The long game: Maturing Brazil-China ties lead to strategic investments

Investments in Brazil by Chinese players jumped 33% to US$1.73bn last year, indicating a new phase in the relationship between the two nations.

Despite that growth, the volume of investments in 2023 was the second lowest since 2009, surpassing only the US$1.3bn reported in 2022, according to a report published by the China-Brazil business council (CEBC).

"What we can see is that the relationship between Brazil and China is reaching a level of maturity," Tulio Cariello, director of content and research at the CEBC, said during an event to present the investment report, which was attended by BNamericas. 

"When Chinese investments in Brazil began to gain momentum, it was natural for the volume of investments to be much larger than it is now, as these were initial investments in large projects in areas such as electric power, oil, and gas, for example," Cariello added.

"Now, it's a more qualitative relationship, with greater alignment between announced and executed investments." 

The realization of Chinese investments in Brazil, or the proportion of announced projects that were actually carried out, rose to 88% in 2023 from only 27% in 2022. 

Of the total Chinese investment in Brazil last year, 72% was channeled to green energy and related sectors, such as the electric vehicle (EV) chain, up 16% compared with 2022 and reaching the highest level since the beginning of the historical series in 2007.

"China's infrastructure agenda is being revisited. Amid this, Brazil is beginning to benefit from the movement called powershoring, which is the search for initiatives linked to a safer and greener energy matrix," Jorge Arbache former vice president of the private sector unit at Latin American development bank CAF and professor of economics at Universidade de Brasília.

"Powershoring moves are led by private sector players which seek projects associated with decarbonization, while nearshoring moves are associated with strategies more closely linked to governments, which want to have a more reliable supply chain. I believe that in the case of nearshoring, there are more threats, because at any moment countries can impose barriers against others, which could happen between the US and Mexico, for example, since Chinese companies have used Mexico as a platform to enter the US market," Arbache added.

With the powershoring trend, the EV industry is gaining scale.

The electricity power sector led the attraction of Chinese investment in Brazil in 2023, accounting for 39% of the total, while the electric vehicle segment was responsible for 33%.

"China sees Brazil as a strategic country for the long term. Brazil has a very strong and consolidated vehicle industry, so it makes sense for China to take advantage of this and have not only factories and production to serve the local market in Brazil, but also to have an export hub in Brazil to serve other countries in the region, since China is geographically distant from Latin America," said Ricardo Bastos, director of government relations at Chinese vehicle manufacturer Great Wall Motors (GWM) and president of the Brazilian electric vehicle association (ABVE).

The automotive manufacturing sector in Brazil attracted investments from Chinese firms totaling US$568mn last year, a 56% increase from 2022.

These investments were driven by the ongoing commitment of GWM to its factory in Iracemápolis, in São Paulo state, while its Chinese rival BYD now occupies the former Ford industrial complex in Camaçari, Bahia state, to produce electric and hybrid vehicles and also has plans to process lithium.

"BYD has been ramping up its investments in Brazil, undeniably influenced by the tensions between China and the US, leading to the redirection of some of BYD's planned US investments to Brazil," said Marcello Schneider, institutional director of BYD in Brazil.

"Looking ahead, BYD aims to invest across the entire electrification chain, including lithium processing phases in Brazil, battery production and energy storage," he added.

The big picture and political factors

Between 2007 and 2023, the stock of Chinese investment in Brazil reached US$73.3bn, encompassing 264 projects and assets.

That figure was led by the electric power sector, which received US$33.2bn, equivalent to 45% of the total, followed by oil extraction, accounting for 30%, with projects totaling US$21.7bn.

Investments in these sectors were primarily made by Chinese state-owned companies, including State Grid, China Three Gorges, China Petrochemical Corporation (Sinopec), China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation (CNOOC), largely driven by successive exploration auctions held by the Brazilian federal government.

Chinese investments in Brazil, as well as trade relations between the two countries, began to accelerate in the mid-2000s, during the first two terms of President Luiz Inácio Lula da Silva from 2003 to 2010.

When Brazil's government was led by Workers' Party (PT) between 2003 and 2016, it was more aligned with China than it was from mid-2016 to the end of 2022 as the government shifted to the right, particularly under Jair Bolsonaro. While Brazil did maintain strong trade relations with China, it sought closer ties with the US.

According to analysts, the increase in Chinese investments in Brazil in 2023 is no coincidence, with Lula's return to the presidency.

"China, whether the government or companies, is finding a much more favorable environment for investment in Brazil under Lula's administration," André Pereira César, a political analyst at Hold Consultoria, told BNamericas.

"During Bolsonaro's presidency [2019-22], he harshly criticized China for its political bias and this kept relations very tense, especially on the Brazilian side," César added.

The CEBC report, in Portuguese, on the volume of Chinese investment in Brazil can be downloaded in the Documents box in the top right of the screen.