Placing 5.5 Billion Reals in Brazil, What is China’s BYD Eyeing On?

Brazil was once a major manufacturing power in Latin America in 1980s. However, due to blind faith in neo-liberalism since the 1980s, it experienced a decline in manufacturing. But now Lula and his moderate, pragmatic, and inclusive government have got rid of blind adherence to neo-liberalism. With the help of Chinese manufacture enterprises in Brazil, they aim at achieving reindustrialization.
June 17, 2024
Top picks selected by the China Academy's editorial team from Chinese media, translated and edited to provide better insights into contemporary China.
Brazilian international relations commentator; PH.D. candidate in Global Studies at Shanghai University
Click Register
Try Premium Member
for Free with a 7-Day Trial
Click Register
Try Premium Member for Free with a 7-Day Trial

The diplomatic relations between China and Brazil are currently one of the most prominent and successful examples of South-South partnership and cooperation.

There have been a series of major landmark events in the history of China-Brazil diplomatic relations, such as the launch of the China-Brazil Earth Resources Satellite (CBERS) program in 1988, the establishment of the strategic partnership in 1993 (this is the first time China has established such a strategic partnership), and other major initiatives between China and Brazil since the beginning of this century, especially the establishment of the BRICS.

2024 marks the 50th anniversary of the establishment of diplomatic relations between the two countries, and China-Brazil relations will usher in better prospects for development.

One of the latest and most important topics in the bilateral relationship is Brazil’s growing interest in Chinese electric vehicles. Recently, Brazil overtook Belgium to become China’s largest export market for electric and hybrid vehicles (BEV + PHEV), according to the CPCA. China’s exports of electric vehicles to Brazil increased 13 times from the previous year, reaching 40,363 in April. Back in January 2024, Brazil is only the tenth-largest import market for electric vehicles in China.

The growth in Brazil’s demand for electric vehicles in China resonates with the increase in China’s investment in electric vehicles in Brazil. For example, BYD has begun building a large-scale manufacturing center for electric and hybrid vehicles in Camaçari, Bahia State, Brazil, with plans to start operations in late 2024 to early 2025. GWM has invested heavily in the electric vehicle industry in Brazil as well.

Previously, BYD announced an investment of 3 billion reals in Brazil in 2023. By March this year, BYD confirmed that its investment had increased to about 5.5 billion reals, which is expected to create about 10,000 jobs.

Regarding Brazil’s electric vehicle market, data from the Brazilian Electric Vehicle Association (ABVE) shows that April 2024 is the second-best month for electric vehicle sales in the country, reaching 15,206 units, a 12% month-on-month increase (13,613 units in March 2024) vehicles), a year-on-year increase of 217% compared with April 2023 (4,793 vehicles). Among them, the most prominent sales are BEVs (pure electric vehicles) and PHEVs (plug-in hybrid vehicles), accounting for about 70% of EV sales in the month. As a result, Brazil’s EV market share reached a staggering 7.3% in April. According to the ABVE report, BYD and GWM lead the Brazilian market, collectively accounting for about 61.3% of the electric vehicle market in April (BYD accounted for 46.3%, GWM accounted for 15%), followed by Toyota, Caoa Chery, and Volvo.

Brazil BEV and PHEV market share change | Source: CleanTechnica

Small frictions always exist though.

The rapid development of Brazil’s electric vehicle market is not only due to the vigorous market demand but also related to the government’s increased support for the new energy vehicle industry. In addition, as the largest economy in Latin America, Brazil is the “touchstone” for foreign new energy vehicles. Winning Brazil means that companies may be able to usher in a broad development space in the Latin American market. The Brazilian government has also seen this, and by setting tariffs, it has urged foreign auto companies to enter the Brazilian new energy market through localized production.

Chinese car companies, which occupy a leading position in the global EV market, will naturally not let go of this opportunity. But things aren’t always so rosy.

Recently, the European Union launched an investigation into subsidies for Chinese electric vehicles and the United States has expressed concerns about the safety of Chinese export vehicles. In this context, the “concern” of Western major powers on the relationship between Latin American market and the Chinese EV companies is becoming increasingly obvious. Part of this can be reflected in the massive spread of fake news about Chinese EVs on social media, as well as on the official media.

In addition, Brazil’s important industrial sectors are also concerned about competition with Chinese companies. Recently, Brazil’s domestic steel and chemical production sectors have exerted influence on issues such as government subsidies and calls for trade protectionism.

