The Chinese Century: Is China-Brazil relationship a proxy of a new global governance?

Nature hates the vacuum, so do superpowers. Therefore, the geopolitical space allowed by the United States is seemingly being filled by China [1].

For instance, the Asian giant became Brazil’s most important trade partner in 2009 and Chinese investment in Brazil began around 2010 [2] as part of a state-led directive to increase China’s food and energy security through overseas acquisitions. Brazil plays an important role locally given the country´s economic weight and regional influence; therefore, a partnership with China changes the regional geopolitical landscape.

The increase of interest in Brazil represents a significant change for Beijing´s foreign policy. Since 2005, China has loaned more than US$ 140 Billions to Latin America — almost half of that to Venezuela [2]. Increasingly, though, Beijing is diversifying away from Venezuela and other traditional allies in the region, such as Ecuador, into countries with a sounder financial footing and greater strategic possibilities; thus, Beijing´s focus shifted to Brazil. The partnership works as a marriage between two emerging economic powers — China, the fast-rising industrial, economic, and political leader, and Brazil, the agricultural and natural resources powerhouse. Investing in Brazil supports Chinese strategy to export to other countries in Latin America and the two countries form a natural match.

As the US withdraws from Latin region, China steps in with so little opposition [3] [4]. Consequently, China’s emergence as an economic rival to the U.S. is obvious in Latin America and the rapid increase and scale of Chinese investment in Brazil has taken many by surprise.  A clear example of the transformation of Latin America in a zone of economic and political influence of China is the invitation to some Latin American and Caribbean countries to join Chinese “One Belt, One Road” initiative as part of an agreement to deepen economic and political cooperation with the region. [5] Therefore, the invitation shows that the country is using its economic leverage to pull the region into its orbit and is part of an evolving and more aggressive Chinese foreign policy in Latin America, a part of the globe where U.S. influence was historically strong.

Critics of U.S. policy in Latin America make a correct point that countries in the region have few alternatives but look to China for investment. First, Brazilian government investments are sluggish, and China has the advantage of capital, technology, and construction capacity. Second, China becomes an attractive investor because its projects are completed at a speed that developing nations are unused to. Third, Chinese money comes without strict conditions, such as the ones related to governance and rule of law.

Multilateral lending institutions such as the World Bank and the International Monetary Fund impose these conditions to lend money, but few Latin American countries can pass the rigorous standards for lending. Fourth, China seems to have a different approach than Western-style investor because Chinese lending often takes the form of patient capital, which tends to align better with debtors’ long-term development goals avoiding the region’s volatile cycles of boom and bust. Finally, Chinese companies are not facing the same political resistance in Brazil to their investments as in other countries, such as Australia, where China has been barred from deals in power transmission.

Geopolitics: What China really wants?

One cannot deny that Chinese investments not only support the development of much-needed infrastructure of Latin countries but also boost Chinese exports and commerce, often featuring guaranteed contracts for Chinese contractors or machinery suppliers. To sustain its economic development, China requires natural resources. Further, the country must feed a large population, for which it needs to import primary and agricultural food products from Brazil and other Latin Countries. Brazil’s vast natural resources, Argentina´s meat, and Venezuela´s oil, in this context, are key to the Chinese economy.

However, the Chinese inroad in Latin America also serves as an indicator of China´s interest in the rest of the world. The increase of Beijing´s soft power around the globe is a clear answer. The country is buying geopolitical influence, pushing the United States aside [6]. Interesting to see that China invests in both commerce and geopolitical influence — pushing free trade and multilateralism, as the U.S. once did.

Given China’s growing presence in Brazil, the two countries may develop positions that are largely unpopular in the West. For instance, both countries have shared interests in terms of promoting their respective economic and political ascensions as well as addressing the issue of global governance reform. In their case, reform means the refurbishment of the existing global order and the transformation of in into one characterized by multi-polarity. Essentially, the China-Brazil strategic partnership is based on their shared identity of being key developing states, and leading regional players with sizable geographical magnitude, abundant natural resources, and the quest to attain great power status.

Goldilocks Debate: Is the Chinese influence in Brazil positive or negative?

China’s interaction with Brazil is shaped by several interrelated as well as conflicting factors. Therefore, the relationship has both positive and negative consequences for the Latin region.

On the one hand, Brazil benefits with the infrastructure required to take advantage of its vast natural resources. Additionally, the country will benefit from the export revenues not only from the Chinese but also from other countries that will be impacted by the Chinese “one belt, one road” initiative. Spillover effects also occur when Chinese firms set up operations in the Brazilian territory. On the other hand, there are negative aspects of the mentioned partnership. Despite the general claim that China-Brazil tie is a model of South-South partnership, the relationship follows an old-fashioned North-South pattern [7]. For instance, when China imports natural resources such as iron ore, oil, and soybeans from Brazil and exports manufactured products to the country, there is a traditional North-South relationship disguised as a South-South one.

A second example of the North-South pattern appears from the Chinese fail to promote Brazil as a member of Security Council of the United Nations. This case provides a shift from the typical South-South cooperation and ‘win-win’ relationship that China propagates all over the world to have with its trading partners.

Additional support for a typical North-South relationship with China comes from Chinese companies, which act more like western multinationals, looking for competitive returns and investing opportunistically across a broad range of industries. Given Brazil’s economic vulnerability, China is It’s using economic leverage to pull the country into its orbit [8]. China, offers the appearance of an attractive path to development, but trades short-term gains for long-term dependency. Thus, Chinese companies act more like captors than saviors of assets of the Latin country.

What the future holds for Brazil and China partnership

In short, Brazil has become increasingly important for China due to its political and economic features; namely, the fact that it is an agricultural powerhouse, possesses enormous resource endowments, constitutes a sizable domestic market and – most importantly – enjoys significant regional influence. Additionally, this strategic partnership would enable China to wield decisive influence in the Latin American region, facilitating the institution of a China-Latin American Cooperation Forum as well as deepening China’s cooperative partnership with the countries of the region.

However, Brazil seems ill-prepared for a broad shift of economic power to Asia, primarily due to China but to a lesser extent Japan, India, and South Korea [9]. While the Latin economy looks only in short-term benefits of a transactional trading mode, the Asian powerhouse possess a long-term perspective, focused both on the assurance of necessary natural resources to support its economic growth and on the geopolitical goal of establishing a strong network of allies that would act as a counter-force to US dominance, specifically in a region formerly under US influence, to establish a new, multi-polar world order [10] [11].

Guest post by Evodio Kaltenecker 

This post was originally published on Estrategia Para Todos

Evodio Kaltenecker is responsible for research in management and executive education in international business schools such as WU Vienna University of Economics and Business, Management Center Innsbruck, and Samuel C. Johnson Graduate School of Management at Cornell University. Focused on strategy, International Business, and Latin America. MBA (Harvard Business School) and Ph.D. in internationalization strategy and digital value chains (Polytechnic School/University of São Paulo).

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