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Sino-Brazil Leadership Summit – 2023

Sino-Brazil

Summit - 2023

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While not as closely watched as the recent summit in Moscow, where President Xi tacitly threw his weight behind Russia and its SMO in Ukraine, Brazil’s newly (re)elected President Lula da Silva’s recent state visit to China was in many respects much more significant, as it further pulls the US’ most powerful Latin American ally away from its sphere of influence and into China’s orbit.

SINOLOGIX Staff

www.sinologix.io

info@sinologix.io

2023-04-19

China - Brazil Summit - 2023

Executive Summary

In many respects, the April meeting between senior Chinese and Brazilian political and business leaders in Beijing and Shanghai was President Lula da Silva’s showcase – his return to power on January 1^st, 2023 after more than a decade in political exile, including 20 months in prison, was in itself a remarkable comeback. But the prior four years of Jair Bolsonaro’s ultra-conservative presidency also set back relations with both Washington and Beijing, and Lula, as he is affectionately referred to by his supporters, has been tasked with rebuilding relationships with his main political and trading partners, while at the same time asserting a delicately balanced “política externa ativa e altiva” (active and proud) foreign policy. To that end, this visit to China was as much about the intangible messages he broadcast to the world as it was about the specific agreements that were inked in Beijing and Shanghai.

Coming on the heels of his recent visit to Washington, this trip was first and foremost a clarification of Brazil’s pivot to an “active nonalignment” strategy. Not unlike Saudi Arabia’s Mohammed bin Salman (MbS), Lula is seeking to maintain the political benefits of US support for his administration, while enhancing the economic benefits that accrue from China, Brazil’s largest trading partner.

Neither of those relationships is perfect and both are further complicated by the growing animus between the US and China – Presidents Biden and Xi are both looking for support of their respective policies and initiatives. The US wants unequivocal support for its position on the Russian-Ukraine War, as well as sanctions against Russia. Lula’s condemnation of Russia’s SMO juxtaposed against his call for a negotiated peace settlement has frustrated Washington. China has a broad range of objectives that include support for dollar-independent trading, lock-ins for its food security strategy and possibly circumventing some of the semiconductor sanctions recently imposed by the US on Chinese tech companies.

Brazil’s economic relationship with China has been oddly asymmetrical – Brazil maintained a surplus of $29.8 billion out of their combined $152.8 billion bilateral trade in 2022, but much of that was in the form of agricultural products (mostly soy) and mineral resources, while China’s $61.5 billion in exports to Brazil have been primarily value-added finished goods. Brazil desperately needs to shore up its industrial base and luckily enough, China has indicated a willingness to invest in Brazil’s manufacturing sectors, notably semiconductors and autos. This may actually pose a problem for Brazil, as the US has already expressed concerns about China’s semiconductor footprint outside mainland China.

Brazil Exports/Imports to/from China (billions) (2011-2021)

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Brazil Exports/Imports to/from China (billions) (2011-2021)

Data Source – World Bank

Any positive breakthroughs in the two countries’ economic relationship will have an ancillary benefit for Lula on the domestic front – he needs to reassure supporters of former President Bolsonaro that he has their economic interests in mind, as many Brazilian business leaders are decidedly conservative.

As we’ve discussed in a recent series on the nascent “de-dollarization” trend, the BRICS countries are leading the charge among members of the so-called “Global South”. While there isn’t an absolute repudiation of the USD, there is a growing consensus that international trade should be settled in local currencies. As a member of the BRICS, Brazil serves as an leading indicator of momentum for the non-dollar movement.

In this analysis, we examine the current state of affairs regarding Brazil’s nuanced relationship with the US and China, its emerging strategy of active non-alignment, the economic framework between Brazil and China that existed prior to the recent April meetings in Beijing and Shanghai, domestic economic and political factors that Lula needs to address, and the outcomes from this latest trip, as measured in trade, investment and technology agreements, as well as two visible events on the summit calendar:

Former Brazilian President (and Lula political ally) Dilma Rousseff inauguration as the incoming president of the New Development Bank (NDB), the BRICS’ answer to the Asian Development Bank and the World Bank.
Lula’s very conspicuous visit to Huawei’s innovation center in Shanghai, which was close to a slap in the face for US sanctions against the Chinese telecommunications company.

While not as closely watched as the recent summit in Moscow, where President Xi tacitly threw his weight behind Russia and its SMO in Ukraine, we believe Lula’s trip to China in many respects is more significant, as it further pulls the US’ most powerful Latin American ally away from its sphere of influence and into China’s orbit.

