The "natural match" between China and Brazil
The port of Açu near Rio de Janeiro was once called "the highway to China" by Eike Batista, and this now-disgraced former billionaire founded it more than 10 years ago Super port.
After the commodity boom ended, Batista's business empire in Brazil hardly survived. He went bankrupt in 2014, leaving behind a series of exaggerated promises and huge expenditures. But one project is booming: Aso Port. The new owner, EIG Global Energy Partners, a private equity firm headquartered in the United States, has rejuvenated it, not only becoming a road to China, but soon it may be part of the equity of a Chinese company.
The port of Aso extends to the beaches in the northern part of Rio de Janeiro, and there is a pier that extends into the South Atlantic Ocean for nearly 3 kilometers. The port is already the departure port for iron ore exported to China, and it is also the logistics base for Brazil’s huge offshore oil discovery (known as sub-salt oil block); owned by China’s two major oil companies, Sinopec and Cnooc Part of the interest in these oil blocks.
Now, EIG Global Energy Partners is planning to expand the port and develop new businesses, from container terminals to power plants and railways, many of which have attracted the interest of Chinese companies.
EIG CEO R. Blair Thomas (R. Blair Thomas) said: "China is becoming an important partner. In the long run, their'critical mass' is so great that you not only want them to be customers, I also hope that they will become part of the owners.” This private equity group is the controlling shareholder of Prumo Logística, the operator of Port Aso.
The ongoing negotiations (which have been confirmed by several sources) by Chinese companies interested in investing in Port Aso are part of a large-scale investment in Brazil by large companies in this Asian country in the past two years.
In addition to Sinopec, Chinese companies purchasing assets in Brazil include China Three Gorges Corporation (China Three Gorges Corporation), the power transmission company State Grid Corp of China, trading company Cofco, and businesses covering aviation and finance. The integrated company HNA (HNA). Technology companies such as Baidu have also entered the largest economy in Latin America. According to Dealogic's data, this year and 2016, transactions involving Chinese companies exceeded US$10 billion.
For Brazil, the Chinese investment boom came at the right time and helped support Brazil's struggling economy. In the past two years, Brazil has suffered the worst economic recession in history, with its gross domestic product (GDP) shrinking by more than 7%, and it has struggled to deal with a large-scale corruption scandal.
Showing a lot of interest in Brazil represents a major change in China's strategy. Since 2005, China has loaned more than 140 billion U.S. dollars to Latin America, nearly half of which went to Venezuela. However, Beijing is increasingly shifting from Venezuela and other traditional allies in the region (such as Ecuador) to countries with more stable financial foundations and greater strategic possibilities, mainly Brazil.
Proponents view this cooperation as a marriage between two emerging economic powers, one is China, a rapidly growing industrial leader, and the other is Brazil, a major country in agriculture and natural resources.
“I think it’s a natural match,” said Marcelo Kayath, former co-head of Credit Suisse’s Brazilian investment banking department and founder of investment firm QMS Capital. “China has surplus funds and foundations. Professional skills in facilities, and at the same time they need what we have, which is raw materials and food."
But before next year’s presidential election, Brazil’s nationalist politicians are beginning to raise the issue of China’s influence. Beijing's entry into the "backyard" of the United States has also caused concern in Washington.
R Evan Ellis, a professor of Latin American studies at the Strategic Studies Institute at the US Army War College, said: “If Brazil has huge economic power and influence in the region, A high degree of integration with China will really change the strategic landscape significantly."
In the first eight months of this year, China's investment in other regions of the world except Brazil fell by 40%, due to Beijing's curbs on foreign investment (China's foreign investment reached a peak of US$170 billion in 2016). However, Chinese-funded deals in Brazil show the opposite picture.
According to Dealogic's data, the total amount of Chinese mergers and acquisitions of Brazilian companies announced so far this year has reached 10.8 billion US dollars, compared with 11.9 billion US dollars last year. These figures are higher than the nearly 5 billion U.S. dollars in 2015 and the highest level since the 2010 record of 12.5 billion U.S. dollars.
Analysts said that the increase in Chinese investment in Brazil began around 2010 as part of a government-led effort to enhance China's food and energy security through overseas acquisitions.
"Energy, mining and agriculture industries are promising, and they complement the Chinese economy," said Cui Fan, professor of international trade at the University of International Business and Economics in Beijing. "Investing in Brazil can also help those exporting to the Americas. (Chinese companies)."
In the second phase, around 2014, investment was expanded to manufacturing and other industries focusing on the Brazilian domestic market, while China was looking for a way out for excess industrial capacity in domestic steel, automobiles, and other industries.
At this stage, Chinese state-owned banks settled in Brazil. Chinese banks and investment groups also support the US$20 billion China-Brazil Fund (China-Brazil Fund), which is managed by the Chinese side to provide funding for infrastructure projects and was officially launched in May of this year.
Zhang Jun, head of the Brazilian law firm Demarest's China business, said: “The Brazilian government is currently weak in investment. China has advantages in terms of capital, technology and construction capabilities.”
Lawyers and bankers said that the third phase began last year. Now Chinese companies are beginning to become more like traditional multinational companies, looking for competitive returns in many industries, and choosing opportunities to invest instead of focusing on narrow geopolitical goals.
Reinaldo Guang Ruey Ma, a China expert at the Sao Paulo law firm Tozzini Freire, said: “They see opportunities as investors. We joked that the Brazilian public has two impressions of China. One is that'Chinese people have a lot of money, and the other It’s the Chinese who buy everything'. The first one is true and the second one is not true."
