For nearly a decade, three items account for around 75% of Brazilian exports to China. Last year, oil, iron ore and soy reached 80% of the total. And we are talking about the main market for Brazilian exports.
I recently participated in a discussion on bilateral trade in which the question arose: why, after all, does Brazil only sell commodities to China?
Someone suggested that, as the factory of the world, Beijing would not need to import manufactured goods. But that’s not the answer. The country is the world’s second largest importer, buying a lot and everything. At the top of the list are not grains, but semiconductors.
Brazil sees China as a consumer of basic products, however the country is equally a voracious importer of value-added products. Very integrated in value chains, China also imports in order to export — it needs machinery and equipment, inputs and components for that. In addition, its consumer market demands varied imports.
If the Asian country is a major importer of industrialized products, some might wonder if, after all, it is not barriers imposed by the Chinese government that would be hindering our sales of these goods. The short answer is: no. Interestingly, it is agribusiness products that face the most obstacles, especially sanitary ones, in China — and, even so, the sector accumulates records with the Asian country. Beijing is more protectionist in agriculture than in industry.
Subsidies certainly distort the market a lot, but that doesn’t stop the country from importing in droves from other sources. The import tax on industrial goods in China is 2.8% on average. That is, as a rule, it is not barriers —tariff or non-tariff—that prevent the sale of more complex products.
The reader’s intuition may have given him another answer: Brazil does not export manufactured goods to anyone and, therefore, it is natural that it does not sell them to China. Here, exaggeration aside, there is a kernel of truth. The Brazilian industry has lost competitiveness visibly. The country’s share of global exports from the manufacturing industry represented a mere 0.78% in 2020, according to the CNI, the floor of the 30-year historical series.
Brazil even sells products from the manufacturing industry to China, which reaches a surprising share of 17.5% of the basket. However, these sales are concentrated in products such as meat, cellulose and sugar. Other than that, there’s practically nothing left.
It is not China that imports little of the Brazilian medium and high complexity industry — it is we who sell less and less of these goods to the world. In 2021, we export less in this category than we did ten years ago.
In terms of sales to China, the problems that traditionally affect the competitiveness of Brazilian industry and industrial exports obviously have the preponderant weight. But there is also a lack of sustained investments over time with a focus on the Chinese market — for example, greater country-image efforts, as well as promotion and business intelligence.
Furthermore, three years in China convinced me that, with honorable exceptions, companies and sectors with high exposure to the country’s market invest very little in understanding the local reality, in having a physical presence, in building relationships — something highly valued by the Chinese. If this is true for companies that already earn a lot from China, what will it say for those who are pioneering the market.
Certainly, given the complementarity of the economies, public and private efforts will not revolutionize the profile of our exports to China. But they will generate valuable opportunities for Brazil.
It is tempting to look to China in the search for answers to the well-known challenge of adding value and diversifying the Brazilian export agenda, but the problem is mainly domestic.
