After investing heavily in energy sector, China’s next target may be electrified railroads, says Luiz Augusto de Castro Neves, a former ambassador in China

01/05/2023

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Divulgação — Foto: Luiz Augusto de Castro Neves

Brazil’s relations with China, its largest trading partner, could gain new steam if the Lula administration puts in place measures to cut red tape and ease exports. Chinese investments in Brazil could also increase once the regulatory environment here becomes clearer.

This is the view of Luiz Augusto de Castro Neves, a former Brazilian ambassador in Beijing, who for years has maintained a constant dialogue with businesspeople and executives from both countries and knows the mutual demands well.

After having lived four years in China, Mr. Neves presides the Brazil-China Business Council (CEBC), an entity that brings together large Brazilian groups like Bradesco, Itaú Unibanco, Banco do Brasil, BRF, JBS, Klabin, Suzano, Petrobras, and Vale. Among the members with Chinese capital are 99, CPFL Energia, and Bank of Communications.

In an interview to Valor, Mr. Neves says that after the Chinese have invested heavily in the power industry in Brazil, their next target may be electrified railroads to improve the transportation of Brazilian commodities to the ports.

He also sees a growing interest from China for more products from Brazil, beyond the few products that today dominate exports to China – soybeans, iron ore, meat, oil, and sugar. But this expansion and diversification require internal changes. “As long as we are in a position to supply these products competitively in the international market,” he said.

The former ambassador also says that the return of a leftist government, headed by Mr. Lula — who is, in theory, more aligned with Beijing than the right-wing Mr. Bolsonaro — is unlikely to bring, by itself, more fluidity to trade and investment. “Historically, the Chinese have always separated their foreign policy from ideological aspects.”

Read the main excerpts from the interview below:

Valor: What should the Brazilian government do to stimulate an increase in Brazilian exports to China and a greater diversification of these exports?

Luiz Augusto de Castro Neves: There are many obstacles, and one is the tax issue. Companies pay taxes to export. Another issue: there is often a bureaucratic entanglement for companies to export that makes Brazilian exports less competitive. In other words, it contributes to making Brazilian exports more expensive. The Brazilian government could facilitate exports, which is not easy. Export licenses and several required bureaucratic steps make our exports more expensive. This affects Brazilian exports in general, including to China, which is our main customer.

Valor: Regarding Chinese investments in Brazil, what obstacles could be removed by the government?

Mr. Neves: The regulatory environment in Brazil often hinders foreign investments here. A few years ago, a Chinese ambassador told me that all he needed was to better understand the regulatory environment in Brazil, what they could do, and what they couldn’t do in terms of investments. My answer was: “Listen, whoever finds out first tells the other.” And there is an interesting aspect of Chinese investments in Brazil. That is, the Chinese have a strong interest in Brazil becoming a great exporting and competitive nation because they are our clients. Chinese investments in Brazil exceed $70 billion, which is equivalent to less than two years of Brazilian exports to China.

Remember that the Chinese interest in Brazil has to do with the fact that a country with more than 1 billion inhabitants is very concerned about ensuring supplements to feed its population. And Brazil is one of the few countries in the world that can meet a large part of this Chinese demand for food. In this sense, investment in infrastructure helps Brazil to become more competitive in the world market. This is positive for Brazil as an exporter, but it is also positive for China, as an importer that wants more competitive prices.

Valor: Still about Chinese investments in Brazil, what new areas could be on their radar?

Mr. Neves: They have already invested in the power generation industry. The Belo Monte hydroelectric plant, for instance. They have invested in power transmission and more recently in distribution, with the acquisition of CPFL, Brazil’s largest power distribution company. In my view, they are going to invest in electrified railroads to transport, for example, soybeans by rail and not by truck, as happens today, when a substantial part of the harvest is lost in transportation.

Valor: Has this possible Chinese investment in electrified railroads in Brazil already been discussed with you directly?

Mr. Neves: I lived in China for four years and have been president of the Brazil-China Business Council for several years. Nobody told me what the Chinese goal is, but the Chinese goal is to invest in infrastructure to ensure a better transportation of goods for export.

Valor: Unlike other partners of China, Brazil has not joined the Belt and Road Initiative, launched a few years ago by President Xi Jinping, to enable investments in infrastructure to facilitate the flow of products to the Chinese market. Would Brazil’s joining this project help commercial relations?

Mr. Neves: It could help, but the economic trade and investment relationship between Brazil and China are so dynamic that we can ask if it is worthwhile for Brazil to join this Chinese project. There is great dynamism in the relations between the two countries: the Chinese are our biggest exporters and importers. And there is also a dynamism of Chinese investments, which would grow and be much more dynamic if the regulatory environment in Brazil was clearer and more predictable.

Valor: Does the fact that Brazil will be governed again by President Lula, a leftist leader, tend to have any impact on trade and investment relations with China?

Mr. Neves: No, I do not believe so. Throughout the four years of the Bolsonaro administration, trade between Brazil and China has remained dynamic. Historically, the Chinese have always separated their foreign policy from ideological aspects.

Valor: Is there any big issue to be solved today between the two countries from a trade standpoint?

Mr. Neves: All countries which have intense commercial and financial relations also have aspects subject to controversy. Brazil complains about certain phytosanitary barriers for exporting food to China, and the Chinese complain, for example, about the Brazilian regulatory environment and the doubts generated regarding whether they can invest in this or that sector.

Valor: Are there conditions in the Chinese economy for more Brazilian products to have more significant sales?

Mr. Neves: Yes, there are. When President Xi Jinping announced changes in China’s economic policy, the goals are still the same. The means vary a little. He said the model that allowed China to grow for 40 years at double-digit levels has in a way run out. Among other reasons, it depends a lot on the level of economic activity of the rest of the world economy. And today it is turning more to China’s internal consumption, among other reasons because China’s economic growth was spectacular, but it generated a great inequality. President Xi Jinping was already talking about this in 2007 when I was living there. He already said that China’s model was not sustainable in the long term and that at some point a more inward-looking model would be needed. This means that the Chinese people will consume more and save less. Although not at spectacular rates, the country will continue to grow, and this creates a demand in China for Brazilian products, as long as we are in a position to supply these products competitively in the international market.

*By Marcos de Moura e Souza — São Paulo

Source: Valor International

https://valorinternational.globo.com/