The closing of cities in China in recent months, due to the covid-19 pandemic, already has repercussions for Brazil’s trade balance. From January to May, the total volume of products exported from Brazil to China dropped 11.2% compared to the same period last year. In the case of iron ore —the most affected product—, the fall was 7.76%.
Data from Secex (Secretariat of Foreign Trade), of the Ministry of Economy, show that iron ore exports from Brazil to China totaled 77.62 million tons in the accumulated period from January to May this year. In the same period of 2021, the volume had been 84.15 million tons.
Considering all exported products, the volume of the first five months of 2022 was 124.92 million tons. In the same period of 2021, the sum was 140.61 million tons.
Below, it is possible to check the monthly volumes of iron ore and soy (the two main products) shipped to the Asian country and the total exports (considering all products).
Impacts of the lockdown
China’s largest city, with 25 million inhabitants, Shanghai was in lockdown for two months. During this period, the population was oriented to stay at home, and the government maintained strict control over circulation. Restrictions were lifted on June 1 for about 22.5 million people.
On June 9, however, the Shanghai administration closed seven districts again, after the emergence of new cases of covid-19. Only one of the districts had 2.5 million residents, which gives an idea of the impact of the measure on the general population and on economic activity.
In addition to Shanghai, the capital Beijing has been locked down in recent months, as have dozens of other Chinese cities. The closing of cities was a consequence of the “covid zero” policy implemented by the government.
Specialist in International Economics, Professor Simão Davi Silber, from USP (University of São Paulo), says that the closing of Chinese cities, which impacts economic activity in the country, ends up affecting trade with Brazil.
The lockdown harms Brazil, because China will have lower growth this year with the opening and closing in cities. As with each outbreak, Chinese ports are closed, both for exporting and importing, this hinders Brazil doubly: in the sale and purchase of products.
Simão Davi Silber, professor at USP
The lockdowns have lowered expectations for China’s economy in 2022. Silber recalls that the Chinese government’s growth estimate for GDP (Gross Domestic Product) this year was originally 5.5%.
“The latest estimate is that, instead of growing something around 5.5%, China will grow 4.7% or 4.8% in 2022”, says the professor.
Economist Lia Valls, an associate researcher at Ibre FGV (Brazilian Institute of Economics of Fundação Getulio Vargas), in Rio de Janeiro, also cites the decrease in projections for the Chinese GDP.
China had grown a lot in 2021, a percentage of 8.1%. The government was already hoping for a bit of a slowdown. But the compromise that the Chinese party had established, which would be a GDP of 5.5% in 2022, is more difficult to achieve. As China closes down cities, it reduces activity. Especially because the country was already in the process of changing its development model, from investing in infrastructure to an economy based on the domestic market.
Lia Valls, researcher at Ibre FGV
With cities closed, China has paralyzed works in general – from building bridges to erecting buildings. Thus, the country began to buy less iron ore, one of the main products exported by Brazil.
In May of last year, for example, Brazil had exported 16.48 million tons of iron ore (iron ore and its concentrates) to China. A year later, in May 2022, the volume was 15.92 million tonnes, down 3.4%. “This is already a reflection of the slowdown in Chinese growth”, says Lia Valls, from Ibre FGV.
The undersecretary for Intelligence and Foreign Trade Statistics of the Ministry of Economy, Herlon Brandão, confirms that smaller shipments of iron ore to China are being identified.
“What we observe is a lower activity in China, which may be associated with lower ore activity”, said the undersecretary last Monday (13), during an update of Secex (Secretariat of Foreign Trade) figures for the trade balance. Brazilian.
Brandão says, however, that the issue is conjunctural. According to him, China will continue to be a major trading partner for Brazil, “with growing importance”.
We do not believe that the drop in exports to China is a matter of changing trends. China has been going through lockdowns, which causes economic activity to slow down. Furthermore, GDP growth of only 4.4% is expected this year, which in Chinese terms is low. Lower activity influences import [pela China] both in volume and value.
Herlon Brandao, from Secex
In fact, Secex data show that, in dollars, iron ore exports are also being affected. From January to May, shipments of the product to China totaled US$ 6.87 billion. The value is 30.3% lower than the US$ 9.85 billion in the first five months of last year.
Shipments of soybeans — another important export product from Brazil to China — also declined in early 2022.
Secex figures indicate that soybean exports totaled 28.74 million tons from January to May. The volume is 28% lower than the 40 million tonnes recorded in the first five months of 2021.
In this case, according to Brandão, the lower exports are not linked to the lockdowns in China. “What explains the lower soybean exports is a lower supply from Brazil. Food is always in demand around the world, even more so at a time of crisis and supply bottlenecks, with the war in Ukraine,” said the undersecretary. “It’s just a smaller crop in Brazil.”
The most recent data from Conab (National Supply Company) reveal that the estimate for the current soybean crop in Brazil is 124.3 million tons of grain. The volume is 10% lower than the 138.2 million tons of the previous harvest.
With less soy available, Brazil has also been making fewer shipments to the Asian continent.
Will Brazil’s GDP be harmed?
Despite the impacts of China’s slowdown on trade with Brazil and a smaller soybean crop, economists interviewed by the UOL believe that the effects on GDP are not a concern. The Ministry of Economy’s most recent estimate for Brazilian GDP growth in 2022 is 1.90%.
Silber, from USP, recalls that Brazil is also a major importer of Chinese products, including inputs for the industry. But he believes that the impacts in this case will be localized.
“The smaller exports to China should not substantially affect the GDP”, says the professor. “And Brazilian industrial production should grow by 1.5%. It should not be affected by China.”
Lia Valls, from Ibre FGV, says that the Brazilian GDP is more dependent on the domestic market than on exports. “The dynamics of the economy is not given by exports and, in any case, Brazil continues to produce trade surpluses”, she says. “Of course China weighs in, but it will continue to be our main trading partner.”