Photo: A Chinese military honor guard holds the national flags of China and Brazil during a welcoming ceremony during Brazilian President Jair Bolsonaro’s visit to Beijing in October 2019. Source: Atlantic Council.
Regardless of this week’s election outcome, Brazil’s top economic and environmental concerns may not be solved through engagement with China.
For the first time in a while, China is a prominent topic in a Latin American election. For all Jair Bolsonaro’s and Luiz Inácio “Lula” da Silva’s differing policy proposals, both fundamentally understand the importance of preserving Brazil’s economic and diplomatic relationship with China, their country’s largest trading partner. Lula, in his past two presidential terms, aligned Brazil with BRICS countries and sought Chinese trade and investment. The Bolsonaro government, after a rocky start with polarizing comments about China, quietly returned to a policy of active engagement, accelerated by Bolsonaro’s growing isolation from the West.
Lula and Bolsonaro both likely view Chinese funding and other resources as instruments to further their policy priorities. Yet China may be less useful to either aspiring president’s policy plans than either can imagine—and less useful to Brazil now than it has been in the past. Rather, Brazil will need to address the domestic causes of economic and environmental challenges before turning to China for support.
No matter who wins in Sunday’s elections, Brazil’s president will almost certainly prioritize economic revitalization and the country’s reputation for environmental management. Economic development is a top domestic priority, amidst an inflation rate of 7.1 percent and an unemployment rate of 9.3 percent. Meanwhile, a reelected Bolsonaro or a returning Lula must restore the country’s reputation for sustainability. Historically, Brazil has cultivated its international leadership through its cutting-edge renewable energy development and stewardship of the Amazon, Earth’s most biodiverse area. Bolsonaro has eroded that reputation, overseeing the highest deforestation rate in 15 years and imposing high costs not just on the environment but also on his country’s international standing.
To deliver on the economic promises needed to address inflation and employment, Lula or Bolsonaro would need a large injection of funds to deliver to the middle class and the poor. Yet China, formerly a principal source of Brazil’s spending during the commodity boom of the early 2000s, may no longer be able to play that role. China’s economic activity in Brazil is principally through trade, loans, and investment, and these three veins, assessed together, yield mixed predictions for Brazil’s future growth.
In August 2022 alone, Brazil recorded a trade surplus of $1.53 billion with China. Between 2015 and 2020, the last year with detailed data from MIT’s Observatory of Economic Complexity, Brazil’s chief exports to China grew by 777% (frozen bovine meat), 188% (iron ore), 174% (crude petroleum), and 32.5% (soybeans). Even if bilateral trade remains strong between Brazil and China, Brazilian exports are heavily concentrated in raw materials sectors, which disproportionately benefit well-to-do energy companies and ranchers. Since income from trade with China flows to Brazil’s already-affluent sectors, the next president would likely need to use redistributive economic policies to make sure revenue from China is targeting the unemployed and those most vulnerable to inflationary pressures. Yet redistributive policies are often politically costly and difficult to implement. Thus, Brazil should not rely on its robust trade with China to solve the country’s principal economic challenges.
While Chinese trade with Brazil offers discouraging news for Brazil’s president, loans and investment paint an even more conservative picture. Although Brazil still ranks second regionally by total loan amount from Chinese policy banks, Chinese loans to Brazil through policy banks and commercial banks have dried up since 2020, in keeping with broader trends in Latin America. Chinese investment, historically high in Brazil, has recently followed a stop-and-start pattern, rising to $5.9 billion in 2021 after falling during the pandemic and previously halting in 2019. The data appears cautiously optimistic that Chinese investment projects can create local jobs, another key part of both Bolsonaro and Lula’s policy platforms, although it is unclear if the jobs created are at the scope and scale needed to fully resuscitate the economy. Put together, it is unclear how much a Lula or Bolsonaro government can rely on China to address Brazil’s top policy priority of domestic economic growth.
If China is not the economic savior that Lula or Bolsonaro might hope for, what opportunities might China provide for either candidate to improve Brazil’s environmental reputation? If Lula returns to office, he will likely seek to reverse Bolsonaro’s damage to the Amazon. Restricting Chinese firms engaged in deforestation could be an appealing policy option. A reelected Bolsonaro, meanwhile, might seek to assign responsibility for Amazon deforestation to Chinese firms instead of to domestic constituencies who support him, thereby restoring Brazil’s environmental standing.
A look at the data, however, reveals that China is unlikely to fulfill either candidate’s goals for the environment. Compared to its role in Brazil’s economic arena, China has a marginal presence at best in Brazil’s environmental sector. Although Chinese investments in Brazil have caught negative press for environmental damages, China is a relatively minor player in Brazil’s environmental degradation. The cases that have received the most press are the Ferrogrão grain railway and the Pará railroad, which demonstrate the possible ecological destruction that Chinese-led projects can bring. Others argue that large volumes of Chinese commodity imports from Brazil promote environmentally costly behavior that accelerates existing problems. However, by and large, much of Brazil’s systematic environmental extraction has been done by domestic constituencies sympathetic to the Bolsonaro government, such as loggers, miners, ranchers, and religious groups attempting to reach minority populations in the Amazon. In light of China’s secondary role in Brazil’s environmental challenges, a Lula or Bolsonaro administration would need to turn its focus to addressing domestic groups instead.
Economic and environmental trends signal that China may become a lesser priority in either a Bolsonaro or a Lula administration. Since China isn’t the economic protagonist that Brazil needs, nor the environmental villain that Brazilians might suspect, then what role is left for China-Brazil relations? If or when Brazil’s next president ultimately moves beyond economic and environmental issues, China could return to the forefront as a partner in science and technology or cultural diplomacy. Alternatively, if China’s role shifts in economic or environmental issues, it may again come to the fore. Recent discussion has turned to China’s possible role in Brazil’s deindustrialization, a growing political issue that signals Chinese-Brazilian relations are ever-relevant. In the short term, however, China-Brazil relations will likely be a second-tier issue.
Isabel Bernhard (@isabernhd) is a Program Assistant at the Atlantic Council’s Adrienne Arsht Latin America Center, specializing in China-LAC relations and Brazil.
The views represented in this piece belong to the author and do not represent the institutional position of the Atlantic Council or its affiliate centers.