Perhaps the most telling indicator of the value both parties attach to their relationship was their formal ceremony in Beijing on April 14^th, where President Xi warmly referred to Lula as “my old friend” (我老朋友) and credited him with creating the close relationship between the two countries.

The counterpoint to their mutual regard for each other was Lula’s pointed remarks during the inauguration of Ms. Rousseff as the president of the NDB, where he called for the end to the dominance of the USD and criticized the IMF’s conditionalities attached to bailout loans provided to neighboring countries like Argentina.

The statements by both leaders speak volumes about the rapidly changing political dynamics on the global stage, where President Xi has consistently earned kudos for his diplomatic achievements in Latin America, Saudi Arabia, Iran, and other BRI-partner countries, in contrast to the declining relations between the US and several of its long-term partners, such as Mexico and Saudi Arabia.

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Summit Details

Background - US – Brazil Relationship

During Lula’s first term as President (2003 – 2010), Brazil’s relationship was characterized by a mixture of cooperation and distrust. The two countries collaborated on various initiatives, including biofuels production, HIV/AIDS prevention, and disaster relief. However, the US was cautious about Lula’s intentions, particularly given his ties to leftist movements in Latin America.

The relationship between the US and Brazil shifted significantly during Jair Bolsonaro’s 1st term (2019 – 2022). Bolsonaro, an outspoken admirer of former US President Donald Trump, sought to align Brazil more closely with the US. His administration supported Trump’s policies in the region, including the recognition of Juan Guaidó as Venezuela’s legitimate leader. However, Bolsonaro’s handling of the COVID-19 pandemic and controversial environmental policies strained the relationship with the US, particularly during Joe Biden’s presidency.

Lula’s second term, inaugurated on January 1, 2023, has seen a recalibration of Brazil’s foreign policy, with an emphasis on his concept of neutral and independent “active non-alignment”.

Biden and Lula held a one-day meeting in Washington on January 6, 2023. Other than general discussions of a global sustainability fund, UN Security Council reforms, and Lula’s proposed peace initiative regarding the Russian-Ukraine War, nothing substantive came out their meeting.

It was cordial but lacked any substantive breakthroughs that characterized Lula’s visit to China three months later. A press release [link] summarized the four topics covered in their meeting:

Global Climate Change: Both leaders pledged to work together on climate change and agreed to create a Global Sustainability Fund, with an initial commitment of $2 billion from Brazil and $3 billion from the United States.

United Nations Security Council Reforms: Lula expressed Brazil’s interest in obtaining a permanent seat on the UNSC, which Biden declined explicitly endorse.

Russian-Ukraine War: Lula reiterated his proposed negotiated peace settlement, which fell short of the US request for military and financial support to Ukraine. Lack of agreement on this issue highlighted the sharp contrast between the respective positions of the US-NATO bloc and the Global South.

Trade and Investment: The two presidents expressed their desire to expand bilateral trade and investment. This was likewise in sharp contrast to the extensive trade agreements and MoU’s signed by China and Brazil in April.

The brief, one-day meeting showcased Brazil’s desire to maintain good relations with the United States while pursuing a more independent foreign policy. The lack of any substantive outcome is indicative of a US foreign policy that is decidedly less focused than that of China.

US trade with Brazil over the last 10 years has been relatively stable, with an average of around $59.8 billion per year between 2011 and 2020 – less than 40% of the total bilateral trade between China and Brazil in 2022.

Background – Sino-Brazil Relationship

The historical economic and political relationship between China and Brazil has had its share of ups and downs, with distinct phases marked by the presidencies of Lula, Bolsonaro, and Lula’s second term. These phases saw shifts in political alignment, trade dynamics, and expectations for the future of the partnership.

Relationship with Lula – 1st Term (2003 – 2010)

During Lula’s first term, China and Brazil forged strong ties, as both countries recognized benefits in collaborating on trade, investment, and technology. The two nations became strategic partners in 2004 and further elevated their relationship to a comprehensive strategic partnership in 2012. This period witnessed steady growth in trade, with China becoming Brazil’s top trading partner in 2009, surpassing the US.

Relationship with Jair Bolsonaro – 1st Term (2019 – 2022)

Bolsonaro’s presidency was marked by a more adversarial relationship with China, driven by his opposition to China’s socio-political model. Despite the political tension, Brazil’s strong agricultural exports to China continued, as China sought to balance its rocky relationship with Bolsonaro and find alternatives to the US food supply during the Trump administration. In this context, China opted for a strategy of waiting out Bolsonaro’s term until the 2022 elections, maintaining economic ties without deepening political cooperation.