Analysts say that the recent wave of Chinese investment has also been driven by the anti-corruption investigation that has swept through Brazil. The anti-corruption investigation called Lava Jato revealed that politicians, state-owned enterprises and private contractors paid bribes in exchange for contracts. The investigation has led to bankruptcy of some companies and forced other companies to sell their assets. One of them is Odebrecht, a large construction group, which sold a controlling stake in Rio de Janeiro/Galeão International Airport to China HNA Group (HNA) in July this year for 1 billion reais ($310 million).
The "Car Wash Operation" also exacerbated the worst economic recession in Brazil's history. To support the federal budget, President Michel Temer's government is privatizing a range of assets, from utilities to the national mint.
Reinaldo Guang Ruey Ma said: "The last and perhaps the most important factor is that the'car wash operation' led to the sale of a large number of assets. Suddenly everything has to be sold, from ports and highways to airports and railways."
"I joked that if the Chinese said 5 years ago:'I want to buy the largest construction company in (Brazil)', people will laugh. Now they say:'Sit down and let's talk.' The conversation has changed. ."
The speed and scale of China's investment growth surprised many people. For example, the Three Gorges Group invested 23 billion reais (US$7 billion) to build an asset portfolio that includes 17 hydroelectric power plants-some purchased from Duke Energy in the United States-11 wind farms and 1 power trading company.
Li Yinsheng, CEO of CTG Brasil, said: "This is a country with a strong rule of law, so we feel that our investment and our rights are guaranteed." Three Gorges Brazil contributes more than 10% of the revenue of the Three Gorges Group. . "We will stay here."
Beijing once wooed Venezuela and other Latin American countries with constant crises as potential left-wing allies, but as a result, they no longer had illusions due to their lack of fiscal discipline.
Oliver Stuenkel, professor of international relations at the Getúlio Vargas Foundation in São Paulo, said: “For them, Brazil is a suitable place to operate, especially because they look at Yu Chang. China knows that Venezuela’s economic fundamentals are messed up and in an irreversible long-term recession. So they don’t want to put their eggs in the Venezuelan basket."
For now, Chinese companies' investment in Brazil has not encountered political resistance as they did in other countries such as Australia. In Australia, Chinese investment has been blocked from certain agricultural land and transmission company transactions. In 2009, former Brazilian President Luiz Inácio Lula da Silva (Luiz Inácio Lula da Silva) restricted the purchase of land by foreign investors, a move that was seen as an attempt to prevent Chinese capital from acquiring large farms. But this time, Brasilia is eager to get any investment it can attract.
However, with Brazil's highly competitive presidential election approaching next year, this benign situation may not last. The far-right politician and presidential candidate Jair Bolsonaro, currently ranked second in the 2018 pre-election polls, said: “We need to realize that China is buying Brazil, not in Acquired in Brazil; it’s acquiring Brazil.”
He added: "Even in his latest statement, the Chinese leader declared that he was practicing a new type of communism and did not admit that there was a contradiction. So on the issue of selling state-owned assets, you have to look at what you sell. Who is it."
Larissa Wachholz, director of Valya, a consulting firm that provides services to Chinese investors entering Brazil, said: "From the moment Chinese investors begin to enter the strategic field, they will have to consider strategic public relations. Because they are beginning to attract the attention of those who don’t like to see this situation."
When referring to Chinese investment, Ellis of the U.S. Army War College said: "Although it is economic... but I think there is a political strategy element." He said that Brazil may need to start dealing with Chinese state-owned enterprises. The stricter review is similar to the security review conducted by the Committee on Foreign Investment in the United States (CFIUS). He also said that these investments may shake the Brazilian government's willingness to publicly criticize China.
Ellis also mentioned that China Mobile, China's largest mobile communications operator, has recently shown interest in acquiring the troubled Brazilian operator Oi.
He said: "Brazil may want to increase its supervision over the areas it allows China to enter. If China Mobile can get 64 million Brazilian mobile users, it is likely to be its biggest step on a global scale."
If some politicians have concerns about Beijing's investment, then employees of companies acquired by Chinese companies can only be grateful because they have kept their jobs.
Alex Balanceiro worked for the baggage handling company Swissport at Galeão Airport for 12 years. HNA has acquired Swiss Airport and acquired a stake in Galeão Airport. He said: "When Brazil is in crisis, it is a good thing for the Chinese to come here."
Box: Venezuelan debt: China will play a central role as investors worry about default
A little more than 10 years ago, during a period of high oil prices, Venezuelan leader Hugo Chávez visited Beijing. The president of the Opec country declared capitalism as the road to hell and said that if Chairman Mao Zedong and Venezuelan hero Simon Bolívar met, they would become close friends.
At that time, Chavez drew laughter from the hosts. However, repeated visits quickly caused Beijing to question his reliability as a partner. The situation since then has proved that-whether it is in terms of Venezuela's debt to China or in terms of China's direct investment in the country-this oil-rich but poorly funded country has the potential to harm China on a global scale. Brand".
From 2007 to 2014, China's development banks provided Venezuela with more than $60 billion in loans, accounting for almost half of their total exposure to Latin America.
Critics said at the time that these loans lack adequate supervision and would encourage corruption in a country that is close to the bottom of the Transparency International Corruption Perceptions Index. These criticisms were later fulfilled. Although these loans are secured by oil supplies, China still had to renegotiate billions of dollars in debt last year. Beijing has stopped issuing new loans, but still has approximately $16 billion in outstanding debt, making China the largest creditor in Venezuela.
This puts China in an uncomfortable but crucial position in Venezuela’s long greeted debt default of an estimated $150 billion. It is unpopular in Latin America to bail out or provide other support to a government that has triggered large-scale immigration in the region. On the other hand, maintaining good relations with a regime that sits on 300 billion barrels of recoverable oil is a strategic consideration.
In any case, the possible impending default of Venezuela will sound a wake-up call to China's role as a creditor in the world.