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China to spend billions as it seeks Latin American inroads

Evaristo Sa, AFP | Chinese Prime Minister Li Keqiang stands alongside President Dilma Rousseff at the start of his three-day vitist to Brazil on June 19, 2015

China and Brazil have unveiled multi-billion dollar trade, finance and investment deals as Premier Li Keqiang kicked off his first official trip in Latin America this week.


Landing first in Brazil, Li saw a raft of agreements signed, ranging from a $1 billion purchase of passenger jets made by Brazil’s Embraer to the lifting of an import ban on Brazilian beef. Infrastructure investment plans also include a controversial project to build a railroad that would slice across the Amazon and the Andes mountain range.

“A new road to Asia will open for Brazil, reducing distances and costs, a road that will take us directly to the ports of Peru and, across the Pacific Ocean, China,” President Dilma Rousseff said in reference to the rail link, inviting Chinese companies to build it.

“China wants to build the railway equivalent of the Panama Canal in the region,” Jean-François Dufour, president of the DCA Chine-Analyse consulting company, told FRANCE 24.

The injection of capital from China could not come at a better time for Brazil, which is sliding into recession following the end of a commodity boom last decade that was fuelled by voracious Chinese demand for its commodities.

As China’s economy slows in turn, Chinese companies are looking abroad for new opportunities to invest and Chinese banks have begun to provide abundant financing.
“China has to find new economic inroads abroad for its construction companies, because it has less and less infrastructure projects to work on back home,” Dufour explained.

Li’s tour comes days after Beijing signed accords worth 25 billion dollars with Russia and 22 billion dollars with India, the South China Morning Post reported on Tuesday.

Lifeline for Petrobras

Li and Rousseff announced that the Industrial and Commercial Bank of China Ltd (ICBC), the world’s largest bank by assets, will set up a $50 billion fund with Caixa Economica Federal, Brazil’s largest mortgage lender, to invest in infrastructure projects in the South American country.

The fund was another sign of China flexing its financial might in Latin America, a region that used to be dominated by the United States but where China lent more than the World Bank and the Inter-American Development Bank combined last year.

The Chinese premier will continue his Latin American trip designed to increase Chinese influence in the region by heading on Thursday to Colombia, then Peru and Chile.

However, Dufour said China’s priorities in the region were economic. “Peking usually sends its prime minister on business trips, while President Xi Jinping saves his trips abroad for diplomatic objectives,” the expert said.

Brazil’s state-led oil company Petroleo Brasileiro SA signed finance agreements worth $10 billion with the China Development Bank, the China Eximbank and the ICBC, the Brazilian government said.

The funds come at a time of big challenges for Petrobras. A plunge in oil prices, years of high spending, project delays and a huge corruption scandal have squeezed its ability to generate cash and made financing new projects more expensive.


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