Brazil wary of Chinese trade hitting domestic industry

Demand for Brazil's natural resources has been growing in China

China's hunger for raw materials and commodities is boosting Brazilian exports, while cheaper consumer goods coming from Asia is opening new horizons for Brazil's growing middle class.

China became Brazil's largest trading partner in 2009, overtaking the United States which had held the position since the 1930s.

And the trade keeps growing. Last year, the flow of commerce between Brazil and China reached $56bn, a growth of 52% from 2009.

"It's undeniable that trade with China was essential for Brazil to balance its accounts and accumulate financial reserves through its exports," says the executive director of Brazil's National Confederation of Industries (CNI), José Augusto Fernandes.

Domestic concerns

However, despite a $5bn surplus, not all Brazilians are totally happy with this commercial relationship.

In the United States, Brazilian industrialists complain that competition against China's undervalued currency and low costs is next to impossible to deal with, and is seriously harming the local industry.

Earlier this year, the powerful Federation of Industries of São Paulo (Fiesp) released research saying that the increase in the imports of consumer goods prevented the creation of 46,000 jobs in Brazil last year.

Economic data shows that the share of the manufacturing sector in Brazil's GDP fell from a peak of 27% in the late 1980's to 15% now.

"There's a clear process of deindustrialisation happening in Brazil," says Professor Gilmar Masiero, from the School of Business and Economy, at the University of São Paulo.

"It's expected that in developed economies the services sector takes space from the industries, as it has happened in Europe, but here in Brazil we are at an early stage of our development for this to happen."

Mr Masiero says that even though China has taken over the US as Brazil's main trading partner, Brazilian commerce with north Americans remains more balanced.

"Of course they also buy commodities from Brazil. We also have a two-way trade in manufactured products which is good for the Brazilian economy."

Ahead of Brazilian President Dilma Rousseff's visit to China, a group of 300 business people, organized by CNI, travelled to the country to try and find new opportunities of increasing Brazilian industrial exports to the Chinese market.

"We see interesting opportunities for processed food but I don't really think there is any chance of a fundamental change in the trade between Brazil and China. We will remain basically a source of commodities for the Chinese," says Mr Masiero

Protective measures

Brazilian businesses say it is difficult for them to compete with China's low-cost manufacturing

The Brazilian government has shown that it is worried about this matter. It issued anti-dumping measures against China last week, just days ahead of Ms Rousseff's trip.

Brazil imposed a new tariff of $4 per kilo of Chinese synthetic fibres, which already has a 26% import tax.

However, Mrs Rousseff's government has been very careful in addressing these issues.

China has become an essential partner for Brazil, and nobody here wants to upset the Asian giant.

And even though industry complains about China, many here also feel that Brazilians are partially to blame for the country's inability to compete.

"We have deficient infrastructure, an inefficient tax system and high labour costs. Independently from what China is doing, producing in Brazil is very expensive," says Mr Fernandes.