effects of chinese growth on latin america: the brazilian experience of chinese growth on...
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Effects of Chinese Growth on Latin America: The Brazilian Experience
Henrique Meirelles
September 2005
Effects of Chinese Growth on Latin America: The Brazilian Experience
Henrique Meirelles
September 2005
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Brazilian Exports to China
Brazilian exports to China increased eightfold during the last 5 years.
3
Brazilian Exports to ChinaU
S$ b
illio
n
0
1
2
3
4
5
6
2005*2002 2003 2004200120001999
* 12 months through August
4
China’s Relative Importance as an Export Destination
Despite this sharp increase, however, China represented less than 6% of total Brazilian exports in 2004.
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Brazilian Exports by Market (2004)
USA20.8%
European Union25.0%
Latin America(Excluding Mercosur)
China5.6%
Others24.6%
Mercosur9.2%
14.7%
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Brazilian Exports
The increase in Brazilian exports to China has occurred in the broader context of robust Brazilian export growth to the rest of the world.
Furthermore, Brazilian exports to China appear to have lost momentum since mid-2004, with China’s share of total Brazilian exports peaking in 2003.
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Total Brazilian Exports Excluding China, and China’s Share of Brazilian Exports
7110
US$
bill
ion
50
60
70
Total Brazilian Exports, Ex-Chinaleft scale
China’s Share of Brazilian Exportsright scale100 6
905
804
%
3
2
40 1
30 0
1999 2000 2001 2002 2003 2004 2005*
* 12 months through August
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Composition of Brazilian Exports to China
Brazilian exports to China are extremely concentrated.
Soy and iron products accounted for roughly 66% of Brazilian exports to China in 2004/2005.
These two commodities represented less than 20% of Brazil’s total exports to the rest of the world.
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Brazilian Exports to China (Jan 04/Jul 05)
Soy37%
Other Products34%
Iron and Steel Products29%
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Commodity Prices Have Impacted Export Growth to China
The recent boom of Brazilian exports to China is partly attributable to the increase in commodity prices (particularly, soy and iron ore).
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Prices of Main Exports to China
Iron ore160
150
140
2000
=100
100
110
120
130
Soy
90
80
2000 2001 2002 2003 2004 2005*
* January-July average
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But Increases in Export Volumes Have Been Key Driver of Export Growth
Though important in explaining bilateral trade dynamics with China, the price effect is not the key driver of the overall Brazilian export dynamism.
Brazilian exports grew 96% in the last 3 years through July/2005, with 61% of that growth attributable to the increase in export volumes and 22% attributable to the increase in export prices.
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Decomposition of Total Export Growth (Aug 02/Jul 05)
96%100
80
61%60
%
40
22%20
0Total Volume
EffectPriceEffect
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Export Price Effect is Relevant in China Case, but Not in Global Context
In sum, export volumes – and not prices – explain the overall dynamism of Brazilian exports.
In the specific case of trade with China, the composition of exports (a larger share of primary products) partly explains the export boom of 2003/2004, but the price effect is usually exaggerated (and soy prices have fallen since mid-2004…).
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Estimating the Export Price Effect
Controlling for recent price effects by holding export prices constant at 2000 levels would result in a 30% reduction in Brazilian exports to China in 2005, but a reduction in total Brazilian exports of only US$1.8 billion, or less than 2%.
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Other Effects of Chinese Growth
There are also indirect effects of Chinese growth that bear consideration, such as its impact on world commodity prices, and the increase in exports to countries that are part of the Chinese supply and production chain (indirect exports to China).
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Brazilian Imports from China
Is there also a “Brazil effect” in bilateral trade?
Brazilian imports of Chinese products have also increased dramatically since mid-2003.
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Brazilian Imports from China
5.0
4.0
US$
bill
ion 3.0
2.0
1.0
0.01999 2000 2001 2002 2003 2004 2005*
* 12 months through August
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Brazilian Imports from China
The growth of Brazilian imports from China can be attributed to the rebound of the Brazilian economy since 2H2003 and to the appreciation of the Brazilian real vis-à-vis the Chinese renminbi, a consequence of the renminbi peg to the US dollar.
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Exchange Rates (R$/CNY and CNY/US$)
0.50 8.35
8.15
8.20
CN
Y/U
S$
0.20
0.25
0.30
0.35
R$/
CN
Y
0.40
0.45 8.30
8.25
8.10
8.05
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Sep SepJan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan00 00 01 01 02 02 03 03 04 04 05 05 00 00 01 01 02 02 03 03 04 04 05 05
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Bilateral Brazil-China Trade Balance
Since 2004, Brazilian imports from China are increasing at a faster pace than Brazilian exports to China, and as a result, the bilateral trade surplus has diminished.
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Bilateral Brazil-China Trade Balance
2.5
2.0
US$
bill
ion
0.5
1.0
1.5
0.0
-0.51999 2000 2001 2002 2003 2004 2005*
* 12 months through August
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Summary
In a nutshell, Brazil’s economic growth, efforts toward export diversification and trade deepening, and the effects of different exchange rate regimes seem to be more relevant than the “China Effect,” per se, in explaining recent Brazil-China bilateral trade dynamics.
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Effects of Chinese Growth on Latin America: The Brazilian Experience
Henrique Meirelles
September 2005
Effects of Chinese Growth on Latin America: The Brazilian Experience
Henrique Meirelles
September 2005