Lula’s Return to China: Brazil between the Superpowers, Part I
At the end of an LSE Public Lecture back in November 2022, I was asked by an astute Oxford graduate student whether Luiz Inacio Lula da Silva’s return as President of Brazil, the electoral victory of Gustavo Petro in Colombia and the shift to the political-Left which the South American region has seemingly once again taken would be a “major catalyst” for the international use of China’s currency, the Renminbi. And how would the US respond? An excellent question, and worth pursuing further…
The Presidential Office of Brazil has announced that Brazilian President Lula da Silva’s visit to China is back on, that he will depart Brazil on April 11, 2023, and is scheduled to meet China’s President and CPC General Secretary Xi Jinping on April 14.
The ‘State visit’ will include meetings with China’s President, new Premier Li Qiang, and an event at the assembly hall in the National People’s Congress.
President Lula will use the visit to signal an upgrade in Brazil’s relations with China, with his return (though it should be said that despite Jair Bolsonaro’s anti-China campaign rhetoric, his administration did shift fairly early in his presidential term to acknowledge China’s significance to the Brazilian economy and to gave more policy priority to Brazil’s China relations).
When Lula’s trip was delayed to recover from illness, Brazil’s Foreign Ministry and ApexBrasil (Brazil’s Trade and Investment Promotion Agency) went ahead in Beijing with the Brazil-China Business Seminar on March 29, 2023. The Seminar was attended by more than 500 Brazilian and Chinese businesspeople, and over 20 agreements were signed with Brazil’s number one trading partner, across the sectors of energy transition and climate change, mining, industry, agriculture, finance, information and communication technology, health, infrastructure and construction, and trade and services.
But Lula and his administration are also seeking new investment from China in key strategic-areas of Brazil’s economy, including semiconductor technology, and he will press for such investment on the trip.
Lula’s visit to China is significant because it comes two months after he met with the US President Joseph Biden at The White House. Lula is trying to balance Brazil’s ties with its top-two trading partners, with the two Superpowers, despite the worsening tensions between them (China absorbed 31% of Brazil’s exports, and the US 11% in 2021).
China, at the same time, is “anxious” to revive its trade with Latin American countries, particularly after the COVID-19 pandemic, to quote Alvaro Mendez, Director of the Global South Unit at the LSE, and I would argue with Brazil foremost within the region.
It is still to be seen whether Lula will make the trip to Shanghai to attend the inauguration of former Brazilian President Dilma Rousseff as the new President of the BRICS-led New Development Bank. But it looks like Lula’s attendance will be confirmed for April 13, 2023.
While all the diplomatic ceremonies are important symbolism, there is much more going on between Brazil and China beneath the pomp, including some game-changing elements for the world economy and arguably, the global political-economic order.
Underneath the State Visit
A delegation of more than 200 people was set to accompany President Lula to China, including government ministers, senators, lawmakers, and hundreds of businesspeople, including more than 100 representatives of agribusiness.
When the Brazilian business representatives went ahead to meet in Beijing with their Chinese partners at the Brazil-China Business Seminar, their talk was about “strengthening and diversifying trade relations and investment flows, with a focus on energy transition, innovation and sustainability”, and they participated on sector panels on “startups”, “innovation”, and the “digital ecosystem.”
Whereas China’s other traditional international partners on technology cooperation and investment of the last-four decades, especially Germany, have wavered in their commitment, Brazil is pushing full-speed ahead. This trip, for Lula, the focus is on seeking China’s cooperation in high-technology future-oriented strategic sectors of the Brazilian economy and securing related Chinese investment, ‘local’ currency use, climate and sustainable development, and agribusiness.
In pursuing more economic ties with China’s firms, and in strategic sectors, the Lula Administration is also standing-up for Brazil’s national trade and industrial interests. The new industrial tie-ups are aimed also at reversing de-industrialization, and the loss of industrial and trade competitiveness, including to firms in China.
Technological and scientific cooperation
A senior Brazilian presidential adviser told Reuters that semiconductors will be a priority for President Lula da Silva’s visit to China; that Lula will seek Chinese cooperation in technology and investment to develop a semiconductor industry in Brazil, and the digital economy, and his Administration will do so despite US attempts to dissuade associating with China in this area.
In an interview with Reuters, Celso Amorim, Lula’s most senior foreign policy advisor, and former Brazil foreign minister, notes that the governments of Brazil and China have prepared new agreements on the China-Brazil Earth Resources Satellites (CBERS) Program. Their bilateral scientific and space cooperation under CERBS traces back to 1988, and the satellites are designed for Earth observation, in orbit, for non-military use.
