Even with the drastic slowdown of Chinese automobile exports to Brazil, the Asian country became in 2012 the top seller to Brazil. China now occupies a place that until last year was historically a US post. The new Chinese ranking in Brazilian imports, according to economists, is here to stay because it’s the result of a structural and long-term shift in the trade balance between both countries. Moreover, the rise of Chinese investments in Brazil will also boost intracompany trade, still small between China and Brazil.
In 2002 China was the seventh most important supplier to Brazil on the global market, responding for 3.3% of the country’s imports. The Chinese share of Brazilian-bound shipments has increased every year. In 2012, such figure up to September was 15.2% of the total, with R$25.1 billion. During the same period, the US sold to Brazil a total of R$23.8 billion. The Americans, which ten years ago supplied 21.8% of Brazil’s imports, currently have 14.4%. The data is from the Ministry of Development, Industry and Foreign Trade (MDIC).
Former Foreign Trade secretary Welber Barral
Former Foreign Trade secretary Welber Barral says China’s exports to Brazil have diversified a lot more than those from the US. In 2002, airplanes, helicopters and their spare parts, besides turbojet engines, were among the main items purchased from the US by Brazil. Ten years ago, coking coal and anthracite were among the main Brazilian imports from China. Those products have surrendered their place to manufactured goods including electronics and their spare parts, besides transportation goods.
Trade between the US and Brazil, Mr. Barral says, changed less because it’s more dependent on intracompany trade. Chinese exports to Brazil, meanwhile, mirror the production diversification undergone by the Asian country in the period. Mr. Barral estimates the Chinese will continue being the main international supplier to Brazil, especially as Chinese investments in Brazil mature. Besides China’s diversified exports, trade between Brazil and China will also start to be affected by intracompany trade.
According to data from Renai, a MDIC agency, China became in 2011 the country with the 12th highest announced investments in Brazil. China’s share of all foreign investments announced in Brazil last year was 3.8%.
The Chinese expansion in intracompany trade, says José Augusto de Castro, vice president of the Brazilian Foreign Trade Association (AEB), will accelerate in the next few years. “The pace will be swift because Chinese investments are growing, very different from American investments, almost all of them already in the mature stages.”
Mr. Castro also calls attention to the shift in the exports of the Asian country. China’s sales abroad, which before featured products with low aggregate value, have become increasingly sophisticated, with greater technological intensity. “China’s exports no longer consist only of trinkets, or textiles and shoes. Today we’re importing Chinese capital goods.”
MDIC data shows that in 2002, capital goods responded for 13.4% of Brazilian imports of Chinese products. The share has advanced to 23.4% today. Intermediary goods, which were 67.3% ten years ago, now represent 56.6%.
That Chinese advancement into more technology-intensive products, including machines and equipment, Mr. Castro says, has been a result of the Asian country’s above-average growth over the last ten years. The US, on the other hand, reached a growth peak in 2002 and saw several companies switch production to Chinese territory, due to low labor costs and other production factors. American growth had its peak in the last decade in 2004, expanding 3.5%. China’s peak growth was in 2007: 11.2%. This year, the IMF estimates growth of 7.8% in China and 2.2% in the US.
An expert in foreign trade, Fernando Ribeiro, research and planning specialist at the Institute of Applied Economic Research (Ipea), also makes a similar point. “It’s not just about China’s growth. The performance of American corporate exports in the period was also weak.”
Mr. Ribeiro says the expansion of Chinese exports is not restricted to Brazil. “It’s about a structural change in which China became with time the main supplier to several countries, with global market-share gains.”
Gradually, the Ipea researcher says, China went from being a supplier of simpler products to more sophisticated goods, winning market share from traditional suppliers of capital goods, like the US, Germany and other European countries.
Data from Abimaq, the Brazilian capital-goods trade group, show that China in 2002 was the 14th largest foreign supplier of mechanic capital goods to Brazil. At the time, the Chinese sold less than $100 million of that equipment to Brazilians. This year, up to August, China is the second most important source of those machines, with $2.8 billion sold to Brazil. Americans still remain on top, with $5 billion, but losing ground. In 2002, the US was responsible for 38% of mechanic capital goods shipped to Brazil. Now it responds for 25%. The Chinese performance has already left behind Germany, traditionally the second biggest foreign supplier of the machines. In the year up to August, Germany sold $2.5 billion in machines to Brazil.
Mr. Ribeiro says that China’s rise as the main Brazilian supplier is already consolidated and is likely to continue. “China’s exports are growing faster than the global average for a while now and that won’t change,” he says. The economist says that even with the slowdown of its economy, China will continue growing at a relatively fast pace.