Relationship with Lula – 2nd Term (2023 – present)

The Chinese government has had high expectations for Lula’s return to power. It perceives Lula’s second presidency as a major opportunity to enhance bilateral ties and expand cooperation in various sectors.

Strengths/Positives of Sino-Brazilian Relationship

Notwithstanding the difficulties encountered during the Bolsonaro administration, trade between the two countries has grown exponentially, with China becoming Brazil’s largest trading partner. The partnership has also spurred cooperation in technology, including space, agriculture, and renewable energy. Furthermore, the growing political and economic footprint of the BRICS group has facilitated increased collaboration and solidarity between both countries.

Challenges of Sino-Brazilian Relationship

Despite their growing economic ties, the China-Brazil relationship has faced persistent challenges. Brazil’s domestic industrial sector has struggled to compete with cheap Chinese imports, which has led to job losses and increased pressure on Brazilian manufacturers. Additionally, Brazilian businesses have faced difficulties penetrating China’s markets, often encountering regulatory barriers and strong competition from Chinese firms.

China Trade with Brazil

Over the last 10 years, trade between China and Brazil has been robust, averaging approximately $100 billion per year. In recent years, the trade balance has tilted in Brazil’s favor – in 2022, Brazil’s exports to China totaled $91.3 billion, while China’s exports to Brazil totaled $61.5 billion. Brazil mainly exports agricultural products and mineral resources, such as soybeans, iron ore, and crude oil, while China exports manufactured goods, including electronics, machinery, and textiles, to Brazil.

Chinese foreign direct investment (FDI) in Brazil is critically important to Lula, as Brazil has contended with a declining industrial base in recent years. FDI was severely disrupted during the COVID crisis, but has since rebounded – in 2021, Chinese companies invested $5.9 billion in Brazil, up 208 percent since 2020. Of note – in 2021, the Chinese auto manufacturer Great Wall purchased the Mercedes plant in Sao Paolo, marking its first major manufacturing investment in the Western hemisphere.

Brazil Exports to China (billions) (2011-2020)

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Brazil Exports to China (billions) (2011-2020)

Data Source – World Bank

Brazil Imports from China (billions) (2011-2020)

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Brazil Imports from China (billions) (2011-2020)

Data Source – World Bank

Memorandums of Understanding

This state visit represented the most expansive set of agreements to date between China and Brazil, reflecting their commitment to deepening economic ties and cooperation in various sectors. The most important trade agreements and MoU’s are summarized below:

Agricultural Cooperation and Trade – expands bilateral trade in agricultural products and promotes cooperation in agricultural technology and innovation. This agreement is expected to increase agricultural exports from Brazil to China, particularly in soybeans, beef, and poultry, with an estimated value of over $30 billion annually.

Investment Promotion and Protection – creates a framework for promoting and protecting investments between the two countries. It is expected to enhance bilateral investment flows, particularly in the infrastructure, energy, and manufacturing sectors.

Infrastructure Cooperation – promotes collaboration in planning, financing, construction, and operation of infrastructure projects in both countries.

Energy Cooperation – promotes collaboration in exploration, production, and distribution of oil and natural gas, as well as development of renewable energy technologies. It is intended to attract significant investments from Chinese energy companies, contributing to Brazil’s energy security and sustainable development.

Mining Cooperation – fosters collaboration in exploration, extraction, and processing of mineral resources, as well as promoting sustainable development in the mining sector.

Industrial Cooperation – promotes joint investment, technology transfer, and capacity building in various industrial sectors, including automotive, aerospace, and electronics.

Space Cooperation – enhances collaboration in space science, technology, and applications, such as satellite communication, Earth observation, and space exploration. This MoU includes provisions for joint research, technology development, and the exchange of experts and data.

Education and Cultural Exchange – promotes cooperation in higher education, language training, and cultural exchange programs. This MoU establishes joint educational programs, scholarships, and research initiatives, benefiting students and researchers from both countries.

Health Cooperation – enhances collaboration in public health, health care services, medical research, and the development of health technologies.

Tourism Cooperation – promotes cooperation in the development of tourism infrastructure, marketing, and the exchange of best practices in the tourism sector.

Environmental Cooperation – enhances collaboration in environmental protection, biodiversity conservation, and climate change mitigation.

