Brazil gaining from China’s revenge embargoes
Sep. 12, 2019
Rightwing populist Jair Bolsonaro became President of Brazil on January 1 brimming with disdain and angst over Chinese business and investment in his country.
During the election campaign last year he lashed out at the People’s Republic of China (PRC) for “not buying from Brazil as much as buying Brazil itself.” And Bolsonaro even lobbed the ultimate insult at Beijing by visiting Taiwan during the campaign.
At one point Bolsonaro even mused out loud about cancelling the scheduled November summit in Brasilia of the BRICS emerging economies – Brazil, Russia, India, China and South Africa – largely to rebuff Beijing.
But if a week is a lifetime in politics, nine months are an eternity. Since taking the presidency Bolsonaro has reversed course entirely and now seems set on making Brazil a breadbasket for the PRC and its 1.4 billion people.
While Bolsonaro’s increasingly intense economic relationship with the PRC may well benefit Brazilian workers and fill Chinese stomachs, it may not be good news for the Amazon rainforest and, ultimately, the 20% of the world’s oxygen supply generated by its trees. The trade in meat and grains with China will undoubtedly stimulate the already rampant campaign of deforestation to create agricultural land.
Bolsonaro’s change of heart towards the PRC undoubtedly came soon after he took office and digested the reality that China is Brazil’s largest trade partner, with $US100 billion in bilateral commerce, and takes a quarter of Brazil’s exports. Most of those are low value-added commodities like soybeans, meat and iron ore.
Beijing has been aware for years of the importance of Brazil, not only as a source of commodities, but as a gateway into Latin America. So a charm offensive was deployed, and in June there was a strong indication that it had paid off.
In a recent essay the Washington-based Jamestown Foundation points to Brazil’s support in June for the Chinese candidate, Qu Dongyu, to head the United Nations Food and Agriculture Organization as the turning point. The foundation says Brazil’s move was telling because Qu’s competition was French, and Brazil along with other South American countries are finalizing free-trade talks with the European Union.
Bolsonaro’s skepticism about PRC business and investment appear to have disappeared completely, along with his doubts about hosting the BRICS summit. Not only is that firmly on for November, but China’s President Xi Jinping is scheduled to attend, and Bolsonaro may visit Beijing between now and then.
As a taste of things to come, Beijing’s agriculture ministry announced this week that it has authorized a further 25 Brazilian meatpacking plants to export to China, in addition to the 53 already approved.
Pork, a symbolic legitimacy index
Beijing has some important political objectives at home in making this opening. The PRC is set to have a shortfall of 10 million tonnes of domestically produced pork this year because of an outbreak of African swine fever. This has hit every province since last year and required the culling of the national pig herd by one third.
But Chinese people have become accustomed to eating pork as a staple of a rich diet unimagined by their parents and grandparents. Chinese people ate about half the world’s production of pork in 2018, but over 95% of that was produced in China before the swine fever hit.
To a significant degree the availability of affordable pork has become a symbol of the political legitimacy of the Chinese Communist Party (CCP). And thus there could not be a worse time politically for a pork shortage and dramatic increases in price of what is available than the run-up to next month’s 70th anniversary of the founding of the PRC.
The CCP has tied its own hands and limited some other sources of replacement pork. Beijing has imposed a 72% tariff on pork imports from the United States. This embargo is a skirmish in the trade war with Washington and is purposefully targeted at farmers in regions that voted for Donald Trump in 2016.
Another revenge embargo is against Canada, for whom China is the largest export market for pork by volume, though not value. That goes to Japan, which buys the expensive cuts. Beijing’s ban on pork imports from Canada is an attempt to apply pressure over the detention of Meng Wanzhou, the chief financial officer of Huawei Technologies, under an extradition request issued by the US Department of Justice.
European pigs are filling some of China’s shortfall, but there is African swine fever in Europe as there is in much of Southeast Asia. So fever-free Brazil is an obvious source, and sales of pork to China have grown by around 80% in the last three months.
Now that Bolsonaro has changed his tune about the PRC, the relationship is set to pick up where it left off under Brazil’s past left-wing administrations.
Beijing and its corporate offshoots like the globe-trotting China Communications Construction Company are already involved in Belt and Road Initiative-style infrastructure investment in Brazil.
What is notable, however, is that like the BRI projects across Asia, those in Brazil are aimed at getting the country’s commodities on ships to China.
Railroads, port in São Luis
China Communications is already involved in building railroads to transport grain and the company is currently building a port in the northern city of São Luis.
A question now is how much investment and grip on Brazil’s infrastructure and commodities trade Bolsonaro will be able to absorb before he feels forced into a nationalistic backlash.
Assessing the situation recently, Oxford Analytica, the global risk assessment company, noted: “Even if relations with Beijing continue reasonably unscathed, Bolsonaro’s government lacks a China strategy. It also has no clear plan to adapt Brazil to a world in which Chinese growth is slower and more focused on domestic consumption, and hence less dependent on Brazilian export to the Asian giant.”
So perhaps the hope must be that Bolsonaro does not promote the removal of the entire Brazilian Amazon rainforest, which provides 20% of the world’s oxygen, before it becomes clear to him that there is a limit to China’s thirst for commodities.