China poses a riddle in US backyard
By Peter J Brown
A visit by Jia Qinglin, chairman of the National Committee of the Chinese
People's Political Consultative Conference, to Brazil in November following
four previous meetings this year between President Hu Jintao and Brazil's
President Luiz Inacio Lula da Silva underscores the growing ties between China
and Brazil.
Lula was in Beijing for a three-day visit in May, two months after being the
first South American leader to meet United States President Barack Obama at the
White House.
Brazil enjoys almost instant global brand recognition. In his July 2009 report,
Marcelo Carvalho, Morgan Stanley's chief economist in Brazil, for example,
stated that, "Brazil is often seen among
international investors as the poster child for emerging markets."
At the same time, Brazil's designation as one of the four so-called BRIC
nations, along with Russia, China and India, can be deceiving. Brazil has
cultivated and cherished its image, its multi-ethnic heritage, and perhaps most
of all, its non-belligerent and inclusive approach to foreign policy, an
approach that other BRIC members have not duplicated as successfully as Brazil.
China is striving to create a multi-polar world which implicitly reduces the
relative share of the US's power, and China is seeking to enhance cooperation
with Brazil as part of this agenda, according to Dan Erikson, who manages the
China program at the Inter-American Dialogue, a Washington DC-based center for
policy analysis and exchange on Western Hemisphere affairs.
Among other things, China is interested in global enforcement of its "One
China" policy and has been using its ties with Brazil to pressure neighboring
Paraguay to cut its ties with Taiwan.
A 10-year, US$10 billion agreement signed earlier this year by China and Brazil
has been their largest deal to date. It involves the China Development Bank,
the China Petroleum & Chemical Corporation (Sinopec) - Asia's largest oil
refiner - and Petrobras, Brazil's state-controlled oil company, which will sell
200,000 barrels of crude oil per day to China as a result.
Among the latest deals is one that involves Brazilian iron-ore exporter MMX
Mineracao e Metalicos and China's Wuhan Iron & Steel Group. This $400
million agreement, announced in late November, makes Wuhan the second-biggest
shareholder in MMX, according to Bloomberg. Construction of a joint steel plant
in Brazil is being discussed by the two companies as well.
"China views most of its international relationships, including with Brazil,
through the prism of its domestic needs - the need to feed its people, provide
raw materials to its factories, and grow jobs," said Kellie Meiman, managing
director at McLarty Associates, an international advisory firm based in
Washington DC. "Building a closer relationship with Brazil helps to address
many of these priorities, so it is logical that the Chinese would attempt to
[do this]."
Although China has emerged as a major trading partner of most Latin American
countries, and recently displaced the US as the main trade partner of Brazil,
the US is still by far the region's largest economic partner.
"Chinese foreign direct investment in Latin America is paltry when compared to
the US," said Erikson. "Still, China's recent successes in Latin America reveal
that the region is open to a much more competitive marketplace and the US
cannot expect to stay on top forever without dedicating more serious effort."
Over the past few months, Lula has occasionally aroused his critics in the
financial sector by leaning too far in the direction of supporting the Chinese
yuan and turning away from the US dollar. This must be seen certainly as a
win-win situation by China.
While the volume of trade between the two countries is impressive, the rate of
growth is what really deserves closer scrutiny in this instance. In 2008, for
example - if China's statistics are accurate and many readers will no doubt
dispute them - bilateral trade expanded more than 60% year on year and will
reach about $50 billion this year. Overall, this accounted for less than 3% of
China's total foreign trade last year.
Agricultural exports to China, primarily Brazilian soybeans along with
vegetable oil, cotton and fruit, increased more than 80% to almost $9 billion
in 2008.
The US recognizes that China's activities in Latin America might cause
problems, but there are much higher priorities on the US foreign policy agenda
right now, including Afghanistan, Iraq, Iran and the Middle East, and the
climate talks in Copenhagen.
In May, US Secretary of State Hillary Clinton acknowledged that the US was
mindful of the changing landscape in Latin America where China was making
"quite disturbing gains".
"They are building very strong economic and political connections with a lot of
these leaders. I don't think that is in our interests," Clinton said. "I have
to say that I don't think, in today's world, where it's a multi-polar world,
where we are competing for attention and relationships with the Russians, the
Chinese, the Iranians, that it's in our interest to turn our backs on countries
in our own hemisphere."
Erikson describes Clinton's "off-the-cuff statements" as proof that the US has
lingering suspicions about the role of China in Latin America, but this has not
been reflected in formal policy.
"In fact, the US appears to have embraced the concept that China can be a
responsible stakeholder in Latin America, by backing China's bid to become an
observer at the Organization of American States and a donor member of the
Inter-American Development Bank," said Erikson. "Obama's recent trip to China
indicates that the US is seeking a collaborative relationship with this rising
power, and that will extend to Latin America."
Delays in securing Obama appointees to senior positions is not helping. Meiman
said the capacity of the US "to fully engage in the region has been diminished
by the number of challenges faced by the Obama administration and our inability
thus far to get President Obama's nominees into place.
