Brazil ：One of the Largest FDI Recipients and Preferred Investment Destinations in Latin America

Ambassador: As Brazil and China approach 46 years of formal diplomatic relations, it is fair to say that we reached a point of maturity in our bilateral dialogue. Over this period, we managed to build a solid partnership, anchored on principles of mutual respect and understanding and on a broad base of concrete economic and cooperation interests. We were able to overcome the huge geographical distance and cultural differences through an open and systematic engagement of both governments and business communities. There has been a constant exchange of high level visits and trade missions that greatly increased our knowledge of both countries. Let me mention just the most recent ones: in 2019, still in his first year as President, Jair Bolsonaro visited Beijing accompanied by a delegation of one hundred Brazilian businessmen; a few weeks later, President Xi Jinping paid back the visit and went to Brazil. That was a powerful sign of confidence on the future of our bilateral relations.       

The results of this effort in forging closer ties have been amazing. In 2000, the bilateral trade flow was around US$ 2,3 billion. China was then the destination of only 2% of our total exports. Twenty years later, our bilateral trade reached US$ 100 billion. China has been Brazil’s main trade partner for more than ten years now.  And Brazil has been one of the most important sources of commodities and food to China. We are the main exporter of soybeans (72% of total Chinese imports of this product), beef, poultry, pulp and cotton. And we are among the top five exporters of oil, iron ore (the second after Australia), coffee, sugar and pork. On its side, China exports a wide variety of manufactured goods and high tech products to Brazil, such as industrial equipment, chemicals, ships and automobiles. 

The strength of our bilateral trade is confirmed by its performance on the first half of this year. In the middle of the deepest world economic recession on record - a recent report from the World Trade Organization indicates a contraction of 18% on the international trade flow in the second quarter of the year – our bilateral trade increased 6,3% and reached US$ 51 billion! Outside Asia, only the United States and Germany trade with China as much as Brazil. 

Of course, what these figures show is the great complementarity between our two economies, that greatly benefited from the international economic environment of the last decades. This has been the basis for our common development. And it seems that the COVID-19 pandemic has deepened this trend even more, overall on the side of the Brazilian exports.

Does that mean we should be complacent about our trade relations? Not at all. In the first place, as both countries develop and modernize, we should strive towards a more diversified and sophisticated trade pattern. In the second place, the world has been going through major changes. Not only the pandemic, but other factors such as the dynamics of the US-China relations are bringing about a new international configuration. There will be new challenges for us. But as I said at the beginning, Brazil and China reached a point of maturity that will allow us to face the obstacles with calm and pragmatism. We will continue working together to promote our common interests.  

Ambassador: Let me start by the basics: Brazil is one of the biggest developing countries in the world with a huge domestic market. We are 210 million people with a GDP per head of around US$ 8,9 thousand. We have a growing and thriving middle class. Our household consumption is about 64% of GDP. There is a broad base for a steady and expanding demand for goods and services. 

As you know, countries that are rich in natural resources, such as Brazil –  we are one of the biggest producers and exporters of agricultural and mining products, and we are also proud of having one of the most environmentally sustainable energy matrixes in the world – usually present a lot of opportunities for foreign investors.

But Brazil is much more than commodities and raw materials. Brazil’s capital and financial markets are very stable and sophisticated.  Our industry is modern and competitive. We are home to Latin America’s largest aerospace, automotive, chemical and technology industries. Take, for example, the automotive sector: last year, more than two million vehicles were produced and sold in Brazil, which is 8th largest market in the world. The year before, we exported 629 thousand cars. We are gradually expanding our digital domestic market. Let me share with you some numbers: 149 million Brazilian are internet users and we are the 15th largest market for e-commerce with a revenue of US$15 billion in 2019.

Brazil is increasingly expanding its economic and trade ties with the world. Starting with Latin America: we are part of the Southern Common Market (Mercosur), a free trade zone and customs union, along with Argentina, Uruguay and Paraguay. It is an economic bloc with a population of 300 million and a GDP of US$3,3 trillion. We have free trade agreements with virtually all South American countries. Furthermore, as part of Mercosur we have just signed a free trade agreement with the European Union.

