China has surpassed the US to become the world’s biggest market for products from Brazil

Lula da Silva, president of Brazil and Hu Jintao, China’s president met last week.  An absolute major event on which none of the Belgian (economical) magazines or newspapers reported.
Countrary to what many believe, Brazil is not at all heavily dependend on exports to the US, Europe is a bigger export desitination for Brazil than the US is.  Actually, in 2008 the US only represented 13,9% of the total Brazil export volume, this percentage is further decreasing and other export destination for Brazilian goods are fast increasing, the Middle East and China on top.  In 2009 the US will  be overtaken by China in the Brazilian export ranking, which is why Bank of China  is setting up a Brazilian branch.

Lula and Hu signed 13 accords last week.  One of which was the US$ 10 billion loan and agreements regarding oil exploration and crude oil trade.  Brazil is one of the countries in the world best place for a potential Carbon Crisis and will supply through this deal 150.000 barrels of crude per day to China in 2009 and 200.000 barrels in 2010.

But the more striking was the news that China and Brazil are planning to continue discussions about the possibility of dumping the dollar in trade between the two countries.  It’s no secret that China is preparing for a world where the Yan trumps the dollar and this meeting is again a step towards such a world; also Businessweek reported on it.

Marc Chandler reacted in Seeking Alpha with a pathetic frustro-American article.  “Contrary to speculation that circulated, there was no agreement on the invoicing currency for bilateral trade”. Seriously Marc, which news source speculated that Lula and Hu were actually going to sign an agreement where both countries would invoice in bilateral trade without using the dollar?  Isn’t the dollar alreayd plumetting enough?

Marc’s tone of voice really cannot hide his frustration of an American being wiped of the map:
Brazilian President Lula had made some allusions to this last month around the G20 meeting.
Today Brazil and China reached 13 new agreements, including China’s Development Bank,and signed a $10 bln credit agreement with Petrobras and $800 mln credit line for the Brazilian government’s development bank. This is very much as expected.
In March and April, China and Brazil’s bilateral trade surpassed Brazil-US bilateral trade. Although this likely more a function of the deep contraction in the US than a surge in China-Brazil trade.
The raw materials that China is so hungry for will be used to boost China’s productive capacity and manufacture goods that will then compete with other developing economies, like Brazil. That kind of trade may help underpin exports, but it does not lead to development in the same way that the US direct investment strategy–building plant and production locally–frequently does.
Contrary to speculation that circulated, there was no agreement on the invoicing currency for bilateral trade.

The comments on Marc’s article speak for itself though.  Read for example this reaction, or this one.
Besides, Thomas Wagner is right when he points out that China and Brazil are already settling their current account transactions in BRLM/RMB through China’s SAFE.  Come on, Marc, do you really think there is any company of the BRIC countries first converting to dollars and then to the payee’s currency when settling transactions?

When reading Marc’s posting tou would think Brazil is an undiversified economy exporting just supplying other countries with raw materials.  Wrong, not only are Brazilian exports diversified across raw materials (including agricultural commodities, metals, and energy), light industry, and industrialized products (Embraer, for example), but Brazilian exports are also highly diversified by export destination.

A key source of strength for Brazil is its highly diversified economy. Within the BRIC (Brazil, Russia, India, and China) dynamic, Brazil is often categorized as a raw materials exporter that supplies China, India, and others with raw materials for infrastructure and manufacturing. While it is true that trade with China has expanded dramatically and that commodity exports contributed significantly to recent GDP growth, Brazil’s exports are substantially diversified, as shown in Figures 3 and 4. Not only are Brazilian exports diversified across raw materials (including agricultural commodities, metals, and energy), light industry, and industrialized products (Embraer, for example), but Brazilian exports are also highly diversified by export destination.  Raw materials only account for 32% of Brazil’s export.
There are hige export opportunitries for Brazil to China: fashion apparel, cosmetics, medical/dental equipment, building materials & fixtures, ethanol, processed food, bank automation equipment, specialty chemicals, etc…etc…

Tags: brazil and china