
relation
3.1 The first decades of economic ties between China and Latin America
After Mao ruled for decades in China, Latin America was the last region that created foreign relations with China. Later on, since the 1970s, diplomatic relations between the Asian country and Latin America were further intensified. In 1978, China’s policy towards the region experienced significant changes due economic reform and the open-door policy (Bingwen; Hongbo; Yunxia, 2012). The Chinese open-door policy resulted in achieving advancements. For example, the trade volume of China in 1979 was US$ 29,3 billion, while only six years later, the trade volume had risen to US$ 69, 92. In addition, China expanded its trade relations with more than 180 countries (Ming-gan, 1987).
Towards the end of 1985, China’s government argued that its relation with Latin American countries would be based on a few principles. These principles included development in a cooperative way, mutual support and mutual benefit. On top of that, the relationships had to be peaceful (Shicheng, 2006). In the 1940s, the Chinese Communist Party already created guidelines for its relations with the United States (Richardson, 2010). Peaceful coexistence, equality and mutual benefit belonged to these Principles of Peaceful Coexistence. Nevertheless, these principles still define the foreign policy of China (Xuetong, 1997) (Xiaoping, 2012).
During the last decade of the previous century, more and more Latin American presidents decided to visit China (Bingwen; Hongbo; Yunxia, 2012). During the 1990s as well, China decided to liberalize foreign trade and to establish financial markets (Vega, 2005). The relation between their nations and China became more important than before. Chinese leaders visited almost the whole region to strengthen the ties between Latin American countries and China. Not only its relation with separated nations experienced progress, but also ties with regional blocs such as Mercosur and the Rio Group were deepened (Bingwen; Hongbo; Yunxia, 2012). Both China and Latin America were eager to achieve a diversification of their markets in order to be able to avoid U.S. dependency (Locatelli, 2011). In 1990, when president Shankgun visited Mexico and four South-American countries of which Brazil was one of them, he argued that, among others, the expansion of trade and cooperation with Latin America should be based on mutual benefit and equality (Locatelli, 2011). Nevertheless, in South America (except Paraguay), the relations with China are different in comparison with the relation that Central America and the Caribbean have with China. Although in addition to Paraguay, the latter mentioned regions experience Chinese influences of a political nature due to ties with Taiwan,
South-America is of economic interests for China. The South American countries are important for China to assure its access to the primary energy resources and to foster trade with this part of Latin America. Given that South America’s trade relations with other parts of the world remained behind, South American countries were open to foster the extension of trade with China (Locatelli, 2011).
Later on, in the twenty first century, trade between China and Latin America and Chinese investments in Latin American countries began to take off more significantly since 2002. Between 2003 and 2013, Peru, Chile, Argentina, and Brazil experienced commodity booms. As a consequence of Chinese demand for oil, soybeans, copper, and iron ore, the prices of these commodities increased heavily. This paved the way for the four mentioned countries to increase their foreign exchange reserves (Myers and Wise, 2017).
Although China experienced growth rates of an average of 9-10 % for approximately three decades, annual growth declined to an average of 6-7% since 2013. According to the Chinese government this is a consequence of the shift from an economy based on industrial exports to among others, services. Since 2013 the growth of the demand for commodities declined to an annual average of 1-2%, while this percentage was 4,8 in the 2003-2013 period. Nevertheless, the Chinese economic presence in Latin America is still strong (Wise and Chonn Ching, 2018). Between 2000 and 2016, the Chinese outflows of foreign direct investment (OFDI) in Latin America accounted for $113,6 billion, of which approximately half of them were destined for mergers and acquisitions (Dussel Peters & Ortiz Velásquez, 2017). Moreover, during the year 2015 for instance, only the China Development Bank (CDB) and the China Export-Import Bank (CHEXIM) lent already more to Latin American countries than all multilateral banks together from the West did (Ray; Gallagher; Sarmiento, 2016).
