Tag Archives: Brazil

China’s Soybean Importers Threaten More Defaults

CHINA’S SOYBEAN IMPORTERS are hardening their line on defaulting on contracted shipments in an attempt to force down prices in face of burgeoning stockpiles and slowing demand. China is the world’s biggest buyer of soybeans, accounting for three-ffiths of global imports. The main use for the beans is to be crushed into meal to make poultry feed. Demand for feed has fallen by an estimated 15% following last year’s outbreaks of bird ‘flu.

Since late February Chinese importers have cancelled 1 million metric tons of orders from the U.S. and South America, particularly from Brazil, though to put that in context, China imports 70 million metric tons a year. In the Chicago commodities futures markets, soybean prices have risen by more than 14% this year.

Trading firms mostly clustered in Shandong province have refused to make payments for about 20 shipments, Shao Guorui, general manager of Shandong Sunrise Group, reportedly says. Chinese buyers face losses of as much as $7 million dollars on each shipment, he adds. The crushing companies they sell onto are suffering, too, with around half the industry’s capacity idle because of over-expansion. 

Sunrise accounts for one-eighth of China’s soybean imports. It is part of Shandong Chenxi Group Co., run by Shao’s multi-millionaire brother Zhongyi.

The issue could flare up into a trade dispute with Japan.  Shandong buyers have 80 to 100 cargoes booked for delivery from the Japanese trading giant, Marubeni, through July. Marubeni accounts for a quarter of China’s soybean imports. “Marubeni is deluded in thinking that payments will come once the cargoes have sailed,” an unidentified industry executive based in Shandong was quoted as saying.

 

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Fear Of China Holds Back Brics

    Brazil's President Dilma Rousseff, Russian President Dmitry Medvedev, India's Prime Minister Manmohan Singh, Chinese President Hu Jintao and South Africa's President Jacob Zuma (L to R) pose for group photos in New Delhi, capital of India, on March 29, 2012.

Five Apart

All that the Brics nations — Brazil, Russia, India, China and South Africa — really have in common is that they aren’t quite yet developed economies while calling them developing nations no longer does them justice. They have repeatedly found it difficult to make common cause. Witness their inability to come up with an agreed candidate for the presidency of the World Bank, or the managing directorship of the International Monetary Fund last year, come to that. On big issues like climate change, where the quintet could assert global leadership, they have been even more divided.

All the old divisions were on view at their summit in New Delhi this week, as was one of the main underlying causes of them. While the five nations agreed to study the feasibility of creating a Brics multilateral agency to fund infrastructure and core sector projects — a sort of mash-up of the World Bank, the regional development banks and the IMF, but their own — and to make it a tad easier to settle bilateral trade between Brics nations in local currencies, both decisions fell short of the progress in institution building that had been hoped for ahead of the meeting.

The reason is that Brazil, Russia, India and South Africa are all rivals of China in various ways. Each has their economic and geopolitical interests that don’t necessarily align with those of the others. All are competing for investment and trade, not just with each other but with developed and developing countries. All are seeking a sphere of influence and a place at the global high table. China’s is the common shadow they see falling over their efforts. Hence the wary progress in Delhi, beyond the easy sweeping joint statements of concern at global imbalances and criticisms of loose monetary policy in developed economics. Brazil, Russia, India and South Africa fear the clout that China would have in a Brics Bank and a growing trading block, however informal, in which the yuan would be trending towards being its single currency to the exclusion of the dollar. So none is rushing to bring any of that any closer. As long as those sorts of fears persist, the Brics, as a group, will have little influence on world affairs, regardless of the members’ individual economic clout.

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China’s Soccer Needs Its Yao Ming

We are still trying to work out who has got the best end of this export deal. Corinthians, a top professional football team in Brazil, has signed Chen Zhizhao from Nanchang Hengyuan on a two-year loan. Chen will be the first Chinese to play in the Brazilian league.

The diminutive 23 year old striker has sufficient talent to have spent the last six months in a development camp for promising Chinese players in Portugal, giving him a smattering of Portuguese that will be helpful at his new club. But Corinthians make no secret of the fact that Chen will be no more than a squad player. Their main reason for taking him on is to raise the club’s profile in China. Not that there is anything wrong in that. Professional football is a business and plenty of European teams have take on Asian players for just such marketing purposes, knowing that if they become first team regulars it will be a bonus.

The most successful examples of Chinese playing abroad are probably Li Tie and Sun Jihai in the English Premier League in the early 2000s. Manchester United signed Dong Fangzhuo from Dalian Shidein 2004, hoping to repeat in China the marketing success they have had in South Korea with Park Ji-sung, but Dong never made the grade as a player. That may be the challenge for Chen in Brazil, and limit Corinthians return on their investment.

