Since the People’s Republic of China (PRC) set its sights on Latin America, at the beginning of the century, seeking mainly to acquire commodities to supply its industrial base and feed its huge population, it turned Brazil — Latin America’s largest economy and one of the world’s most important agricultural export countries — into the PRC’s strategic center in the Southern Cone. Long-standing diplomatic relations between the two nations, and the window of opportunity Brazil saw to grow with China’s appetite, allowed Beijing to quickly penetrate the Brazilian economy.
In a fleeting manner, the PRC acquired the title of Brazil’s main trading partner — a position it has held since 2009 — and one of its main sources of investment. According to official sources, in 2023, the trade flow reached a record $157.5 billion, with Brazilian exports totaling $104.3 billion and imports worth $53.2 billion, putting Brazil in the rare position of having a trade surplus with the Asian country. For its part, the PRC accumulated investments in the Brazilian market close to $70 billion.
But these trends are not all positive for South America’s largest economy. Experts and analysts warn that Brazil has fallen into a commercial hold and dependence on the Asian country, as reflected in the first part of this report. And this unequal, asymmetrical, and coercive economic relationship, experts say, is putting strategic sectors at risk, which, among other factors, is contributing to the slowdown and deindustrialization of the Brazilian economy.
Energy transmission: springboard for industrial monopoly
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The most recent chapter of the PRC’s progress was in the energy sector in late 2023, when the Chinese company State Grid Corporation of China (SGCC) won the largest electricity transmission contract in Brazil’s history. The project, valued at $3.4 billion and involving the construction and operation of 1,513 kilometers of power lines, left energy services for the states of Maranhão (northeast), Tocantins (north), and Goiás (center) in the hands of the PRC for the next 30 years.
State Grid, the Asian country’s main state-owned company, responsible for covering 88 percent of Chinese territory, was the first PRC-based company to enter Brazil’s energy sector, when in 2010 it acquired the rights for power transmission for the south of the country, including Brasília and São Paulo, the two main cities of Brazilian politics and economy. Since then, Chinese investments have taken on an increasingly prominent role in Brazil’s electricity generation, transmission, and distribution system.
“China’s influence in Brazil’s energy sector is growing and could even become dominant. It is estimated that Chinese companies control about 10 to 12 percent of the entire energy value chain in Brazil,” energy expert William Tobin, deputy director of the Global Energy Center of the Atlantic Council think tank told Diálogo.
Today, some 14 PRC energy companies operate in Brazil, with an accumulated investment of $36.5 billion. Of particular concern is that the PRC could be exploiting its influence to structure bids in its favor. “Chinese companies are beginning to know the system of networks of influence and benefits,” Evan Ellis, research professor of Latin American Studies at the U.S. Army War College’s Strategic Studies Institute, told Diálogo.
A recent example is the criticism that arose around State Grid’s latest acquisition. According to local media reports, Brazilian National Electric Energy Agency (ANEEL) was accused of favoring Chinese companies. Argentine news site Infobae also pointed out that the tender apparently established a series of restrictions that imposed a type of technology whose only supplier in Brazil is China.
“This trend is not only in Brazil; we also see it in Peru, where Chinese companies are negotiating acquisitions of electric companies and today about 90 percent of Peru’s electricity is managed and operated by a Chinese company. Brazil should be very attentive to these developments,” Leland Lazarus, associate director of national security at the Jack Gordon Institute for Public Policy at Florida International University (FIU) and an expert on China-Latin America relations, told Diálogo.
Risks and spillover effects
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The strengthening of Chinese state-owned companies in Brazil’s energy sector brings with it worrisome risks for the country’s independence, security, and sovereignty, experts warn. An example of this is the pressure that the Asian country could exert to gain favorable political concessions. Unlike companies in the private sector or in any other country, Chinese companies follow Communist Party guidelines and are obliged to obey its national security interests. “We’re not talking about a democratic country, but about companies that are part of a repressive system; China could cut off Brazil’s power at any moment,” Ryan Berg, director of the Americas Program at the Washington, D.C.-based Center for Strategic International Studies (CSIS), told Diálogo.
Also worrisome are the cybersecurity risks. “When you hand over much of your electricity sector to a country that has shown a desire to increase some of its digitized infrastructure through backdoors, it could potentially exercise command and control in a variety of unconventional ways for the purpose of a cyberattack,” Tobin said.
