The Beijing-Brasília Bond

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The Brazilian megadelegation that traveled to China last week included a slew of businesspeople, seven ministers, five state governors, 27 lawmakers, and, of course, President Luiz Inácio Lula da Silva. While Lula’s comments about the war in Ukraine perhaps received the most coverage in the Western press (we’ll discuss those below in “In Focus”), the trip also reset his government’s relationship with its largest trade partner. In Beijing, Brazil and China signed a series of memorandums and deals that officials said are worth some $10 billion.

Lula has plenty of experience dealing with China and drew closer to the country during his two previous presidential administrations, from 2003 to 2010. In that time, the two countries signed an agreement to be strategic partners, saw soaring bilateral trade and investment, and co-founded the BRICS grouping along with Russia, India, and South Africa.

At the time, Lula and his advisors celebrated Brazil and China’s growing ties. But some in Brazil’s foreign- and economic-policy communities also started to question whether Brazil was being careful enough in its bilateral trade with China. The fine print of the various agreements signed last week suggests their concerns have shaped the new Lula government’s approach to Beijing.

During Lula’s first period in office, China had an overwhelming appetite for Brazilian raw materials such as soybeans, iron ore, and oil. But some makers of Brazilian manufactured goods reported difficulty selling on the Chinese market. Meanwhile, manufacturing’s share of Brazil’s GDP was shrinking fast. When Brazil’s foreign ministry published a collection of essays on Brazil-China relations in 2011, many debated whether economic relations with China were contributing to deindustrialization in Brazil.

Scholars have warned that premature deindustrialization is risky for developing countries. Many countries that have gone from poor to rich first built up their manufacturing sectors and only began to leave them behind when people migrated to high-skilled, high-wage jobs in other sectors. (Brazil moved along the first part of this path from the 1950s through the 1980s, when sectors such as metalworking, car manufacturing, textile production, and heavy machinery manufacturing grew.)

But in parts of the developing world seeing premature deindustrialization, such as Brazil, people often leave industrial sectors for low-paid, low-productivity work rather than higher-wage jobs. For example, a former factory worker might now work as a cashier, Uber driver, or street vendor. A whopping 39 percent of Brazil’s workers today toil in the informal sector.

A 2022 paper by economist and China expert Tatiana Rosito and Kings College London’s Vinicius Mariano de Carvalho—both of whom are Brazilian—argues that while Brazil and China have maintained “a successful complementary agenda,” trade data from the past two decades shows that Brazil “has not been able to significantly diversify its exports” to China.

Rosito now has a front-seat chance to change course: She and others who have called to refine Brazil’s strategy toward Beijing were named to senior positions in the new Lula administration.

Among the new faces in Brasília is Tatiana Prazeres, the foreign trade secretary of Brazil’s Ministry of Development, Industry, Trade, and Services. Prazeres told Foreign Policy that the new administration is seeking Chinese expertise and investment in Brazil that can promote “a neo-industrialization of the country” focused on green technologies and other high-tech sectors. She called these the “industries of the future.”

Brazil was the largest recipient of Chinese foreign direct investment in 2021, according to a China-Brazil Business Council report. Between 2007 and 2021, the group calculated that Chinese investment in Brazil went mostly to the electricity and oil sectors, and the two countries are reportedly planning a joint investment fund in green energy.

One of the memorandums signed last week committed to facilitating projects that include technology transfers; separately, deals were announced that include a green hydrogen plant, offshore wind projects, and the latest phase of a jointly produced satellite program, as well as a pledge to facilitate Brazilian start-ups commercializing their products in China and a plan to create a binational agricultural logistics company.

Many of the ideas that were announced “are still intentions” rather than concrete plans, as the economist Paulo Morceiro of the University of Johannesburg told Foreign Policy, “but it’s generally positive.” He said that Brazil should take advantage of the fact that it has many of the critical minerals needed for the energy transition, “and China has the technology.”

Yet the Lula administration’s frequent talk of new industrial policies—in partnership with China or not—has some economists nervous. Such policies are highly difficult to calibrate successfully, economist Emanuel Ornelas of the Getúlio Vargas Foundation told Foreign Policy. He said the current talk of industrial policy gives him “a little bit of goosebumps” and added that Brazil’s history is littered with failed industrial policies that led to industries that were “protected for decades and survived without becoming competitive internationally.”

Regardless of how Lula designs his latest industrial policies, the government does not have the money to launch the multibillion-dollar green stimulus packages that are all the rage in the United States and Europe. What it does have are raw materials, an internal market of 215 million people, and—if careful—the ability to bargain internationally.



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