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Brazil Enjoying the Ride as China Commits Additional $3.5 Billion of Mining Investments

China's announcement of an additional $3.5 billion of investments in Brazil's mining sector is welcome news. The economic integration between the BRICS founding members is escalating and is largely responsible for the tremendous previous twelve months Brazil has had economically. As Lula continues to position Brazil as China's primary agent in Latin America, the risks grow of raising Washington DC's ire.

China has recently announced an astounding $3.5 billion of additional investments in Brazil primarily aimed at resource extraction. On one hand, the investments represent a deepening of BRICS economic integration and economic cooperation between Brazil and the world's second largest economy. On the other hand, tighter integration may be occurring at a time when Washington DC is becoming more jealous of outside influence in Latin America and more willing to throw its weight around until it feels comfortable.

China has invested $4.4 billion in Brazilian mining since 2007 representing 6.2% of its total overseas investments during that period. The fresh $3.5 billion therefore represents a continuation and escalation of prior investment trends.

Beyond mining, in 2023, China became the largest buyer of Brazilian agriculture exports. This trend is set to continue because only Brazil can alone solve so much of China's food security problem. Agriculture shipments won't be disrupted by the Red Sea tumult since the quickest route from Brazil to China is around Africa.

Energy investments have also been a focus for China in Brazil. A controlling stake in Brazil's largest power distributor, CPFL Energia, was purchased for $5.2 billion by State Grid Corporation of China, the world's largest utility company. $2.94 billion was invested in 2021 to acquire a stake in Búzios oil field by two Chinese state-owned energy companies. Turning to ports, China Merchant Port purchased a 30-year concession to manage Itaqui Port for $2.6 billion in 2018. Itaqui Port is the largest port by volume in Latin America.

Under this context, American investment isn't absent and is mostly focused on accessing the consumer market and manufacturing prowess of Brazil. In 2022, US foreign direct investment ("FDI") in Brazil reached $58.7 billion. Two recent investments that made the headlines are GM's $1.4 billion investment in electric vehicle production and Amazon's $1.5 billion cloud computing deal.

If Washington DC ignores China's heavy influence in Brazil's strategic infrastructure, then the outcome is likely to be a win-win for China, Brazil, and American companies. Foreign companies will benefit from the infrastructure China delivers and are agnostic as to China's dominance of portions of Brazil's economy and strategic resources. The risk for the parties is that as the US government increasingly takes note of the CCP's outsized influence in Latin America, it has many tools it can deploy to contain or repel the influences it deems threatening.

Further, China is challenged economically and it's not clear it will have the financial buying power in the future as it does now. Shipping lanes are becoming more dangerous and thus more expensive to move goods long distances. There may come a point where China must look closer to home to satisfy its food and resource requirements. In other words, there is risk associated with Brazil's increasing reliance on China to send products and receive investment.




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