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China invests to win friends

Here along the golden sands that grace the Atlantic coastline 175 miles north of Rio de Janeiro, China is forging a new economic reality.

world Updated: Jul 30, 2010 00:48 IST

Here along the golden sands that grace the Atlantic coastline 175 miles north of Rio de Janeiro, China is forging a new economic reality.

Just past a port where workers are building a two-mile-long pier to accommodate huge vessels known as Chinamaxes that will transport iron ore for China’s ravenous steel industry, past berths for tankers to lug oil to Beijing, a city of factories is sprouting on the island.

Many of the structures will be built with Chinese investment: a steel mill, a shipyard, an automobile plant, a factory to manufacture oil and gas equipment.

The port project recalls the China of the past decade: a worldwide effort to extract resources for use in the country’s vast manufacturing sector. But the factory city represents something new: an aggressive push to invest in industries overseas to bolster the country’s image and political influence.

Call it “dollar diplomacy,” Chinese-style. The investments in Brazil reflect China’s “going out” strategy, which seeks to guarantee natural resources for development purposes and to shield the country’s state-owned enterprises from slower growth at home.

Flush with more than $2 trillion in foreign exchange reserves, China has directed its state firms to scour the globe for opportunities.

As it does so, China is playing by its own rules, giving its firms an edge over US and other multinational companies bound by internationally restrictions intended to promote fair competition.

In addition, Brazil and other developing countries, which once saw China as an ally, are now realising that Chinese companies are competing on their own turf for resources and market share.

In the first half of this year, China’s investment in Brazil topped $20 billion, more than 10 times all of China’s previous investment in the country. That puts China on track to be Brazil’s No. 1 investor for 2010, compared with 29th in 2009.

China’s investments are also booming elsewhere — from Peru, where one-third of the minerals sector is in Chinese hands, to Japan, where Chinese mergers and acquisitions quadrupled from 2008 to 2009.

Indeed, US analysts have written extensively on China’s support of Venezuela’s military, noted its bolstering of Cuba’s air defence systems and speculated about whether Chinese analysts have replaced Russians at three signals intelligence sites in Cuba.


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