On top of that, the Chinese President Xi Jinping asserted in 2015 that the government of China seeks to double Chinese-Latin American trade between 2015 and 2025 to US$ 500 billion. In the same period, China seeks to invest in the region for US$ 250 billion (Economic Commission for Latin America and the Caribbean, 2015). 3.2 Sino-Brazilian trade According to Toribio Dantas and Khalil Jabbour (2016), the relation between Brazil and China regarding all kinds of exchanges could be called ‘’strategic’’ (2016: 313). Brazil is China’s main trading partner in Latin America, and for Brazil, China is its most important trading partner in the world. The growth of China increased Brazil’s amount of exports (Zhimin, 2017). In the beginning of this century, during the second term of the administration of the Brazilian President Fernando Henrique Cardoso, Brazil’s economy recovered with growth principally due to exports, after two decades in which Brazil’s economy (Melo and Amaral Filho, 2015), experienced ‘’semistagnation’’ (2015: 65)
according to Melo and Amaral Filho. With the Real Plan (1994) of the by then Minister of Finance Fernando Henrique Cardoso, who later became president (1995-2003), the inflation in Brazil was tackled. Furthermore, Cardoso stabilized the Brazilian economy and enabled the federal government of Brazil to decrease the expenses of states and municipalities (Samuels, 2003). Furthermore Cardoso achieved stability on macro-economic level, realized privatizations of state enterprises and opened up Brazil’s economy in order to foster trade and investments (Seelke & Meyer, 2009). Due to Brazil’s growing exports, as a result of China’s increasing demand (Zhimin, 2017), China became a main trade partner of the South American country. Brazil as a supplier of commodities reaped the benefits of the expansion of the Chinese economy. China’s GDP grew with 9,6% in 2008, 9,1% and 10,3% respectively for the following years (Melo & Amaral Filho, 2015). Furthermore, in 2012 for instance, the export of Brazilian chemical products rose with 59,9% in comparison with 2011, transport equipment with 41,8% and animal products with 31,2 %. In 2012 as well, Brazil’s imports from China consisted principally of electrical and chemical products, textiles, and raw materials, which accounted for 70,3% ($24.05 billion) of Brazil’s total import. Brazil’s main destination for exports is China, and China is Brazil’s second largest market for imports (Zhimin, 2017).
The main exports of Brazil to China consist of soybeans, iron ore, stones and concentrates, soybean oil, crude oil, paper pulps, aircraft, aerospace technology, horse and cow leather, copper and copper products, and manganese ores and concentrates. Among Brazil’s most important imports from China belong equipment and machinery, apparatuses, computer and communications technology, yarns and textiles, photoelectric technology, weaving products and materials, steel, transportation tools, LED display plates, air conditioners and data processing equipment. (Zhimin, 2017). Melo and Amaral Filho (2015) argue that the export of commodities to China leads to revenues for Brazil, but on the other hand it faced threats due to manufactured goods that were imported from China.
The graphs below show the worth of the Sino-Brazilian trade and to what extent this trade is based on primary products. Figure 1 and 2 show that Brazil’s exports to China are almost continuously higher than its imports from China. This means that Brazil, in most of the years between 2000 and 2015, has had a trade surplus.
Figure 1. Brazil X China – Exports and Imports (2000-2015)- US$ Billions Source: MDIC/ Brazil in Toribio Dantas and Khalil Jabbour (2016) Figure 2. Brazil X China – Trade Balance (2000-2015). US$ Billions Source: MDIC/ Brazil in Toribio Dantas and Khalil Jabbour (2016) Figure 3. Brazilian Exports to China – Industrialized and Primary Source: MDIC/ Brazil in Toribio Dantas and Khalil Jabbour (2016) Figure 4. Brazilian Imports from China – Industrialized and Primary
Source: MDIC/ Brazil in Toribio Dantas and Khalil Jabbour (2016)
Furthermore, figure 3 shows that in 2014 and 2015 for instance, Brazil exports significantly more primary products to China than it did during the first years of this century. The opposite occurred with Brazil’s imports from China (figure 4), which consist nowadays for almost 98% of industrialized products, while in 2002 for instance this percentage was more than 12% lower. 3.3 Chinese investments in Brazil Since the 21st Century Brazil has welcomed foreign investments, of which FDI has been the most important kind of investment (Zhimin, 2017). Between 2007 and 2017 the worth of Chinese investments in Brazil was US$ 55 billion. Until mid-2010, the Chinese investments in Brazil were related to the commodity sector due to the increasing demand for primary products such as soy, iron ore and oil. Subsequently, the industrial sector became a focus point and later on, since 2013, the financial sector gained importance. Nevertheless, the most recent phase of Chinese investments in Brazil involves the infrastructure sector and the energy sector. Given that Brazil has the highest GDP of Latin America , it is a very interesting country for Chinese investors. On top of that, devaluation of Brazil’s currency, the Real, was another factor that stimulated Chinese investments. Moreover, due to the American absence in the region, China sought for investments in Brazil (CEBC, 2018). According to Guilhon Albuquerque and Fernandes Lima (2016), the Chinese investments in Brazil are modest in comparison with the trade relation between the two countries. The exports of Brazilian commodities to China have led to high expectations of Chinese investments in Brazil (Guilhon Albuquerque & Fernandes Lima, 2016). In accordance with Guilhon Albuquerque and Fernandes Lima (2016), these expectations had a positive effect on Brazil’s input in the international political economy because of two reasons. That is to say, it led to recognition of one of its priorities, which is the enhancement of South-South cooperation. Moreover, they confirmed that the perception that Brazil had concerning its relations with China, was based on the same vision of the world (Guilhon Albuquerque and Fernandes Lima, 2016). This implicates that Brazil agrees with China’s expansion of foreign investments, such as the Belt and Road Initiative.
