China and the World

The dance goes on

China and Brazil pair up on the global stage

The dance goes on

Will she samba to Shanghai?

Samba’s rhythms are often alluring ones. Too much so for the Portuguese missionaries of colonial times, who shuddered at the dance’s physical nature, as well as its literal rendering (it has Angolan roots) as a ‘bumping of belly buttons.’

China and Brazil, although yet to rub stomachs, are certainly enjoying a warming of relations. China overtook the US as Brazil’s leading trading partner in the first quarter this year.

And Brazilian president Luiz Inacio Lula da Silva was in Beijing last week, the fourth time that he had caught up with Chinese leader, Hu Jintao in a little over a year.

There is plenty to talk about. Both countries are finding the financial circumstances a little less chastening than most of their international peers (China is actually having “rather a good crisis”, the Economist magazine wrote last week) and, as BRIC economies, both are confident in their economic futures. Both also expect to see a rebalancing of influence away from North America and Europe too.

The two countries share no borders, but they have a highly complementary relationship. China needs commodities to fuel its economic growth, and Brazil has abundant resources to supply, especially in oil, iron ore and soybean products.

Brazil’s economy, on the other hand, requires substantial investment. Funds available at home are limited ( with a domestic savings ratio at almost a third of Chinese levels). But China has excess capital, and various announcements last week – including additions to the ‘oil-for-loans’ credit facility first offered by Beijing to Brazil’s state-controlled oil giant Petrobras earlier this year – suggest that more will be made available.

Yet Brazil is also a little uneasy. It worries that raw materials make up an increasing proportion of its exports to China. That’s despite its ambitions to diversify into value-add areas like biotech and aviation equipment.

And in the case of a leading commodity export – iron ore – ongoing price discussions between Chinese steel producers and Brazilian miner Vale are also tense ones.

Many Brazilian manufacturers (the toy, shoe and textile sectors particularly) also see China more as a competitor than as a friend, as they struggle with a wave of low price Chinese imports. At home, Brasilia has risked Beijing’s displeasure in the past with anti-dumping measures. But in other markets (Chinese exports to the rest of Latin America now exceed Brazil’s in volume and value terms) there is less policy recourse.

Lula has also grumbled publicly that China has not come through on earlier promises to invest in Latin American economies. He told Caijing last week that Brazilian investment in joint ventures in China significantly outweighed that in the opposite direction.

Critics say that they are not surprised and that Brazil, like its neighbours, will soon realise that Beijing’s focus is on boosting access to natural resources. This is a touchy subject for Latin American countries, long used to swapping their cheap raw materials for expensive, finished products from the West. A return to “dependency theory” economics is not on Lula’s agenda.

Perhaps the analogy is a little stretched, however. After all, Chinese manufactured products are cheap rather than expensive. And commodity prices have generally performed well.

All the same, Lula’s urging that the two countries need to develop economic relations that are a “two way street” is real enough. For the foreseeable future, at least, this particular samba will continue to be danced at arms length.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.