Under the framework of the Sino-Brazilian space cooperation program, Chinese state company, China Great Wall Industry Corporation participated in the success launch of the CEBERS-01 and CBERS-02 satellites on Long March-4 rocket launch vehicles in October 1999 and October 2001. These initiatives were followed by the launch of CBERS-02B in September 2003. China Great Wall Industry Corporation said the launch was a “clear demonstration of China’s ability” to develop earth resources satellites and satellite application products. In December 2019, CBERS-4A was successfully launch on a LM-4B rocket in the northern Chinese province of Shanxi, an optical imaging satellite collaboratively operated by the Instituto Nacional del Pesquisas Espacias (INPE) and the China Center for Resources Satellite and Data Application (CRESDA). CBERS-4A monitors water resources, agriculture, urban growth, and land use, and is used to preserve the Amazon rainforest. This was the sixth satellite launched under the CBERS program. In addition, the BRICS countries – Brazil, Russia, India, China and South Africa -- are also creating a constellation of satellites for Earth remote-sensing and to share data obtained by each other’s satellites.
Amorim also noted that, during Lula’s trip to China, the two nations will also sign accords on joint production of communications and microelectronics equipment. Lula’s entourage will visit a factory of Huawei Technologies in China. The Chinese telecommunications giant has been operating in Brazil for 20 years.
Currency agreement
Shortly after Lula’s return to the presidency, Brazil and China agreed to allow companies to settle their trade transactions in the currencies of the two countries, RMB and Brazilian Real – without using the US dollar as an intermediary
In early February, China’s central bank and its Brazilian counterpart signed a Memorandum of Understanding to establish RMB clearing arrangements in Brazil. According to the People’s Bank of China, the RMB clearing arrangements will help enterprises and financial institutions of the two countries conduct cross-border transactions using RMB, and further facilitate bilateral trade and investment.
The Brazilian head office of Industrial and Commercial bank of China (ICBC) has been appointed the offshore RMB clearing bank in Brazil, and Banco BOCOM BBM, the Rio-based subsidiary of China’s fifth-largest bank, Bank of Communications, will be the first in South America to be linked to China’s ‘cross-border interbank payment system’ (CIPS), to also facilitate direct settlement of trade, investment and other financial transactions between Brazil and China using RMB. Some observers see CIPS as China’s alternative to the SWIFT system.
According to ApexBrasil, these direct RMB/BRL settlement facilities will help “reduce costs” of commercial transactions between companies in Brazil and China, removing the need to first convert their currencies into a third-party currency, i.e. US dollars, and will “promote even greater bilateral trade and facilitate investment.”
These new currency international use arrangements are noteworthy as they come amid other reports of breakthroughs or innovations in global RMB use. For example, in mid-March 2023, China’s first cross-border RMB-settled liquefied natural gas transaction was completed, after State Export-Import Bank of China completed its first RMB loan cooperation agreement with Saudi National bank, the largest bank in the Kingdom.
At the Boao Forum for Asia in late-March 2023, the former number-two official at the IMF, Zhu Min, and current vice-chair of an influential think tank in China, China Center for International Economic Exchanges, suggested that the financial sanctions adopted by the United States on Russia since the start of the Ukraine crisis have shaken confidence in the US dollar, and boosted the global use of other currencies including the RMB. Zhu further suggested that the trend is underway for more economies to be willing to use the RMB in clearing and payments, which is a “significant step” for the internationalization of the RMB.
In brief, Brazil is not meekly abiding by US warnings against cooperating with China in advanced technologies nor keeping distance from China on international currency experimentation and innovation. As we will see in the next follow-up Commentary (Part 2), Brazil under Lula is pursuing its national digital and sustainable green growth strategy, will stand-up for its trade and industrial interests, including working to reverse de-industrialization, but it is not aligning with the US and its closest geopolitical allies to counter what US officials call China’s ‘unfair competition’, or what US Trade Representative Katherine Tai calls, “that phenomenon of ‘China Inc.’”, “that convergence between the state and the economy” that “we [US] continue... to grapple with.”
Instead, Lula is leading Brazil toward closer cooperation with China’s industries and firms in cutting-edge sectors of the world economy, as well as more cooperation with Brazil’s other BRICS partners, while also keeping the Brazilian door open to US companies if they are interested, and to US political elites if they wish to support the global and regional initiatives that Brazil is once again championing such as the protection of the Amazon, and climate change mitigation, environmental protection and green economy, and addressing global inequities.
Part 2 will be published on the 24th April.
Gregory T. Chin, York University and Mayling Birney Global Scholar, 2022-2023, The London School of Economics and Political Science.
Image: Jason Howie via Flickr (CC BY 2.0)
