Little by little, and following 10 months of negotiations, authorities from China and Brazil eliminated such conditions as employing Chinese workers and machinery on Brazilian infrastructure projects that will be funded by a new US$20 billion fund. These are some of the details revealed to Diálogo Chino in an exclusive interview with Jorge Arbache, secretary of international affairs at the Brazilian Ministry of Planning, who participated in negotiations for the new export promotion platform known as the China-Brazil Cooperation Fund for the Expansion of Production Capacity.
With China contributing US$15 billion, the fund’s bipartisan council received its first proposal letter on June 26. Arbache says that there is already “a queue of projects” interested in receiving financing, but added that it would be discourteous to his Chinese counterparts to disclose what they were. The secretary admitted that the greatest number of inquiries made up to this point were in the area of infrastructure and assured that these would be subject to environmental rules. At the same time, he believes that the Brazilian Congress may be making environmental regulations more flexible to facilitate business with foreign countries, including China.
On June 17, representatives from 35 business groups in China met with Brazilian government authorities to learn more about the fund’s possibilities. The greatest interest was in oil, gas, energy, and railroads. Brazilian ministers also offered the possibility of projects in the areas of solid waste, highways, urban mobility, and industry. Chinese ambassador to Brazil Li Jinzhang, who was at the meeting, said that the cooperation fund “should serve as a reference for other Latin American countries”.
Diálogo Chino (DC): Who decides where the money from the fund goes?
Jorge Arbache (JA): Let’s suppose a hypothetical case: a Chinese paint company wants financing from the fund. It submits a proposal letter to the fund, in a clear and transparent manner. The team (comprising three Chinese and three Brazilian members and their respective technical teams) will analyse the project and draft a report. The project will be submitted to the board of directors, where three deputy ministers from each party will make an assessment and decide whether or not to grant official support to fund that project. If it receives official support from the fund, this will be sent to the banks for economic and financial evaluation, and then will continue to the banks’ operating policy. On the Chinese side, Claifund (the Chinese-Latin American Investment Fund) and the Brazilian side, preferably Caixa and The National Bank for Economic and Social Development (BNDES) have specialised teams to deal with this fund. They will conduct an economic/financial analysis, the Chinese and Brazilian sides will interact, analyse the risk, and return to decide whether to finance, create equity, make a mix, and what the fee and conditions will be.
DC: Are there already interested parties? Where are they from?
JA: There is already a queue of projects. We have received informal consultations, but out of respect for our Chinese counterparts, we have not entered into details. The consultations have come from both by the Chinese side and the Brazilian side and from Brazilian banks. It is very likely that we will have quite a number of interesting projects funded. We do not have the slightest doubt of that.
DC: Is the interest greater on the Chinese side?
JA: From the informal consultations we have received up to now, I would say that it is half and half. Today, for example, several large companies from China have shown interest in the fund. We cannot yet be precise about the amounts because we haven’t started the analysis, but I believe that there will be a large volume of resources for the projects that will be undertaken.
DC: When will the fund begin to function in practice?
JA: It is possible that it may start next week. Some small details are still lacking, with regard to procedure, nothing more is being discussed, there is a lack of detail on procedure, but nothing that will lead to delays.
DC: Is China’s greatest interest railroads and ports?
JA: No. The areas the fund will cover were defined: infrastructure, manufacturing, technology, and agribusiness. There is no priority. If you ask which area has more projects, I would say that it is likely to be infrastructure because the business opportunities here are very large. It is likely that there will be more projects in this area, at least in the beginning. This is only a feeling. From the inquiries we have received, we can perceive that this is an area where there is a lot of interest.
JA: No one has addressed this matter, not today or at any other time. So I can’t say.
DC: What environmental provisions are there in the fund?
JA: The rules that apply are the rules of Brazilian law. They will need to be met, including the issue of licensing. Just because [a project] belongs to the fund [it does not mean that] there will be special treatment. There will not be. What the government is very actively seeking is the modernisation of the regulatory framework, whether related to the environment, labour, social security, all of this is underway, but there are no privileges for any projects financed by the fund.
DC: Either way, Congress will “flexibilise” those rules … (environmentalists are afraid Congress is to loosen environmental legislation after the President vetoed measures aimed at reducing preservation areas)
JA: Yes, that’s true.
DC: And would you say that this “fliexibilisation” results from Chinese (in developing projects in Brazil)?
JA: At a guess, I would say yes. You facilitate the conditions for doing business and licensing affects Chinese, American, Brazilian decisions. I would tend to say yes.
DC: Is the fund a demonstration of increased Chinese interest in Brazil?
JA: I have no doubt. It demonstrates Brazil and China drawing closer through the economy, through business, through the politics, and this is very positive. The fund would not have happened had not been this perception of the need for the two nations to draw closer. The two nations have a lot to do together, there are many promising opportunities with mutual benefits, and this is what allowed this fund to be created and developed and enter into operation.
DC: Was the fund was created during the current Brazilian administration or before it?
JA: When Premier Li Keqiang was here in 2015, there was talk of creating a US$50 billion fund, but it was unilateral. The idea did not take off and remained dormant. In August last year, this government returned to the issue with a different perspective: a bilateral fund, with peer-level decisions, we removed the previous conditions such as the need for Chinese companies to participate and the purchase of Chinese equipment, this all was left behind.