Global Policy Forum

by Tony Smith

In Portuguese, "business from China" means a deal sent from heaven, an once-in-a-lifetime chance to get rich. So it should be no surprise that Brazilian business is suddenly looking east. To wean itself from dependence on foreign investment, Brazil needs to export more, and China, the world's most populous and fastest-growing economy, is a new priority for producers of everything from soybeans and chicken to iron ore, compact cars and regional jets. And while even the biggest Brazilian companies often cannot compete with North American and European rivals in trade financing, their prices are usually lower and they have another, vital competitive advantage: China seems to like them.

Deals announced in recent months include a $500 million, five-year contract for Volkswagen Brazil to supply assembly kits for its best-selling Gol compact and for a new factory in Harbin province to build Embraer regional jets. Companhia Vale do Rio Doce, the world's largest iron ore producer, already has a joint venture with the Shanghai Baosteel Group Corporation, China's biggest steel maker, and is negotiating with Chinese investors to build slab plants in northern Brazil. The chief executive, Roger Agnelli, said last week that growing demand for the company's iron ore "is sustained by China," where demand is expected to rise by 28 million tons this year, according to UBS Warburg.

In agribusiness, Brazil's soy exporters have more than doubled shipments to China in the last three years and expect to sell five million tons of beans there this year.

Exporters of paper and cellulose, orange juice and sugar are also looking hungrily at China. The coffee industry is mesmerized by the fact that espresso — costing $5 in Beijing's trendiest cafes — is a new fad among China's growing urban middle classes, expected to swell by 150 million people in the next three years.

Brazil's left-leaning president, Luiz Inácio Lula da Silva, who is less than enthusiastic about the Free Trade Area of the Americas agreement now being negotiated with the United States, is training his sights very publicly on China.

"Brazil's new foreign policy has defined China as a fundamental partner," Mr. da Silva told Brazil's business elite recently at the opening of "China — the Xi'an Warriors and Treasures of the Forbidden City," the largest exhibit about China ever staged here.

"This partnership," he said, "has an economic and, more specifically, a trade dimension."

The exhibit's organizers said its sheer dimensions — nearly 500 pieces, including 11 life-size terra-cotta warriors from Xi'an Province — make it a symbol of the new, cozier relations. Brazil will stage a return exhibit next year in a pavilion inside the Forbidden City, the first country to receive such an invitation from the Beijing government.

"It might be exaggerated to compare this to the Nixon visit to Beijing, but it certainly marks a new, important moment in our bilateral relations," said Edmar Cid Ferreira, president of Sí£o Paulo-based Banco Santos and an organizer of the exhibit. "The Lula government is certainly going to play the Chinese card as much as it can."

Brazilian business can only hope so.

Brazil was courted assiduously by the Chinese in the years following the 1989 Tiananmen Square massacre, when Beijing was seeking out "nonideological" business partners. Six of the seven members of the Communist Party's recently retired Politburo visited Brazil, and President Jiang Zemin came twice. "No other country was visited by so many high-level Chinese officials," said Jaime Spitzcovsky, a China-watcher in Sí£o Paulo.

But Brazil, mired in its own economic problems at the time, failed to seize opportunities. The country does not, for example, have a significant role in China's Three Gorges Dam project, despite several visits by Chinese delegations to Brazil's giant Itaipu hydroelectric plant over the past decade. Still, top executives here say Brazil has not missed the train.

"Brazil's profile is attractive to China," said Carlo Lovatelli, president of Brazil's association of vegetable oil exporters. "Our trade accounts are complementary, and Brazil's political neutrality is a competitive advantage." Mr. Lovatelli expects Brazilian soy exports to China to top 5 million tons this year, up from 1.8 million in 2000, and the industry also wants to export more soybean oil. China imported 64 million tons of Brazilian soy oil in 2000, but only 17 million in 2001, causing pessimism among Brazilian exporters. But last year, exports boomed again, to more than 300 million tons, because China's 6,000-plus small, antiquated crushing plants cannot keep pace with growing demand.

Short on water, and with much of its fertile land dedicated to rice growing, China will be increasingly dependent on soy imports for the foreseeable future, Mr. Lovatelli said.

"We have to develop this relationship with a lot of care, because we are not the only ones interested in China," he said. "There's a lot of competition to occupy this space, and the Chinese know that and are playing their cards very well."

On the other hand, Brazil's combative stance in the World Trade Organization — it has gone head to head with Canada over airplanes, and challenged the United States on steel and the European Union over sugar and instant coffee — has won it friends in China.

"Apart from it being a huge market for us, I get the feeling China is going to be a partner in quite a few strategic issues," said Henrique Rzezinski, vice president for international business at Embraer. But others see China's entry into the trade organization as a two-edged sword. Its labor force is so inexpensive that it even undercuts Brazil's.

"China is now in the W.T.O. and is competing on terms that are difficult to beat," said Carlos Alberto Rossi, chairman of the Sí£o Paulo law firm Trench, Rossi and Watanabe. The firm recently opened an office in China's business capital, Shanghai, in association with Chicago's Baker & McKenzie, and are expecting a flood of work dealing with joint ventures, trademark protection and trade deals and disputes.

"There's increasing interest from our clients, but also increased uncertainty," he said. "China will protect itself against our products, and investing there is very complex because the rules of the game are still not very clear."

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