Agreements worth R$ 50 billion indicate that Beijing is Brazil’s main partner

President Luiz Inácio Lula da Silva (PT) ended this Friday (14) his trip to China with at least 15 trade and partnership agreements signed with the Chinese communist leader, Xi Jinping. In addition, another 20 commercial agreements were signed between companies and public entities in Brazil and China. The Ministry of Finance estimates that the pacts total around R$ 50 billion in investment in Brazil.

In the year 2022, the balance obtained by Brazil in trade with China reached approximately R$ 150 billion. This made Beijing Brasilia’s biggest trading partner. The second largest volume of transactions was with Europe, but the trade balance was ten times smaller: R$ 15 billion

On the trip to China, Lula gave every indication that he will continue to invest in Beijing as his preferred partner. But the president extrapolated trade and made several statements that point to a political partnership with the Chinese autocracy. Members of Lula’s team, such as Finance Minister Fernando Haddad, tried to downplay the president’s speeches in order to reduce diplomatic tension with the United States.

When meeting with Xi Jinping, Lula reinforced the understanding that his government wants to go beyond trade in the relationship between the two countries. “My government’s understanding of China is that we have to work hard so that the Brazil-China relationship is not merely one of commercial interest. We want the relationship to transcend the commercial issue,” said Lula.

Earlier, at the meeting with the president of the National People’s Congress, Zhao Leji, Lula had already said he wanted to “raise the level of strategic partnership and, together with China, balance world geopolitics.” “Nobody is going to prohibit Brazil from improving its relationship with China,” stated the president.

Lula returns with R$ 6.5 billion to finance works in Brazil

Lula openly supported the Chinese policy of contesting American hegemony. In addition to criticizing the fact that most of the world’s commercial transactions are done through the dollar, he gave strong statements in support of the One China principle. That is, that Beijing has a right to sovereignty over Taiwan’s autonomous democracy.

China has been saying it will regain control of the island by 2049, even if it means starting a war to do so.

The almost unconditional political support for the authoritarian regime brought a lot of money to Brazil. One of the points celebrated by those in government was an agreement for the installation of a BYD electric car assembly plant in Bahia.

The Chinese company is expected to take advantage of the structure left by Ford, a US automaker that left operations in Brazil in 2021. In October 2022, BYD and the government of Bahia signed a memorandum of understanding for an investment of BRL 3 billion.

Currently, BYD produces electric buses and photovoltaic panels in Campinas (SP) and has a battery factory for electric vehicles in Manaus. The company also has two monorail projects in Brazil, one in Salvador and another in São Paulo.

In addition, a memorandum of understanding was signed between the Ministry of Finance and the Ministry of Finance of China to promote cooperation and collaboration on projects of mutual interest, such as public-private partnerships (PPPs), infrastructure and fundraising.

Planalto’s expectation is to attract investments from the Chinese to finance the works of the new Growth Acceleration Program (PAC) that will be launched by Lula later this semester.

The president of the National Bank for Economic and Social Development (BNDES), Aloizio Mercadante, stated that the Chinese development bank will lend R$ 6.5 billion to Brazil. The resources will be transferred in two operations. The first will be a BRL 4 billion loan over 10 years, to finance infrastructure projects, clean energy, digitalization of companies and industrialization, innovation and science and technology.

Mercadante, however, did not give further details about the operations, such as conditions and interest rates. “A very important partnership, which improves our financing conditions for these sectors”, stated the president of the BNDES.

Agreement provides for commercial transactions between Brazil and China without the intermediary of the dollar

During his visit to the Asian country, Lula raised his voice by criticizing the dollar and defending an alternative currency for transactions between Bric countries. The block is formed by Brazil, Russia, India, South Africa and China. “Who decided that the dollar was the currency after gold disappeared? Why wasn’t it yen? Why wasn’t it Real?”, said the PT.

Two of the agreements signed between Lula and Xi strengthen the monetary relationship between the countries, with the feasibility of direct exchange commercial transactions between the Brazilian real and the yuan. The justification is to reduce costs by excluding the dollar from the operation, in addition to promoting bilateral trade and facilitating investments in Brazil.

The first agreement puts the Chinese-Brazilian Bank of Communications BBM (Bocom BBM) in the CIPS (China Interbank Payment System), the Chinese alternative to the Western Swift, which connects thousands of financial institutions around the world. With this, Brazil will be the first country in Latin America to have access to the Chinese system.

The second, signed via Memorandum of Understanding (MoU), establishes the Brazilian branch of the Industrial and Commercial Bank of China (ICBC) as a Chinese currency clearing bank in the country. Or, in the words of the People’s Bank of China, an “offshore clearing bank”.

According to the Minister of Finance, Fernando Haddad, negotiations with other countries without intermediary currencies is an issue that “has been on the table” for years and which was reinstated by Lula.

But, the worldwide debate on the subject did not actually take place because of Lula. The Western economic sanctions against the Russian economy in 2022 sparked the discussion about alternatives to the dollar, as several countries fear the same type of sanctions in the future.

