November 5, 2018 / 3:25 AM / in 16 days

Breakingviews - Brazil’s Bolsonaro gives China electric shock

Jair Bolsonaro, far-right lawmaker and presidential candidate of the Social Liberal Party (PSL), gestures at a polling station in Rio de Janeiro, Brazil October 28, 2018. REUTERS/Pilar Olivares TPX IMAGES OF THE DAY

HONG KONG (Reuters Breakingviews) - Brazil’s Jair Bolsonaro threatens to short-circuit China’s energy plans. Beijing-backed energy companies hope to invest tens of billions of dollars in Brazilian power, but the president-elect has warned of Chinese intentions. Firms like State Grid would bring a lot of cash and expertise – and Brazil could use both. But populist suspicion might overrule commercial logic.

China is best known as a buyer of Brazilian commodities, but it is also an active direct investor. The country has plowed $124 billion into the Latin American nation since 2003, according to Reuters. A large chunk of that has focused on energy, with state-owned companies such as State Grid and China Three Gorges investing billions of dollars in dams and electricity transmission.

Chinese power companies have grown adept at operating dams and renewable energy projects at home, as well as transmitting electricity over vast distances to coastal population centers. Brazil faces a similar geographic challenge, making it a natural place for China to export its expertise. State Grid is eager to export its ultra-high voltage transmission technology, which can carry power a long way with low leakage. It plans to invest 140 billion reais ($38 billion) in Brazil over the next five years.

However, China’s image problem overseas – mostly related to the behavior of firms in other sectors like telecommunications – are now complicating its investment strategy. Like U.S. President Donald Trump, Brazil’s new president-elect intoned darkly about Beijing on the campaign trail. “The Chinese are not buying in Brazil,” he said. “They are buying Brazil.” Last month he said that he would oppose the sale of power generation assets of Eletrobras – a state power company that has been a focus of privatization efforts – because it might put the country “in the hands of China.”

Bolsonaro’s actual policies might fall far short of his rhetoric. The pinched administration might be tempted to offload state assets to the highest-paying bidder of whatever nationality, and indeed his comments on Eletrobras leave open the possibility that its other businesses, such as distribution, might be privatised.  

Even so, the populist victory could throw up unpredictable obstacles to expansion for years to come. There may be plenty of similarities between Brazil and China, but politics is certainly not one.

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