Li Keqiang and Brazil's President Rousseff announced the signing of a number of trade and investment deals on Tuesday during Li's official visit to Brazil. This comes on the heals of a number of recent China trade and investment deals in the developing world. China became Brazil's largest trading partner in 2009, but is currently only the 12th largest investor in the country, so the investment plans are an important development. This continues China's foray into Latam, where the country lent more than the World Bank and the Inter-American Development Bank combined last year.
Brazil will benefit from an economic fundamental standpoint, but for China the agreements are modest when compared to the overall economy. For China this is a continuation of checkbook diplomacy and soft power, as well as investing in infrastructure to insure raw commodity supply into the future.
What is in the deals?
Brazil Exports to China % Total
Trade: $27 billion in trade agreements, including an announcement to buy $1.3 billion in Embraer commercial planes and a lift of the 2012 ban on beef imports into China.
China's exports to Brazil constitue roughly .40% of GDP, so an increase in exports will have only a modest effect on fundamentals. Brazil exports 2.4% of its GDP to China, meaningful, but not as much as some of its Latam neighbors. These deals should help the terms of trade eventually, which hit a decades low in March and continues to decline. See the chart to the right for the make-up of what Brazil ships to China.
Investment: China will invest $53 billion in Brazil through various infrastructure projects. That sum amounts to 2.25% of Brazil's GDP. Direct infrastructure building has already started, with China State Grid beginning work on 2800 km of transmission lines. The two countries also agreed on conducting a feasibility study for a rail line linking to Peruvian ports and allowing Brazil to avoid the Panama Canal.
This agreement will be a bit of a boost to Brazil's economy and help with the the country's declining terms of trade. It will also help China continue to build its position in the world via soft power and keep the commodity pipeline flowing smoothly.