Page last updated at 09:06 GMT, Tuesday, 19 May 2009 10:06 UK

Brazil and China forge closer trade links

By Gary Duffy
BBC News, Sao Paulo, Brazil

Brazilian President Luiz Inacio Lula da Silva and China's Premier Wen Jiabao
Lula's visit should boost trade between Brazil and China

The meeting between the Presidents of Brazil and China in Beijing on Tuesday brings together two powerful forces among the world's developing nations.

Against the background of the economic crisis, and strengthening bonds between the two countries, Presidents Luiz Inacio Lula da Silva and Hu Jintao will have much to discuss.

China has been a "strategic partner" of Brazil for some years, but the high expectations surrounding this relationship have not always been fulfilled.

At a difficult time for economies everywhere, however, the last few months have brought some encouraging news for South America's biggest economy.

Despite fears about the impact of the crisis, Brazilian exports to China have grown 64.7% in the first four months of 2009 when compared with the same period last year.

During March and April, for the first time, China became Brazil's biggest trading partner, displacing the United States.

Strong trade

Amid the gloom of the crisis at the start of the year, there had been a prediction that trade with China would suffer a major reverse, specifically when it came to exports of iron, soya and oil. There was even talk of losses being incurred, in the region of $1.5bn (£970m).

US Secretary of State Hillary Clinton arrives at the opening of the 5th Summit of the Americas in Port of Spain, on April 17, 2009
They are building very strong economic and political connections with a lot of these leaders. I don't think that is in our interests
US Secretary of State Hilary Clinton

In the end, this pessimistic assessment turned out to be unfounded.

In the first four months in 2009, the volume of sales of soya and grain to China increased 70.1%, while iron went up by 51.3%, compared with the same period in 2008.

Even more striking was growth in oil and derivatives, which increased 251%.

"We were badly wrong in this projection," says Rodrigo Maciel, executive secretary of the Brazil-China Business Council, speaking in an interview with BBC Brasil.

"The trade in those three products is increasing very strongly, but the factors responsible for this are very varied," he says.

Chinese investment

A large part of the increased trade, in iron in particular, came about thanks to a stimulus package launched by the Chinese government to deal with the economic crisis.

In the case of soya exports, analysts say that China has been boosting the volume of its strategic stocks, which has boosted Brazilian sales to 4.2 million tonnes during the first four months of this year, compared with 2.5 million tonnes in the same period last year.

Brazil's newly discovered oil fields also offer significant potential to satisfy the enormous Chinese appetite for resources.

As part of an agreement which is on the agenda for this trip, Brazil would supply 100,000 to 160,000 barrels of oil per day at market prices, in exchange for a $10bn loan from the China Development Bank to help develop its major oil reserves.

The oil and gas discovered off Brazil's southern coast lies deep beneath water, rock and salt (the pre-salt area).

It will be extremely expensive to extract, so Chinese investment could prove extremely valuable.

Strengthening relationship

President Lula arrived in China from Saudi Arabia, as Brazil works on its objective to join the top tier of oil producing nations.

Allesandra Ribeiro
The United States just didn't care so much for Latin America in recent years, and China is really looking to Latin America
Economist Alessandra Ribeiro, Tendencias Consultancy

There have been reports in recent days in the Brazilian media that the visit to Beijing had been scaled back, with fewer ministers accompanying President Lula than when he first went to China in 2004.

Brazil's foreign minister, Celso Amorim, was obliged to deny a claim that this happened because he was not received by President Hu in advance of the trip.

Overall, however, it seems the visit is a sign of a strengthening relationship, and certainly China's role across Latin America is attracting interest elsewhere.

'Disturbing gains'

In Washington, it appears to have generated a level of concern as well.

The region was not widely regarded as being a priority for the United States during the Bush years, but within the new administration there are some signs that attitudes are beginning to change.

Earlier this month, US Secretary of State Hilary Clinton said that that Iran and China had made what she called "quite disturbing gains" in Latin America.

"They are building very strong economic and political connections with a lot of these leaders. I don't think that is in our interests," she said.

"I have to say that I don't think, in today's World, where it's a multi-polar world, where we are competing for attention and relationships with the Russians, the Chinese, the Iranians, that it's in our interest to turn our backs on countries in our own hemisphere."

Some analysts in the United States were puzzled that the secretary of state grouped her concerns about these countries together, given that the worries about Iran have more of a security focus, while with China the concern is economic.

Changing times

Whatever the motivation, it seems to have stirred the US into action.

There are reports that Hillary Clinton may visit Brazil at the end of May, a trip that, if it goes ahead, would perhaps signal renewed US efforts to beef up relations.

There has been a contrast between the two approaches, says economist Alessandra Ribeiro of Tendencias Consultancy in Sao Paulo.

"The United States just didn't care so much for Latin America in recent years, and China is really looking to Latin America," she says.

"Not just to Brazil, but also to Chile, to Argentina, because these countries have a lot to offer to China."

Ms Ribeiro says there is "great potential for the relationship to grow", as China could assist Brazil by investing in exploration projects in the pre-salt area, as well as in other areas of the economy. At the same time, China needs what Brazil has to offer.

"Brazil has a lot of commodities, especially iron [and] aluminium, that China uses for infrastructure projects like railroads, so Brazil is really important for China," she says.

It seems that potential is being given renewed recognition in Beijing, where Presidents Lula and Hu will dine together for the second time in two days on Tuesday, as they celebrate the increasingly close ties between the two countries.

The Brazilian leader has even suggested the two countries should consider trading in their own currencies - instead of in the US dollar - a sign, perhaps, of changing times.



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