Report: Chinese Investment in Brazil at Lowest Point in 13 Years Due to Economic Slowdown and Regulatory Challenges

02 Sep, 2023

Report: Chinese Investment in Brazil at Lowest Point in 13 Years Due to Economic Slowdown and Regulatory Challenges

Chinese investment in Brazil has taken a substantial hit due to regulatory challenges and China's economic slowdown. In 2022, Chinese investment in Brazil reached a 13-year low of just US$1.3 billion, pushing China down to ninth place globally in terms of Chinese foreign investment. The report, released by the China-Brazil Business Council (CBBC), identifies several key factors behind this nearly 78 percent reduction.

One significant factor is the stringent regulatory requirements for mining projects, which accounted for an estimated US$2 billion. These requirements, including demanding environmental impact assessments, often resulted in a lack of permits for project execution, contributing to the overall decline.

Despite this decline, Chinese interest in various sectors of Brazil's economy remained strong, with a record 32 projects announced in the previous year. The absence of "very large investments" in 2022 can be attributed, in part, to limited contributions from state-owned enterprises.

China's reduced investment also extended to Latin America, the European Union, and Britain, while the United States, Australia, and Belt and Road Initiative countries saw significant increases in Chinese investment. This shift may relate to cooling global sentiment toward China in regions critical to its innovation sector.

Low liquidity in China's domestic economy and the need to balance provincial debt in the post-pandemic world have also played a role in China's reduced investment in Brazil.

Argentina, with a smaller economy than Brazil's, overtook Brazil in CBBC rankings, becoming the top destination for Chinese investment in Latin America, primarily due to its energy sector and lithium mining.

However, experts believe that Brazil is likely to remain the primary destination for Chinese investment in the region in the long term. This change in rankings may be temporary, driven in part by Argentina's recent engagements. Chinese investment in Brazil's electricity generation and transmission sectors remains limited due to an already substantial presence.

Electric and new energy vehicles have become a high-priority sector for China, with significant global investments in electric cars in recent years. In Brazil, this sector attracted over half of all greenfield investments.

Two notable Chinese carmakers, BYD and Great Wall Motors (GWM), exemplify China's investments in Brazil. BYD plans to invest over US$600 million in a new industrial park in Bahia state, while GWM acquired a large factory from Mercedes-Benz in São Paulo, with an investment projected to reach US$776 million by 2025. GWM's investment is expected to create thousands of jobs and potentially reach US$2 billion.

In conclusion, while regulatory hurdles and China's economic slowdown have impacted Chinese investment in Brazil, the country remains attractive for various sectors. Changes in Chinese investment dynamics reflect evolving priorities and opportunities in Brazil's economy.