Between 2007 and 2017, 82% of the Chinese investments in Brazil is realized by state-owned companies such as China Three Gorges, State Grid, China Communication Construction and Sinopec. These enterprises have a significant share in the mentioned 82%. As a consequence of the Chinese investments in Brazil, new jobs were created, industrial sectors increased their productivity, Chinese companies and local suppliers were brought together, transfers of technology were facilitated and infrastructure bottlenecks were decreased. Another relevant consequence of Chinese investments in Brazil is that Chinese companies bring new technologies to parts of Brazil that belong to the least developed ones. At the moment, only in four of the twenty-seven Brazilian federative units, Chinese companies are not present to invest (CEBC, 2018).
In figure 5, it becomes clear that since 2015, the value of the Chinese investments in Brazil has risen. Although the value of the confirmed investments rose in 2017 only with 4,76% in comparison to 2016, the amount of confirmed projects (Figure 6) rose with 125%. This means that the amount of relatively small investment projects was high in 2017. The average value of each project in 2016 was 700 million dollars, while in 2017, the average was 325,9 million dollars. Figure 5. Value of Chinese investments in Brazil (2007-2010) Source: CEBC (2018) Total (announced and confirmed)
Confirmed Figure 6. Number of Chinese investment projects in Brazil (2007-2010) Source: CEBC (2018) Total (announced and confirmed)
Confirmed Chapter 4 Case studies 4.1 Brazil’s soybean exports to China Diets have changed in China. Meat and milk are nowadays significantly more purchased by Chinese people than a few decades ago and the consumption of these products is still
rising. Because of the rising middle class in China, more people can afford to buy more expensive food. Although soybeans are consumed directly as well, the largest part of the soybeans import in China that comes from Brazil and the United States is used to make soybean meal of it. Direct consumption entails for instance the consumption of soy milk and tofu. By contrast, soybean meal is not used for direct consumption, but, as a product that has been crushed, it serves as feed for cattle, poultry and swine in order to be able to respond to the change of diets of Chinese people (Hansen & Gale, 2014). More soybeans have been needed because of the Chinese transition to a modernized system of livestock production (Turzi, 2017).
According to Turzi (2017), 5,6% of the total Brazilian exports exists of soybeans. Furthermore, he asserts that 23,2 % of Brazilian exports to China exists of soybeans (Turzi, 2017). The soybean exports of Brazil to China belong to the two most important Brazilian exports with China as its destination. The other most important exports consist of iron ore, which is a commodity as well. Approximately 75% of all Brazil’s soybean exports go to China. For example, in 2001, 40.9 million tons were exported, while in 2015 the 40.9 million tons were exported. The increase of Brazil’s exports of soybeans is almost completely the consequence of Chinese demand. During the commodity boom between 2002 and 2011, Brazil benefited in two ways of its exports to China, given that not only the demand of China increased, but global prices for soybeans increased either (Jenkins, 2019). Moreover, the production of soybeans in China is reducing while the demand is rising. This gives an opportunity to the global market (Bicudo Da Silva et al., 2017). Brazil has taken the opportunity to ‘fill this gap’.
