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RR RUEHCN RUEHRG RUESLE
DE RUEHBR #0534/01 1131741
ZNY CCCCC ZZH
R 221741Z APR 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 1474
INFO RUEHAC/AMEMBASSY ASUNCION 6727
RUEHBJ/AMEMBASSY BEIJING 0377
RUEHBU/AMEMBASSY BUENOS AIRES 5448
RUEHMN/AMEMBASSY MONTEVIDEO 7327
RUEHSG/AMEMBASSY SANTIAGO 0275
RUEHCN/AMCONSUL CHENGDU
RUEHGZ/AMCONSUL GUANGZHOU 0033
RUEHHK/AMCONSUL HONG KONG 0075
RUEHRG/AMCONSUL RECIFE 7936
RUEHRI/AMCONSUL RIO DE JANEIRO 6046
RUEHSO/AMCONSUL SAO PAULO 1917
RUESLE/AMCONSUL SHANGHAI 0042
RUEHSH/AMCONSUL SHENYANG 0028
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 05 BRASILIA 000534 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 04/14/2028 
TAGS: PREL ETRD EINV BR CH XR
SUBJECT: BRAZIL:  CHINA AND BRAZIL STRENGTHEN RELATIONS, 
SLOWLY 
 
REF: A. 06 BRASILIA 603 
     ¶B. BRASILIA 9 
     ¶C. BRASILIA 48 
     ¶D. 07 SAO PAULO 718 
     ¶E. SAO PAULO 130 
     ¶F. 05 BRASILIA 2317 
     ¶G. BEIJING 1315 
 
Classified By: Deputy Chief of Mission Phillip Chicola, reasons 1.4 b/d 
 
¶1.  (SBU)  Summary.  Sino-Brazilian relations are officially 
excellent, characterized by a booming economic relationship 
and a political relationship that has become increasingly 
closer, especially since 2004. Both governments are taking a 
long-term view and are trying to focus on crafting a 
patiently constructed relationship that they hope will 
increasingly yield political fruits in south-south affairs, 
international organizations, and bilateral cooperation. 
However, there is evidence that the Brazilian private sector 
may be beginning to take a different view, as a result of the 
unbalanced trade relationship.  The Brazilian Foreign 
Ministry has placed political goals above economic 
considerations, causing dire consequences in some Brazilian 
manufacturing sectors.  The Sino-Brazilian relationship 
purports to be cooperative, and they have much to offer each 
other.  But at this point, there is evidence of both economic 
competition and some political frustration with a lack of 
Chinese responsiveness.  Although the Brazilians are 
committed to strengthening this relationship over the 
long-term, Brazil is not getting all it wants from the 
relationship.  It is not clear that the two sides will be 
willing to take the necessary steps to maximize its 
potential.  End summary. 
 
2004 Summit Raises Prospect for a More Dynamic Relationship 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶2.  (U)  China and Brazil established formal diplomatic 
relations in 1974, and over the next twenty years signed six 
agreements covering trade (1978), maritime transportation 
(1979), science and technology (1982), culture and education 
(1985), economy and technology (1990), and the peaceful 
application of outer space (1995).  In the mid-nineties, the 
two countries established a Strategic Partnership, 
 
¶3.  (SBU)  Characterized by economic "complementarity" and a 
general coincidence of political interests, the 
Sino-Brazilian relationship advanced toward a high point in 
2004, when the heads of state exchanged visits. 
 
¶4.  (U) Professor Lytton Guimaraes, coordinator of the Asian 
Studies Nucleus at the University of Brasilia, points to the 
significant fact that Lula's visit to China in May 2004 was 
also a trade mission, with over 400 businessmen accompanying 
the official delegation.  President Hu visited Brazil in 
November 2004 during a Latin American tour that culminated in 
his participation at the APEC meeting in Chile.  His trip 
generated a lot of hope in official and unofficial circles in 
Brazil, mainly for trade and investment opportunities, but 
also for political benefits. 
 
