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Brazil in trade pact with China, sees aviation gains
RIO DE JANEIRO |
RIO DE JANEIRO (Reuters) - Brazil and China on Thursday signed a handful of trade agreements aimed at boosting investment and trade flows for the coming decade, at a time when economic growth in both emerging market powerhouses is losing momentum abruptly.
China, the world's second largest economy, is Brazil's biggest export market, and Brazil officials hailed the accord as critical to the South American country's growth.
Under the agreements signed by Brazilian President Dilma Rousseff and Chinese Premier Wen Jiabao, relations between the nations will rise to the status of a "global strategic partnership," highlighting their growing influence in the global economy.
Rousseff and Jiabao, who is in Brazil to attend the U.N. Rio+20 sustainable development summit, also agreed upon a common agenda of investments in the mining, industrial, aviation and infrastructure sectors that should encourage commerce flows between the two nations.
Speaking at the summit in Rio de Janeiro, Brazilian Finance Minister Guido Mantega said the accords should provide a boost to manufacturing and sales by Brazilian airplane maker Embraer in China. Embraer (EMBR3.SA), the world's largest maker of regional planes, for years was barred from producing jets in China, the world's fastest-growing market for commercial and executive aviation.
"The relation with China is greatly relevant for us because it is our most important trading partner," Mantega said. "In spite of a potential slowdown, China will keep being the place where to do business, a dynamic economy."
The accords follow recent trade tensions between the two countries. Since Rousseff took office early in 2011, Brazilian officials have complained of barriers facing its manufactured exports in China. They have also blamed the Chinese with flooding Brazilian markets with cheap imports that hurt local factories.
In one of the most heated commercial disputes, China closed its ports to the so-called Valemaxes, massive dry hulk carriers that Brazilian iron-ore miner Vale (VALE5.SA) planned to use to cut shipping costs to the Asian nation.
China has complained that Brazil raised taxes on Chinese-made cars to protect a local car assembly industry dominated by U.S., European and Japanese automakers. Chinese officials said Brazil is also erecting barriers on products ranging from shoes to toys and men's suits.
The deals come as Rousseff, a results-oriented pragmatist, is pressing China to buy more products from Brazilian manufacturers as part of a broader push aimed at reducing the South American nation's dependence on sales of raw materials such as iron ore, oil and soybeans.
MORE GLOBAL CLOUT
Both countries, which are members of the BRICS group that also include Russia, India and South Africa, are racing to bolster their economies that have slowed sharply in part due to Europe's debt crisis.
Facing dwindling liquidity abroad, both countries signed a deal on Thursday to set up local currency swaps of up to 60 billion reais ($29.46 billion).
"As international credit remains scarce we will have enough credit for our transactions," Mantega said.
The swap is a deal between two countries to give out loans in their local currencies.
Mantega said the move was part of an effort by emerging-market economies to shield their economies from the crisis now engulfing rich nations. He said the BRICS are demanding more influence in multilateral institutions like the International Monetary Fund to reflect their growing clout in the global economy.
A commodity-hungry China overtook the United States as Brazil's single largest trading partner in 2009, however, falling raw materials prices are starting to hurt trade flows, recent government data showed.
Brazilian policymakers said they want to tap China's growing local market by boosting manufactured goods exports and creating joint ventures in the Asian giant.
Mantega said Chinese companies are very interested in investing in the South American nation's vast oil and gas sectors. Brazil's state-run oil company Petrobras (PETR4.SA) and other oil majors are racing to develop some of the world's biggest oil reserves off the South American nation's coast.
GREEN LIGHT FOR EMBRAER
In April last year, the Chinese government allowed Embraer to start assembling executive jets in China, giving the company a lifeline in a massive market where its future was in doubt.
For years Embraer tried to produce regional aircraft in China. That approval never came, in part because China is developing a rival regional plane, prompting Embraer to focus on China's business jet market instead.
Embraer's China joint venture, Harbin Aircraft Ltd, would deliver its first plane in late 2013, Embraer said in a statement that reiterated a deal to make Legacy 600/650 jets in China. The agreement is seen as key for Embraer to cut down on the cost and inconvenience of selling planes that require import licenses.
The planemaker's Chinese venture also inked a contract with ICBC Financial Leasing Co. to sell 10 Legacy 650 jets, Embraer said in statement. Five are firm orders and five are optional, with delivery planned for the end of 2013. ($1 = 2.0364 Brazilian reais)
(Additional reporting by Alonso Soto in Brasilia and Bruno Federowski in Sao Paulo; Writing by Guillermo Parra-Bernal and Alonso Soto; Editing by Paul Simao and Leslie Adler)
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The investments in mines, industries, and infrastructure will help Brazil continue to grow and diversify its economy. China remains Brazil’s biggest trading partner, and China’s investments in Brazil continue the development of new Brazilian customers because China knows that it trades more with rich countries than with poor nations, so China invests in its trading partners to create new customers for the future. Brazil is also expanding its trade in renminbi that aids China’s policy of making its currency a global reserve currency one country at a time.
Unfortunately, the US and EU grab the resources and run, and their growth suffers from their short-sighted approach to international trade. Usually, China adds roads, railroads, airports, power plants, factories, shops, shopping centers, schools, hospitals, and sports stadiums to its purchases of raw materials. The last three build a healthy, educated workforce, the basic need of a modern industrial state. The middle four provide power and facilities to manufacture and sell products. The first three provide transportation for customers, workers, raw materials, finished products, and tourists for a growing, thriving economy. They also create good impressions among the future customers who may choose to buy Chinese goods instead of US goods, especially if the price is better for them at the time of purchase.
The West has chosen not to follow the Chinese model, so the West’s defeat is its own fault. I have invested, and advised others to invest, in Australia, Brazil, Canada, China, and Russia. These countries each have continental resources that they are managing effectively. The US, Mexico, Africa, the Middle East, India, and Australia are becoming polluted deserts. China has had a massive irrigation program underway since 2001 to move water from the eastern and southern coasts to the northern and western provinces that should allow China to feed 3 to 4 billion people by 2020-2025. China reached its 2020 target for grain in 2011, 9 years early. 2011 brought fires and drought to the US, so Chinese canned meat and frozen vegetables are in US grocery stores. Russia has Siberia and global warming melts the tundra allowing oil, gas, timber, minerals, agriculture, livestock, and industry. Australia has the resources to buy food from China or Russia and may follow China’s lead in water management. Canada and Brazil continue to develop effectively. Some have mentioned India, but it has poor infrastructure, too many internal insurgencies, too many children who are undereducated and undernourished and who will join insurgencies that seek to overthrow India’s government, and military disputes with Pakistan on its western border that drain resources from economic development.
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