Trade relations between China and Brazil set to deteriorate



Brazil - New FDI Destination for China

Brazil – New FDI Destination for China

Brazil has become the latest attraction for Chinese companies it seems, and going by data released by Brazilian government, China has emerged as the biggest foreign direct investor in Latin America’s largest economy.

Data made available by Brazil’s central bank shows that Chinese companies alone accounted for $17 billion in foreign direct investment (FDI) out of the total $48.46 billion invested in the country in 2010. This is a sharp jump from $300 million that China had invested in 2009, according to Sobeet – a Brazilian think-tank of transnational companies.

During the financial crisis, export of commodities like iron ore and soybean based substances to China helped Brazil combat the economic slowdown. This is the first time Brazil has seen so much investment from China, said the President of the think-tank.

Tensions between the countries however, mounted after Brazil’s currency Real started gaining and it exports became less competitive. China took advantage of the situation and started flooding local markets with cheap imports.

This prompted Guido Mantega – the Brazilian Finance Minister to call for revaluation of the Chinese currency Renminbi.

The Brazilian government, in an effort to discourage Chinese investment, will start imposing minimum domestic supply quotas and will screen investment proposals based on investors profiles, reported Brazilian newspaper Folha de S.Paulo last week.

Luis Afonso Lima – the director of Sobeet said most of the Chinese investment has taken place in the commodities sector and has been routed through tax havens such as Luxembourg.

The biggest FDI took place in the petroleum sector when Chinese oil major Sinopec picked up a 40 percent stake in Repsol Brazil for $7.1 billion.

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