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Chinese investment in Brazil fell 78 percent in 2022 as compared to 2021, the Brazil-China Business Council said Aug. 29. At $1.3 billion, Chinese investment last year in Brazil was at its lowest level in 13 years. Despite the fall, Brazil received $90.6 billion in foreign direct investment last year, nearly twice the amount from the year before. What are the reasons behind last year’s plunge in Chinese investment in Brazil, and how significant is it to the South American country’s economy? What is the state of Chinese investment in Latin America more broadly, and what effects will China’s economic slowdown have in the region?

Margaret Myers, director of the Asia & Latin America Program at the Inter-American Dialogue: “There are several possible explanations for the drop this year in Chinese investment in Brazil. One, as noted, was the relative spike in Chinese investment in 2021, making this year’s transactions seem more underwhelming than they perhaps are. China may also have been reluctant to explore and start new projects during an election year in Brazil, and a critical one at that. But in Latin America, it’s relatively common to see ebbs and flows in foreign direct investment, whether greenfield or mergers and acquisitions. This includes at the country level, as some Chinese companies invest heavily in projects and then wait for some progress or returns on investments before beginning new large-scale ventures. It should also be said that across the region, we’ve seen some indications of a tapering of Chinese investment and finance. This may be temporary—related to Covid-19—but is likely driven by growing Belt and Road Initiative-related limitations, as China grapples with economic uncertainties at home. China is also looking to support deals with direct implications for its own economic growth. These include productivity-boosting high-tech products, services and investments. Of course, local tech projects tend to be smaller in value than large-scale infrastructure, which would naturally contribute to a drop in foreign direct investment values. Finally, some important shifts are also taking place in Latin America. Several countries in the region are rethinking their engagement with China, especially as they look to manage already high levels of sovereign debt. All of that said, Brazil remains a top trade partner and destination for Chinese investment, despite this momentary downturn in investment. China remains committed to investment in Brazil in and much of rest of the region, whether in pursuit of energy and food security, or the integrity of its industrial value chains. Latin America and the Global South are increasingly critical markets for Chinese tech producers, especially as parts of the Global North restrict access to China’s high-tech goods and services.”

Lin Hua, associate researcher at the Institute of Latin American Studies of the Chinese Academy of Social Sciences: “Brazil is one of the main destination countries for Chinese investment in Latin America. Observing China’s investment in Brazil cannot only be based on one year of data, but rather on a longer period of time. After all, many factors influence investment activity. Last year, China’s investment in Brazil decreased, but in 2021, it increased by 208 percent as compared to 2020. Between 2007 and 2022, China invested a total of $71.6 billion in 235 projects carried out in Brazil. And in 2022, China’s large-scale investment projects in Brazil reached 32, an increase of 14 percent compared to 2021. President Lula’s visit to China this year is sure to greatly boost China-Brazil economic and trade cooperation. China’s investment in Latin America has remained stable, and in the first half of this year, Chinese companies announced more mergers and acquisitions in Latin America than in other regions, indicating that Latin America remains one of the regions of greatest interest to Chinese investment. In the first half of the year, China’s economy gradually shook off the impact of the pandemic, with a GDP growth rate of 5.5 percent, which exceeded the majority of the world’s economies, especially developed economies. Against the backdrop of the current deteriorating world economic environment and weak global economic recovery, the Chinese economy remains an important driving force for the global economy. For Latin American countries, China-Latin America cooperation is crucial. China maintains a strong demand for goods from Latin American countries. In the first seven months of 2023, China’s imports decreased by 7.6 percent year-on-year, but imports from Latin American and Caribbean countries increased by 1 percent.” 

Jorge Heine, research professor at the Pardee School of Global Studies at Boston University and former Chilean ambassador to China: “Brazil harbors half of all Chinese foreign direct investment in Latin America, approximately $70 billion. In 2021, Brazil attracted $5.9 billion in Chinese investment. Accordingly, this significant drop in Chinese investment flows in 2022 is bound to raise eyebrows. The real question is whether these figures signal a turning point, or whether they are merely an outlier. Some will attribute them to China’s current economic difficulties and proclaim that the era of massive Chinese foreign direct investment in the region is over. My own take is somewhat different. For 2022, the China-Brazil Business Council reported that a record 32 Chinese projects in Brazil were announced. This does not indicate any lessening of China’s interest in Brazil. On the contrary, the announcement of major projects by Chinese vehicle-makers BYD and Great Wall Motor in Bahia and in São Paulo state, respectively, shows a continued commitment by Chinese companies to Brazil. It also reveals a decision to make Brazil the regional hub for their expansion into manufacturing, thus diversifying from the traditional Chinese focus on the extraction of natural resources and infrastructure development in Latin America. These two particular projects also show something else: in Bahia, BYD is taking over an industrial park that had been run by the Ford Motor Company, which left in 2022; in São Paulo state, Great Wall Motor is taking over a factory previously owned by Mercedes Benz. As U.S. and European companies disinvest in Latin America, Chinese ones move in. Can anyone blame them?” 

Thomas Rideg, president of M-Brain Americas Inc.: “Brazil continues to be a high-priority investment market for China. Despite the massive decrease in monetary investment value, China actually invested more in Brazil in 2022 that in any previous year in terms of the number of projects–35 projects in total, representing an increase of 14 percent. The decrease in value is mostly a result of some large projects that did not move forward due to delays in government licenses. For instance, Honbridge Mining Company was planning an investment of $2.1 billion, which did not move forward as the company couldn’t get an environmental license. Had this investment alone proceeded, it could have been a record year of Chinese investment in Brazil rather than the 13-year low it turned out to be. All this said, the Chinese economic slowdown can change the scene in the Brazilian economy as well as other commodity and export driven economies in the region (and globally for that matter). In 2023 alone, 30 percent of Brazil’s exports have been to China. The Brazilian secretary of trade mentioned that the media may be overstating the Chinese slowdown and that even a projected 5 percent growth in the Chinese economy with the slowdown is attractive and will be highly beneficial to Brazil–so there is warranted caution but no panic. The signs seem clear that Brazil will continue placing more and more eggs in China’s basket. Brazil can continue to nourish its relationship with China but should also keep seeking healthy relationships with the rest of the world.” 

The Latin America Advisor features Q&A from leaders in politics, economics, and finance every business day. It is available to members of the Dialogue’s Corporate Program and others by subscription.