Science, Technology, and Innovation – promotes joint research, technology transfer, and innovation in areas such as biotechnology, nanotechnology, and information technology. It also establishes programs for joint research centers, technology parks, and innovation hubs.

While many of these agreements are aspirational in nature, they are expected to have a significant impact on trade, investment, and cooperation between the two countries, potentially attracting billions of dollars in Chinese investment and creating new opportunities for Brazilian companies in the mainland Chinese market.

Other Trade Agreements

In addition to the high-level MoU’s, 20 trade agreements were inked across a broad range of sectors, including:

Renewable energy project to refurbish components of Brazil’s largest hydroelectric power station (China State Grid – Itaipu Hydroelectric Power).
Decarbonization projects for Brazil’s steel industry (Baoshan Iron and Steel).
Financing for social housing projects in Brazil (CITIC Construction – ETERC Engenharia).
5G infrastructure build-out projects (ZTE – Unifique).

ZTE’s support for Brazil’s 5G telecom infrastructure is noteworthy, as the US banned the import of ZTE’s technology into the US in 2022 over security concerns. The US has been actively trying to discourage its international partners from using Chinese telecom solutions, so this decision will no doubt spark some level of consternation in Washington.

Huawei Visit

In addition to the formal meetings with President Xi in Beijing, Lula took time out to meet with senior technology executives at the Huawei Innovation Center in Shanghai, including CEO Ren Zhengfei and Deputy Chairman Ken Hu. The visit underscored the importance of Huawei’s investments in Brazil and the growing technological cooperation between the two countries.

The Huawei Innovation Center in Shanghai is a state-of-the-art research and development facility, focusing on cutting-edge technologies such as 5G, artificial intelligence, cloud computing, and IoT. The center is a hub for collaboration between Huawei and leading research institutions, universities, and industry partners, aimed at driving innovation and fostering the development of next-generation digital solutions.

Huawei has been investing in Brazil since the early 2000s and has established a major presence in the country’s telecommunications, information technology, and electronics sectors. The company has set up research and development centers, manufacturing plants, and local offices, employing thousands of Brazilian tech professionals – it is considered a major contributor to the country’s technological development.

In particular, Huawei’s Involvement with the 5G Infrastructure in Brazil Huawei has played a crucial role in the development of Brazil’s 5G infrastructure. During Lula’s visit to the Huawei Innovation Center, the company announced its plans to continue investing in Brazil’s 5G infrastructure and expand its collaboration with Brazilian partners.

Notwithstanding, the US has long been concerned about the security risks associated with Huawei’s technology, arguing that its close ties with the Chinese government could expose countries using its technology to espionage, cyberattacks, and other security threats. As a result, the US has banned the import of Huawei technology and has actively lobbied its allies and partners to exclude Huawei from their 5G networks.

In that respect, Lula’s visit to Huawei was a clear signal of Brazil’s intention to continue engaging with the Chinese tech giant despite US objections. The visit demonstrated Lula’s commitment to fostering deeper technological cooperation between China and Brazil and his willingness to defy US pressure on the issue. Lula’s decision to visit the Huawei Innovation Center can be seen as a strategic move to strengthen Brazil’s ties with China, attract more Chinese investments, and diversify Brazil’s technological partnerships.

Currency Agreements

In recent years, both China and Brazil have sought to diversify their currency arrangements and reduce their dependence on the USD for international trade. Lula’s state visit to Beijing marked a significant step forward in achieving greater currency autonomy for both countries.

Earlier this year, China and Brazil reached a series of currency agreements aimed at facilitating trade settlement in local currencies – the Chinese renminbi (RMB) and Brazilian real(BRL). These agreements were designed to simplify cross-border transactions, reduce exchange rate risks, and lower transaction costs for businesses in both countries.

During Lula’s state visit, the two countries signed additional currency agreements that are expected to boost bilateral trade and investment by making it even easier for companies in both countries to settle transactions in RMB and BRL. Companies in China and Brazil can now avoid the costs and risks associated with converting their currencies into USD for international trade. This can lead to more efficient pricing, lower transaction costs, and increased competitiveness for businesses in both countries.

Another key outcome was the establishment of a currency swap agreement between the People’s Bank of China (PBOC) and the Central Bank of Brazil (BCB). Under the terms of this agreement, the two central banks will be able to exchange their local currencies for short-term liquidity purposes. The currency swap arrangement has a total value of up to $30 billion, making it one of the largest such agreements between China and a Latin American country.