"While the US consults with governments in our hemisphere on issues great and
small, I am frustrated by partisan divisions in the Senate leading to severe
delays in executive branch staffing," Meiman said. "In the US system, the
Senate has great power over senior political appointments. State Department
Assistant Secretary for the Western Hemisphere Arturo Valenzuela was only
confirmed recently and challenges remain to Tom Shannon's nomination as US
Ambassador to Brazil."
Celos Amorim, Brazil's minister of foreign affairs, has urged the US to fix
this quickly. Brazil is unhappy about consultations that are not taking place.
US actions prior to and during the presidential elections in Honduras raised
eyebrows in Brasilia, which also finds the US military's growing presence in
Colombia even more alarming. A recent attempt by Lula to orchestrate a sitdown
with Obama so that both leaders could address the increasing presence of US
military personnel in several expanding bases in Colombia failed. An exchange
of letters has taken place instead.
Amorim has been in direct contact with Clinton about these and other issues.
The friendly relations that the two nations enjoy are not in jeopardy despite
their differences. China may strain this relationship in the months ahead
somewhat but will not alter it substantially.
The Chinese are "the new guys on the block, but they still have a long way to
go before they even begin to approach US investment in the region," said Eric
Farnsworth, vice president of the Council of the Americas. "Having said that,
their ways of doing business are different. Their priorities are different and
it is changing both the political and economic dynamic in South America."
China and Brazil rank one and two respectively in terms of the growth rate of
their annual trade with Africa. China now outranks all other countries in
Africa at well over $100 billion last year, or about four times Brazil's total
amount and not quite three times India's approximate total.
Because agricultural exports are at present such a large part of Brazil's
exports to China, Brazil will certainly be monitoring Chinese investments in
African farmland and agricultural assets.
At the same time, Brazil's status today as one of the world's major producers
of biofuels is not something that China made possible. Japan has been very
active in Brazil and has a huge appetite for Brazil's ethanol.
Japan is both an avid consumer and dedicated partner in Brazil's biofuel
development. Brazil is the leading exporter of ethanol to Japan, accounting for
roughly 80% of Japan's imports. Japan and Mitsui & Co in particular have
been involved in the construction of Brazil's ethanol infrastructure, including
the first ethanol pipeline for Petrobras. Japan is spending billions of dollars
on this sector, while Petrobas looks to increase the size of its ethanol
retailing footprint in Japan with other Asian markets to follow.
The ethanol market in Brazil demonstrates that China is not being granted
exclusivity. The South American state has a certain independent and sometimes
carefree outlook on life that cannot be overlooked in the process as well.
There is scope for ties between the two countries to grow beyond economic
issues. "Now that Rio de Janeiro has been selected for the 2016 Olympics, China
will likely share its advice and know-how about how to organize and execute a
successful event," said Erikson.
That, however, make create compatibility problems arising from differences in
culture, which could also be reflected elsewhere.
In the short term, "Brazil and China will remain allies in search of an
alliance, as there is little evidence that the countries have figured out how
to build a more substantive common agenda," said Erikson. "Major issues remain
unresolved, especially whether China will back Brazil's bid to join an expanded
UN Security Council, a proposal that Beijing has been cool to for fear that
arch-rival Japan would join the Security Council as well."
While a natural shift in economic focus from the US to China is now underway in
Brazil, this should not be construed as a problem-free.
"Brazil feels somewhat vulnerable with this increasing dependence upon China.
Past challenges, such as [technical issues surrounding Brazilian soy products],
disappointment over lower-than-expected levels of Chinese investment in Brazil
and others, leave Brazil keen to ensure that it keeps its economic alliances
diversified," said Meiman.
The lack of any shared vision here may prove to be a stumbling block. Erikson
describes Brazil as "still confused about the nature of its relationship with
China". While others attempt to sort out any confusion, joint Chinese-Brazilian
activities in space continue.
"There has been major headway on satellite cooperation and technology
transfers, which the Brazilian government has prioritized," said Erikson.
However, Lula went to Ukraine in early December to continue discussions that
have lasted for years involving the possible launch of Ukrainian Tsyklon-4
rockets, which are converted Soviet ballistic missiles designed to carry
satellites from Brazil's Alcantara space center, starting in 2011.
Brazil had planned to expand its launch facility by constructing multiple
launch pads. The status of this project is not known.
Russia, in the meantime, also has its eyes on Alcantara and has its own joint
space and rocket projects underway with Brazil. Russia is pursuing this
partnership with Brazil although it has just completed construction of its own
self-contained launch facility in nearby French Guiana, co-located at the
sprawling French launch facility in Kourou operated by Arianespace.
Add it all up, and it is apparent that while China has a longstanding
arrangement with Brazil in the satellite-based earth observation arena, Brazil
is happy to embrace other countries that have much to offer in space.
The China-Brazil partnership is a work in progress which still has a long way
to go.
"Brazil still has not fully tapped into the Chinese market. Worse, it has few
protections for its intellectual property rights, which means the Chinese
companies freely copy Brazilian technology and then become fierce competitors,"
said Erikson. "The question facing Brazil is whether it can expand beyond
commodities trade to become a true strategic partner."
What price Brazil is willing to pay in order to achieve this objective is
another question entirely.
Peter J Brown is a freelance writer from Maine USA.
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