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China Visits Floundering Brazil Bearing Gifts With Strings Attached

The Chinese premier's four-nation South American tour highlights his country's Latin American interests, starting with a set of development and investment deals in Brazil worth billions.
May 22, 2015, 4:30pm
Photo by Cadu Gomes/AP

Chinese Premier Li Keqiang visited Brazil this week, and he did not come empty-handed.

At the outset of a four-stop South American tour, Li met with Brazilian President Dilma Rousseff in Brasília and announced deals, financing, and investments worth billions of dollars, including a joint $50 billion infrastructure fund and plans for a controversial transcontinental railway through the Amazon — which environmentalists warn risks devastating large tracts of rainforest.

China is seeking to shore up its links in Latin America and increase its clout as a strategic investor at a time that its voracious appetite for the continent's wealth of natural resources — a huge driver of growth — has dipped slightly.

"Up until now China has not played the role of a major provider of either portfolio, investment, financing or even FDI [foreign direct investment] to Brazil," Marcos Troyjo, co-director of Columbia University's BRICLab, told VICE News. His think-tank tracks the influence of the economies of Brazil, Russia, India and China. "The many joint projects announced during Li Keqiang's visit seem to signal that from now on investment flows will also grow more and more."

Brazil's crumbling infrastructure needs updating, and its government welcomes China's largesse. Facing a prolonged, worsening period of stagnant growth, and a wide-reaching corruption scandal afflicting the state-owned oil company Petrobras and the country's political establishment, economists predict that Brazil's economy will shrink by 1.2 percent this year.

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China evidently sees an opening. The development deals signed this week include $7 billion for Petrobras, a sign of bullish support from China despite indications that other foreign investors are balking at the long-running scandal.

"There's an element of solidarity," said Alberto Pfeifer, a professor of international relations at the Federal University of São Paulo. "But more than that it's about China's interests in diversifying energy resources and having a say in one of largest and most technologically advanced corporations in the world."

'We will see the presence of Chinese manufacturing plants in Brazil and Latin America and the expanded presence of Chinese brands over the region.'

Trade between Brazil and China was negligible as recently as 15 years ago, but the past decade has seen China displace the United States as Brazil's number one trading partner.

"A former finance minister in Brazil called the relationship 'neo-colonial' because Brazil exports mainly raw materials and imports manufactured goods," said Anthony Pereira, Director of the Brazil Institute at King's College. "Brazil has also lost market share for its manufactured goods in South America to Chinese exports."

This imbalance has meant that Brazil has been hit particularly hard by China's own economic slowdown, which has curtailed its demand for soy and iron ore. Brazilian exports to China dropped 12 percent last year.

In addition to expanded investments, deals such as Tianjin Airlines' pledge to buy 20 E-190 planes from the Brazilian aerospace company Embraer hint at China's acknowledgement that this relationship needs to evolve, Pereira noted.

"At various BRICS summits, the Brazilians have brought up their perceived need to adjust the trade relationship with China, so that more higher value-added Brazilian exports go to China," he said.

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Of course, while China's investments are a boon for Brazil, they come with their own agenda. Pfeifer categorizes Chinese influence in Latin America in three stages. Large-scale purchase of raw materials, driving Latin American growth, came first. The current second wave, involving strategic investment in industry and infrastructure, will pave the way for a lucrative third stage in the coming years.

"We will see the presence of Chinese manufacturing plants in Brazil and Latin America and the expanded presence of Chinese brands over the region," Pfeifer said.

China's recent ambitious proposals for mega-projects are also clearly positioned to facilitate its access to Latin America's commodities. In addition to the Brazil-Peru railway, they include developing a canal across Nicaragua and a railway through Colombia.

The Brazil-Peru railway would stretch some 3,300 miles from coast to coast, and dramatically accelerate the transport of raw materials to Chinese cargo ships. Commodities from the agricultural and industrial heartlands must currently be moved slowly and expensively by truck or by barge to Atlantic ports.

But the project would also slice through Amazonian jungle in both Brazil and Peru, as well as through the Andes — a plan that has drawn the ire of environmentalists and raised questions over the construction's feasibility.

While dramatic, discussion of the proposed project has so far focused on feasibility studies. Fanfare over the project should be taken with "a large grain of salt," Joao Castro Neves, Latin America director at the Eurasia Group, told VICE News.

"One of the goals for Brazil is to become more competitive, and more infrastructure is definitely a huge element," he said. "But not only is it hard to get negotiations kick-started quickly with any project this big, but also there are lots of different interests involved on the Chinese side, lots of conditions they could impose."

"On the Latin American side there are also restrictions with legislation over things like environment and labor," he added, noting that objections from indigenous communities and environmentalists present additional hurdles.

Such a massive undertaking poses problems far beyond the immediate deforestation caused by the railway line, according to Christian Poirier, Brazil-Europe Advocacy Director of Amazon Watch. He told VICE News that overlaying maps of the proposed route and of indigenous and protected Amazonian regions shows the extent to which the railway would transect these sensitive areas, spelling disaster. In particular, this part of the Amazon around the Brazil Peru area is home to "uncontacted" tribes.

"As with road projects, railways open access to previously remote regions, bringing a flow of migrant workers inevitably followed by deforestation mafias and cattle ranchers, creating a perfect storm of pressures upon the forest and forest peoples," Poirier said. "The railway would undoubtedly serve to expand Brazil's agribusiness frontier, which is so toxic to the environment and human rights in the Amazon."

Efforts to reduce the impact of such mega-projects have historically had little concrete effect on the ground, he added, as the state does little to enforce mitigation measures.

Poirier cited the example of the huge Belo Monte hydroelectric dam — which Amazon Watch says has devastated nearly 1,000 square miles of rainforest and displaced up to 40,000 people — noting that it demonstrated that the Brazilian government is "both unwilling and incapable of balancing economic development with environmental and human rights concerns."

"The notion that we should sacrifice the Amazon's remaining forests and forest peoples to facilitate the speed at which South America's resources are stripped to meet China's unsustainable demands is a complete absurdity," he added.

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