¶5.  (SBU)  In the intervening years, numerous Brazilian trade 
missions have traveled to China seeking business 
opportunities.  But without a bilateral summit since November 
2004, the relationship has been mainly managed at the deputy 
minister level and below, except for Brazilian Vice President 
Alencar's March 2006 trip to Shanghai for the first meeting 
of the for the High Level Committee on Consultation and 
Cooperation (COSBAN) (ref A) and the August 2006 visit of top 
Chinese legislator Wu Bangguo. 
 
Economic Complementarity Gets Few Compliments in Brazil 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶6.  (SBU)  According to Chinese and Brazilian diplomats, the 
Sino-Brazilian economic relationship is based on 
 
BRASILIA 00000534  002 OF 005 
 
 
"complementarity," not competition: Brazil exports to China 
low value added commodities such as iron ore, soy, and 
petroleum, with these three commodities representing about 
70% of the export value, while China exports high value added 
goods such as electronics.  Booming trade seems to bear 
witness to this complementarity:  China recently passed 
Argentina to become Brazil's second largest export market, 
after the U.S., while Brazil is China's ninth largest export 
market. 
 
¶7.  (SBU) The GOB claims to be comfortable with a situation 
that currently favors China as exporter of high value added, 
finished manufactured goods.  This may be because Brazil is 
able to export finished goods such as aircraft, electronics, 
shoes, and furniture to other markets.  But Brazil and China 
compete in third country markets, and Brazilian industries in 
sectors such as shoes and toys have suffered greatly from 
Chinese competition both at home and abroad.  The Brazilian 
business community has witnessed loss of domestic and third 
country market share without a commensurate increase in the 
Chinese market.  While bemoaning their loss of market share 
to China, industry groups tell us they also worry about 
possible loss of jobs in Brazil as companies move to China to 
take advantage of cheaper production costs (ref E). 
 
¶8.  (SBU)  As a result, there is tension lurking under the 
surface of these booming trade figures.  A large number of 
Brazilian businesses, above all commodity exporters, are 
benefiting from the increasing trade.  But manufacturers 
remain less satisfied (ref E) because finished products are 
harder to sell in China than commodities, and many have lost 
market share at home and in third countries to Chinese 
products.  While the trade balance was in Brazil's favor, the 
unhappiness among manufacturers seemed to be only 
special-interest carping around the margins, but the trade 
balance has now shifted in China's favor.  Brazilian exports 
to China in 2007 were USD 10.7 billion, up 27.93% over 2006, 
while Chinese exports to Brazil were USD 12.6 billion, up 
57.92% over 2006, resulting in Brazil's first trade deficit 
with China.  If not checked, a trade balance in China's favor 
will almost certainly generate additional bad feelings, which 
could become a political problem for both sides.  Itamaraty 
China desk officer Pablo Pereira told us the Chinese have 
already agreed to exercise some voluntary restraint at 
Brazil's request in an effort to control the trade imbalance. 
 
 
¶9.  (U)  The Brazil China Business Council reveals in its 
first China-Brazil Trade Report (February 2008) that 
non-durable consumer goods comprise only 14% of Chinese 
exports to Brazil.  Likewise, Chinese Ambassador Chen Duqing 
pointed out in a 2007 interview in Visao da China, published 
by the China Brazil Trade and Industry Council, that the bulk 
of the exports are not consumer goods, but industrial goods. 
Therefore, he suggested, they contribute to Brazilian 
manufacturing capacity and, because they are inexpensive, 
help control inflation to the benefit of consumers. 
 
