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Brazil and China: What they want us to be and what we want to be

No rigorous discussion on world economy can ignore the importance of China, which includes aspects such as finances, technology, currency, arms power and inclusively culture.

Therefore, a wise analysis of any economy cannot ignore the Chinese economy and is direct and indirect effects on the country in question. For peripheral countries this need is even greater as their economies are historically sensitive to the shifts of the world economy.

What are the main impacts of the Chinese economy on Brazil which may provide clarification over the remaining Latin-American economies?

First of all, it is important to say that for decades the Chinese government has shown an impressive capability to plan on the long-term, based on its clarity with respect to the goals to achieve, including the relationship between China and Brazil. From the geopolitical point of view, its main interest in relation with this country is the support to structure a “new international order” which passes through the emerging economies of Brazil, Russia, India, China, and South Africa (BRICS).

From the economic standpoint, the Chinese goals in Brazil are mainly:

  • In regards to trade, supply agricultural and mineral commodities and access the internal Brazilian market to sell industrial goods, first of low technology goods and then progressively high technology goods and capital.
  • In regards to Chinese investments in Brazil, acquire energy industry companies and others who potentially can buy Chinese intermediate and capital goods, access land and mineral deposits and improve the infrastructure (mainly transportation) for commodity flow.

These vectors, originators of the effects of the Chinese economy over the Brazilian economy determine certain transmission macroeconomic channels of these impacts over the whole of the Brazilian economy –mainly through macroeconomic pricing– and over the dynamics of an aggregate demand.

On the macroeconomic pricing, the main effect is a currency loss trend, due to the boom of commodities and the consequential abundance of dollars that enter the country.

Regarding aggregate demand, there is an initial stimulus over consumption, inclusively due to an increase in real salaries derived from this drop in currency value, but with a mid-term negative effect on industrial investments, given the increasing substitution of local production for Chinese manufactured imports.

Therefore, through trade and investment (direct effects) means, but also through macroeconomic transmission channels (indirect effects), the structural result of this economic relationship is a deepening of productive specialization in Brazil.

Lastly, it is crucial to assess the impacts over the external vulnerability of Brazil. On one side is the clear leadership of China in configuring the international conditions which led to a massive accumulation of international reserves in the country which, at first reduces its external vulnerability. And on the other, the changes in the productive structure pose greater susceptibility of the Brazilian economy to the shifting of the global economy.

As history shows, the economies based on commodities turn excessively dependent on its pricing –which are very volatile–, and the fragility of the industrial structure tends to result in repeated moments of external restriction. Therefore, this is not new for the story of the country, but it is a concern which was neglected during the boom of the commodities and the economic euphoria.

These effects derived from the economic articulation of Brazil and China can be posted on the following chart:

For China and in reality for most international economic agents, the role of Brazil in the new international division of labor (IDL), presented, is very clear. But is doesn´t make much sense to hold China responsible for the effects on its economy over the Brazilian productive structure, as they reflect the way that Brazil inserts into the global economy and its historic incapability to alter its position in the IDL.

In fact, these “Chinese effects” only power what was already written both in the globalization process built on a center-peripheral structure as in the liberal reforms of 1990, and inclusively in the strategy of economic liberal thinking, which supports exploiting the “comparative advantages.” However, said Chinese advantages were, and continue to be, built by a successful governmental strategy, while Brazil chose another strategy looking more on the short-term and less on the long-term.

During the governments of Luiz Inácio Lula da Silva –very timidly– and Dilma Rousseff –more aggressively– there were some efforts to strengthen the industrial sector, but they were totally insufficient in face of the contemporary framework and the current macroeconomic array, which resulted in the fragility process of the industry and productive regression.

Now, with the administration of Michel Temer, which has no real priority in regards to the Brazilian productive structure and is advocating for Brazil to exploit the complementarities  with the Chinese economy (assuming its role in the IDL), the regression productive plan is being even more intense. At the end, facing this complex situation within a liberal framework, with minimum state coordination, means unequivocally deepening a process which is increasingly harder to revert.

Before the classic act of pondering over what we are and what we could, it is necessary to discuss what they want us to be and what we want to be.


Consejo Editorial