Workers at the assembly line of a plant established in Brazil by Gree (Brazil). Gree was among the first set of Chinese companies that entered Brazil in 1998. [Photo / Xinhua]

Chinese companies make sizable inroads in Brazilian markets

Eric Zhang, the general manager of China's largest air conditioner maker Zhuhai Gree Electric Appliances Inc in Brazil is not worried about customer numbers. Rather he is worried whether his factory in Brazil would be able to cope with the flood of orders.

According to Zhang, despite the high price tag, Gree products are popular with Brazilians, especially high-end clients like Brazilian soccer legend Pele.

Gree was among the first set of Chinese companies that entered Brazil in 1998. The opposite seasons of China and Brazil was what attracted Gree to enter the country, as sales of air conditioners are seasonal.

The company is ranked fourth in the Brazilian market and sold 400,000 air conditioners in Brazil last year. This year, it plans to double the number even with competition from other international brands like South Korea's LG Electronics.

Gree's fast growth is an epitome of how Chinese companies have made considerable inroads in Brazil and the overall growth in bilateral trade.

Brazil, the most distant country for China among other BRICS (Brazil, Russia, India, China and South Africa) nations, has emerged the closest to China economically.

China has been Brazil's largest trade partner since 2009, a position previously held by the US, as a result of massive exports in the energy and agricultural goods sectors. China's investment in Brazil was less than $300 million in 2009, but increased to $17 billion in 2010, making it the largest foreign investor in Brazil.

As the two economies are complementary, bilateral trade will continue to see double-digit growth this year to probably $70 billion, said Clodoaldo Hugueney, Brazil's ambassador to China.

During Brazilian President Dilma Rousseff's visit to China earlier this year, she said that Brazil is seeking to diversify trade and investment ties beyond raw materials to include more value-added goods.

Marcos Almeida, a partner at Ernst & Young Terco, said foreign direct investment (FDI) in energy and mining will continue to rise because the Brazilian government is increasingly sensitive to the purchase of agricultural land by foreign investors in general, not only Chinese.

According to the figure from Brazil's Ministry of Development, Industry and Foreign Trade, 44 percent of Brazil's exports were raw products including ore, coffee bean and soybean in 2010.

Last year, the deal between China Petrochemical Corporation (Sinopec Group) and oil company Repsol SA was the biggest FDI deal in Brazil. The Chinese company bought 40 percent of the Spanish oil giant Repsol's Brazilian business for $7.1 billion. Sinopec has also been in charge of a natural gas project named GASENE in Brazil since 2004.

Iron ore is another big investment target for Chinese companies. Vale SA, the Rio de Janeiro-based miner, is the world's biggest producer of iron ore and one of Brazil's largest companies. "If it were not for Vale's exports, the Latin American country would have run a trade deficit last year rather than its $20.3 billion surplus," according to a Financial Times report.

In the first quarter of 2011, China accounted for about 29.7 percent of Vale's revenues - more than half of the company's revenue in Asia. In 2004, Vale signed a contract with China's Sinosteel Corp to supply 600,000 tons of iron ore pellets every year from 2005 to 2011 at a price of $32.76 per ton.

However, Brazil is seeking to diversify the categories of imports and investment in the Latin American nation to bring more win-win benefits, said Hugueney.

He said China should "diversify its imports" from Brazil, by buying more "high-tech goods" such as aircraft, automotive and mechanical equipment, "high-end manufacturing goods" such as luxury shoes, and "agricultural goods"such as beef and pork, rather than merely the "soybeans, iron ore and oil" that traditionally have been the major Chinese imports from Brazil.

The ambassador's remarks echoed the words of China's Minister of Commerce Chen Deming during a visit to Brazil in May.

"China is willing to promote the diversification of Brazilian exports to China and to add more value to Brazilian exports," he said.

An estimated 84 percent of China's imports from Brazil are raw materials and agricultural goods including iron ore and soybeans. The huge Chinese demand for the commodities drove an 18-fold increase in Brazil's exports to China between 2000 and 2009.

And there has been an increase in the number of trade complaints filed by Brazil against China. Of the 144 anti-dumping investigations launched by Brazil last year, nearly 50 were against China.

"Brazil is seeking more Chinese investment in the manufacturing sector to avoid trade conflicts between the two nations," Hugueney said.

More and more Chinese manufacturing companies are now setting up their offices in Brazil, and a big part of them are technology companies.

But in recent years, the Brazilian government has imposed stricter regulations on foreign investors buying agricultural land. It has called for joint ventures in this sector rather than FDI.

Alessandro Teixeira, deputy minister in Brazil's Ministry of Development, Industry and Foreign Trade, explained that some Chinese companies are cooperating with Brazilian partners to make agricultural products such as soybean oil. "That's the kind of partnership that China and Brazil are looking for," he said.

Brazil accounts for more than 40 percent of the Latin American economy, with a market size as big as the entire US market. Teixeira predicted that the percentage will increase to 50 percent in the next 10 years, and Brazil's economic role in Latin America will be even more significant.

Chinese companies, such as telecom equipment makers ZTE Corp and Huawei Technologies Co, have invested heavily in Brazil in recent years.

ZTE has set up an industrial park in Hortolandia, close to Sao Paulo. The company's Brazilian operations recorded $600 million in sales revenue last year and the figure is expected to reach $1 billion this year. Products from the industrial park will be shipped to other Latin American countries.

"The Brazilian market accounts for about 9 percent of ZTE's overseas revenue. The country is crucial for our company's development in Latin America," Yuan Lie, president of ZTE South America Region, said.