Brazil, China: Drawn into an ever closer embrace

Brazil is looking towards China – and China is looking right back.

As these two leading emerging economies draw each other into an ever closer embrace – China to Brazil for its natural resources and Brazil to China for its deep pockets – few doubt that the world is witnessing the birth of one of the greatest commercial relationships of the future.

But as the FT reports on Monday in its Brazil & China special report, far from being a smooth passage, it is a relationship that will be fraught with challenges and misunderstandings along the way.

As Joe Leahy, the FT’s Brazil correspondent writes, it would be difficult to find two large countries in the modern world that are less familiar with each other than China and Brazil or that are more different socially, politically and culturally.

Already there are growing tensions, with most of them originating from the Brazilian side.

While Brazil welcomes Chinese demand for its commodities, it is angry at an influx of cheap Chinese manufactured imports that it says undermine Brazilian industry. Brazilia also accuses Beijing of closing its market to imports from Brazil and of maintaining an artificially cheap currency to make its exports more competitive.

Similarly, as Leahy reported in a separate article, Chinese investments – while initially welcomed – have also become an increasing source of concern for policymakers.

When rumours surfaced last year that Chinese government-backed companies were looking at buying up tracts of Brazilian farmland, the government drew the line. Reinterpreting an existing law, it introduced restrictions on FDI investment in farms.

As Martin Wolf noted in his article in the report, the challenegs to Brazil in doing business with China are as big as the opportunities.

For Brazilian policymakers, the challenge ahead is to position their country to benefit from the much improved trading opportunities, while preventing excessive shrinkage of the country’s manufacturing industry.