Rousseff Wants China Buying More Than Soybeans, Vale’s Iron Ore

Brazilian President Dilma Rousseff plans to pressure Chinese officials to buy more than Vale SA (VALE5)’s iron ore from Latin America’s biggest economy when her first visit as head of state begins in Beijing today.

Rousseff is scheduled to meet with President Hu Jintao tomorrow and attend the summit of the so-called BRIC nations on April 14. She has been more outspoken than her predecessor, Luiz Inacio Lula da Silva, on trade and currency issues between Brazil and the country that is both its top commercial partner and a trade rival.

Demand for raw materials from the world’s second-largest economy has helped fuel Brazil’s fastest expansion in more than two decades. At the same time, a flood of imports from the Asian country is hurting Brazilian manufacturers as the real has appreciated 41 percent against the yuan since the end of 2008, more than any major currency except the Australian dollar.

“Brazil needs China as much as China needs Brazil,” said Sergio Amaral, former trade minister and head of the Rio de Janeiro-based China-Brazil Business Council. “But we need to iron out distortions in the trade relationship, in which Brazil sells commodities and China manufactures. Dilma’s visit is a great opportunity.”

Raw materials, led by iron ore and soybeans, accounted for 83.7 percent of Brazil’s sales to China in 2010, up from 68.2 percent in 2000, according to Brazilian Trade Ministry figures. China overtook the U.S. as Brazil’s top trading partner in 2009, as Chinese exports to the South American nation rose to $25.6 billion in 2010 from $1.2 billion in 2000, and Brazilian sales to China climbed to $30.8 billion from $1.1 billion in the same period, according to the ministry.

Trade Surplus

Brazil’s $5.2 billion trade surplus with China last year was due to the soaring volume and prices of commodities. Brazilian exports of iron ore to China last year rose to 153 million tons, worth $13.2 billion, from 59 million tons worth $1.8 billion in 2005. Ore prices have almost tripled in the past two years, to $181 per ton, according to Business Briefing Commodities Research. Meanwhile, 98 percent of China’s sales to Brazil are manufactured goods, according to Brazil´s Trade Ministry.

Rousseff, 63, wants to diversify exports to China to include more airplanes, processed food, and other value-added goods, her spokesman, Rodrigo Baena, told reporters in Brasilia April 5. She will be accompanied to China by 309 business leaders including Eike Batista, the billionaire owner of Rio de Janeiro-based OGX Petroleo e Gas Participacoes.

“China’s market is open, China welcomes more Brazilian products, especially high-value added products,” China’s Foreign Ministry said in a faxed response to a request for comment.
Agnelli Criticism

The government’s push to expand exports of processed goods spawned criticism of Vale Chief Executive Officer Roger Agnelli, who was ousted earlier this month. Lula urged Agnelli in 2009 to invest more in steelworks, and Rousseff objected to Rio de Janeiro-based Vale’s focus on selling raw materials when she was Lula’s chief of staff. The government holds indirect and direct stakes in the world’s largest iron ore producer, which on April 4 said Agnelli will be replaced by Murilo Pinto de Oliveira Ferreira on May 22.

At the third annual summit of the so-called BRIC nations — an acronym invented in 2001 by Jim O’Neill, chairman of Goldman Sachs Asset Management, to refer to Brazil, Russia, India and China — leaders will discuss “economic, financial and commercial” matters, according to the Brazilian Foreign Ministry. South Africa will attend the summit as a new member of the group.
Embraer License

At the top of Rousseff’s agenda in Beijing will be talks to end restrictions on Embraer SA (EMBR3)’s plans to expand sales in China beyond its 50-seat ERJ 145 jet, Mauricio Mesquita Moreira, the Inter-American Development Bank’s chief trade economist, said in a phone interview from Washington.

The Chinese government hasn’t granted Embraer, the world’s fourth-largest airplane maker, a license to produce its newer and more competitive airplanes at its Harbin plant in China, Moreira said. Embraer, based in Sao Jose dos Campos, has had a joint venture with Aviation Industry Corporation of China since 2003.

“We’re working to get a decision from the Chinese, ideally during the president’s visit,” said Maria Edileuza Fontenele Reis, Brazil’s undersecretary of political affairs for Asia.

Rousseff’s prospects for opening Chinese trade doors may be hurt by a stance inherited from her predecessor: Lula’s failure to fulfill a 2004 pledge to recognize the world’s most populous nation as a market economy under rules of the Geneva-based World Trade Organization. Such recognition would limit Brazil’s ability to impose anti-dumping tariffs, former Foreign Affairs Minister Luiz Felipe Lampreia said.
Anti-Dumping Measures

“The Chinese are resentful,” Lampreia said in a phone interview from Rio de Janeiro.

Complaints from Brazilian unions and industry groups, including toymakers and textile producers, have led the government to enact 29 anti-dumping measures aimed at Chinese- made goods, more than those against any other country and almost four times more than directed at the U.S., according to the Trade Ministry. The measures aim to limit imports on goods the government believes are being sold below cost. Last week, Brazil approved higher levies on Chinese-made viscose textiles.

A February survey by Brazil’s National Industrial Confederation showed that one out of four manufacturers face competition from Chinese goods. In that group, 45 percent lost market share to Chinese imports, according to the survey of 1,529 companies. Of Brazilian exporters, 67 percent said they lost foreign clients to China, the survey said.
‘Cheap Stuff’

Brazil’s General Union of Workers, which represents 5 million workers, urged Rousseff to restrict “cheap stuff” imported from China, according to an April 6 statement. Brazil´s state development bank has warned that the surge in Chinese imports threatens to stymie Brazil´s industrial development.

Rousseff, unlike Lula, has publicly raised the issue of the yuan’s exchange rate. Shortly after taking office Jan. 1, her trade minister, Fernando Pimentel, said Brazil would make China´s currency policy a “priority´´ in bilateral talks. While the Chinese government abandoned the yuan’s peg to the dollar in June, and has allowed it to gain about 4 percent since then, the central bank restricts daily movements in the currency.

To help Brazilian manufacturers, who last year had to compete with a 61 percent surge in Chinese imports, Rousseff´s government has intensified efforts to curb gains by the real. Since March 29, Finance Minister Guido Mantega has changed three times a tax charged on foreign loans. In October, as Lula´s finance minister, Mantega tripled to 6 percent a tax charged on foreigners’ fixed-income purchases.
Growth Rates

China’s economy will likely expand more than twice as fast as Brazil’s in 2011. After growing 7.5 percent last year, economic growth in Brazil is expected to slow to 4 percent this year, according to central bank estimates. China´s economy, after posting annual growth of 10.3 percent last year, is expected to grow 9.6 percent in 2011, according to an April 6 report by the Asian Development Bank.

Brazil’s Bovespa stock index fell 0.85 percent this year, while the Shanghai Stock Exchange Composite Index is up 7.9 percent.