China-Brazil relations: Don't believe the myths
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China's relations with Brazil have attracted interest around the world, and that interest will culminate when Brazilian President Dilma Rousseff arrives in Beijing in mid-April, but in order to better understand this bilateral relationship, five myths need to be clarified.
Myth 1: China only wants to import raw materials from Brazil and does not wish to make direct investment there.
The reality is China wants to increase its investments in Brazil and elsewhere. At the end of the 1990s, the Chinese government began to implement its "going global strategy," which encouraged public and private enterprises to make direct investment in foreign countries. This strategy is easily understood. World economic history shows that a country will begin to export capital when it becomes rich. China has witnessed high economic growth for three decades, and that has enabled China to invest in foreign countries.
Over the past several years, China has made large, direct investments in Brazil, increasing from $52 million in 2003 to $361 million in 2009. Brazil in turn, has had to improve its investment climate in order to attract more Chinese investors. Chinese investors have been complaining about a complicated tax system, wide-spread corruption, poor infrastructure, red-tape, and a rising crime rate, among other issues. It was reported that Baosteel, one of China's largest steel makers, had to leave Brazil due to its failure to reach agreement on environmental issues. Baosteel's investment was said to be the largest foreign venture in this South American nation.
Myth 2: The value of the RMB is kept too low, thus putting Brazil in an unfavorable position to compete with China.
Some Brazilian government officials during Lula's presidency were already critical about RMB issues, so it won't be surprising if Dilma Rousseff or her cabinet members express similar opinions during her visit.
Brazil believes that the competitiveness of Chinese products in its market results from the low value of the RMB and asks China to raise its value. But in fact, the competitiveness of Chinese products comes from China's cheap labor – not from the currency's value, so it's not logical to blame the exchange rate.
China should make its exchange rate more flexible according to dynamic external and internal conditions. I assume that Chinese leaders will explain the RMB issue to the Brazilian president, but in any case, communication and dialogue is positive and necessary.
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