Our man in the world of muddied oafs says the real prize for foreign clubs among China’s rising generation of players is Deng Zhuoxiang, a 22 year old midfielder who plays for Shandong Luneng but the transfer price being asked for him is intentionally prohibitive. Yet what China’s troubled domestic game really needs now, even as it brings in top foreign stars like France international striker Nicholas Anelka, is a homegrown player to star for a top club in a top foreign league, just as Yao Ming’s success in the NBA in the U.S. boosted basketball at home.

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A Chinese Kick For Brazilian Sport

China knows how to build for and stage major international sporting events. The Beijing Olympics in 2008 was a success on both scores in anyone’s book. 2016 Olympics host, Rio de Janeiro, is to benefit from that expertise, as is football’s 2014 FIFA World Cup, also to be held in Brazil. Among the welter of bilateral agreements signed during Brazilian president Dilma Rousseff’s state visit to China this week is a cooperation and investment agreement for Chinese assistance at the two events.

Though details are scanty, FIFA will be relieved; it has been fretting that Brazil is running behind in developing the stadiums and other infrastructure for its tournament. A little Chinese civil engineering expertise should get the projects back on track. And for China, the goodwill that should generate with FIFA and a little up-close look at World Cup preparations shouldn’t go amiss as its own football association nurtures dreams of bidding for the World Cup in 2026.

 

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BRICSHouse Five

The BRICS summit being held in Sanya on Hainan Island on Thursday will probably be presented as a united front of the leading emerging economies. The clarion call will be for strengthened cooperation and coordination between the quintet (South Africa makes five) over global issues such as trade, financial regulation and microeconomic policy, and the environment and climate change.

Yet there are plenty of underlying tensions between the members. China’s relations with Brazil are a case in point. Brazil’s new president, Dilma Rousseff, is making a concomitant state visit. Behind the headline trade deals (China is Brazil’s leading trade partner, with a small surplus in Brazil’s favor), she will be expressing concerns heard increasingly at home that Chinese manufacturing exports to Brazil are de-industrializing the Brazilian economy, while Brazilian exports to China are over concentrated in commodities. (State media are making a big counterpoint of the fact that China is buying Brazilian aircraft as part of the trade deals.)

Certainly the strength of the real, exacerbated by Brazil’s commodity exports to China, makes Chinese exports even cheaper in competition with domestic products. Rousseff will have been pressing Beijing to press ahead more vigorously with letting the yuan appreciate. People who live in bricshouses can still throw stones.

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Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

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China’s Roll-Up Of The World’s Oil Rolls On

Sinopec is buying 40% of the Brazilian subsidiary of Spanish oil company Repsol for $7.1 billion, a deal that provides Repsol with funding to develop its vast offshore Brazilian fields and Sinopec, China’s largest oil refiner, with more guaranteed access to crude supplies via what is one of Latin America’s largest foreign-controlled energy companies. (Repsol’s announcement.)

This is Sinopec’s second large deal. It bought Swiss-based Addax Petroleum for $7.2 billion last year, the most expensive oil company acquisition by a Chinese firm to date. This latest deal takes the total foreign investment spending by China’s three big state-owned oil companies to some $36 billion since the beginning of last year — and that excludes $77 billion-worth of long-term oil-for-loans deals struck with a number of countries such as Russia (and including Brazil) and $18 billion in committed investment in Iraq and Iran’s oil fields.

As those numbers suggest, taking equity stakes in an operating company is a growing part of the strategy for the Chinese oil majors to secure oil supplies, as opposed to cutting long-term supply deals, as Sinopec has previously done with the Brazilian state oil company, Petrobras, or buying stakes in oil fields, again has Chinese oil companies have been doing in the waters on both the Latin American and African sides of the South Atlantic.


Brazil’s offshore fields are particularly challenging to exploit. They lie not only in deep water but also below a thick layer of salt (see diagram, left; the units are in meters; it is a snapshot from a fuller explanation by Repsol here). Deals like Sinopec’s with Repsol offer the opportunity for China’s oil companies to get that sort of technical operating experience. As China continues to scour the world to secure the energy supplies it will need to fuel its development, its oil companies are only going to have to look in places where the crude is ever more difficult to extract.

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BRICs and Brickbats Over The Dollar’s Reserve Currency Role

Brazil, Russia, India and China meet on Tuesday in Yekaterinburg for the first summit of the so-called BRICs, the four leading emerging economies.

They see themselves as a leading voice for the developing world and as a counterweight to the developed world’s dominance in international economic matters as represented by the G-7. As such they want to want to boost their role as global players and increase their collective weight in international organizations.

