Brazil to replace India as a manufacturing hub? China is pushing for it
Eye On ChinaOpinion

Brazil to replace India as a manufacturing hub? China is pushing for it

China has been increasing its trade with Latin American countries. Even individual Chinese provinces do more trade with the region than India.

File photos of Indian PM Narendra Modi, Chinese President Xi Jinping and Brazilian President Luiz Inácio Lula da Silva | Commons

File photos of Indian PM Narendra Modi, Chinese President Xi Jinping and Brazilian President Luiz Inácio Lula da Silva | Commons

Beijing has been elated at the election of Brazil’s new president Luiz Inacio Lula da Silva, with Chinese state media op-ed lauding his victory. But Beijing’s diplomatic push in the Latin American region expands beyond Brazil.

India should be watching the growing cooperation between China and Latin American countries closely as Beijing seeks to find partners who can replace New Delhi as the next major manufacturing hub.

“Since China, regardless of its foreign or domestic capital, cannot retain so many people in labour-intensive and energy-resource-intensive industries due to the changes in labour force structure and dual carbon policy, it is better to pass on some bilateral cooperation instead of letting them move to India. Or introduce a multilateral policy that encourages its relocation to Brazil,” wrote Di Dongsheng, associate dean and professor, international political economics/world economy, School of International Studies, Renmin University of China on the Chinese news site Guancha.

He added that in the long run, India is more likely to be China’s geopolitical rival and economic competitor compared to Brazil, which is “relatively harmless and primarily our strategic partner rather than competitor”.

Di isn’t alone in arguing that Beijing should establish a diplomatic footprint in Global South as the US’s presence grows weak. But the regions where Beijing wants to make inroads are the same countries that India also has ambitions of influencing.

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‘South-South cooperation’

Chinese President Xi Jinping’s recent forays into Central Asia give us an insight into the type of diplomacy Beijing wants to promote in 2023 and beyond.

On 24 January, Xi addressed the seventh Summit of the Community of Latin American and Caribbean States (CELAC) where his message was to promote better South-South cooperation.

“We highly value our relations with CELAC and take CELAC as our key partner in enhancing solidarity among developing countries and furthering South-South cooperation. That is why China has been working with LAC countries to steadily strengthen the China-CELAC Forum and take the China-LAC relationship into a new era characterized by equality, mutual benefit, innovation, openness and benefits for the people. More and more countries in the region have engaged in high-quality Belt and Road cooperation with China, supported and participated in the Global Development Initiative and the Global Security Initiative, and are working with China in building a China-LAC community with a shared future,” said Xi during his video address.

Beijing’s top trading partners in Latin America are Brazil, Chile, Mexico, Peru, Colombia, and Argentina. According to World Economic Forum (WEF) data, Beijing’s trade with Latin American countries has increased 26-fold to $310 billion, coming only second to the US. If the trade between the two regions continues on this trajectory, then Beijing could become the top trading partner of the region by 2035 — replacing the US.

As compared to China, India’s trade with Latin America stands at $18.9 billion in 2021-22 – an increase of 48 per cent from the previous year – with Brazil being the top destination.

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China’s new market

Chinese provinces are ramping up trade with Latin American countries to find new markets for their home-manufactured goods.

Jiangsu province alone has done business worth $54.7 billion with Latin American countries in 2022, with a year-on-year increase of 16.8 per cent. One of the key exports from Jintan Port in Jiangsu was solar cell modules and wind power equipment, which reflects the rising energy demands in Latin American countries.

Firms like Suzhou Tianshun New Energy Technology Co are trying to pioneer the supply chain of wind power generation as Brazil and Chile are showing high demand for alternative sources of energy.

Latin America is also a major destination of Chinese auto exports accounting for 1.98 million vehicles exported in 2021. The Latin American market combined makes up 26.19 per cent of the total export volume of the electric vehicle segment.

Chinese companies are filling the shoes of US companies that are leaving.

In October last year, BYD, a Chinese electric vehicle company, signed a letter of intent with the government of Bahia, a province in Brazil, to set up a production plant in an industrial area left vacant by the US auto giant Ford Motor Co.

BYD believes it can tap into the projected 10 per cent share of electric vehicle sales in Brazil by 2025 and the 30 per cent increase in the country by 2030.

Chinese state-owned enterprises are also scouring the mineral deposits in countries such as Bolivia, which has large lithium deposits. Contemporary Amperex Technology Co (CATL) has won a bid to develop Bolivia’s large lithium reserves.

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An alternative to the US

Besides the growing presence of Chinese businesses, Beijing’s lending to the region far outstrips the aid provided by leading international financial institutions.

“Since 2005, Chinese policy banks have provided more than $141 billion in loan commitments to Latin America—exceeding, in several years, the lending of the World Bank, the Inter-American Development Bank, and the CAF Development Bank of Latin America combined,” wrote Pepe Zhang in the Atlantic Council, a US-based think tank.

Beijing’s push for better relations with Latin American countries is driven by a need to secure future economic growth and mend fraying supply chains. The pitch to Latin American countries isn’t just one full of trade opportunities but the underlying promise of providing an alternative to the US and its institutions.

“China and Latin American countries need to fix their development priorities and coordinate their policies so that their partnerships can better serve both sides’ long-term interests,” wrote Yan Lun, a writer with China Daily.

Yan’s reference to ‘fixing their development priorities’ points towards Beijing’s wants to create economic interdependencies in a region increasingly disillusioned by the US-led order.

India will need to increase its strategic cooperation with the Latin American bloc to ensure Beijing can’t undercut New Delhi’s advantages in the Global South. It will have to compete with Brazil and Mexico for basing new manufacturing hubs, but the cooperation can benefit both New Delhi and Latin American countries through supply chain interdependencies.

New Delhi’s push for issue-based grouping is a welcome move, but in the era when geopolitical competition is around every corner, creative means to address the competition are necessary.

The author is a columnist and a freelance journalist. He was previously a China media journalist at the BBC World Service. He is currently a MOFA Taiwan Fellow based in Taipei and tweets @aadilbrar. Views are personal.

(Edited by Theres Sudeep)