VZCZCXRO2616
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1522/01 1590137
ZNR UUUUU ZZH
P 080137Z JUN 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 4360
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHBR/AMEMBASSY BRASILIA 0504
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 001522 
 
STATE PASS USTR 
 
SIPDIS 
SENSITIVE 
 
TAGS: ETRD EINV EIND PREL EFIN EPET
EAGR, CH, BR, AU-1 
 
SUBJECT: Brazilian President Lula's Trip 
to China Focuses on Trade and Investment 
 
Ref: Brasilia 619 
 
¶1. (SBU) Summary. During President Lula's trip to 
China, Brazil and China reaffirmed their commitment 
to strengthen their relationship and finalized China 
Development Bank's (CDB) $10 billion loan to 
Petrobras.  Details of the deal indicate that China 
will not acquire stakes in any Brazilian oil 
resources but instead be repaid in cash.  Another 
trip deliverable was access to the Chinese market 
for Brazilian poultry exports, a topic that has been 
under negotiation for over four years.  Lula 
reiterated his call to settle bilateral trade in 
local currency instead of the US dollar, but 
discussions on this subject seem to remain more 
abstract than substantive.  Other agreements were 
reached in the areas of financing, ports and 
satellite cooperation. 
 
Brazilian Embassy Briefing on Lula Trip 
---------------------------- 
 
¶2. (U) Lula's May 17-20 trip to China was his second. 
He was accompanied by the Minister of Foreign 
Affairs, the Minister of Commerce, the Minister of 
Ports, the Vice Minister of Agriculture and 220 
businessmen.  Lula met with President Hu Jintao as 
well as Premier Wen Jiaobao, Chairman of the Chinese 
People's Political Consultative Conference Jia 
Qinglin, and Vice President Xi Jinping.  Lula also 
attended the opening ceremony of the Center for 
Brazilian Studies at the Chinese Academy of Social 
Sciences (CASS), one of Beijing's most prominent 
research institutes, and visited the Chinese 
Aerospace Technology Agency to highlight space 
cooperation. 
 
Joint Communique and Joint Action Plan 
-------------------------------------- 
 
¶3. (U) In a joint communique, Brazil and China 
committed to further strengthening their partnership 
and stressed coordination in response to the Global 
Financial Crisis.  They agreed to meet again in the 
second half of 2009 to continue their strategic 
dialogue at the vice-minister level.  In addition, 
Brazil and China will develop a Joint Action Plan 
for 2010-2014 outlining bilateral cooperation on 
science, technology, space, trade and culture. 
Brazilian Emboffs said that the Joint Action Plan 
will be prepared in the upcoming weeks and launched 
later this year in Brasilia. 
 
Trade in other currencies? 
-------------------------- 
 
¶4. (SBU) President Lula continued to publicly 
promote the idea of conducting bilateral trade in 
Reais and Yuan (versus U.S. dollars), but an 
economic officer at the Brazilian Embassy 
acknowledged that this discussion is in the very 
early stages and there is little possibility of its 
being implemented in the near-term.   However, Lula 
proposed that the Brazilian and Chinese Ministers of 
Finance and the respective Central Bank Governors 
meet in the upcoming months to further study the 
issue as a next step. 
 
Oil and Oil Financing 
--------------------------------------------- -- 
 
¶5. (U) Two significant agreements were reached in 
the energy sector.  One is a purely financial 
arrangement under which CDB will lend Petrobras $10 
billion to help finance exploration of Petrobras' 
deep-sea oil reserves.  The loan does not give China 
any stake in Brazilian oil fields.  Instead, Brazil 
intends to repay it in cash, using oil revenue -- but 
not oil -- as collateral.  A separate MOU between 
the two governments committed to providing 
additional financing and equipment to support the 
CDB-Petrobras contract. 
 
Brazilian poultry to directly enter China 
 
BEIJING 00001522  002 OF 002 
 
 
--------------------------------------------- -- 
 
¶6. (U) Brazilian Emboffs were particularly pleased 
with progress on sanitary issues, especially an 
agreement under which Brazil can begin to export 
poultry products to China from Brazilian plants that 
have been inspected by Chinese health authorities. 
Brazilian Embassy officials were also positive about 
progress made in securing access for pork exports. 
China is now in the process of inspecting Brazilian 
pork facilities. 
 
CDB provides additional bank loans 
--------------------------------------------- -- 
 
¶7. CDB also agreed to provide the Brazilian 
Development Bank (BNDES) with an $800 million credit 
line to bolster its cash reserves amid the ongoing 
global financial crisis.  According to Brazilian 
Emboffs, as part of their expanded cooperation, CDB 
will open an office in Brazil and BNDES will open an 
office in China.  Two further MOU's were signed 
between Brazil's largest financial Institute Itau 
BBA and CDB and between Banco do Brazil and CDB to 
provide additional financing for further Chinese 
projects in Brazil. 
 
Potential Chinese investment in Santos Port 
--------------------------------------------- -- 
 
¶8. The Chinese Ministry of Transport signed an MOU 
for cooperation in planning and building ports in 
Brazil.  In particular, the Chinese government 
expressed interest in investing in the expansion 
project for Santos Port, Brazil's busiest container 
port. 
 
Satellite Cooperation 
--------------------------------------------- -- 
 
¶9. China and Brazil signed an MOU to provide free 
satellite images to three ground stations located in 
South Africa, Egypt and the Canary Islands.  China 
and Brazil have been cooperating on satellite 
projects for over 20 years.  The China-Brazil Earth 
Resources Satellite (CBERS) program is a 50/50 
partnership, dividing all expenses evenly from 
manufacture to launch.  Brazilian Emboffs stressed 
two important developments in this cooperation -- 
the decision to continue and expand the partnership 
and the steps to internationalize the program by 
providing both free images and technical know-how to 
African nations. 
 
Trade Imbalance and Trade Data 
--------------------------------------------- -- 
 
¶10. Brazilian Emboffs reiterated that Brazil 
continues to seek diversification of its exports and 
an increase in Chinese investment in Brazil.  They 
reported that the two sides reached an agreement on 
the methodology for calculating trade statistics. 
Currently Brazilian and Chinese trade data vary 
significantly due to different methods of 
calculating freight.  However, Brazilian Emboffs are 
confident that they have found a way to standardize 
their data.  Details of the new methodology should 
be available in July. 
 
Other Notable Investments 
--------------------------------------------- -- 
 
¶11. Brazilian Economic and Commercial Officer noted 
a few of the agreements reached by the visiting 
business delegation.  Wuhan Iron and Steel signed an 
MOU with Brazilian iron ore producer MMX Mineracao e 
Metalicos SA to build a steel plant in Brazil with 
an annual capacity of 5 million tons.  Chongqing 
Loncin, one of China's largest motorcycle companies, 
committed to building 200,000 units of motorbikes in 
Manaus, and Chinese automaker Chery announced plans 
to open a factory in Brazil.