INTERVIEW-Paraguay soybeans flow to China regardless of politics

ASUNCION, April 20 (Reuters) - Paraguay soybeans are flowing to the world’s top buyer China even though the two countries have no diplomatic relations and no plans to establish them, according to Industry Minister Gustavo Leite.

Paraguay is the world’s fourth-largest soybean exporter and has a close relationship with Taiwan, which Leite said recently yielded a trade agreement potentially worth $2 billion a year.

Paraguay’s full diplomatic relations with Taiwan precludes having the same relationship with China, the world’s top soybean importer.

That does not bother Paraguay at all, Leite told Reuters on Thursday.

“Paraguay sells soybeans to China, only its not registered as Paraguayan exports to China because it goes through Argentina or, mainly, through Uruguay,” he said in an interview.

“So China registers those beans as Uruguayan exports.”

China purchased $12 billion worth of U.S. soybeans last year, making it the most valuable U.S. agricultural export to China. But Beijing has threatened a tariff on the U.S. beans, as its trade tensions with Washington escalate.

The proposal by China for a 25 percent tariff, part of its response to U.S. plans to impose tariffs on a range of Chinese products, has already driven up prices in alternative suppliers including Brazil and Argentina.

Chinese state-run grain trading giant Cofco gained access to the Paraguayan grains market when it bought the agricultural unit of Hong Kong-based trading firm Noble in 2015. Leite said Cofco inherited Noble’s contracts to export about 10 percent of Paraguay’s soybeans when it bought the unit.

“Noble is owned by the Chinese state. So the Chinese are really already here,” he said.

Land-locked Paraguay uses barges to ship soy to Argentine and Uruguayan river ports, and from there the beans enter the global market.

Paraguayan farmers will harvest an estimated 10 million tonnes of soy in the current 2017/2018 season. Total exports in the last crop year were 6.13 million tonnes. It is unclear how much of that was shipped on to China.

Leite said Paraguay recently signed a unilateral deal with Taiwan that allows the South American country to export 54 products including beef and orange juice.

“That deal has a zero tariff and is worth $2 billion per year in the Taiwanese market,” Leite said, sitting a few feet from a photograph on the wall of his office showing himself and Paraguay’s outgoing President Horacio Cartes with Taiwan’s pro-independence leader Tsai Ing-wen.

Cartes and Leite are from the conservative Colorado Party, whose candidate Mario Abdo enjoys a wide lead in opinion polls ahead of Sunday’s presidential election. Policies are not expected to change much if Abdo wins. The new president will take office on Aug. 15.

Leite said he has not felt pressure from the Chinese to ditch Taiwan. He added that not having diplomatic relations with Beijing made no difference to the potential for Chinese investment in Paraguay.

“If the Chinese want to come here and buy a million hectares of land nobody is going to say no,” he said.

“But we wouldn’t know if that would happen even if we were to have diplomatic relations. Look at what happened to countries that abandoned Taiwan and were to get Chinese support; what they got was Chinese colonialism.”

Chinese foreign direct investment, or FDI, in the region has increased by $70 billion since 2012, according to the Adrienne Arsht Latin America Center. Chinese firms have expanded holdings rapidly in South America as domestic demand for raw materials increased during rapid economic growth over the past 20 years.

“China has a more aggressive, colonial style of getting into countries to get control of resources,” Leite said.

China has said its relationship with Latin American countries is based on reciprocity and equality. It is the top trade partner for countries ranging from Brazil, Latin America’s largest economy and the world’s top soybean exporter, to tiny Uruguay. (Additional reporting by Karl Plume in Chicago Editing by Simon Webb and Tom Brown)