chinese fdi in brazil a case study on chery · chinese fdi in brazil – a case study on chery...

Chinese FDI in Brazil – A Case Study on Chery

Andre Soares Research Coordinator – China Brazil Business Council

China: Brazil’s largest trading partner – US$ 75 B

in 2012

Brazil - China Economic Relations: a Deepening Trend

3,2 4,1

6,7 9,212,2 16,4

23,4

36,6

36,9

56,4

77,1 75,5

0

10

20

30

40

50

60

70

80

90

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: MDIC Preparation: CBBC

Chinese

Investments in

Brazil: 2007-2012 (june)

From Trade to Investment: the new dynamics

65%

35%

Number of Projects

Confirmed (39 projects)

Announced(21 Projects)

Total of 60 projects

36%

64%

Projects Value USD (million)

Confirmed(US$ 24.422 millions)

Announced(US$ 44.117 millions)

Totalof US$ 68.539

• Chinese outward FDI as a significant phenomena started in the 2000s; by

2010, China overttok Japan and became the fifth largest direct foreign

investor, with 5% of the global total (< 1% in 2007)

• Chinese investments in Brazil - 60 projects amounting to US$ 68.5 billion,

of which so far 39 were confirmed for US$ 24.4 billion

Source: CBBC´s consolidated list

The 2010 Leap

Why the surge in announced and confirmed investments?


4

12

21

14

18

3

1

13

912

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 (june)

Nu

mb

er

of

Pro

ject

s

Announced

Confirmed

75%

100%

50

%

62

%

64%

67

%

Drivers of Chinese Investments

After-effects of the Great Recession

U.S. and Europe less attractive targets

Brazil: Market and Production Platform

A new middle class;

Well-established industrial base

Chinese Internal Factors

Secure access to natural resources;

China will no longer be self-sufficient in food

Which Companies are Investing in Brazil?

• 44 Chinese companies have announced investments in Brazil

• 7 are part of a special group of SOEs (backbone of China's economy)

• Most projects (47 out of 60) have the government directly or indirectly as an equity partner


0

12

3

9

3

6

8

6

4

3 3 3

0

2

4

6

8

10

12

14

2007-2009 2010 2011 2012 (june)

Nu

mb

er

of

Pro

ject

sCentral SOE

SOE

Private

What determined entry?

Resource-seeking companies –

dominant in 2010 – were replaced

by market-seeking players in 2011


The entry mode: mostly greenfield investments

Often preferable:

creates new capacity;

demand for local

suppliers and jobs

(estimated at 20

thousand)


Sectoral distribution of investments

• Focus on manufacturing and regulated sectors (power);

• 2010 emphasis on natural resources appears to be one-off;

• Few investments in agribusiness;

• Recent inflows directed to services (financial).


43%

15%

14%

14%

14%

2007-2009

Automotive

Agribusiness

Telecommunications

Machinery and Equipment

Mining

24%

19%

14%

9%

9%

5%

5%

5%5%

5%

2010

Energy (oil and gas)

Mining

Automotive

Agribusiness

Construction Equipment

Banking

Education

Electrical Energy

Infrastructure

Steel

29%

15%

14%

14%

7%

7%

7%

7%

2011Automotive

Electronics

Machinery and EquipmentTelecommunications

Chemicals


Mining

Railway

17%

17%

17%17%

11%

5%

5%

5%6%

2012 (june)Automotive

Electrical Energy

Electronics

Machinery and EquipmentBanking


Infrastructure

Mining

Telecommunications

Chinese FDI in

Brazil’s

automotive sector

Sectoral distribution of investments

• Majority of projects in the automotive sector:


25%

75%

Automotive sector (16/63 projects)

$675,0

$1.941,5

Announced

Confirmed

Amount of US$ 2,16 billion in

announced investments


Trucks

Motorcycles

Cars

Chinese companies in Brazil

Year Chinese Company Partner in Brazil Brief DescriptionAnnounced Value

USD$

2007 Fei Ying Motor (FYM) - Construction of a motorcycle factory $3.000.000

2007Traxx - China South Industry

Corporation Group- Construction of a motorcycle factory $6.000.000

2008Traxx - China South Industry

Corporation Group- Expansion of a motorcycle factory $20.000.000

2010 Chery - Construction of a car factory with production capacity of 50, 000 units per year $400.000.000

2010Jianhuai Automotive Co.

(JAC)- Establish sales network to sell cars $200.000.000

2010 CR Zongshen - Factory installation to produce motorcycles under Kasinski brand $20.000.000

2011 Foton Aumark do Brasil - Installation of a truck factory $500.000.000

2011 Shineray - Construction of factory to produce motorcycles $50.000.000

2011 JAC SHC Construction of a car factory with production capacity of 100, 000 units per year $500.000.000

2011 Lifan Grupo Effa Construction of a factory with initial production capacity of 10,000 cars per year $100.000.000

2012 Shaanxi Automobile Group (SAG) - Installation of an assembly plant to produce trucks with 10,000 units capacity $500.000.000

2012Shiyan Yunlihong Industrial and

Trade (arm of Dongfeng Motor

Corporation)

- Construction of factory for trucks and light commercial vehicles $92.500.000

2012Changan International

Corporation - Construction of an automobile factory $75.000.000

2012 Sinotruck Construction of a car factory with production capacity of 8,000 units per year $150.000.000

2012 Great Wall Latin American Motors (LAM) Construction of a car factory -

2013 Geely Grupo Gandini Establish sales network to sell cars -

Investments announced

In 2012, China had over 80 million registered vehicles (compared to five million in 1990) and its annual sales reached the level of 19 million cars.

9,4

13,6

18,1

18,519,3

0,0

5,0

10,0

15,0

20,0

25,0

2008 2009 2010 2011 2012

Source: CEIC

Chinese automotive market

Chinese automotive market

It is important to draw attention to two aspects regarding independent automakers: development of own brands and products

and decision- making autonomy

Independent Automakers

Founded in 1997, Chery Automobile Ltda. is the largest independent automaker in China. Headquartered in the city of Wuhu, Anhui

Province, Chery is present in 80 countries, has 15 production units and employs approximately 25,000 employees worldwide.

Chery Motors

Chery is the first Chinese automaker to invest in building a factory in Brazil. The start-up is scheduled for 2013 and the annual production capacity will be 150 to 170 thousand units.

With future installation in Jacarei, São Paulo state, the unit project will be fully funded by the Chery, with total investment of $ 400 million, according to the overall plan.

The plant will be located in an industrial park, with an area of 1,000,000 m2.

Chery will hire 1500 employees to work in the factory

The project includes a CKD factory with 30% of local content

Chery investment plans in Brazil

Elaboração: CEBC

Minicars

Selling price in China

30 pp increase in IPI Requirement of 65% of local content New legislation: Inovar-Auto

New regulation in automotive sector

in Brazil

Unidades

Change the leadership, bring a Chinese to become president of the

operation in Brazil

Bring local suppliers from China to produce at the new factory

“Chery Day” -> Select local suppliers in order to meet the local content

requirements -> stamping, bumpers, wheels and electric cables.

Work with MNE companies that already supply parts and components for

Chery in China: Bosch, Delphi e Magneti Marelli

Accelerate the construction of the Production Plant, bringing the structure

from China

First Chinese company approved by the new Inovar-Auto policy:

Invest 0,15% of revenue in R&D

Invest 0,5% of revenue in Engineer and Local Suppilers development

Chery´s reaction to the new policy

Thank you

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