The battle for dominance in the Latin American markets in 2009 had just one winner – China. The Asian giant managed to position itself as Brazil’s main trading partner displacing the US.
China had already attained this position in the Chilean market and is threatening to do the same in Venezuela, Bolivia, Ecuador and Peru.
For more than eighty years trade with the US was most important for Brazil but the growth in demand for Brazilian products and raw materials by China, in particular iron ore has now pushed the US into second place.
Unforeseen problems for Brazil
At the same time Brazil and China have agreed to carry out their bilateral trade in yuan and reais, which effectively cuts out the US dollar from the trade equation. However, despite China’s advances all is not roses in some sectors.
For example footwear exports to Brazil from China are facing punitive import tariffs to prevent their local footwear production from being overrun.
Brazilian leather is exported to China and then returns in the form of leather shoes made from semi finished Brazilian leather exported at low profit margins. Shoes have high added value and so in this scenario there will be only one winner long term.
A similar situation has arisen in the auto parts sector where Chinese products are sold at the price of what the raw materials cost both in Brazil and Argentina.
Chinese activity in the region
Throughout 2009 Chinese officials have been present in Latin America. Their visits to key players and making deals, both privately and on a government to government level, is aimed at breeding more confidence and consolidating multimillion dollar trade ties. In order to strengthen its presence in the region China made a contribution to the Interamerican Development Bank of some US$350 million.
The trade war is also heating up and is reflected in the large sums of money being invested by the main contenders.
In partnership with Venezuela, a US$12 billion development fund has been set up with China and The China Petroleum Company is now drilling for new oil reserves in Venezuela after Exxon-Mobil withdrew two years ago. Such actions have caused alarm bells to ring in the US which is seeing a real threat to its hegemony in its own Back Yard.
China contributed US$10 billion to the Brazilian National Oil Company, Petrobras, and the US approved a line of credit worth US$2 billion to the Exim Bank for entrepreneurs and has promised to extend more lines of credit and increase the amounts available.
Brazilian progress threatened?
While this transpacific trade war is being waged between China and the US on Latin American soil, there are also other consequences of China’s commercial inroads into the region, especially for Brazil.
A study by the Getulio Vargas Foundation revealed that China is responsible for 45% of lost sales by Brazilian enterprises in neighboring Argentina and Uruguay in 2008; 30% in the US, 33% in Colombia and 39% in Chile.
This is a commercial threat to South American regional integration currently being negotiated by the Union of South American Nations – UNASUR.
In monetary terms the losses for Brazil have been quite small but a trend has been established and the Brazilian products suffering from Chinese competition are of high added value.
The example which both the Brazilian and Argentinean governments are concerned about is what happened in Chile. The massive presence of Chinese products has destroyed entire industries. The Chilean National Customs Service has documented a leap in exports from China to Chile of 40% in 2008. According to official figures 98% of the Chilean textile industry went bankrupt thanks to massive, cheap Chinese apparel imports.
Opportunities do exist in China
On the other hand opportunities exist to export high quality western goods to Chinese consumers. Cars, shoes, champagne, clothing, famous brands - amongst others. It is not just one way traffic and enterprising western exporters can benefit. Just ask BMW, Mercedes and Audi about the demand for vehicles in 2009. The BBC reported that 12 million cars had been sold in 2009 in China far outstripping the US for the first time.
The APLF Group of Fairs offers footwear and raw material exporters ample opportunities to export to Asia and in particular China. The APLF MM&T and Fashion Access fairs to be held from 29 – 31 March 2010 are the ideal platform for sales and marketing.
