China and Brazil: Economic Impacts of a Growing Relationship

Abstract

The paper analyses the economic impacts of China's re-emergence on Brazil, looking at both the direct effects of China on Brazil in terms of bilateral trade and investment flows and the indirect effects through increased competition in export markets for manufactured goods and higher world prices for primary commodities. Despite a surge in Chinese FDI in Brazil in 2010, the main driver of bilateral relations is trade. While bilateral trade has grown rapidly, the pattern that has emerged has given rise to concern because Brazil's exports are concentrated in a small number of primary products while imports from China are almost entirely of manufactured goods that are becoming more technologically sophisticated over time. Brazil has benefitted in the short term from the high prices of primary commodities (partly caused by growing Chinese demand), but has lost export markets to China in manufactures, contributing to the “primarization” of the country's export basket.