Chinese companies invest in Brazil about half of what they announce

President Michel Temer arrives this Thursday in Beijing for a visit where there is great expectation of announcements of new Chinese investments in Brazil. The question is what will be new and how much will actually materialize.

Data from the China-Brazil Business Council (CBBC) show that $80 billion in Chinese investments in Brazil were announced between 2010 and 2016. But only $45.4 billion were confirmed — that is, little more than half (56.8%).

Following a conference Wednesday at a hotel in Beijing, the CBBC president, Ambassador Luiz Augusto de Castro Neves, minimized the difference in the figures.

“This is nothing serious, nobody in the business takes investment announcements seriously, because what you really look at is the confirmation,” he said. “There are cases in which a company didn’t make an announcement, and made concrete investments, for example.”

The executive director of the Center of Brazilian Studies at the Chinese Academy of Social Sciences, Zhou Zhiwei, gives two explanations.

First, he points out that there are Chinese companies that have made public their interest in investing in the Brazilian economy but, after taking a more in-depth prospecting trip, end up thinking that Brazil costs are too high and may even decide to invest in another country in the region. This is rare, but it happens. He cites as an example the carmaker Chery, which transferred its factory from Brazil to Uruguay.

The other reason for the difference between intentions and an actual project is that certain companies truly have long-term plans and reckon the right moment has not yet arrived.

What is undeniable is that Chinese investments in the Brazilian market gathered momentum in the first half of this year, despite the country’s political uncertainties. Roberto Fendt, executive secretary at CBBC, estimates that the total confirmed was $6.1 billion.

“Every day there’s news of more Chinese investments in Brazil,” Mr. Zhou confirms. For him, this is normal because the Chinese arrived late to the largest economy in Latin America. This year, the Chinese mainly carried out acquisitions of Brazilian companies, taking advantage of the fact that assets are cheap.

In the future, Mr. Zhou believes, Chinese companies may seek joint ventures with Brazilian manufacturers of several products. “The Chinese may help improve the competitiveness of Brazilian manufacturers,” he says.

China is an increasingly important source of capital for Brazil. Petrobras is negotiating a new loan of about $1 billion from the Exim Bank of China. The China Development Bank, meanwhile, had $25.3 billion in outstanding loans to Brazil as of the end of the first half, in sectors including oil and gas, mining, power, telecommunications, and others. The bank’s entire portfolio of international loans total $274 billion. About $60 billion were extended to Latin American countries.

Source: Valor Econômico