 
¶10.  (C)  By placing Brazil in the role of raw materials 
supplier, China has laid the groundwork for resentment in the 
Brazilian manufacturing sector, which includes not only toys, 
shoes and textiles, but high value added products such as 
cell phones and aircraft.  In one important exception, China 
entered into an agreement with Brazil's Embraer to buy 100 
airplanes made in China and Brazil, but fulfillment of the 
contract has been slow and did not begin until after China 
constructed a plant in Harbin very near the Embraer plant to 
do very similar work, possibly violating Brazilian 
intellectual property rights, according to Professor 
Guimaraes.  As business sector dissatisfaction in Brazil 
grows (refs D and E), China may face an increasing challenge 
of managing Brazilian expectations to avoid souring the 
broader relationship. 
 
...And Insufficient Chinese Investment in Brazil 
 
BRASILIA 00000534  003 OF 005 
 
 
- - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶11.  (SBU)  Some Brazilians also resent the unfulfilled 
promise of massive Chinese investment in Brazil, first 
aroused by President Hu's 2004 prediction of billions of 
dollars in Chinese investment in Latin America.  (Chinese 
investments in the region are only about USD 2.4 billion, 
according to Rodrigo Maciel, Executive Secretary of the 
Brazil-China Business Council, and according to Shixue Jiang, 
Deputy Director of the Institute of Latin American Studies of 
the Chinese Academy of Social Sciences, citing Chinese 
Commerce Ministry statistics, total investment in Latin 
America stood at USD 11.5 billion in 2005, but was 
overwhelmingly (USD 10.92 billion) in the Cayman Islands and 
British Virgin Islands.  Both citations are from "Enter the 
Dragon: China's Presence in Latin America," SAIS, 2007).  For 
their part, Chinese investors often complain of the same 
types of barriers and disincentives to investment as American 
investors do, including corruption and excessive bureaucracy 
(Ref E). 
 
¶12.  (C)  Federal Deputy William Boss Woo (PSDB, Brazilian 
Social Democracy Party, opposition; from Sao Paulo), the only 
Chinese-Brazilian federal legislator (his father is of 
mainland origin via Taiwan, and his mother is Japanese-born), 
who came to politics from a career in community police work 
and seems attuned to the views of ordinary Brazilians, 
complained to Poloff that China has repeatedly missed 
opportunities to take positive steps and to improve its 
image, suggesting for example that China could have used the 
recent, temporary EU ban on certain Brazilian meat products 
to approve the same products for China's market.  He said 
China has missed opportunities to provide foreign aid, and 
Japan is in the Brazilian market bidding on large public 
works projects, while China is not.  Deputy Woo said China 
fails to create brand consciousness for its products because 
they are manufactured for re-branding and retail sale by 
third parties.  As a result, Brazilian consumers do not 
recognize any brands as Chinese.  Professor Guimaraes said 
some Brazilians expected a significant increase in Chinese 
investment in Brazil as relations improved, but it has not 
come, and frustration has set in. 
 
 
Political Harmony Without a Clear Melody 
- - - - - - - - - - - - - - - - - - - - - 
 
¶13.  (SBU)  In 2006, China and Brazil formally initiated the 
COSBAN (Sino-Brazilian High Level Committee on Consultation 
and Cooperation, or Comissao Sino-brasileira de Alto Nivel de 
Concertacao e Cooperacao) in Shanghai with the participation 
of Brazilian Vice President Jose Alencar and Chinese Deputy 
Prime Minister Wu Yi.  (ref A).  The next COSBAN meeting 
should take place later this year in Brazil.  In the first 
COSBAN meeting, China and Brazil agreed to support each other 
in international organizations, work toward a successful 
conclusion of the Doha Round, and cooperate in many political 
areas to strengthen south-south relations and the voice of 
the developing world globally.  Brazil's and China's only 
high profile joint undertaking is a satellite program that 
predates the COSBAN.  The several COSBAN subcommittees are to 
report on their work at the COSBAN meeting in 2008.  The two 
countries recently upgraded their relationship to a Strategic 
Dialogue, intending to signal a closer political 
relationship, but again, concrete results have been difficult 
to discern. 
 
