Lula China visit to focus on widening Brazil trade

Fri May 15, 2009 2:10pm EDT
By Ana Nicolaci da Costa
BRASILIA, May 15 (Reuters) - Brazilian President Luiz Inacio Lula da Silva visits China next week as trade booms between the emerging giants, amid concerns Brazil's exports to the powerhouse Asian nation are too weighted to commodities.
China for the first time displaced the United States as Brazil's top trading partner in April, a trend that is expected to continue as the resources-hungry Asian economy and the major agriculture and minerals producer expand commerce.
Two-way trade has boomed since Lula visited China during his first term in 2004, and next week's visit is expected to focus on broadening ties to include more Chinese investments in Latin America's largest economy and more Brazilian exports of manufactured goods.
Officials and analysts say the latter will be vital if Brazil is to avoid becoming stuck as primarily a supplier of relatively low-value commodities to China rather than of higher-value manufactured goods.
Some 70 percent of Brazilian exports to China are primary goods such as soy and iron ore while 60 percent of Brazilian exports to the United States are manufactured products.
"Compared with the United States the biggest risk is that we don't diversify our exports because we will become too dependent on Chinese markets and this evidently is not good for anyone," Foreign Trade Secretary Welber Barral said in an interview.
"We have to diversify what we export to China, we have to diversify beyond China and we have to add value to our exports."
With China one of the few economies still growing strongly despite the global economic crisis, Brazil's two-way trade with China reached $3.2 billion in April, surpassing the $2.8 billion trade total with the United States.
Exports to China grew 65 percent from January to April compared with the same year-ago period, government data show.
Exports of manufactured goods are generally considered better than raw materials because they require greater use of technology and labor. Commodities are also more vulnerable to market volatility.
Another risk that Brazil faces is losing market share for manufactured goods in Latin America to China.
"The fact that China is (now) Brazil's main importer doesn't mean Brazil has (economic) sustainability. On the contrary, it makes Brazil more dependent on China," said Jose Augusto de Castro, Vice-President of Brazil's Foreign Trade Association.
OPENING CHINA
Lula is expected to try to open Chinese markets to Brazilian meat products, negotiate the sale of airplanes made by Embraer (EMBR3.SA)(ERJ.N), which has a factory in China. He will also bring along hundreds of business leaders to try to attract more foreign direct investment in Brazil, particularly in infrastructure, a priority for the government.
The visit could also touch on negotiations between Brazil's state-run oil company Petrobras (PETR4.SA)(PBR.N) and the China Development Bank to guarantee financing in 2010-2011 for the company's plans to develop huge new oil fields off the Brazilian coast, analysts said.
Lula is expected to announce a deal in which Brazil will guarantee the supply of 200,000 barrels of oil a day to China over 10 years in exchange for a $10 billion loan to support Petrobras's investment plans for 2010-11, according to Almir Barbassa, the company's finance director.
Beyond trade, the governments are likely to use the meeting to reinforce common positions as they continue to use the financial crisis as a rationale to push for a greater voice for developing countries in international economic forums.
They are both large, developing countries with complementary economies, no borders to fight over, and a shared interest in prying open the multilateral institutions that tend to be controlled by the richest countries.
"It is extremely important for Brazil to have a partnership with China, have a dialogue with China in order to have common positions in particular in the G20 group, the WTO (World Trade Organization)," Barral said.
"It is of great relevance to increase the weight of the voice of emerging countries." (Additional reporting by Denise Luna in Rio de Janeiro; Editing by Stuart Grudgings and Eric Walsh)