New Chinese Dawn in Bolsonaro’s Brazil

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Even though the election of president-elect Jair Bolsonaro has generated anti-Chinese rhetoric in Brazil, strong economic ties between the two countries means divorce is unlikely. As the Brazilian economy opens up to international markets with Bolsonaro’s election, China is expected to put forth an aggressive approach to become an even bigger player in the Brazilian economy. Just in the last few weeks, China Petroleum & Chemical Corporation, known as Sinopec, reportedly closed on a deal with Apex-Brazil worth $45.6 billion for the online promotion of Chinese oil, chemical and other products in the Brazilian market. 

Even with Bolsonaro’s antagonistic rhetoric, China could emerge as a bigger player in the Brazilian energy industry as the president-elect looks to continue with offshore oil and gas auctions and the privatization of parts of Petrobras. China’s state-owned China National Offshore Oil Corporation and China National Petroleum Corporation each hold 10 percent of the Libra field in the Santos Basin, one of Brazil’s largest deepwater fields. CNOOC also holds stakes in the ES-M-592 and Alto de Cabo Oeste blocks, and the likely continuation of oil auctions should only boost its investments in Brazil.

Chinese imports of Brazilian crude ClipperData

China has become the dominant importer of Brazilian oil in the last five years, increasing its offtake from 120,000 barrels per day in 2014 to 505,000 bpd so far this year, accounting for nearly a half of all Brazilian oil exports. This trend is expected to continue as oil production increases in the Santos Basin and in pre-salt projects. Increased competition for heavier crude supply due to the crisis in Venezuela and US sanctions on Iranian oil should make Brazil an even more important source of heavy grades for China going forward. 

Bolsonaro’s visit this year to Taiwan before the presidential race began suggested Brazilian ties with Beijing might be strained. His anti-China rhetoric only strengthened once on the campaign trail, raising the hackles of the Chinese government and business groups. Despite early confrontations, it will be challenging for Bolsonaro to break up $75 billion in bilateral trade. At this point, economic relations seem to only indicate closer ties, not the opposite. 

We should expect China to be even more interested in the Brazilian energy industry, especially the downstream sector, as Bolsonaro supports the privatization of Petrobras. Despite the president-elect’s opposition to the growing presence of Chinese companies in the oil industry, CNPC is currently negotiating a partnership with Petrobras to complete Rio de Janeiro’s 165,000 bpd Comperj Refinery, which is still under construction. The finalization of this deal would give China access to key downstream infrastructure in Brazil, especially following PetroChina’s 30 percent purchase of TT Work, a company in northern Brazil with access to refining, tanking and distribution in the Recife area. 

Bolsonaro’s initial fierce opposition to China was met with a diplomatic tap on the shoulder by the Asian giant following a meeting between its ambassador to Brazil and the president-elect. Despite a good relationship with US President Trump, himself no friend of China, Bolsonaro might not be able to follow suit with tough action against Beijing. To distance himself from China, Bolsonaro would have to guarantee an alternative market for Brazilian products, which is no easy task.

Brazil’s close economic ties with China also extend to the agricultural sector, where China is the largest buyer of Brazilian pork, soybeans and other agricultural products. China’s increasing dependency on Brazilian agriculture, especially during the trade war with the US, makes economic separation even more complex. So far this year, China has imported almost 59 million metric tons of Brazilian soybeans, the highest level for any other country. China may be considering even deeper involvement through the construction of a rail network that could run through Brazil’s segregated and remote agricultural areas. Interestingly, this project would link China to Brazilian food security.

Brazil soybean exports ClipperData

Bolsonaro will have to be pragmatic with his foreign policy decisions, especially considering that China has invested at least $124 billion in Brazil over the last 15 years. China will not let go of its investments easily. Bolsonaro may have to bow down to the Asian giant or else prepare for fierce opposition if he tries to move away from Brazil’s largest economic partner.