Seven years ago Brazil made history as the first South American nation to win the right to host the Olympic Games. Akin to other winners of an Olympic bid, it promised a slew of investments in infrastructure ahead of the event. But the Brazilian economy has been shrinking since the second quarter of 2014, contracting by 3.8% last year. And as the country plunges deeper into recession, Chinese companies have been targeting the projects that Brazil can no longer afford.
With the Games only a few weeks away the deals have kept coming. In the latest announcement – on June 3 – China Gezhouba Group (CGGC) reported that it was buying a controlling stake in Renova Energia, Brazil’s largest generator of renewable energy.
Renova focuses on wind power, which generates almost 60% of its power supply. But according to Jiemian, the second largest contributor is hydroelectric power – an area where CGGC specialises. CGGC has built over 150 large-scale hydropower projects in China, including the Three Gorges Dam, the world’s largest hydroelectric project.
It is unclear whether CGGC is keenest to further develop Renova Energia’s hydroelectric capacity or extend its own operations into wind power. Perhaps its ambitions are broader still. “Our focus is not only on renewable energy, we are also considering Brazil’s sanitation and logistics sectors amongst other areas,” its general director for Brazil, Lucas Fan told the Sao Paolo Times.
Political analysts have been reading the runes on the potential changes in Brazil’s economic relationship with China for a while, with a potential readjustment of its foreign policies since Dilma Rousseff was impeached and suspended from power pending her trial.
Interim Foreign Minister Jose Serra outlined his priorities in May, including more emphasis on bilateral ties with Argentina and Mexico and more effort to restore “traditional partnerships” with the US, Europe and Japan.
But Serra also said that Brazil would look at opportunities to enhance trade and investment with its BRICS partners and Chinese firms have continued to pour capital into infrastructure projects in Brazil.
China Three Gorges (the group that manages the famous dam) paid $3.8 billion to bring two of Brazil’s largest dams under its management last year and China Daily has reported that the group is preparing to bid for the construction and ownership rights of the Tapajos dam when the tender process starts later this year.
Also last year, the State Grid Corporation of China won a bid to develop a 2,500km power line connecting Brazil’s Belo Monte dam to the national grid. In April this year it added two further power lines to its Brazilian portfolio, in part of a larger sell-off that accrued close to R$7 billion from bids. China Daily reports that the acquisitions could earn State Grid R$2.5 billion ($715 million) a year during the 30-year concession, having cost just R$396 million to purchase.
NMQB, a Chinese-language South American news source, was at the June meeting of the Sino-Brazilian Business Association in Sao Paolo and reports the body’s president claimed that Chinese firms will grasp the investment opportunity created by Brazil’s economic and political instability, and snap up more assets at bargain prices.
The head of the association described the current situation as “win-win”, Private Economic Weekly reports. Faltering Brazilian companies need Chinese technology and know-how, whilst Chinese developers need insider knowledge on the Brazilian market.
News of CGGC’s planned purchase of Renova Energia comes at a time when the Brazilian energy group is struggling. According to Jiemian, Renova suffered a net loss of R$552 million in the first quarter – a much larger deficit than in the same period in 2015.
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