THE China, main destination of Brazilian exports since surpassing the United States in 2009, it has consolidated its leadership over the last 12 years and everything indicates that it will continue to be responsible for historical levels in the country’s trade balance agenda. The bilateral partnership has contributed to superlative numbers and resulted, in 2020, in the achievement of a new record, of US$ 102.6 billion, in Brazil’s trade flow with a single nation. For the first time, the sum of exports and imports with the same partner surpassed the US$ 100 billion mark. In 2020, the Chinese accounted for 32.4%, or US$ 67.8 billion, of the total national exports, of US$ 209.2 billion. Brazil, on the other hand, imported US$ 34.8 billion from them, which made the Asian giant the biggest source of Brazilian foreign purchases.
- Read the full magazine Brazil-China Special
In short, it is a trade of dimensions as large as the territorial extension of the two countries. “Every three days, bilateral trade between Brazil and China reaches more than US$ 1 billion. We are one of the few in the world to maintain a surplus with China”, says Daniel Lau, Executive Director & Head of China Desk at consultancy Willis Towers Watson. The outlook tends to be positive and the surplus continues to increase. This is because food safety is a strategic issue for the Chinese, who do not produce vegetable and animal protein in sufficient quantities to meet the demand for four billion meals a day.
Much of this demand is met by food grown on Brazilian soil. Despite the Asians’ attempt to diversify the food import agenda, based on investments in grain production in Africa, Brazil will still remain the main supplier for a long time. “Brazil is a reliable partner to supply China, in quantity and quality,” says Lau, who was at the head of the opening of the Brazil-China Chamber, in 1999, in the Asian country.
The accelerated growth of trade between the two countries changed the composition of forces on the international scene. In 2013, exports to China exceeded the entire amount shipped to the bloc of countries that make up the European Union and in 2020 reached a value three times higher than the US$ 21.5 billion negotiated with the United States, second in the ranking of main destinations of national exports.
“Between 2009 and 2013, China became the country’s main buyer and this partnership surpassed previous results, showing the relevance of China in trade relations with Brazil”, says Túlio Cariello, content director of the Brazil-China Business Council (CEBC). In 2020 alone, the Chinese were responsible for US$ 33 billion of the total Brazilian surplus, of US$ 50.4 billion, contributing to the increase in the country’s international reserves and national public accounts.
In the first half of 2021, conditions are even more favorable. Brazilian exports to China increased 34.4% and imports 25.9%. The result is in line with a 35% increase in the country’s total shipments, which totaled US$ 135.9 billion, leading the Foreign Trade Secretariat (Secex) to review its projections for the 2021 trade balance. The latest forecast is for expansion of 46.5%. In absolute numbers, historical export levels of US$ 307.5 billion, according to statements by Herlon Brandão, undersecretary of intelligence and foreign trade statistics, during the release of the half-yearly trade balance result.
The values are considered optimistic by the sector, but, if achieved, they will result in figures that were unthinkable until then. If it continues to account for more than 30% of the total shipped, Brazilian exports to the Asian giant could reach US$ 100 billion this year. The mathematical account, however, runs into a less positive situation than expected by the government. Experts view such estimates with some skepticism. Projections by the Brazilian Foreign Trade Association (AEB), for example, point to total shipments of US$ 270 billion in 2021, higher than forecast at the beginning of the year, but lower than the government’s.
“We increased the values due to the rise in commodity prices, but the current scenario is subject to strong fluctuations”, says José Augusto de Castro, president of the AEB. “China’s surplus with Brazil will grow as a result of the high price on the international market, but the amount of soybean exported in the second half should be less than in the first,” he concludes. According to him, oilseed prices should rise 30% this year, as a result of the warming of the global economy. The increase in exported quantities of soy should be only 2%. Still, the numbers represent an increase of 28.7% compared to the result of 2020.
Despite the positive projections, there are important issues in Brazil-China bilateral trade that are of concern. The main one lies in the concentration of Brazilian exports on commodities, to the detriment of items with higher added value. “There is room for growth, but basically only in commodities. Brazil has been expanding its production to meet international demand, so the share of commodities in the export basket will be more expressive”, ponders Castro.
About 75% of foreign sales to China are concentrated in soy, iron ore and crude oil. “There is a lot of technology and logistics involved in the production of these items, but it is a relationship of more of the same. Of the ten main products on the Brazilian agenda, China was responsible for importing seven of them in 2020 and 2021”, says Cariello, from CEBC. The Chinese have been maintaining high imports of raw material from Brazil – soy in grain and crude oil – for local processing and export of the final product with higher added value.
There is a consensus around the opportunities in segments little explored by Brazil in the Chinese market, such as fruits, shoes, honey and products originating from Brazilian biodiversity. Such items would find good reception in the Chinese market as long as they are well worked out within a strategy for greater diversification of the agenda, but would require joint actions by the government and businessmen. “There is room for us to increase sales with greater added value, but if we do not reduce the Brazil cost, we will not be competitive in the international market”, says Castro, from AEB. Currently, according to him, this cost is equivalent to R$ 1.5 trillion.
The attraction of Chinese investments to Brazil is another alternative for diversifying the national export agenda, according to Lia Vals, a researcher associated with FGV/Ibre, specialized in international trade. “We do not export soy oil, only soy in grain, because the Chinese tariff on processed items is higher and because the country does not have the refining capacity to meet Chinese demand.” According to her, expanding Brazilian refining production through the entry of Chinese capital would make part of the soy processed in Brazil and exported to Asia. The strategy applies to other industrial segments.
The issue gains more relevance given the fierce international competitiveness for the conquest of the Chinese market, made up of 1.4 billion people. At the heart of the dispute, 400 million new middle class consumers, eager to purchase quality products and living in an expanding economy. “There is a lot to grow and explore in the Chinese market and Brazil can take advantage of the good image of its products in the country to expand its participation”, concludes Daniel Lau.