In 1995, China’s production of soybeans amounted 14 million tons and the consumption had approximately the same amount. In 2012, China still produced the same amount, but its consumption increased to 70 million tons. This means that the consumption increased with 400% in the years between 1995 and 2012 (Turzi, 2017). If China had produced these 70 million tons itself in 2012, one third of the land that was used for grains would have to be converted into land for the cultivation of soybean. In that case, 160 million tons of grain had to be imported (Brown, 2013). For that reason, most of the soybeans in China have been imported.
The largest part of the Brazilian soybean exports to China has consisted of unrefined soybeans that have been needed for the Chinese crushing industry. However, also some soybean oil has been exported to China, but the value of these exports has been beneath ten percent of the value of the unrefined soybeans. At the end of the previous century the Brazilian government decided to remove taxes on the exports of crude soybeans. This discouraged Brazil to crush soybeans itself before exporting them. The Brazilian government has not taxed the exports of soybean since the mid nineties. The profits of the Brazilian soybean exports to China have been made by Brazilian and by global agricultural companies (Jenkins, 2019). Due to the removal of taxes, the Brazilian government did not generate extra money with the export of soybeans.
During the last forty years, Brazil and the United States were responsible for more than eighty percent of the world exports of soybeans. Argentina is the third exporter of soybeans. Due to the changes concerning the Chinese demand for soy, China is the most important market for the soy exports (Turzi, 2017). Given that for China, the imports of Brazilian, Argentinian and American soybeans are key, it means that if one of these countries suddenly has a problematic relation with China, it is likely that a shift to one of the other countries takes place. That is to say, if Argentina for instance has a trade dispute with China, Brazil or the United States will have the possibility to export more to China. In 2009 for instance, China decided to stop importing soybeans from Argentina because of a trade dispute between the two countries (Turzi, 2017).
Another example is the current trade war between the United States and China. If Chinese enterprises want to buy American soybeans they have to pay a tariff of 25%. For that reason, Chinese enterprises reacted by increasing their purchase of Brazilian soybeans. In accordance with the grain exporters association ANEC, the trade war between the United States and China led to a record of a Brazilian soybean export of 80 million tons in 2018 to China (Global Times, 2019). Such trade war could occur between Brazil and China as well.
Cultivating crops on a large scale also has environmental implications. According to Fearnside (2001), the cultivation of soybeans has more negative impact on the environment than is the case with other crops. The reason for this is that soybeans require huge infrastructure projects to provide its transportation, which leads to the destruction of nature in addition to the land that is used for the cultivation of soybeans (Fearnside, 2001). Nevertheless, during trade or infrastructure investment negotiations with other countries, the Brazilian government has to take into account to what extent local citizens are affected negatively by eventual possible deals. Besides the large amount of commodities that has been imported from Brazil, China has sought more influence in Brazil’s infrastructure. One of the other case studies shall bring this to light.
4.2 Brazil’s import of Chinese manufactured goods
As a consequence of China’s rise, Latin American manufactures are facing challenges. The imports from China in Latin America have led to more competition for local producers. Brazil has the most developed industry of Latin America. For that reason, if the Brazilian industry could not bear the Chinese manufacturing influence, other Latin American countries would not do so either (Jenkins & Barbosa, 2012). Critics assert that the imports of manufactured goods from China are threatening industrial development (Arias & Harris, 2016). In accordance to Jenkins & Barbosa (2012), the Brazilian manufacturing sector has to be made more competitive.
manufactured goods. Furthermore, consumers have more options when they want to buy products and companies have more choices because of the increase of suppliers (Economic Commission for Latin America and the Caribbean, 2015). As a consequence of the relatively cheap Chinese goods, Brazilian consumers are more likely to afford imported Chinese products. In this sense, suppliers have less costs too if they want to manufacture with these goods as input.
However, the Chinese imports have been considered as negative for Brazil as well. The then President Dilma Rousseff wanted to create more diversification for Brazil instead of maintaining a bilateral economic relation that was based on imports of manufactured goods on the one hand and export of commodities on the other hand. As a consequence of the appeals of Brazilian industry groups, the government of Dilma Rousseff decided to apply protectionist measures. The rise of non-tariff barriers and higher taxes would have to protect the Brazilian local industries. Moreover, these industries were supported by the government with subsidies (Powell, 2017).
