Brazil looks to China to help stem economy's slide

A view of the central bank headquarters in Brasilia on Aug 29. Brazil suffered a slowdown in the first half of the year as investment plunged and the country's hosting of the World Cup suffocated economic activity. [REUTERS]

Recent figures released by Brazil's government show the country's economy declined for two consecutive quarters, which most economists use to define a recession, but Brazil's finance minister denies it.

Gross domestic product dropped 0.6 percent in the second quarter, according to figures released on Aug 29 by the Brazilian Institute of Geography and Statistics. First-quarter results also were revised downward from 0.2 percent growth to a 0.2 percent drop.

Asked if Brazil is in a recession, Finance Minister Guido Mantega said, "You can't really say that."

"You can't talk about a recession in Brazil because, for me, a recession is when you have a prolonged stall, of many, many months. And a recession is when you have unemployment," he said.

The government blames the economy's shortfall on continuing weak global recovery from the 2008 financial crisis that has dampened the appetite for Brazil's exports. Even the long public holidays during the 2014 FIFA World Cup when workers took many days off is being blamed. Nevertheless the government maintains Brazil's economy enjoys a bright future.

Part of that bright future stems from Brazil's growing economic ties with China.

Chinese President Xi Jinping's state visit in July further stimulated bilateral trade with the signing of 56 contracts involving various fields. China is now Brazil's largest trade partner for exports and imports, and Brazil is China's ninth-largest trade partner worldwide.

Despite the high trade volume between the two countries, problems still exist. Data from the China Council for the Promotion of International Trade shows that Brazil initiated 15 anti-dumping investigations toward Chinese products in 2013, the most against any country.

"China is already Brazil's main trade partner, which naturally contributes to China being the main target in those investigations," said Jose Diaz, a partner with Demarest Advogados in Sao Paulo.

Gilmar Masiero, a professor with the Asian Studies program at the University of Sao Paulo, said such a high number of investigations are driven by "an old vision of protectionism" by the local entrepreneurial class and foreign capitals, which do not want to face the competition of Asian products.

According to the World Bank, Brazil's imports of goods and services in 2011 were equivalent to 13 percent of its GDP, ranking it the lowest among 179 countries, less than the 27 percent of China and 32 percent of Mexico.

However, reducing imports may not benefit the competitiveness of the country in the long run. Brazil's manufacturing cost index in 2014, according to the Boston Consulting Group, increased to 123, higher than the United States, which was 109. Data from the National Confederation of Industrial Brazil (CNI) shows that Brazil's exports to nine Latin American countries, including Argentina, Mexico and Chile, decreased by $5.4 billion from 2008 to 2011.

Even though Brazilian companies worry about the challenge from Chinese products, figures show that among all trade partners Brazil enjoyed an $8.7 billion trade surplus with China in 2013.

Local media report that the CNI is pressuring the government to put forward a more strict anti-dumping law to better protect Brazilian industry after China gained market economy status in 2016.

But Robert Rigobon, a professor of applied economics at the Massachusetts Institute of Technology (MIT), said frequent anti-dumping investigations will result in less trade and trust. "This needs to be changed in the future if the relationship is going to move forward," he added.

Masiero regards China's market economy status as a chance to help "soften the minds of most radicals against China's growing trade participation in their own markets," and that locals need more time to accept the growing influence of the newcomers.

While Brazil needs time to "accept" China more as a partner than a competitor, Chinese companies at the same time need to adapt better to local regulations and culture, said Zhang Jun, the director of Demarest's China desk.

"It is very important for Chinese companies to strictly obey the laws in Brazil to gain stable development in this market," he said.

Zhang said there have been several positive developments recently that more Chinese industry associations are coming to Brazil for direct communications with local companies and organizations.

"More communications can effectively allow both sides to better understand each other and reduce the concerns of local companies and benefit a healthier development of the China-Brazil tie in the long run," he said.

fanzhang@chinadailyusa.com