BRAZIL/CHINA: Dependency dangers mark Lula strategy

Analysis

The clearest lesson to be learned from the official visit by Brazilian President Luiz Inacio Lula da Silva to China on May 23-27 is that the easy stage of Brazil's South-South foreign policy has ended and that substantial benefits must now be offered to maintain the project. Chinese President Hu Jintao showed little enthusiasm for Lula's alliance of developing countries seeking to reshape global economic geography. The joint communique issued by the two leaders thus focused on standard fare such as:

• the lack of contention in bilateral relations;
• the potential for cooperation in new areas;
• the success of joint efforts in such diverse fields as satellite technology and WTO negotiations; and
• the mutual desire to expand and deepen commercial relations.

Unequal relations. In the run up to the official visit Lula attempted to include China in his vision of a bloc of major developing countries that could act as a counterweight to the G8, inviting China to join the G3 (see INTERNATIONAL: Pragmatism marks new South-South talks - April 22, 2004). Although not summarily dismissed by the Chinese, the proposal was received with sufficient coolness that it failed to appear in the joint communique and received little mention during the visit. The point adroitly avoided by diplomats on both sides was that China does not need membership in a nascent bloc such as the G3 in order to advance its interests. Joint action, such as that demonstrated by the G20 countries at the Cancun WTO ministerial summit, will remain an issue-specific, pragmatic option -- not a more generalised policy indicating a deliberate approximation of national interests.

As events during the visit made clear, China sees no need to tie itself closely to a coalition of developing countries on a permanent basis. Indeed, the amply demonstrated diplomatic power of access to China's huge internal market was prominent throughout the visit. A Chinese decision to refuse a shipment of Brazilian soya during Lula's visit was met with official comments such as 'the customer is always right'. The follow up Chinese decision to ban imports from Brazil's six biggest soya exporters on charges that contamination levels were too high likewise received little reaction from Lula, despite soya comprising 27.73% of Brazilian exports to China in 2003 (see BRAZIL: China demand boosts exports, investment - December 3, 2003).

Chinese gains. In diplomatic terms, more substantive indications of the unequal nature of relations between the two countries came from the Chinese refusal to back Brazilian demands for a permanent seat on the UN Security Council, even though Brazil clearly reiterated its 'one China' policy, agreed that human rights were an entirely domestic political issue, and publicly recognised China as a market economy.

Recognition of China as a market economy was a crucial outcome for the Chinese authorities -- under WTO rules this prevents Brazil from justifying anti-dumping measures with the argument that Chinese products are made artificially cheap by a socialist economy. Here the character of bilateral trade is important. Brazil primarily exports raw materials to China, with soya becoming an increasingly important commodity. Imports from China are dominated by a wide array of employment-generating manufactured and semi-manufactured goods. As the refusal of the soya shipment demonstrated, China retains the ability to use phyto-sanitary regulations as a tool to exert pressure on Brazil; recognition of China as a market economy deprives Brazil of similar leverage.

Brazilian dependency? Disparities in commercial leverage are particularly significant in light of the 15-30 year planning horizon that Brazilian diplomats attribute to Chinese policymakers. Underpinning the rhetoric of complementary economies and a lack of geostrategic conflict is the reality that China's rapidly growing economy will require vast quantities of food and fuel in the near future, commodities that it cannot produce internally. A central problem for Chinese foreign policy is thus securing access to food and new energy supplies.

Energy announcements. Several developments took place in the energy sector:

• Brazilian state oil company Petrobras announced that it would cooperate with its Chinese counterpart, Sinopec, to seek out and develop new hydrocarbon sources throughout the world.
• Attention was also turned to renewable energy sources in the form of Brazilian fuel alcohol technology and the possibility that China might switch to a 90-10% petrol-alcohol mix for automobiles in the future. Brazil hopes that the 4.5 billion litres of alcohol needed for such a programme would be produced from sugar cane from Brazil's northeast.
• A more startling development was the badly managed announcement that China would like to purchase unprocessed Brazilian uranium. The original announcement by Lula and his ministers made the sale of uranium appear a virtual fait accompli, which would have represented an about face in the long-standing policy reserving the mineral for Brazilian consumption on national security grounds. Agreement was instead reached on the desirability of discussing trade in nuclear technology and materials, potentially leading to an exchange of uranium for the knowledge necessary to restart Brazil's moribund nuclear energy programme.

Agro-industrial investment. While the impact of discussions in the energy field may not be seen for some time, change is likely to come more rapidly in the agro-industrial sector. Sao Paulo Governor Geraldo Alckmin heralded Lula's visit as an opportunity to use his new public-private-partnership framework as a device to secure much needed infrastructure investment from China. Development Minister Luiz Fernando Furlan echoed these thoughts, seeing potential for as much as 5 billion dollars in Chinese investment in Brazil over the next three years. The vast majority of this money would go to the transhipment facilities needed to export raw materials -- primarily soya and iron ore -- from Brazil to China, providing the commodities needed to sustain Chinese economic growth.

Outlook. Lula's team has eluded reference to the fact that the possible increases in bilateral trade arising from the China trip will not generate the mass employment that Brazil needs to address the country's yawning and persistent socio-economic divides (see BRAZIL: Economic austerity raises political pressures - June 3, 2004). Indeed, a subtext that can be traced through some of the Brazilian critical commentary on the visit is that Lula may simply be launching another dependent phase in Brazil's economic history, this time positioning soya as the critical commodity instead of sugar, cocoa, rubber, and coffee. The absence of sustained discussion on Brazilian value-added exports to China beyond Embraer aircraft (see CHINA: Embraer seeks to capture small jet market - July 3, 2002) and turbines for the Three Gorges hydroelectric project only served to reinforce this impression.