Let’s take a look at the steel industry. China’s steel production is currently growing astonishingly, accounting for about 54% of the world’s steel production in 2022, according to the World Steel Association. Naturally, this has led to continued growth in Chinese steel exports, not only in Brazil, but in the entire Latin American market. Most recently, Gerdau announced that some workers at its São José dos Campos plant would be shut down for at least five months, allegedly because of “intense competition from China”.

The Brazilian Steel Association, which represents Brazil’s steel industry interest group, has long advocated raising tariffs on Chinese steel to 25 percent, compared with the current rate of less than 10 percent. One of their main arguments is that the 25% tax rate is exactly what big countries such as the United States, the European Union, and the United Kingdom have in place. In addition, they traced history, claiming that Mexican President López Obrador also imposed a 25% tariff on Chinese steel in 2023. Over the past six months, at the request of industrial entities, Brazil’s Ministry of Industry, Foreign Trade and Services (MDIC) has launched a series of investigations into the alleged dumping of Chinese industrial products, including metal and color-coated steel plates, chemicals, and tires.

In May, the Executive Management Committee (GECEX) of the Brazilian Chamber of Foreign Trade (CAMEX) extended its anti-dumping policy on two types of cold-rolled steel imported from China. The Brazilian government has accused Chinese steel manufacturers of reducing copper and zinc in steel mixtures to avoid higher import duties.

From 2013 to 2019, CAMEX imposed a surcharge of US $629.44 per ton on these products. However, the Foreign Trade Secretariat (SECEX) found that imports of these improved steel varieties have increased by 500% in recent years. SECEX’s six-month investigation revealed that the imports were intended to circumvent anti-dumping measures. Therefore, the government adopted anti-circumvention legislation to extend existing anti-dumping duties to these kinds of new steel.

On May 28, Brazil’s Chamber of Deputies approved a bill to impose a 20% federal tax on imports worth $50 and less. The bill has been included in the National Green Mobility and Innovation Program (MOVER), which aims to provide government incentives for the automotive industry, support technological development in the automotive industry, improve global competitiveness, enhance innovation, and accelerate the decarbonization process. The goal is to provide 19.3 billion reals in financial credit to companies investing in R&D and production projects from 2024 to 2028. In addition, 3.5 billion reals will be allocated for investment in decarbonization this year. The plan also proposes the establishment of the National Fund for Industrial and Technological Development (FNDIT) to support the program.

Just a 20% tax will directly affect sales on platforms like Shein and AliExpress. If the MOVER program is approved, the tax rate on imported products under the framework of Brazil’s tax compliance program (Remessa Conforme) could be as high as 92%. That would result in Brazil having the highest tax rates in the world, as federal and state taxes on all purchases can lead to price increases, even on items under $50. In this case, the low-income class will be most negatively affected, as well as those poor people who rely on international e-commerce platforms to buy cheap goods. Therefore, AliExpress has criticized Brazil for imposing taxes on low-value imports, while maintaining a duty-free service for international travelers when they buy goods worth 5,000 Brazilian reals.

This is not without precedent. Controversies involving the industrial sector and closer ties with China were common during the Workers’ Party governments of Lula (2003-2010) and Dilma Rousseff (2011-2016). The main electoral and political team of the Workers’ Party emphasizes the revitalization and strengthening of Brazil’s industrialization, making the industrial sector an important basis for government support and a basic axis of government decision-making. At the same time, strengthening bilateral relations with China remains a key part of the Workers’ Party government’s strategy. Since 2009, China has replaced the United States as Brazil’s main trading partner position held by the US since 1929.

From this perspective, the Brazilian government must reconcile at least three basic issues, which are somewhat contradictory but not necessarily mutually exclusive. First, maintain good relations with the North Atlantic powers and not yield to pressure from forces plotting to promote a “new cold war” against China. Second, prioritize deepening cooperation with China in multilateral and bilateral fields. Third, seek to protect and maximize the interests of the domestic industrial sectors. While some analysts point out that there are many contradictions in these goals, the Brazilian government has always emphasized the possibility of these goals seeking common ground while reserving differences.

Lula’s Balanced Approach

Under the Workers’ Party government, Brazil has avoided expressions like “new cold war”, ensuring that its stance does not damage its relations with North Atlantic powers or China. During a visit to China in 2023 and a meeting with President Xi, Lula said it was necessary for the United States to “stop instigating war” and for the European Union to “start talking about peace.”