However, according to Powell (2017), the protectionist plans of Dilma Rousseff would not lead to a restructuring of the Brazilian economy and the chance that these measures would create a more competitive market in the long term was very little. The protectionist measure that probably had most impact was a rise of 30% tax on cars that were imported from China. This measure came into force in September 2011 and ended at the end of 2012 (Financial Times, 2011). Several car companies from China, such as JAC Motors and Lifan, decided to build their own factories in Brazil. However, with Brazilian materials, it proved to be too expensive for these Chinese companies to build such factories, which led to the import of Chinese materials that were needed for their construction. Even with the additional costs for shipping and the taxes that had to be paid for the import of these materials, it was less expensive to import them from China than buying them in Brazil itself (Estadão, 2013). This example shows that the Brazilian government did not know exactly how to stimulate the local development of the manufacturing industry.
In general, exports of China are expected to rise to a percentage between 19 and 23 percent of the total exports in the world by 2030. This rise will be principally a result of an increase in the exports of manufactured goods. However, this sector will change in China itself. That is to say that the type of products will change, but also the ways they are produced will change. Because of these reasons, it will be very difficult for Brazilian manufacturing enterprises to compete domestically (and internationally) with China. Due to the expectation of an improvement of the Chinese manufacturing industry, and its focus on new niches in order to maintain the international competitive advantage on manufactured products, the competition with Brazil regarding these good probably increases even more (World Bank, 2014).
However, as well as in the Chinese manufacturing industry, some niches are more resistant to increasing wage demands and international competition than others. These
niches exist in Brazil as well, such as manufactured goods that are destined for clients who live close to the manufacturing location to prevent too high transportation costs for instance (World Bank, 2014). For that reason, it would be beneficial for Brazil to seek development in such niches in order to seek more domestic competitiveness. 4.3 The Twin Ocean Railway The Twin Ocean Railway is a plan about the construction of a Railway between Brazil and Peru. Because of the railway the Brazilian Atlantic would be connected with the Peruvian Pacific Coast. The goal of this initiative is to facilitate the transport of iron ore and soybeans, among other commodities, in order to make exporting from Brazil and Peru to China more attractive. In addition, imports from China would be able to enter these countries faster as well. The transportation route from the Peruvian coast to China via the Pacific Ocean is shorter than the route from the Brazilian coast to China via the Atlantic Ocean (Hiratuka, 2018). It he plan will be carried out, the project counts with the support of Chinese investments.
Although initially Brazil, Peru and China were involved in the plan, later on Bolivia became engaged too. In November 2014, a memorandum of understanding was signed between the presidents of Peru, Brazil and China to initiate feasibility studies concerning the Twin Ocean Railway. These feasibility studies were carried out for the first time in May 2015. The Bolivian government as well has been engaged in feasibility studies in order to present them to China, Peru and Brazil. According to the Bolivian government, a more central route of the Railway would be less expensive. The more central route also has an additional strategic factor, given that it would be easier to involve Argentina in the route as well. (Hiratuka, 2018).
VALEC, a Brazilian state-owned company, asserted that the railway would pass through approximately 4400 kilometers of Brazilian territory with its starting point in the port of Açu Port to a town called Boquerião de Esperança in Acre (Ortiz, 2014). The then Brazilian President Dilma Rousseff revealed in May 2015 that the Brazilian state bank Caixa Econômica Federal came to an agreement with the Industrial and Commercial Bank of China (ICBC) on a $50 billion investment fund for investments in infrastructure. A part of this amount was destined for the financing of the Twin Ocean Railway (Government of Rio de Janeiro, 2015).
According to Almeida et al. (2013), because of the mentioned railway, Brazilian exporters are able to reduce their costs of transport. Jaeger (2017) agrees on that, he asserts that Brazil will benefit from the railway because of the reducing costs for the exportation of agricultural products such as soya. The current highway is significantly more expensive (Jaeger, 2017). China seeks to construct the railway because it wants to secure the supply of commodities from South America. In addition, it is an opportunity to be more engaged in the South American market. The railway would reduce the costs
for the Brazilian and other South American products that China wants to import (Ortiz, 2014). In addition, the Chinese government has been interested in the project because it would create an alternative to the Panama Canal, which currently is the most important link between the Atlantic and the Pacific Ocean (Jaeger, 2017). Nevertheless, frequently this canal has reached its capacity, which means that the canal was not able to let more ships pass through it (Jaeger, 2017). Although the canal could be relevant for China to let products ship from countries that are closer situated to the Panama Canal than Brazil, the distance from Brazil to the canal is significant. For that reason it would like to have a closer opportunity in order to be able to o import products from Brazil and other South American countries more rapidly instead of the need to go northwards to Central America.
