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Chinese Premier Li Keqiang Unveils Huge Trade Deal with Brazil
   2015-05-22 17:04:54    CRIENGLISH.com      Web Editor: Liu

By Zhao Yang (About the author)

Trains, Planes and Automobiles; Premier Li ends the first leg of a four-nation South American tour, showcasing China's new trade and development approach and bringing along $50 billion to fund it.

Chinese Premier Li Keqiang kicked off a tour of South America this week by unveiling billions of US dollars in financing and trade agreements for Brazil's biggest companies-part of a broader effort to deepen ties with the country.

At a time when Brazil faces a decline in resource prices (0.1 percent growth in 2014 and recession forecast for 2015); with the 2016 Summer Olympics around the corner, the Chinese premier is coming to the region to foster a win-win situation.

On the cusp of a massive 10-year, $250 billion investment plan in South America, Premier Li is starting off with $50 billion in funding for new trade and development initiatives. Representing half of South America's GDP-and China's largest South American trading partner-Brazil is first in line with a $27 billion dollar share.

But, this is not like previous trade deals; China has decided to take the principals of the "One Belt, One Road" initiative to South American. China's no-strings-attached trade and development deals offer are a sharp contrast to the United States' "good governance", trade and security approach. So, after years of perceived neglect from the US, Brazil and the rest of South America are more than receptive to Chinese money.

The essence of Premier Li's trade and development approach is a willingness to invest in the kind of infrastructure and economic capacity building that will allows countries like Brazil to advance beyond their resource dependency. China's willingness to transfer technology for subway trains and automobile manufacturing, along with its push for Chinese companies to invest in South America, shows China's long-term strategy in South America. Likewise, China hopes that investments today yield reciprocal benefits tomorrow; the east-Asian nation is banking on South American countries receiving Chinese money will buy the next level of manufacturing machines and consumer products made in China. This willingness to play a win-win long-game is fast becoming the hallmark of China's international trade successes. In the short term, the economic activity created by these initiatives will create jobs and opportunities for both Brazil and China.

Highlights

$27 billion

On the final day of his trip to Brazil, Premier Li Keqiang and Brazilian President Dilma Rousseff signed 35 trade deals and agreements worth over $27 billion. The majority of the deals focus on trade, finance, energy, mining and aviation; but the most ambitious deals involve upgrades to Brazil's aging and incomplete rail transportation systems. Propping up China's trade approach, Premier Li stressed a desire to not only trade with Brazil, but to see Brazil upgrade and stabilize its economy with better infrastructure and production capabilities.

Trains

Premier Li began by offering a goodwill gesture to help Rio de Janeiro get ready for the 2016 Summer Olympics. The good will took the form of subway cars that will be built in China, but maintained in Brazil. This voluntary technology transfer was warmly welcomed by Brazil.

Premier Li's second offer put funding on the table for a feasibility study of a 3,500-mile Cross Andes rail line, which would link Brazil's Atlantic ports and fertile plains with Peru's Pacific ports. It would also reposition Brazil to participate as Asia continues to grow. For example: By cutting roughly $30 per ton of agricultural exports and reducing transport time, Brazil would reduce costs in this sector and gain a competitive advantage over US agriculture exports. For China, it would create a competitive market for its agricultural and mineral resource demands.

A Cross Andes rail line has been a Brazilian dream for years, but different railway gauges, politics and the harsh terrain of the Andes mountain range-second only to the Himalayas' in terms of height and ruggedness¡ªhave put the rail line's development out of reach. China, on the other hand, built the Qinghai-Tibet Railway-the highest operating rail line in the world. As the world's largest train system operator and its low-cost high speed trains, China has the experience and technology to make Brazil's dream come true.

Planes

Last July, Tianjin Airlines and the Industrial and Commercial Bank of China inked a $3.3 billion order for 60 Embraer E-190 airplanes. On this trip Premier Li ordered 22 more-a deal worth roughly $1.3 billion.

Automobiles

Premier Li has emphasized that China is willing to share technology and bank-role automobile manufacturing in Brazil. He said, "China is willing to cooperate with Brazil in areas such as the manufacturing of automobiles, shipping, steel and building materials. We don't want to just export our equipment. We want to help build factories and assembly lines in Rio to increase local employment." In an effort to help boost these manufacturing expansion targets, Li also announced new funding sources totaling more than $35 billion.

Financing

In addition to the economic deals signed, China has established $30 billion in funds to promote China-Latin America cooperation in areas that increase production capacity and equipment manufacturing. In addition, China's sovereign wealth fund, the China Investment Corporation, would set up an overseas investment vehicle with a capitalization possibly greater than the $40 billion in the Silk Road Fund to support the strategy.

China's approach is winning friends

Infrastructure investment is lagging behind in South America right now. According to the United Nations Economic Commission for Latin America, Latin American countries need to spend 6.2 percent of GDP on infrastructure per year-or around $320 billion- to meet infrastructure demands in the next decade. However, current investment levels stand at just 2.7 percent of GDP. China is increasingly interested in boosting its direct investment in the region, especially in roads, bridges and railways.
China's investment approach is winning friends and influencing countries at a time when the world is still in the midst of a shaky economic recovery.
China's confidence in its win-win, no-strings trade and development investments are a sharp contrast to Washington's defensive pessimism and aging post-WWII Bretton Woods financing structures. The good news is that, because of Beijing's initiatives, there is a fresh interest in emerging nation infrastructure investment; the World Bank has just announced a fresh $12 billion of investment in SE Asia and Japan is hinting at a $100-billion investment initiative of its own.

This article is partly contributed by Einar Tagen.


About the Author

Zhao Yang hosts a China Radio International business flagship program Biz Today. Before that, she has been a financial reporter for CRI's London correspondent bureau. She was actively involved in reporting the financial market in the city of London, and the Chinese economy as well.


The opinions expressed here are only personal, and do not necessarily represent CRI's official policy.

Read all opinion stories by Zhao Yang

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