Brazil has been resisting pressure from the US and the EU during the ongoing conflict in Ukraine, repeatedly refusing to send tank ammunition to Ukraine. Since the outbreak of the current Palestinian-Israeli conflict, Lula has been critical of Israel’s actions in Gaza. He has consistently advocated for a peaceful resolution to the Israeli-Palestinian issue, calling for full recognition of the independent and stable status of the State of Palestine. He has even gone so far as to withdraw the ambassador to Israel. Moreover, Brazil has restored diplomatic relations with Venezuela after a seven-year severance and appointed Glivânia Maria de Oliveira as Brazil’s new ambassador to Caracas, a move that reversed Michel Temer and Jair Bolsonaro’s position.

These positions of the Brazilian ruling team do not actually mean that they are taking sides with developing countries without favoritism or adhering to firm anti-imperialist principles. Although the Workers’ Party is a left-wing party, it is different from the left-wing parties in Venezuela and Bolivia. In Brazil, the ruling left-wing party generally implements its governance policies through a more ideologically diverse coalition.

The Brazilian Workers’ Party leads a broad coalition of parties and figures from the center and right, with both conservative and liberal views. Typical of this diversity is Vice President Geraldo Alckmin, who has been a right-wing leader against Lula and the Workers’ Party for many years.

From left, Brazilian Socialist Party President Carlos Siqueira; current Brazilian Vice President Geraldo Alckmin, Brazilian Socialist Party member; current Brazilian President Luiz Inacio Lula da Silva, Workers’ Party member; and Workers’ Party President Gleisi Hoffmann | Taken on April 8, 2022, Lula chose his former rival Alckmin as his running mate. | Source: AP Photo

In April, José Dirceu, one of the main historical leaders of the Workers’ Party and Brazil’s left, publicly stated: “The government formed by Lula is not a center-left government, but a center-right government.” This observation reveals the complexity of the coalition and the situation of Brazil’s domestic politics: although Lula and the Workers’ Party form one of the strongest and most diverse coalitions in the history of Brazil’s presidential elections and bring together a wide range of parties from different ideological fields, they defeated Jair Bolsonaro in the second round by only less than 2% of the vote.

Amid the rise of the far-right in the West and Latin America, the ongoing influence of Bolsonarism on Brazilian politics, the moderate and pragmatic approach has gained more support, having a significant impact on Brazil and its neighboring countries, especially in the context of Milei’s election in Argentina. Therefore, the diplomacy of the Lula administration reflects the coordination of various interests within its broad alliance, the compromise of various economic classes of Brazilian society, and the interests of Brazil itself in the tense and complex international situation.

The good relationship that the Lula administration grew up with the Biden administration (in stark contrast to the relationship between former presidents Jair Bolsonaro and Donald Trump) is widely known. In September 2023, Biden and Lula announced the launch of a joint initiative to promote workers’ rights and reached an understanding aimed at advancing the transition to the green economy.

Similarly, Brazil’s efforts to restore strong relations with the EU and Western European powers are well known, as evidenced by the strategic cooperation restarted after Macron’s recent visit to Brazil. During Macron’s visit to Brazil in March this year, Brazilians tried to reverse the negative impacts on the bilateral relations during Jair Bolsonaro’s administration, continue to maintain the traditional cooperation between the two countries and promote the use of French technology to build the first Brazilian nuclear-powered submarine.

China is not the cause of Brazil’s deindustrialization, but the solution.

Under Lula’s new administration, the importance of China-Brazil relations, the commercial complementarity between the two countries, the broad consensus on the necessity of global governance reform, the emphasis on South-South cooperation, and the economic synergy between the two countries are all evident. There may be sectoral differences between the two countries, but such differences do not affect the overall direction of bilateral relations.

Unlike Mexico, which has a bilateral trade deficit with China and its economy is closely related to the U.S. economy, Brazil and China have huge economic complementarities. The comprehensive strategic partnership between the two countries has greatly advanced in the past 30 years. There is also significant political convergence in views on global governance and South-South cooperation. Although the United States has a broad and comprehensive relationship with Brazil reflecting in the deep political and cultural influence, it only accounts for just 10.9% of Brazil’s total exports in 2023, almost a third of China’s share (30.7%).

China has made a firm commitment to supporting Brazil’s economic growth and reindustrialization efforts. This includes increasing productive investments in Brazil, enhancing China-Brazil technological cooperation, increasing imports of Brazilian manufactured goods, and promoting investments in infrastructure—which is a bottleneck for Brazil’s economic growth.

Brazilian workers operate machines at BYD’s battery factory in Manaus, Amazonas.| Source: Xinhua News Agency

It is worth noting that China’s direct investment in electric vehicle production in Brazil is in line with the Brazilian government’s recent plan to gradually impose a 35% import tax on electric vehicles by July 2026, aiming to stimulate domestic production.