Of course, Brazil, as many other countries, has been suffering a sharp contraction in its economy due to COVID-19.  This is temporary. The important thing is that the facts I has just mentioned constitute the framework for long term investment projects. Brazil has been consistently among the top destination of foreign direct investments in the world. The stock of foreign direct investment in Brazil is estimated to be around US$ 800 billion, almost a third of our GDP, which is an indicator of how open we are to foreign capital. 

Ambassador: China has been one of the main sources of foreign direct investments in Brazil. According to some estimates, over the last fifteen years Chinese companies invested more than US$ 60 billion in our country.

Over the last 15 years Chinese companies invested more than US$ 60 billion.

A large part of these investments comes from state owned companies and is still largely concentrated in some areas considered strategic, such as energy and mining. In the energy sector we have some striking examples of Chinese companies engagement in Brazil. State Grid and China Three Gorges have more than 10% of their assets abroad, of which 50% is in Brazil. 

The oil and gas industry is another important sector that has been attracting Chinese capital. In the last bidding rounds for the exploration of offshore and pre-salt layers of oil reserves in Brazil, consortia involving Petrobras and Chinese companies, CNOOC and CNDOC, won access to explore one area known as Aram.

I should add that Chinese investors are and more seeking opportunities in the Brazilian economy on the basis of return driven considerations. There has been growing interest in a wide variety of industries, ranging from automobiles, electronic equipment and agribusiness to renewable energy, sanitation, financial services, infrastructure and telecommunications. 

Ambassador: One of the priorities of our current administration is to privatize state owned companies and to speed up concessions of public services and infrastructure. These are promising areas for new investments in the near future, areas in which Chinese companies have already a high degree of expertise. For example, in the next eight years, the government plans to increase 23% our production capacity in electricity and 33% the coverage of transmission lines. 

 In infrastructure, a new round of concessions and partnerships includes ports (16 leasing and 3 privatizations), railways (14 thousand kilometers), highways and airports (22).

Another new field for foreign investment in Brazil is basic sanitation. A recently approved law by the Congress allows the participation of foreign companies in providing public services and infrastructure in water supply and sewage treatment and removal. The government estimates that sanitation projects will demand investments of US$ 100 -  200 billion in ten years.

Another sector of the Brazilian economy that is less well known to foreign investors but that has been growing and developing steadily over the last years is innovation and technology. Brazil ranks number 8 in the list of countries with the largest number of unicorns, privately owned start-up companies that reached a market value of over one billion dollars. It is a market that Chinese companies are starting to explore in search of opportunities to invest. Just to mention a few, DiDi, Tencent (who recently invested in the fintech Nubank) and Xiaomi are all present in Brazil. 

Ambassador: From the point of view of the government, the most important thing is to provide a stable and sustainable economic environment where business can work and plan for its long term projects.

For this, the current administration is deeply engaged in a process of comprehensive structural reforms that will certainly improve the economic conditions of the country. One of most important initiatives was the reform of our pension system, which Congress approved last year. It was a long due reform that addresses the problem of our standing fiscal debt and that will restore the capacity of the government to invest. Its positive impact on the central government budget is estimated to be US$ 180 billions over the next ten years. It will help to provide macroeconomic stability and prompt economic growth.

We have also recently approved the new “Economic Freedom Law” which is set to reduce red tape and facilitates the process to start new business.

And finally, the government is deeply committed to speed up the process of privatization of state owned companies. At this moment, there are already 15 companies being privatized. Besides this, in four years, the Investment Partnership Program (PPI), a program designed to expand the role of the private sector in infrastructure projects, has auctioned 173 projects, in areas such as railways, highways, ports, airports, electric power plants, oil and gas fields, mining, among others. These projects generated US$ 162 billion in investments, plus US$ 32 billion in fees and bonuses.

These reforms and programs have been devised to reduce the weight of the government in the economy and increase the participation of private and foreign investors. Brazil is ready to receive Chinese entrepreneurs seeking for business opportunities and willing to participate in our development.