So far, they share too little in common beyond large, fast growing developing economies to have acted as a bloc. One arena in which they might have been expected to exert collective clout and to speak as one for the developing world was the seemingly interminable Doha round of world trade talks. Yet the interests of China’s low-tech farmers were different from those of their Indian counterparts and far too different from those of Brazil’s high-tech farmers for there to be any unity.

There is one issue that is emerging, however, on which they could speak with a common voice, and it is one on which Beijing has already been a herald: the challenge to the role of the dollar  as the world’s sole reserve currency. Beyond the statistics commonly trotted out to describe the BRICs — they cover a quarter of the world’s land surface, are home to 40% of the world’s people and account for 15% of world GDP– is one highly relevant to this issue: they hold 42% of global foreign exchange reserves.

As well as giving repeated airings to its concerns about the falling value of the dollar on all the U.S. debt it owns, Beijing has switched $50 billion of its admittedly more than $1 trillion of reserves into multi-currency based bonds issued by the International Monetary Fund. Russia has moved $10 billion and Brazil’s central bank has just announced it is doing the same with a similar amount of its reserves. The BRICs want more say over the IMF and are putting a bit of the money at least where their mouths are, and Beijing in particular would be most pleased for the IMF emerge as more of a counterweight in the global financial system to the U.S. The issue will figure prominently at the meeting in Yekaterinburg, a town historically redolent of executing the old order.

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Chery Planning Car Plant In Brazil

A Brazilian newspaper, O Estado de S. Paulo, reports that Chery Automobile is going to start making cars in the country within a couple of years. It says a new plant will have annual production capacity of 150,000 vehicles, which would be sold locally and exported to other Latin American countries and the U.S.

Chery already has a joint venture with Argentina’s SOCMA Group and Oferol of Uruguay that assembles vehicles in Uruguay, but it is capable of producing only 20,000 vehicles a year. The Montevideo plant was opened last year and makes Chery’s Tiggo range of SUVs and QQ compact cars for the Mercosur market, the South American trading bloc that embraces Argentina, Brazil, Paraguay, Uruguay and Venezuela.

It was the Chinese auto industry’s first production plant in South American. The one proposed for Brazil would be s sizable step forward and up.

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Chinese Farmers Seek To Till African, South American Soil

Yesterday’s post on the drought in the wheat lands of the northern plain prompted an e-mail (always welcome, but please also free feel to share as a comment) asking whether anything happened about Beijing’s plans to lease farmland in Africa and South America.

This was a hot topic of conversation a year back before the commodities boom — and everything else, come to that  — went bust. Just as China needed to secure strategic supplies of energy and raw materials by investing at the source in supplier nations, so the same logic was applied to food. Last May, the agriculture ministry proposed making supporting overseas land acquisitions by domestic agricultural companies official government policy, similar to the support given to state-owned banks, manufacturers and oil companies to undertake their foreign direct investment.

China’s demand for commodities has slumped since, but that for food hasn’t. With only 7% of the world’s arable land (and shrinking thanks to urbanization), plus calorie intakes rising, food imports have inevitably been growing. China is only able to pay lip service to its policy of food self-sufficiency, and has been for some years.

Regardless of official policy, Beijing has quietly encouraged Chinese enterprises to invest in agricultural ventures in relatively unexploited regions of Africa and Latin America, and that would at the same time appeal to countries’ development needs.  China is also funding ten new agricultural training centers across Africa to raise the continent’s overall farm productivity. It has discussed with various countries leasing land to be worked by Chinese farmers, much as Chinese labor has been shipped into Chinese funded construction projects overseas.

The largest existing example of that we’ve heard of is more than 6,600 hectares in Brazil farmed by 30 Chinese families, who export the soybeans they grow directly back to China. In Africa, some 350 Chinese are successfully farming 4,000 leased hectares in Uganda. Tanzania, Zimbabwe and Zambia, too, have Chinese-leased farms on a smaller scale.

In 2007, the head of the Export-Import Bank, Li Ruogu, pledged his support for Chinese farmers migrating to Africa. He also told an audience in  Chongqing that more than 12 million farmers from the surrounding area would have to leave their land by 2020. Finding work in Africa, he thought, would be easier than finding a new job at home.

Chinese investment could certainly raise Africa’s agricultural productivity and build much needed farm infrastructure like storage silos and irrigation systms. But there are deep sensitivities that could be hurt. Foreign-run farms and plantations are historically closely connected with colonialism in Africa, one reason that many African nations still restrict land ownership by foreigners.

Given the political sensitivities in likely recipient countries, the agricultural ministry’s proposal last May, as far as we know, remains just that. But certainly no official is likely to stand in the way of any Chinese farmer looking to till foreign soil.

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