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Chinese Ambassador to Brazil Receives an Interview on China-Brazil Economic and Trade Cooperation
Chinese embassy in Brazil

On December 26th, 2017, Chinese Ambassador to Brazil Li Jinzhang received a written interview with Valor Econômico, a mainstream newspaper in Brazil, answering questions about China-Brazil economic and trade cooperation. The following is the transcript of the interview.

1. Brazil is recovering slowly from the worst recession in a hundred years and the political situation is still uncertain. Why do Chinese companies still acquire assets in Brazil?

Ambassador Li: Chinese companies have indeed experienced periodical difficulties with the Brazilian economy suffering from recession over the last two years, but they have always been on the side of the Brazilian people at this time, with some even increasing their investments. Apart from helping Brazil's economic recovery, more importantly they want to demonstrate to the international community their confidence in the future development of Brazil. As we Chinese say, a friend in need is a friend in deed, and in times of crisis, trust is more precious than gold. I can say that Chinese investment, in a way, has given an important boost to the recovery of the Brazilian economy.

Of course, it is also a strategic decision many Chinese companies have made to maintain a long-term partnership in this country. Despite the setbacks and difficulties, Brazil is a country with a vast market, solid financial system and general political stability, and has good medium- and long-term growth trends. Everything indicates that the economy has entered a track of gradual recovery and will embrace a new round of prosperity. Economic and trade cooperation between China and Brazil has seen rapid growth this year, and China has become one of the main sources of investment in Brazil. Based on the strong complementarity between China and Brazil, the Sino-Brazilian partnership will reap greater benefits in the future.

2. Up till now, Chinese investment focuses more on existing assets, such as the concession of hydroelectric plants by CTG, the acquisition of CPFL by State Grid, the acquisition of shares of Rio de Janeiro International Airport by Hainan Airline, and the purchase of Paranaguá Container Terminal by China Merchants Group. Why do Chinese companies show little interest in construction projects such as new railroads and highways?

Li: First of all, I would like to point out that the areas of cooperation between the two countries are very broad and investments are increasingly diversified. As far as transport infrastructure is concerned, China's experience shows that building roads can lay a good foundation for achievoing prosperity. During his visit to Latin America in 2014, President Xi Jinping defined infrastructure as one of the priority areas for cooperation with Latin America, which set clear priorities and direction for Sino-Brazilian cooperation. Chinese contractors have advantages in technology, experience and capital and demonstrate great interest in infrastructure construction in Brazil. In 2015, China, Brazil and Peru reached consensus on promoting the construction of the Transoceanic Railroad. Chinese companies have concluded the feasibility study in two years and are willing to implement the project in stages, thus helping Brazil and Latin America to fulfill their centenary dream. Interested in the Investment Partnership Program of Brazil, Chinese companies are willing to, based on market rules and by forming a group, participate in the construction of FIOL and other railways as to improve the Brazilian logistics system.

In addition, I would like to emphasize that, with the acquisition of shares in energy companies and ports, Chinese companies will share with their Brazilian partners their technologies and management experiences, which helps to improve the efficiency and profitability of local businesses. These are market actions that bring benefits to both sides.

3. What are the main difficulties Chinese companies find in Brazil? Is it about environmental license, regulatory uncertainty, labor problems, or others?

Li: Brazil has a robust market mechanism and a well-functioning legal system. Chinese companies with operations in the country are adapting to the local business environment and striving to comply with labor and environmental laws. However, no country can say its business environment is perfect and there is always room for improvement. Like any foreign company operating in this country, Chinese investors also face some difficulties, such as the complex tax system. The two governments are in dialogue and coordination to solve these problems together. As Chinese companies are becoming more familiar with the Brazilian market, and with the Brazilian government advancing reforms and promoting investment facilitation, we expect the problems faced by Chinese businesses to decline and efficiency to be increased.

4. A few months ago, the Brazil-China Cooperation Fund for the Expansion of Production Capacity was announced with a contribution of US$20 billion. When will the first batch be allocated by the fund? Are there any projects the Chinese side has in mind?

The Brazil-China Cooperation Fund for the Expansion of Production Capacity was launched in May this year. It is a mechanism financed and administered by the two governments, where decisions are jointly taken and benefits are shared by both sides. The fund is primarily intended for infrastructure projects in Brazil. It is a sovereign fund that operates in accordance with the principles of the market and, at the same time, leverages the guiding role to governments, with the aim of promoting a qualitative leap in our cooperation. Currently, the two sides are in frequent consultations to evaluate the socioeconomic benefits, profitability and other conditions of the projects in the list. We are working to identify the list of key projects for the fund to carry out its function as soon as possible.

5. Nearly a third of the anti-dumping measures applied by the Brazilian government are against Chinese products. They are looking at new tariffs on Chinese steel. Do you think Brazil has exaggerated trade defense measures against China?

