Brazil and China want to negotiate without using the US dollar – 03/29/2023 – Market

Brazil and China took another step to deepen their trade cooperation and to rule out possible American influence in business between the two countries.

This Wednesday morning (29), the two countries announced the creation of a “Clearing House” (or Clearing House), a banking institution that allows the closing of business and the granting of loans between the two countries without the US dollar has to be used to facilitate the international transaction.

ICBC (Industrial and Commercial Bank of China) is the bank that will operate the clearing house in Brazil to allow Brazilian and Chinese businessmen to carry out commercial transactions and loans in yuan, not just in dollars, as is the case today between the two countries.

As it is a large Chinese financial institution, the bank would be able to guarantee Brazilian businessmen the immediate conversion of their earnings into real, should they decide to close deals in yuan.

“It’s an option for offsetting the yuan against a local currency, there are 25 like that in the world, and it cuts transaction costs because it doesn’t go through the dollar,” stated the secretary for international affairs at the Ministry of Finance, Tatiana Rosito.

Over the past 13 years, China has been Brazil’s biggest trading partner – in 2022, the volume of transactions between the two countries reached a record US$ 150 billion (R$ 775.9 billion). In the trade balance, Brazil has a surplus of US$ 29 billion (R$ 150 billion), although sales to China are overwhelmingly of commodities, while the Asian country exports higher value-added products to Brazil. The Chinese want to reduce this distance and this was one of the reasons for presenting the demand to Brazil, which had been negotiated in stages in recent months.

“Brazil signed an agreement for payment in yuan, which greatly facilitates our trade. We are going to work even more in the food and minerals sector, we are going to look for the possibility of exporting goods with high added value from China to Brazil and from Brazil to China “, said Guo Tingting, deputy minister of commerce of the People’s Republic of China during the Brazil China Business Forum, held in Chaoyang, an upscale neighborhood of the Chinese capital.

At the event, which brought together more than 500 businessmen, Tingting cited the mining company Vale and the JBS meatpacking company as “excellent Brazilian companies” operating in China.

The announcement was received with little enthusiasm by Brazilian businessmen. “At least it’s better than the common currency with Argentina,” joked a Brazilian agribusiness executive in Beijing. According to him, there are still no estimates on possible gains or losses for Brazilian businesses with the novelty.

According to Rosito, the mechanism adopted in Brazil is similar to that already established by the Chinese in both Chile and Argentina, both countries that make up the Belt and Road Initiative (BRI), a loan and financing program for infrastructure in Beijing whose priority is to ensure “unhindered business” between China and its partners.

China has insisted on Brazil joining the BRI, an agreement that divides opinions in the Brazilian government, since it would be more of a political favor to China than a great opportunity for business expansion – Brazil is already the biggest destination for Chinese investments in the world today.

Brazil’s entry into the BRI is viewed with concern by the United States, with whom the Lula government has also been trying to strengthen ties. Both China and Russia are trying to implement business mechanisms that exclude the dollar as a form of payment, to reduce American economic and political influence around the world and circumvent possible sanctions against Washington.

“Brazil does not play politics with its foreign trade,” stated the Brazilian ambassador to China, Marcos Galvão, at the event.

Originally, this Wednesday’s forum was to have the presence of Brazilian President Luiz Inacio Lula da Silva. He ended up canceling a trip to China — which included dinner with Chinese President Xi Jinping — at the last minute after being diagnosed with pneumonia caused by bacteria and the influenza A virus.

Chinese leader Xi Jinping even sent a letter to the Brazilian wishing his “quick recovery” and assuring “understanding” for the withdrawal, but did not mention a possible new date for the commitment. Brazil, on the other hand, told Chinese diplomacy that it hopes to see the meeting rescheduled as soon as possible — perhaps in the first half of April.

Delay in closing deals

Lula’s absence resulted in the postponement of the announcement of at least two major deals between Brazilians and Chinese. The first would be the purchase by the Chinese electric car manufacturer BYD of the Ford factory in Camaçari (BA).

The second would be the purchase of around 20 commercial aircraft E-195-E2, from Embraer —a deal estimated at more than US$ 1 billion (R$ 5.1 billion). According to Francisco Gomes Neto, CEO of Embraer, the contract is “well advanced”, but it still depends on the last impulse, which would come, according to him, with the meeting between Xi and Lula.

Embraer is also studying establishing cooperation with China to convert commercial aircraft into freighters. Gomes Neto also said that the negotiations received new impetus with a “more open channel” established by the Lula government, in opposition to the previous administration, of Jair Bolsonaro, who accumulated public attrition with China.

During the event, Jorge Viana, the president of Apex Brasil, offered an apology to Beijing: “In the last four years, the Chinese government and people have not been treated as they should by our country.”

Brazilian diplomats claim that the insults fired by Bolsonarists against China are mentioned with concern by the Chinese, who are trying to shield themselves from future noises in the diplomatic relationship between the two countries. Nothing like this had happened in the nearly 50 years that China and Brazil have been partners.

If the Chinese were pleased, Viana’s participation in the agenda generated noise after the president of the Apex recalled in a lecture in the country that Brazil deforested 84 million hectares of Amazon forest in the last 50 years and that the country needed to “stop saying Brazil that the country has no environmental problem”.

The speech was seen as a direct criticism of agriculture —especially livestock— which has been identified in recent years as one of the drivers of deforestation in the biome.

In the audience for Viana’s lecture were representatives of slaughterhouses such as JBS. The current government has the environmental issue as a priority and anticipates the possibility that the Chinese will start demanding more assertively the production of sustainable commodities in Brazil. For the time being, only Europe imposes stricter controls on production from deforested areas.

Viana’s statement was countered by Bolsonaro’s former Minister of the Environment and now Senator Tereza Cristina via Twitter: “What Apex is this that accuses agro of deforesting the Amazon in front of our biggest customers, in China? just the country’s image, the trade balance and the GDP?”

In rejoinder this Wednesday, Viana said that at no time was he criticizing agribusiness and that his speech was a reference to the Bolsonaro government which, according to him, “stimulated deforestation in the country”.

Text originally published here.