China launches a new investment approach in South America

Brazil is becoming the blueprint for expansion, with China’s companies increasingly buying into the value chains of industry as well as into research and development in the region. In doing so, they are competing with Western corporations in particular.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Several foreign companies have withdrawn from Salvador, a metropolis of three million inhabitants in north-eastern Brazil, in recent years: Ford closed its largest factory in South America there three years ago. Siemens Energy and General Electric also stopped their wind turbine production last year.

In contrast, companies from China are just taking off there: BYD, the world’s leading manufacturer of electric vehicles, has taken over the former Ford factory. The group will build electric cars and trucks there this year. Lithium processing and battery production are also planned. BYD has also launched research collaborations at several technical universities in Brazil.

At the same time, Chinese turbine manufacturer Goldwind wants to build wind turbines at the former GE plant. Future orders have been secured: CGN Brazil Energy, also from China, wants to produce green hydrogen in a 14 gigawatt wind farm in the interior of the country.

A consortium of three Chinese construction companies has won the tender for a 12-kilometer-long bridge over the bay off Salvador. Test drilling is currently taking place. Construction should begin by the end of the year. Financing is being provided by CAF (“Andean Bank”), one of the most important Western development banks in Latin America, among others.

“China is officially talking about a ‘new’ infrastructure policy for Latin America,” observes Margaret Myers, head of the Asia and Latin America program at the Inter-American Dialogue, an influential Washington think tank. Brazil looks like a blueprint that should apply to the whole of South America in future.

China’s energy and raw material security is no longer the focus of investment in Latin America, as it has been for the last 20 years. “The focus is on innovation-related sectors,” says Myers. However, this means that Western companies in Latin America are facing competition: “China’s investments in Latin America and the Caribbean are increasing in sectors that many G7 countries have prioritized themselves,” says Myers.

Just like Germany: for the past year, the German government and industry have been on the offensive in South America to secure access to markets and important raw materials. Up to now, German government and business representatives have always tempted by the pledge of joint research and development and technology transfer. This sets them apart – at least in their own perception – from other interested parties in Latin America.

But now China’s corporations are also investing in green hydrogen, sustainable power generation, e-mobility and joint research and development.

The speed with which China is occupying traditionally strong positions in German industry in Brazil can be seen in the automotive sector: not only BYD, but also GWM are building factories in Brazil. “Great Wall Motors” took over the factory that Mercedes inaugurated in São Paulo’s interior in 2016 and closed shortly afterwards. Demand for electric vehicles has exploded in Brazil. Showrooms for Chinese e-vehicles are opening all over the country.

Chinese expansion into the industrial value chains in South America is likely to continue. For Marcos Caramuru, Brazil’s former ambassador in Beijing, China’s companies would want to secure access to large consumer markets such as Brazil in view of the increasing geopolitical tensions. This is because it is foreseeable that the US and European markets will continue to close.

Dragon
© Fotolia/Jürgen Effner

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