Agreements reinforce Brazilian dependence on the Chinese market

Despite the positive economic consequences, the strengthening of trade partnerships with China intensify a dependency relationship. Exports to China accounted for nearly half of Brazil’s trade balance surplus last year.

The danger arises because, if Brazil were to “disobey” Chinese demands in the future, Beijing could erect trade barriers that could have a major impact on the Brazilian economy.

However, this dependence is relative, from the geopolitical point of view. It is much more lenient, for example, than Germany’s dependence on trade with Russia before the Ukraine war.

“Germany depended on energy, Germany imported a large part of its natural gas, which generated electricity, that is, [era algo] that made things work. Brazil, in fact, is not an importer, it is an exporter. We sell more than we buy, it’s a surplus with commercial China”, said analyst Paulo Roberto da Silva Gomes Filho, master at the Command and General Staff School of the Brazilian Army and the School of Defense Studies of the Army of the People’s Republic of China.

By having to abandon trade with Russia in 2022, Germany has made part of its business model unfeasible, based on industrial production supported by the purchase of cheap energy.

According to Paulo Filho, Brazil sells soybeans, meat and ores to China. If for some reason trade relations are interrupted, the country can try to find new buyers.

Brazil and China signed agreements on trade, technology and agribusiness

In the wake of signed agreements, some are related to the agribusiness sector. The governments of both countries will have a work plan for cooperation in electronic certification for products of animal origin. There will also be a protocol on sanitary and quarantine requirements for processed terrestrial animal protein to be exported from Brazil to China. Brazil is the largest supplier of beef to the Asian country.

Another agreement provides for the launch of the seventh satellite in the partnership between Brazil and China: the CBERS-6. The expectation is that this satellite will monitor deforestation and burning in the Amazon. A 2023-2032 space cooperation plan between the National Space Administration of China and the Brazilian Space Agency (AEB) was also announced.

Agreements were also signed in the area of ​​communication. Among them, one that provides for television co-production between the two countries and another for cooperation between the Chinese state news agency Xinhua and Empresa Brasil de Comunicação (EBC). Such as People’s Gazette showed, Beijing can use the partnership to influence the Brazilian viewer and create a more positive general view of the Chinese government, according to analysts.

Lula criticized the US during a visit to the leader of the Communist Party of China

Lula took advantage of a meeting with the head of the Communist Party of China (PCC), Chen Jining, to directly criticize the United States. Opening the meeting, Lula thanked the good relations between the PT and the Chinese Communist Party, recalling that several representatives of his party had recently been on a mission to China.

In addition, the petista stressed that he sees the need to defend China’s role in the global economy as one of the hallmarks of his relationship with the Asian country. “Our relationship with the Chinese government is not just any relationship. When we recognized China as a market economy, we were saying to the world that we did not want China to live underground in the world of commerce”, said Lula to the communist leader.

When recalling his second term, the Brazilian president spoke of the moment he allied himself with China on the climate issue, when he took the opportunity to criticize the USA. “We had a relationship with China at the 2009 Copenhagen Climate Conference, when European countries and the United States wanted to blame China for pollution without assuming their own responsibility”, fired Lula.

In response, the Communist Party leader classified Lula as “an old friend of China” and said that “friendships are like wine, they get better with time”. political rise in the hierarchy of Chinese power: both President Xi Jinping and Prime Minister Li Qiang held office before climbing steps towards the top.

Finance Minister tries to minimize Lula’s criticism of the US

Despite celebrating the effects of the trip to China, the Minister of Finance, Fernando Haddad, acted to try to minimize the effects of Lula’s speeches against the United States. In this strategy, Lula avoided the press and did not participate in the government’s press conference to present the final balance of the visit to the Asian country.

Haddad denied the evident malaise with the US and defended “reestablishing” US investment in Brazil. “We have no intention of distancing ourselves from any commercial partner, especially from the US. We are making an effort to get closer, we want US investment in Brazil,” said Haddad.

According to the Minister of Finance, “Brazil is too big to keep choosing a partner”. “Brazil has the size to partner with these large blocs and other countries in bilateral agreements. It makes no sense to make the option of getting closer to one to move away from another”, he replied when asked if the closer relationship with China represents a departure from the US.

Asked what Washington’s reaction will be to Brazil’s now stronger relationship with China, Haddad said that the government’s intention is to establish partnerships with the three largest blocs in the world. : United States, European Union and China. We have no intention of pulling away from anyone.”

Lula’s movement, however, is already provoking reactions from members of the US government. In an interview with the newspaper The globeUS Ambassador Thomas Shannon, who headed the US Embassy in Brasília during previous PT governments, said that Lula is “repeating China’s narrative”, and that will not bring benefits to Brazil.

“These are Brazil’s choices, and they will be problems for Brazil. Good luck with that. I understand that Brazil wants to have a positive relationship with China. But, having said that, Brazil must present itself as a country that defines its interests, that articulate these interests, and not appear subservient to anyone. Today I see Brazil repeating China’s narrative, without necessarily obtaining something important for Brazil’s interests,” said Shannon.