The construction of such railway would have implications that go beyond investments and trade. Critics assert that the negative consequences for the environment (deforestation) and indigenous people are not taken into account because of the keenness of the involved governments to implement the project (Ortiz, 2014). In accordance with Ray and Gallagher (2017), the investments of China in the Twin Ocean Railway would be one of the two major Chinese investments that possibly damage the biodiverse territory and indigenous lands in the Amazon basin. According to Gallagher and Ray (2017), if a southern route instead of a northern route through Peru to reach the Pacific Ocean will be chosen, these biodiverse territories and indigenous lands could be avoided for a large part. The Twin Ocean Railway would facilitate the exports from Brazil to China as well as the Brazilian imports from China. Given that the railway passes through several countries in South America, the other countries (Peru and possibly Bolivia) will experience similar consequences. It will be difficult to conquer the challenges of the Brazilian Amazon and the Andes Range, given that damage to the environment plays an important role for people who oppose to the project. To reduce the negative consequences for the environment, the envisaged US$ 10 billion could increase to US$ 35 billion according to the Bolivian president Evo Morales (Jaeger, 2017). However, the involved countries in the plan have to take into account whether the proposed railway routes of commodity transportation from Brazil to the Pacific Ocean are environmentally more responsible. Although construction of the Twin Ocean Railway would require deforestation, the heavy loaded trucks that pass through South American territory to the Pacific Ocean by using highways, could even have worse environmental implications.
Land transport, for which the Bioceanic Highway is used for instance, connects the Brazilian city of Porto Velho in Rondônia to the Peruvian city of Inãpari, which has a connection with the Pacific Ocean. Nevertheless, the ground transportation of soybeans for instance is only favorable for Rondônia due to the fact that it is closely situated to Peru (Hiratuka, 2018). For that reason, a cheaper route would benefit a large part of
Brazil economically. Another consequence of the railway could be that the region will be too specialized in the supply of primary goods. Moreover, because of the railway it would be much easier for South American countries to import industrialized Chinese goods, which leads to even more asymmetry between China and South America (Jaeger, 2017). 4.4 China’s investments in Brazil’s oil sector Three companies from China are principally engaged in the Latin American market of oil production, which are China’s National Petroleum Corporation (CNPC), China Petroleum & Chemical Cooperation (Sinopec) and China’s National Offshore Oil Corporation (CNOOC). Since 2006, the relations between Asia and Latin America concerning energy have increased. Cooperation enhanced with regard to the trade of crude oil and investments. The reason for this is to supply a considerable amount of oil to China. Both regions have looked for ways how to complement each other concerning the energy sector. The Chinese government considers Brazil as a source of oil for the long term. (Xu, 2016). According to Hogenboom (2017), Sinopec has had the most success as a Chinese oil company in Brazil. In the mid-2000s it was already involved in projects that were related to gas instead of oil (Hogenboom, 2017).
Initially China was involved in Brazil’s oil sector by being a builder of petroleum pipelines, but it increases its role by becoming an essential investor in Brazil’s pre-salt oil reserves. However, also technological and knowledge exchange took place between the countries with regard to the oil sector (Xu, 2016).
During the 2000s, China has become engaged more and more in Brazil’s oil sector because of its findings of pre-salt oil reserves. Due to more established agreements later on, the two countries pursued more cooperation within the oil sector (Alves, 2013). The Brazilian oil company Petrobras, which is partly public and partly private, sought for funding for the development of pre-salt oil reserves. Although it had the technological capabilities to operate in these reserves, it did not have the capital. For that reason it was looking for external funding (Alves, 2013). Brazil became involved in oil-backed loans that were offered by China.
Chinese oil-backed loans are provided principally by two banks of state, which are the China Export-Import Bank (Exim Bank) and the China Development Bank (CDB). They provide loans for the sectors of energy, infrastructure and mining. These loans of the mentioned banks do not require conditions of the borrower, but instead they require acquisitions (Alves, 2013). These loans implicate that a development bank from China offers a loan to Brazil. To compensate, oil will be shipped to a Chinese company. In turn, these companies will pay the development bank, so that this serves as a repayment of the loan. Market prices are maintained when the oil is being sold. This means that if the oil price increases for instance, the repayment of the loan will be realized faster.