But that’s not all, concerns also revolve around the socio-environmental risks stemming from these investments. According to media reports, part of the electricity transmission infrastructure planned for the most recent contract won by Chinese company State Grid will be just 40 km from two important indigenous communities. Although the Brazilian government and the Chinese company have already stated that the socio-environmental impact study complies with all the required regulations, there are still concerns, especially due to the questionable track record of Chinese companies in this area. “If there is one thing that has characterized PRC companies worldwide, it is a lack of undue diligence with respect to environmental concerns and disregard for indigenous rights,” Lazarus said.
In early 2023, about 50 civil society organizations submitted a report to the United Nations’ Committee on Economic, Social and Cultural Rights (CESCR), in which they analyzed some 14 Chinese projects in the infrastructure, energy, and extractive sectors in different countries in the region including Brazil, which had been denounced for violating environmental and social standards.
The new three: China is cornering Brazil’s future
The success of Chinese state-owned companies in the energy sector, such as State Grid, and other companies including China’s State Power Industrial Corporation (SPIC) and PowerChina, keeps up with the trend that experts believe the PRC has been following in the region for the last two decades. “Hoarding markets and capturing all their value-added and profit,” Ellis said.
According to the expert in Sino-Latin American relations, the fact that Brazil is ceding much of its electricity infrastructure to the PRC would not only push for China’s greater influence, but also for a greater deindustrialization and slowdown of the Brazilian economy. “Electricity is today the equivalent of oil one year ago, it is the influence par excellence in other future benefits and provides the ability to create horizontal and vertical monopolies to benefit not only a Chinese company, but all companies in the Asian country,” Ellis added.
An example of this is the increasingly dominant position of the PRC in the whole range of green energy industries in Brazil, especially with regard to finished products such as solar panels and electric cars, or rare earth minerals, such as niobium, crucial, among others, for the development of lithium batteries; three products that today lead the green energy market, or as experts call them “the new three.”
- Solar panels with a Chinese seal
China has managed to eclipse other markets in the global photovoltaic panel industry. According to its report on China’s expansion in global solar module supply chains, consulting firm Wood Mackenzie, which focuses on renewable energy sectors, indicates that by 2026 China will have 80 percent of the world’s solar component capacity. “Ninety-eight percent of the solar panels Brazil imports come from China,” said Tobin, adding that Brazil has become the largest exporter of solar panels from China in the region.
While this is due to Brazil’s interest in taking advantage of the low costs of the Chinese product and thus accelerating emissions reductions and positioning itself as a leading emerging country in the energy transition, which could be considered tremendously beneficial for the country, experts and analysts warn that the risks behind these Chinese imports outweigh the product’s opportunities.
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On the one hand, it increases the coercive diplomacy to which the country is already a victim due to the trade dependence that results from exports mainly of soybeans, creating an asymmetrical relationship between the two nations. “Dominating the solar supply chain as well as technology could translate into greater political leverage to lobby for Chinese interests,” Tobin said.
On the other hand, it also increases cyber vulnerabilities that have been repeatedly denounced as the PRC using its advances in technology as a shield for national security. “Several security experts have begun to warn about the possibility that solar inverters manufactured in China are being installed with components that allow hacking through back doors,” Tobin added.
Additionally, Brazil would be missing out on the opportunity to capture added value along the solar supply chain. According to Ellis, the PRC monopoly on the production of solar panels, or any other finished product for the energy transition, would only accelerate the transfer of wealth from Brazil to Beijing, reducing all opportunities for sustainable economic development in the South American country. “Every time homes or offices are equipped with solar panels made in China, it only reinforces China’s dominance of the leading market of the future; it’s an extremely worrying cycle and I see Brazil sinking deeper and deeper into that cycle,” Ellis said.
- Electric vehicles: Chinese influence on the rise
Even more striking is the fact that 40 percent of total automobile imports in Brazil come from the PRC, and according to data from Brazil’s Ministry of Development, Industry, Trade and Services, these increased by 450 percent between January and March 2024, compared to the same period last year. A trade that, according to the National Federation of Automotive Vehicle Distribution (Fenabrave), represents half of the sales of electric or hybrid cars in Brazil.
Although, the Brazilian government has announced that it will resume taxes on imports of electric vehicles that had been reduced to 0 since 2019 in order to protect the Brazilian industry, the PRC is moving forward in other markets to mitigate the effects that these decisions may bring, such as in the manufacture of vehicles and batteries in the South American country.
An example of this is BYD’s recent announcement of the opening this year of the first electric vehicle factory in the state of Bahia in northern Brazil. Although China claims that this is a stimulus for the Brazilian industry, according to Chairman of the Board of BYD Brazil Alexandre Baldy, Infobae reported, experts and analysts fear the opposite. “What we see is just a change of strategy to maintain global growth while foreign regulators consider imposing measures against electric car imports,” Ellis said.
