Home Foreign Trade Chinese Following Brazil and Slowing Investments in the Country

Chinese Following Brazil and Slowing Investments in the Country

After operations of US $ 22.6 billion, companies consolidate acquisitions and evaluate space for a new growth cycle



After the investment boom in Brazil in recent years, Chinese companies take their foot off the accelerator and live a moment of “digestion” of the billion dollar acquisitions.

In 2016 and 2017, operations totaled at least US $ 22.6 billion (equivalent to R $ 92.4 billion in current prices), according to consultancy firm Dealogic, which does not consider transactions whose values ​​were not disclosed.

This year, however, projects with Chinese capital totaled only US $ 1.3 billion by June, according to a survey by the Ministry of Planning – which began tracking the data a year ago.

One of the reasons for the reduction is the fact that many of the big Chinese companies are already established in Brazil and now they are living a moment of consolidating in the country, according to Renato Ajimura, superintendent of the Japanese bank MUFG, one of the main financial advisors of Chinese companies “In addition, there are fewer assets being brought to market this year,” says the executive.

The lack of infrastructure auctions organized by the federal government amid a year of presidential elections is one of the factors that most constrained investments, according to Daniel Lau, a partner at KPMG consultancy responsible for Chinese projects.

Despite the obstacles, there is a consensus: the Chinese appetite for Brazil will not disappear, especially when it comes to infrastructure, and there is still room for companies that have not entered the country to make weight acquisitions.

“Chinese companies have a more strategic and long-term vision than American and European companies, who want to profit for yesterday,” says Charles Tang, president of the Brazil-China Chamber of Commerce and Industry.

He sees opportunity for the arrival of new players even in the power sector, which received the largest slice of Chinese investment in recent years.

Between 2003 and February of this year, 46% of the funds went to this area, which saw the entry of large Chinese state-owned companies such as State Grid, China Three Gorges and State Power Investment.

“There are six Chinese electric giants who want to enter Brazil, but they have not had the right opportunities yet,” says Tang. One of them would be China Datang Corporation, one of the five largest generators in China.

Other infrastructure sectors also attract interest: railroad, highway, airport and port projects are some of them, according to Ajimura, of the MUFG.

The logistics area, one of the major bottlenecks for Brazilian development, is considered a priority to ensure the flow of grain to China.

Interest comes from the fact that Brazil is seen as one of the main partners to ensure Chinese food security, especially in the midst of the trade war with the United States – which has always been a major exporter of soybeans.

The port sector last year had two major operations in China: giant China Merchants Port bought 90% of the Paranaguá Container Terminal in the state of Paraná and China’s Communications Construction Company (CCCC) announced the construction of the port of São Luís, in Maranhão.

The Chinese have also expressed interest in building railway lines, but the projects, promised by the government of Michel Temer, did not leave the paper.

However, not only successes have lived the Chinese companies in Brazil.

Many of them have encountered more problems than expected, according to analysts, as legal uncertainty, a distinct business culture and, of course, an economic crisis whose end is not yet certain.

The uncertain electoral landscape in the country also reduced the appetite of Chinese companies, according to Tang. “We no longer have a prospect in the short term to solve important reforms such as social security and fiscal adjustment. This does not give a good signal to the Brazilian economy, “says Tang.

For MUFG’s Ajimura, most of the mistakes made by the Chinese in Brazil were remedied after 2014, when investors began to see the importance of seeking local partners to enter the Brazilian market.

“The Chinese who come today are more tropicalized and understand more of the country,” he says. Even so, conflicts and questions to companies start to emerge.

One of the biggest is the dispute between State Grid and minority shareholders of CPFL Renováveis, which includes Patria, Arrow, BTG Pactual and IFC, the World Bank. The fight has been raging in the CVM (Securities and Exchange Commission) for more than a year and has raised questions about the Chinese way of doing business.

Industry analysts and national companies also criticized a possible lack of competition from Chinese state-owned companies, which have government support to expand globally, and question companies’ intent to use Brazil to lease surplus machinery and supplies, which would harm the domestic industry.

However, Tang, of the Brazil-China Chamber of Commerce, minimizes friction: “If you take all the benefits that China brought to Brazil, it does not even compare to the problems.”