Lula has always been good at taking into account different stakeholders in support of the common ideals of cooperation, peace, and development. In 2004, under Lula’s leadership, Brazil recognized China’s market economy status despite protests from some Brazilian industry associations. This decision made industrialists and most national political forces quickly realize that the benefits of a strong relationship with China far outweigh sectoral differences.

It was also during the Workers’ Party’s administration that Brazil and China jointly established the China-Brazil High-level Coordination and Cooperation Committee (COSBAN) and the China-Brazil Entrepreneurs Committee (CBBC), and upgraded the strategic partnership to a comprehensive strategic partnership in 2012. At that time, Brazil and China continued to cooperate in a multilateral environment, supported the reform of global governance mechanisms, supported the institutionalization of the G20, and showed great synergy in promoting the BRICS and the New Development Bank, which is currently run by former Brazilian President Dilma Rousseff serves as president in Shanghai.

Over the past decade, Brazil has received 47% of China’s total direct investment in South America.

Since the establishment of the new government in January 2023, Lula has pursued a diplomatic strategy that attaches great importance to bilateral relations with China. In March 2023, Brazil and China agreed to use their own currencies in financial transactions, eliminating the US dollar as an intermediary, with the aim of boosting bilateral trade and investment. During Lula’s visit to China in 2023, Brazil and China signed about 15 new bilateral agreements and more than 20 commercial contracts between companies and public institutions of the two countries. In 2023, the total bilateral trade volume hit a record of US $181 billion, and Brazil achieved a trade surplus of US $63 billion, accounting for more than half of Brazil’s total trade surplus of US $98.8 billion that year.

Therefore, although some Brazilian industrial sectors have asked the Lula government to take protectionist measures, other sectors of the Brazilian economy have highly appreciated the further strengthening of business synergy between China and Brazil. About 70% of Brazil’s 101 million metric tons of soybeans exported in 2023 were shipped to China. In addition, the Lula administration has always supported the grassroots people and labor movement, highly appreciated the achievements and progress of the Chinese people under the leadership of the Communist Party of China, and advocated further expansion of scientific, technological, political, and cultural cooperation between the two countries.

In 2023, Brazil continued to be China’s largest source of agricultural imports. | Source: Ministry of Agriculture and Rural Affairs of China

Finally, it is difficult to blame Brazil’s deindustrialization entirely on the so-called influx of Chinese manufactured goods. The continuous decline of Latin America’s major industrial centers dates back at least to the 1980s. The real cause of Brazil’s deindustrialization lies in its subservience to the Western financial system, leading to high interest rates, and the reckless privatization of strategic state-owned enterprises, which resulted in the decline of federal institutions. These actions have undermined the national economy. According to data from the National Confederation of Industry (CNI), in the 1980s, manufacturing accounted for about 30% of Brazil’s total output, with Brazil’s share of global manufacturing output being around 2.8%. By 2022, this share had decreased to just 1.2%.

All these issues stem from the Brazilian government and intellectuals’ blind adherence to neo-liberalism in recent decades. Now, at least some members of Lula’s government have tried to distance themselves from it. To overcome these obstacles, cooperation with China is undoubtedly part of the solution, not the reason for the main difficulties facing the Brazilian economy. China is the most prominent example of an alternative to the global neo-liberal model.

Yet it is clear that any protectionist measures in Brazil’s policy have nothing to do with the country’s potential to succumb to pressure from North Atlantic powers. On the contrary, they are more in line with the government’s interest in addressing the contradictions and challenges involved in promoting the process of comprehensive reindustrialization.

As we celebrate the 50th anniversary of the establishment of diplomatic relations between China and Brazil, the continued growth of Chinese electric vehicle industry investment in Brazil is undoubtedly good news. This demonstrates the commitment of the two governments and peoples to promote and strengthen bilateral relations and sets an example for other global South-South cooperation initiatives. Differences in certain areas will always arise, but a clear vision from the current leaders of Brazil and China will ensure that these differences do not become the central issue of the relationship between the two countries. By making concessions and rapprochement on some fringe issues, and prioritizing major themes on the bilateral and global agendas, Brazil and China will continue to move forward on the path towards a world order based on peace, cooperation, and development.


Top picks selected by the China Academy's editorial team from Chinese media, translated and edited to provide better insights into contemporary China.
Brazilian international relations commentator; PH.D. candidate in Global Studies at Shanghai University
Share This Post