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ago 09, 2017

China wants to strengthen Brazil ties, investing heavily in the energy sector

China and Brazil could make for excellent business partners, Chinese investors are realising. Most recently the two countries have been solidifying their mutual interests through a series of Chinese investments in the Brazilian energy sector. Brazil’s energy sector is promising ground for China to make profitable investments in the near future, as China expands its presence in Latin American and African countries.

China’s recent moves in Brazil include a 54.64% stake in CPFL Energia for State Grid, a deal which the Chinese company spent $4.5 billion securing. Meanwhile, China Three Gorges has also recently acquired Portuguese firm EDP and US-based Duke Energy’s assets in the Brazilian energy sector. Additionally, Shanghai Electric has acquired the right to build a series of broadcasting works in Rio Grande do Sul, formerly owned by Eletrosul.

For China, such investments offer the opportunity to provide Chinese equipment to its companies working in locations abroad. This means that China could generate employment back in China too, further stimulating its domestic economy in addition to international investments.

Adriano Pires, director of the Brazilian Center for Infrastructure (CBIE), told the Brazilian press that the fact that state-owned Chinese firms, rather than private corporations, are investing is a positive sign for both partners. China State Grid is already one of the largest foreign companies operating in Brazil.

The virtue of being state-owned means that China sees the potential for its investments to empower both countries’ economies rather than seeking short-term returns, according to Pires. "They have money left over and have an expansion plan for countries in Latin America and Africa to have a strategic position from the standpoint of power," he said.

Chinese acquisition ventures have so far made progress within energy generation, transmission and distribution. Among recent purchases are an energy plant from São Paulo state energy company Cesp, and eyes are on the company that controls large parts of Rio Grande do Sul’s energy, CPFL.

China’s State Power Investment Corporation (Spic) is one of the firms showing most interest in Rio Grande do Sul’s assets. The plant in question is worth an estimated 9 billion BRL, although the disbursement is expected to sit at a much lower cost of between 6 and 7 billion BRL. The remaining amount would be linked to fulfilling performance goals, and would be paid in instalments. State Grid, meanwhile, is looking at RGE and RGE Sul.

Shanghai Electric will also be beginning a series of energy projects in Rio Grande do Sul. In June, Eletrosul and Shanghai Eletric signed a preliminary agreement for the total transfer of a set of projects, budgeted at 3.27 billion BRL. Among the projects, there are plans to lay down 1.9 thousand kilometers of power transmission likes in the state as well as to create seven new substations and expand the 16 existing substations.

Chinese firms are increasingly expressing interest in green energy investments in Brazil as well. In the state of Minas Gerais, the Chinese renewable energy technology firm BYD Energy has announced plans to invest 150 million BRL. BYD Energy is the renewable energy division of BYD, the world’s largest producer of rechargeable batteries.

The company will build a factory for producing its solar panels in Campinas, creating 360 local jobs and with a production capacity of 200 megawatts. The investment will create the first zero emissions energy ecosystem in Brazil, with a factory producing high quality Double Glass solar panels. The product itself is notable for its increased energy production: Double Glass creates 7 percent more energy than traditional solar panels, and is more durable with a lifespan of up to 50 years.

The Minas Gerais plant, however, is not BYD’s only investment in Brazil. The firm has also invested to produce electric bus chassis – in partnership with Brazilian companies Caio and Marcopolo. BYD will be able to produce 720 electric bus chassis every year.

In an official statement, Tyler Li, General Manager of BYD Brazil and President of BYD Energy do Brasil, explains why the company set foot in Brazil. “With local production, we will help consolidate the distribution and generation markets,” he added.

Further proof of future cooperation between Brazil and China is the recently launched Brazil-China Cooperation Fund. Led by the Secretariat of International Affairs of the Ministry of Planning and the Chinese Cooperation Fund for Investment in Latin America (Claifund), the Fund will enable financing for around $20 billion of investment projects in Brazil. Priority will be given to projects linked to infrastructure, logistics and energy.

Artur Lemos Júnior, secretary for Mines and Energy of Rio Grande do Sul, says that China holds great potential as a future partner for Brazil because of its innovation. “Why China? Because China is the country which emerges from the work of carbochemistry,” he told the press. With Brazil’s natural resources and China’s production capacities, the partnership could go a long way for both countries.