Brazil and China create $20bn bilateral fund

Brazil and China will finally sign off on a $20 billion fund focused on infrastructure and energy, and which will finance Asian investments in the Brazilian market. The memorandum of understanding creating the bilateral fund to expand productive capacity will be signed this Tuesday in Beijing, and both sides want it operational by the end of the year.

The funds will be invested as projects are approved. China will put $15 billion while Brazil committed with the remaining $5 billion, but made clear it will not involve budget earmarks or foreign reserves. The money will be channeled from existing Brazilian Development Bank (BNDES) lines or from the FI-FGTS, the investment arm of the Workers’ Severance Fund, for example, in addition to potential capital-market efforts. The bilateral fund will be managed by the China Latin American Industrial Cooperation Investment Fund (Clai Fund) and projects will be reviewed by a committee formed by equal numbers of representatives from both countries.

The Minister of Planning, Dyogo de Oliveira, says the priority will be projects included in the Investment Partnerships Program (PPI) and that the fund’s resources are an important step in the government’s efforts to diversify financing sources for concessions. “They are interested in advanced technology projects, agribusiness, manufacturing and digital services. Our biggest interest is on logistics infrastructure and energy,” he tells Valor.

The minister says the fund will not include any mandate for borrowers to purchase Chinese equipment or inputs. “Under no hypothesis,” he says. During negotiations, Brazil insisted that money financing a hydroelectric plant or railroad, for instance, will not be conditioned to buying Chinese turbines or tracks.

The fund was originally conceived in May 2015 by Premier Li Keqiang and ex-president Dilma Rousseff. Talks have cooled since then due to the political crisis and the impeachment process in Brazil. But Mr. Oliveira says the fund’s creation shows the Sino-Brazilian partnership doesn’t depend on a specific administration but has a more strategic direction.

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