Li: We must have a dialectical view of the trade disputes between the two countries. On the one hand, this is normal given the huge trade volume between the two countries. In 2016, Brazil-China trade reached US$ 67.6 billion. From January to September this year, this volume has already surpassed US$66.5 billion, an increase of almost 30% over the same period of last year. It is essential that the two sides adopt an attitude of mutual respect and win-win cooperation to deal with frictions and disagreements in accordance with WTO rules and through dialogues and consultations. On the other hand, Brazil always has a huge surplus in its trade with China: more than US$23 billion in 2016 and over US$24 billion in the first three quarters of this year. While China does not seek an absolute trade balance and is willing to increase access to its market, it also expects the collaboration of the Brazilian side to eliminate trade barriers together and promote trade liberalization and facilitation through win-win cooperation. Thus, we will build an updated version of our economic and trade cooperation.

6. On December 11th, 2016, the 15-year transition period for China's accession to the WTO ended. However, Brazil still refuses to recognize China's market economy status. Does this affect our bilateral relations? Is China still expecting to receive this recognition from Brazil? Are you disappointed with the current position of the Brazilian government?

Li: First, we need to be clear what "market economy status" is. There is no such concept in the multilateral rules of the WTO, nor is there a criterion for judging such a status in WTO rules. Since the implementation of the policy of reform and opening up, China has established and improved the socialist market economy, a practice widely recognized by the international community. The recently concluded 19th National Congress of the Communist Party of China proposed accelerating the improvement of the socialist market economy, which demonstrates China's determination to persist in market-based reforms.

Whether or not China's market economy status is recognized, it is imperative to abolish from December 11th 2016 onwards the calculation of dumping of Chinese products on the basis of prices from third countries, in accordance with the provisions of Article 15 of the Protocol on China's Accession to the WTO. That is clear and undeniable. Therefore, as long as it abandons this methodology in anti-dumping investigations and decisions against China, it is considered that obligations in international treaties are met, WTO rules are respected and China's fundamental concerns addressed.

7. Currently, Brazil mainly sells agricultural products and iron ore to China and imports Chinese manufactured products. How to make this trade more balanced?

Li: The balance of trade between China and Brazil can be analyzed from various perspectives. Let us leave aside the fact that the value of Brazilian exports is much higher than that of importing from China, my opinion on your question is this: in recent years, our bilateral trade has remained high thanks to mutual complementarity of the two countries, which has contributed to economic growth of both sides. This partnership is at a new historical moment and the two countries are making concerted efforts to transform and modernize this trade:

First, the "Belt and Road" initiative and production capacity cooperation will contribute to the expansion and upgrading of economic and trade cooperation between the two countries. China is willing to discuss with the Brazilian side on how to align the "Belt and Road" initiative with Brazil's development strategy, promote the construction of Brazil's infrastructure and test new models such as the joint establishment of industrial zones and science and technology parks, thus giving impetus to the structural transformation of the Brazilian economy to rise in production and value chains. Brazil is also a priority for China in cooperation in production capacity, especially in areas such as infrastructure, agriculture, energy, telecommunications and machinery. China will encourage its high quality and environmentally friendly industries to invest in Brazil, assisting in Brazil's process of industrialization and digitization, as well as the localization of manufactured products, both agricultural and industrial. This will add more value to Brazilian exports and improve the composition of our bilateral trade, thus jointly embracing the new wave of the industrial revolution

Second, we must seize the opportunity brought about by China's further opening up. The report to the 19th National Congress of the Communist Party of China emphasizes that China will introduce policies of high-level liberalization and facilitation of trade and investment and significantly ease market access. Over the next 15 years, it is estimated that China will import US$24 trillion worth of goods. With the goal of further alignment with the international market, the first International Import Fair will take place in Shanghai in November 2018. We have already invited Brazil to this fair with the intention of expanding the export of Brazilian products to China. I believe that this will serve to raise our bilateral economic and trade cooperation to a new level.

Valor Econômico devoted the first four pages on china and China-Brazil cooperation. The headline on the first page is about the leadership role Chinese companies are playing in acquisition in Brazil. The takeover by Chinese businesses in Brazil was US$10.68 billion in 2017, making up 35.6% of the total acquisition by foreign investment in Brazil. It is reported that china has become a main source of investment in Brazil, focusing on the areas of energy, minerals and agriculture. In the future, China will further expand investment and cooperation areas in Brazil. Daniel, a senior journalist of the newspaper who has covered the 19th CPC Congress, contributed an article on the second page, reviewing the historic trajectory of China's path towards revitalization, and analyzing the significance of the Congress. He also looked back at the great achievements China has made in the international stage over the past year, speaking highly of China's growing international position and influence. He believes that the year 2017 was the first year for China to lead the world.

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