¶14.  (C) Brazil has made consistent overtures to the Chinese, 
offering China market economy status in November 2004 and 
organizing meetings of the BRICs (Brazil-Russia-India-China) 
(ref G).  China has not reciprocated in meaningful ways so 
far.  According to Professor Guimaraes, China's behavior with 
regard to Brazil has been ambiguous.  China does not support 
Brazil's top foreign policy goal, a seat on the UN Security 
Council, as that would entail also supporting Japan, which 
China will not do, he added.  (In fact, the subject was 
 
BRASILIA 00000534  004 OF 005 
 
 
something of a sore point at the recent BRIC meeting in Rio 
de Janeiro, per ref G).  The BRICs will hold a first 
ministerial meeting in Yekaterinburg in May, but it is on the 
margins of a Russia-India-China meeting that Brazil appears 
to have greater weight for the other three.  Guimaraes also 
believes China's positions in the WTO have not gone as far as 
Brazil would have liked.  Deputy Woo takes a similar view, 
saying that "China does not try hard enough" in Brazil and 
supports Africa more. 
 
¶15.  (C) The two governments maintain, however, that all is 
well.  China desk officer Pablo Pereira would not admit to 
any troubles in the relationship, and pointed to China's 
voluntary trade restraints and the mutual support in 
international bodies such as the WTO.  Chinese Embassy 
Political Counselor Song Yang also said the political 
relationship is healthy and mutually beneficial, with its 
emphasis on friendship, south-south cooperation, and 
bilateral cooperation. 
 
Comment: In It For The Long Haul 
- - - - - - - - - - - - - - - - - 
 
¶16.  (C)  The Sino-Brazilian relationship is both competitive 
and cooperative, and they have much to offer each other. 
Nonetheless, it is not clear whether over time the two sides 
will be able to manage the relationship to maximize its 
potential.  Clearly China is a higher priority for Brazil 
than vice versa, but even without a convergence of political 
interests, the volume of trade alone between the two would 
keep Brazil on China's radar, even as it pursues resources in 
Africa, where, as Professor Guimaraes pointed out, it is less 
criticized for its political imperfections.  Still, in its 
single-minded pursuit of commodities and export markets, 
China has not taken accompanying steps to heighten its 
cultural profile or increase its "soft power" in Brazil.  For 
the moment, each side remains poorly understood by the other 
(ref C). 
 
¶17.  (C)  The full potential of the relationship is hard to 
gauge, particularly since a leadership change in 2010 in 
Brazil could bring an end to Lula's south-south focus. 
Nonetheless, the relationship will remain important to Brazil 
and is increasingly institutionalized, so may well survive 
any future refocusing of Brazil's foreign policy priorities. 
At present the relationship seems to be delivering more for 
China than Brazil, which could cause problems if uncorrected. 
 Itamaraty has given precedence to the relationship's 
political goals, which drive Brazil's China policy, while 
economic consequences, both positive and negative, seem to be 
collateral results and not on a par with the GOB's 
south-south objectives.  President Lula will probably go to 
China for the opening of the Olympic Games in August 2008, 
although that alone is unlikely to accelerate a relationship 
in which both sides seem comfortable with the tortoise's 
pace, not the hare's.  End comment. 
 
¶18.  (U)  Statistics on Brazil-China Trade 
Brazilian exports to China (in billions of USD) 
2002:  2.521  32.54% increase over previous year 
2003:  4.533  79.83% " 
2004:  5.441  20.03% " 
2005:  6.835  25.61% " 
2006:  8.402  22.93% " 
2007: 10.749  27.93% " 
 
Chinese exports to Brazil (in billions of USD) 
2002:  1.554  16.98% increase over previous year 
2003:  2.148  38.21% " 
2004:  3.710  72.76% " 
2005:  5.355  44.31% " 
2006:  7.990  49.23% " 
2007: 12.619  57.92% " 
 
(Source: Brazilian Ministry of Development, Industry, and 
Trade) 
 
BRASILIA 00000534  005 OF 005 
 
 
 
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