Brazil's China Challenge

A South American Power Struggle

As outlined, China has become an important player in Latin America, mostly through increased trade. It makes investments and loans, participates in the region’s international institutions and bridges cultural gaps with Latin America. China funds scholarships and has opened several Confucius Institutes in Brazil, Mexico, Argentina and others throughout the region.⁶⁵ While these are still in the formation stage, the investment makes China’s intention clear: gaining power in Latin America.

As China’s experience in Latin America deepens, its influence only increases. Compared to Brazilian weight in the region, we have already seen important effects of China’s importance to the Latin American economies. In 1995, Brazil’s manufactured exports to Latin America totaled US$ 5.7 billion as China exported US$1.4 billion. By 2004, China was exporting US$ 7.8 billion and Brazil around US$ 6.5 billion.⁶⁶

Perhaps trying to reverse this pattern, during Lula’s government, Brazil became more involved in regional affairs.⁶⁷ Long hesitant to act on the regional stage, ⁶⁸ Brazil has now taken a high profile role in establishing organizations like the Union of South American Nations (UNASUR) or in organizing regional meetings such as the Latin American and Caribbean Summit for Integration and Development (CALC).⁶⁹ Brazil now hosts regional meetings and in 2008, all South American nations adopted its proposed South American Defense Council.⁷⁰

Along with increased political involvement, Brazil’s economy is now the most important in the region. Thanks to its recent growth, Brazil is around 60% of the regional GDP.⁷¹ Brazil is using some of this wealth to fund development projects, not only through international organizations, but also through the Agência Brasileira de Cooperação – the Brazilian Cooperation Agency. Though focused on African development, Brazil funds more than 100 projects throughout South America.⁷²

However, this pales in comparison to the level of spending and investing that China carries out in Latin America. Over the first half of 2010, China invested around US$20 billion in Brazil alone.⁷³ It committed US$8.5 billion in July 2010 to refurbish Argentina’s railway system, with the condition that Argentina buy Chinese trains.

Indeed, “China has even begun to adopt a gringo swagger that stands in contrast to its old role as the cheerleader for the Third World.” ⁷⁴ For all of Brazil’s newfound wealth, it is simply unable to compete with the way China gains influence in Latin America and elsewhere. China can offer enormous loans at “tiny interest rates that can stretch beyond 20 years.”⁷⁵ It is impossible for Brazil to match China in this regard.⁷⁶

Further weakening Brazil’s position vis-à-vis China in the region is the probability that the country will take a different path under new president Dilma Rousseff. She is widely expected to take a more introspective approach than her larger-thanlife predecessor.⁷⁷ Brazil will focus on resolving its many social ills, investing in infrastructure, including building Olympic and World Cup venues, reforming its revenue structure and reining in government spending.⁷⁸

With a president uninterested in international prestige and lacking an inclination to participate on the global stage, Brazil will take a more measured approach to its heretofore seemingly unstoppable drive to global prominence. In turn, this gives China more space in South America to gain power and thus keeping Brazil from becoming a global power by 2025.

Closing Thoughts

Brazil is viewed as a rising power thanks to its stability and growth. After decades of rampant inflation and chaos, innovative policymakers managed to control the currency and usher in an era of prosperity. It is undoubtedly true that Brazil has performed admirably, economically and politically. Yet, this age of stability and growth is not yet twenty years old. It was only in 2008 that Brazil received its first investment grade rating, from Standard and Poor’s.⁷⁹ In essence, Brazil’s claim to global power lies in relatively recent developments. Only twenty years ago, Brazil was experiencing hyperinflation and was considered an economic basket case.

However, China’s challenge to Brazil’s ascendancy depends upon continued Chinese performance. Yet, many have begun to question the fundamental strength of this development. Nouriel Roubini warns of China’s massive infrastructure spending possibly creating artificial growth.⁸⁰ Other problems remain, including socio-political concerns threatening overall stability. J.P Morgan has voiced worries regarding China’s social tension risking China’s performance.⁸¹ It must address a creeping inflation problem, which has begun to produce considerable unrest.⁸² Clearly, China’s ascent to power is not without serious challenges and obstacles.⁸³

To close, we note the warning that Alvaro Vargas-Llosa, a Peruvian politics and economics writer, issued regarding the hype surrounding Brazil’s takeoff: “Brazil, a bewitching country, needs to take a deep breath,”⁸⁴ and focus on reforming its political system and addressing other ills. Indeed, sustained growth and prosperity cannot be built upon “high revenue from commodities and some manufactured goods,” along with social welfare programs.⁸⁵ Brazilian authorities should be mindful of Argentinean experience of the early 20th century. Its neighbor reached developed status through commodity exports, only to regress in less than 20 years.⁸⁶

Endnotes

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Photos courtesy of:

• http://commons.wikimedia.org/wiki/File:Brazilian_National_Congress.jpg
• http://commons.wikimedia.org/wiki/File:Dilma_Rousseff_-_foto_oficial_2011-01-09.jpg