BYD, present in Brazil since 2015 and whose market represents one of the four most important worldwide, had limited its manufacturing in Brazil to the assembly of buses, production of photovoltaic modules, and lithium iron phosphate batteries. “It is estimated that with the new factory it will be able to produce up to 150,000 units per year; this causes great concern for Brazil, which will have to suffer the consequences of an excess production of Chinese vehicles [overcapacity] and of any other product coming from this market in the future,” Lazarus said.
Ellis insists that this is a strategy in which the PRC also seeks to corner other markets that will allow it to have a greater monopoly in the energy transition. “In the case of electric cars, Brazil will be constrained to improve its electric charging infrastructure, since it does not have a good infrastructure in this field, but it will have to do so to support the maintenance of all the electric vehicles it intends to introduce to the market, and this infrastructure will also be in the hands of the Chinese,” Ellis said.
- Niobium and its silent power
The spotlight is also on the mining sector, especially because of Brazil’s wealth in a mineral much more valuable than gold: niobium. Brazil has 91 percent of the global reserves of niobium in operation, essential to produce steel and other metal alloys, as it allows the metal to be converted into a more resistant, agile, and lighter element. These unusual characteristics make this mineral highly desirable, especially in markets such as technology, for the construction of semiconductors, or electric cars, for the construction of lithium-ion batteries.
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According to a recent CSIS report, Beijing has been after this mineral’s potential for more than a decade, when in 2011 a consortium of five Chinese companies acquired 15 percent of Companhia Brasileira de Metalurgia e Mineração (CBMM) in charge of 75 percent of niobium production in Brazil. Since then, despite some attempts by Brazil to safeguard the product from foreign control, Chinese influence in the Brazilian niobium sector continues to grow. According to CSIS, by 2020 Chinese entities controlled about 26 percent of niobium production in Brazil. “This control not only ensures China’s preferential access and influence over pricing dynamics in the niobium supply chain, but also positions it advantageously in a global context,” Berg said.
But beyond its importance for the energy transition and other relevant markets, this rare earth mineral has an immense value, today more alarming and less discussed among economic, political, and academic circles: “Its enormous importance for the manufacture of hypersonic missiles,” said Berg.
According to the expert, today niobium is a critical mineral for the great chessboard of defense geopolitics, so countries should be very vigilant in whose hands this valuable metal is falling. “In general, China’s growing influence and control over critical mineral supply chains is a challenge, but in this particular case, we are talking about reasserting strategic intentions by making clear the interest in hypersonic technology leadership not just for show, but to redefine the global balance of military power,” Berg said.
Given the critical and strategic importance of this mineral Leland Lazarus makes an important appeal to the South American country. “Brazilian authorities and officials should be asking themselves, how interested are they in being seen as drivers of the modernization of the People’s Republic of China’s military?”
Dangerous friendships: rise of China vs. loss of democratic values?
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In 1990 Brazil’s GDP reached $462 billion, slightly above the PRC’s GDP of $396.6 billion for the same period. Comparatively, the size of the economies of the two most emerging nations in South America and Asia, respectively, was very similar. Today, the picture is very different, not only is China ahead, but it surpasses Brazil by $15.96 trillion. Today China has a GDP of $17.96 trillion, while Brazil barely reaches $2 trillion.
“The economies have been slowly transforming, with Brazil going against its most cherished principle: self-sufficiency,” said Ellis, who adds that “looking at the trend in general, if we look at energy sectors, technology, automotive, even the agricultural sector, everything points to a dismantling of Brazilian ownership, without really thinking about the process moving forward, toward Chinese ownership. By the time Brazilians realize the mess they have gotten themselves into, it will be too late,” Ellis said.
For his part, Ryan Berg also issues a final warning that it is not only Brazil’s economy that is at stake, but also democracy. According to a recent CSIS study, there is a clear relationship between the rise of the PRC in Latin America and the loss of democratic values in the countries of the region. “We found that China’s advance in Latin America has had an impact on the quality of democracies,” said Berg.
A worrying development that is even more disturbing as experts say that Brazil is unaware of the risks it faces. “Brazilians don’t understand it because there are very few China experts or sinologists in the country, besides, only 3 percent of congressmen speak English, there is no institutional knowledge about what China is or how to do business with China, while China has thoroughly studied how the market and institutions work in Brazil. It does not need to be a democracy to understand it, and this has created a huge disadvantage in bilateral relations. It is time for Brazil to ask itself what the benefit is of giving so much to a country with which it does not even share democratic values,” Berg concluded.