China flirts with new projects in BrazilValor Internacional
China already has $117 billion in direct investments in Brazil, according to the Ministry of Planning, but concentrates almost 45% of that in only three sectors: power, mining and agribusiness. One of the big question marks in 2018 is whether Chinese companies will stop doing their big bets on the acquisition of existing and consolidated assets, as they have done so far, to move over new projects — especially in infrastructure.
That is exactly what Brazilian government and experts expect. The Brazil-China Fund for Production Capacity Expansion, launched this year and with up to $20 billion available, is likely to give a hand. In late January, authorities from the two countries gather in Brasília and will jointly evaluate eight pre-selected projects to initiate the bilateral support mechanism.
There is a confidentiality provision about the projects, which needed to apply officially to get the funds, but the market believes in at least two favorites: Ferrogrão, railway to carry grains that will connect Sinop in Mato Grosso to Miritituba in Pará, and a steel mill in Maranhão, in partnership with CBSteel.
Also in January, China Railway Capital and China Railway First Group are expected to define whether they join the São Paulo metro’s line 6 project, which was halted with only 15% of the construction made. Together with Japan’s Mitsui, the two Chinese group are negotiating replacing the consortium responsible for building the line, which is headed by three construction companies implicated by the Petrobras corruption scandal — Odebrecth, Queiroz Galvão and UTC.
Another project considered priority is the West-East Integration Railway (FIOL), which crosses Bahia state, and the construction of the South Port of Ilhéus, Bahia, to ship the cargo carried over the tracks. It is, several officials and private-sector representatives say, the logistic endeavor of greatest interest to China in Brazil. The difficulty has been to design the auction still in 2018.
“Today Chinese companies seek not only to ensure the supply of commodities or market the idle capacity of their factories in other countries,” says the secretary of international affairs of the Planning Ministry, Jorge Arbache, one of the Brazilian government’s top negotiators with China. “They are seeking gains of scale and more active participation in good businesses, in a healthy diversification process, ceasing to focus only on goods and also focusing on services, even in sectors with high level of technological knowledge.”
In 2017, a series of big deals was announced by China: the acquisition of CPFL Energia by State Grid, the acquisition of the Container Terminal of Paranaguá, Paraná, by China Merchants Port, the win of State Power Investment Corp. (SPIC) in the auction of the São Simão hydropower dam, which was before operated by Cemig, and the HNA negotiations to take the Galeão airport in Rio de Janeiro.
For Mr. Arbache, the arrival of Chinese investors in more new projects is a matter of time. “This will happen. It is a learning process,” he says, dismissing comparisons with American, European and Japanese investments. “Their presence in Brazil has more than 100 years, they had more than enough time to understand the ups and downs of the economy, of the exchange rate. The Chinese began investing in 2009 and 2010.”
Brazil’s presidential elections are on the Chinese radar. They demonstrate huge discomfort with the rise of extreme-right Deputy Jair Bolsonaro (Social Christian Party, PSC, of Rio de Janeiro), Beijing officials told Valor. He is seen as a Sinophobe, because of a series of recent comments promising to put a brake to Chinese acquisitions in Brazil.
Regardless of the polls, the Chinese presence’s increase seems to be here to stay. “For investors, in general, there are many uncertainties about the electoral prospects and the reform process. But the Chinese investors, in particular, are less susceptible to these fluctuations and are decided to strengthen their long-term partnerships,” says economist Marcelo Allain, former secretary of the Investments Partnerships Program (PPI) and currently managing partner of consultancy BR Infra Group.