China seeks to build railways in Brazil to ship out commodities

BRASILIA, July 16 Wed Jul 16, 2014 4:48pm EDT

BRASILIA, July 16 (Reuters) - Brazil hopes that during a visit by Chinese President Xi Jinping it can boost ties with its biggest trade partner beyond the exchange of commodities for manufactured goods, but that may be wishful thinking.

Accords China will sign with Brazil when Xi meets with President Dilma Rousseff on Thursday focus on improving infrastructure to make sure raw materials China is hungry for make it to port, with railways a top priority.

Brazilian officials are portraying Xi's state visit as a milestone in deepening a strategic partnership that will lead to Chinese investments in Brazil's manufacturing industry.

Trade between China and Brazil soared to $83.3 billion last year from $3.2 billion in 2002, with iron ore, soy and oil making up the bulk of Brazilian exports.

The Chinese have been making investment promises for years and failed to deliver. Three years after announcing plans to invest $2 billion in a soy-crushing plant and a giant storage hub in western Bahia, Chongqing Grain Group Corp has only managed to bulldoze a 100-hectare (250-acre) field.

There have been few success stories in the trickle of investment that has come in. Dongfeng Motor Corporation, one of China's largest automotive groups, has shelved a plan to build a 1 billion Brazilian reais ($450 million) truck factory in Brazil after falling out with its Brazilian partner.

Analysts say the Chinese are not interested in investing in manufacturing in Latin America, especially in Brazil where labor costs are high and regulatory hurdles abound.

"The Brazilians have to understand that Brazil is not terribly attractive," said Riordan Roett, Western Hemisphere director at the Johns Hopkins School of Advanced International Studies in Washington. "There is no growth in credit and the government has not delivered on promises to improve infrastructure. The Chinese are very much aware of that."

Unless Brazil can become more competitive, Chinese investment will go to Asian countries, or those in the burgeoning Pacific alliance, like Mexico, Roett said.

Brazilian officials say China wants to enter partnerships to build railways to ship grains and minerals to Brazilian ports.

Projects under consideration include railways to the ports of Ilheus in the state of Bahia and Itaqui in Maranhao, which are closer to the Panama Canal and would lower freight costs.

China is also interested in studying a railway across the Andes to the Pacific coast of Peru, which could shorten the trade route significantly, a trade ministry official said.

Brazilian officials expect no progress during Xi's visit in resolving an impasse over China's refusal to allow giant, bulk iron ore carriers used by Brazil's Vale SA to dock at Chinese ports, forcing the miner to transship cargoes from ports in the Philippines and Malaysia and increasing its costs.

Brazilian efforts to manufacture goods in China have also run into problems. China has not approved plans by Brazil's biggest bus maker Marcopolo to build a factory or plane maker Embraer to refit its plant in Harbin to make E-190 passenger planes. (Reporting by Anthony Boadle; Editing by Mohammad Zargham)