Growing Trade Ties China to Latin America

by Hongwei Shang on April 8, 2008

in News

Growing Trade Ties China to Latin America
by Julie McCarthy

China is emerging as an economic powerhouse throughout the world– including in the backyard of the United States.

Hungry for trade with mineral- and agriculture-rich Latin America, the Chinese are binding themselves closer with the continent, snapping up commodities such as Brazilian soy and Chilean copper in record amounts.

In Brazil, the soy bonanza is changing the fortunes of soy farmers, as well as the landscape.

King Soy

In the steamy state of Mato Grosso that straddles Brazil’s midsection, soy rolls over the earth like an endless bolt of green velvet.

If soy is king in this state — which produces one-quarter of the country’s crop — farmer Erai Maggi is the kingmaker. The 48-year-old soy tycoon started out with one tractor and 250 acres. Today his combined farms total half a million acres.

A battalion of Case Harvesters rumbles across one of his 100,000 acre farms, evoking a scene from Star Wars: gargantuan metal creatures moving with relentless precision over the land. Above the din of the harvest, a ranch hand delivers some unexpected good news.

"The yield is up," he tells Maggi. One of Maggi’s nephews quickly does the math and says it’s now 1.4 tons per acre, while the state’s average is 1.1 tons.

Relatives in this lucrative family business surround Maggi, offering facts he says he can’t be bothered with. Like how much he’s worth, or whether he has overtaken his cousin, Blairo Maggi, the governor of Mato Grosso, as the state’s biggest producer.

Erai Maggi openly credits China for his expanding empire. On a tour of his farm, he says sales to China spurred 20 percent growth, reviving the fortunes of his company, called "Bom Futuro" (Good Future).

"Two years ago, we thought of scaling back our planting," he says. "But then China started buying our soy. It was our salvation; otherwise we’d be in a mess. So we have to thank China."

Becoming Partners

Because of the growing demand for soy, which is a key nutrient for poultry, swine and cattle, the price has risen from $150 a ton to $300 a ton. But China keeps buying because it has to provide nourishment for its increasingly prosperous middle class.

Raw materials like soy and iron ore form the basis of Brazil’s skyrocketing exports to China, which doubled in just three years.

Welber Barral, Brazil’s secretary of international trade in the Ministry of Development, Industry and Trade, says China has become "a very important partner to Brazil. In fact, China became the second partner to Brazil after the United States."

Barral also notes that as their commercial ties intensified, 6 percent of all Brazilian exports went to China last year, while 10 percent of all imports came from China. But Barral says Brazil’s new trade deficit with China may actually be beneficial for many Brazilians.

"Because we have this sense that it reduces inflation and gives more opportunity for the poor population of Brazil that [now] has cheaper goods," he says. "On the other hand, as a principle, we don’t have to reduce the 10 percent imports from China; we have to increase our exports to 12 percent."

China’s ambassador to Brazil, Chen Duqing, says the Chinese and Brazilian economies are "mutually complementary" and insists that with China as a partner, Brazil will reduce its dependence on the U.S. market.

At the same time, Duqing acknowledges that he has had to address apprehensions among some business circles in Brazil that a lopsided commercial relationship may be developing.

"They are claiming before my arriving here that China is invading with products," he says with a laugh. "But I told them, ‘You know, we understand globalization. Commercial exchange is inevitable. You must buy, we must sell.’"

The Chinese have been outselling Brazilians in sectors such as shoes. By one estimate, done by the Brazil-China Business Council, Chinese competition is responsible for Brazil losing more than 90 percent of its shoe sector in the U.S. market.

Feeling Friction

Sergio Amaral, former Brazilian ambassador to France, says China is as big an opportunity as it is a threat. He cites such unfair competitive practices as dumping in the textile sector, in which he says suits priced at just $1 are entering the Brazilian market.

Amaral says the "big challenge" for the 21st century is "how countries will react to these dislocations — whether it will be possible to accommodate China or whether this emergence will bring about friction and conflict."

Friction is already stirring. China imports far more raw materials from Brazil than manufactured products. In addition, China has not kept President Hu Jintao’s promise to make sizable investments in South America, and attitudes are hardening.

Soy farmer Erai Maggi says he is very keen to see China invest in Brazil’s long-neglected roads and railways, which make transport costs five times what they are in the United States. But he’s skeptical.

"China investing in infrastructure here?" Maggi asks. "I haven’t seen a cent of that. Who from China is going to invest? All I hear is talk — just like a parakeet."

The China-driven soy boom also has alarmed environmentalists who say it has pushed farming northward into the Amazon rainforest and changed the quality of the region’s rivers. "We are basically changing nature for money in Brazil," says conservationist Adalberto Eberhard.

But the Chinese ambassador, Duqing, says China isn’t Canada. He says developing economies that try to industrialize pollute and that every country must find its own way to reconcile development and damage to the environment.

‘A Different World’

In the broader frame, the U.S. market share in Brazil has declined the past five years as China’s has surged. Rubens Barbosa, former Brazilian ambassador to Washington, says the United States’ focus on the war in Iraq made it possible for newcomer China to begin to eclipse the United States in its traditional sphere of influence.

"Other countries are benefiting from this growing lack of presence, not to say interest," he says. "And other countries, Brazil and China, are taking over in Latin America."

Despite the anxities about a rising trade deficit with China, many Brazilians have a sense of expectation now with their economic destiny linked to the Chinese. Many feel their rising economic prowess is putting them on the path to the developed world.

Meanwhile, Amaral says, a partnership between such developing powerhouses as Brazil and China has the potential to change the world in unprecedented ways.

"This superpower, the United States, is facing some checks and balances and that is positive," he says. "A different world is in the offing."

A world that Amaral says is less unipolar and more democratic in its decision-making.

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