The currency swap agreement between China and Brazil is a significant milestone in their efforts to reduce their reliance on the USD and promote financial autonomy. While the US dollar remains the dominant global reserve currency, the growing use of local currencies for trade settlement between China and Brazil signals a shift in the balance of economic power and the potential for greater currency diversification in the future.

New Development Bank

Finally, Lula’s visit was capped by the inauguration of Dilma Rousseff, the former President of Brazil (and his close ally), as the head of the New Development Bank (NDB). This appointment marks a new era for the bank and highlights the strengthening ties between China, Brazil, and the other BRICS nations.

Established in 2014 by the BRICS countries (Brazil, Russia, India, China, and South Africa), the NDB was chartered with financing infrastructure and sustainable development projects in emerging economies. The bank has grown significantly since its inception, with over $24 billion in assets as of December 2021. While the World Bank remains a much larger institution, with over $500 billion in assets, the NDB is an important financing alternative for countries in the Global South, offering them greater flexibility and autonomy in pursuing their development goals. And unlike the IMF, it does not impose hard “conditionalities” to privatize public services as part of its loan agreements.

The NDB has financed numerous projects in member countries, focusing on areas such as transportation, renewable energy, water supply, and sanitation. Some recent projects funded by the NDB include a $300 million loan for the construction of the Ituango hydropower plant in Colombia, a $180 million loan for the development of the Durban Container Terminal in South Africa, and a $350 million loan for the expansion of the Delhi Metro Rail network in India. By funding these projects, the NDB is playing an essential role in addressing the infrastructure gap in developing nations and fostering economic growth in the Global South.

Dilma Rousseff’s appointment as the head of the NDB carries significant implications. As a key figure in Brazil’s Workers’ Party and a close ally of Lula, her leadership may signal a more progressive and collaborative approach to the bank’s operations. Rousseff’s appointment could also encourage the NDB to prioritize projects in line with the progressive policy goals shared by both Brazil and China, such as reducing income inequality, promoting sustainable development, and addressing climate change.

The appointment of a Lula ally at the helm of the NDB further strengthens the bond between China and Brazil, showcasing their commitment to forging a more equitable and inclusive global financial system. As the NDB continues to grow and finance development projects around the world, Rousseff’s leadership is expected to enhance the bank’s ability to address the unique challenges faced by countries in the Global South and support their efforts to achieve sustainable and inclusive economic growth.

SINOLOGIX Analysis

Dollar Independence Gains Traction

President Lula da Silva’s trip was properly focused on re-establishing good relations with Brazil’s most important trading partner. But woven throughout the meetings with political officials in Beijing was an unequivocal message for the US – two key members of the BRICS group are clearly focused on upending the USD’s role as the de facto reserve currency for global trade. Although couched in terms of risk mitigation, there can no mistake that China is actively advocating for a new currency to support the interests of the Global South, be it the renminbi or an entirely new currency, as has been proposed by Vladimir Putin.

The decision to delegate the NDB presidency to one of Lula’s closest political allies was no doubt intended to emphasize the value China places on the relationship with its Latin American partner – and make no mistake, although BRICS members have equal voting rights on decisions related to the NDB, China’s influence was clearly evident in the choice of Ms. Rousseff as the incoming NDB president.

Perhaps more important than Ms. Rousseff’s new position were President Lula’s comments during her inauguration – he made it abundantly clear that the Global South is increasingly ready to flex its muscles in terms of trade settlement, as well as funding for its members infrastructure projects – while the NDB is still relatively small compared to the World Bank, it has a more “user-friendly” business model compared to that of the World Bank and its enforcer, the IMF.

Again, dollar independence is an aspirational goal that will take years to achieve. But as we’ve previously noted, the near-term significance is not the financial impact for the US and debt financing, but rather, the collective ability for designated adversaries of the US to circumvent sanctions. For when a critical mass of the world’s largest economies are no longer wholly dependent on the USD, sanctions will hit Teflon targets.

A Clear Message Regarding Chinese Tech

As far as the US is concerned, Lula’s visit to the Huawei innovation center in Shanghai sent an unambiguous message to Washington that Brazil can no longer be counted on to toe the line in support of US sanctions against Chinese tech companies. Brazil is moving forward with its rollout of Huawei’s 5G network, security concerns be damned.

There is no question that the October 2022 sanctions against China’s semiconductor sector, as well as ongoing sanctions against Huawei and ZTE, have had a dramatic effect on China’s progress in the development of sub-10nm chip design and manufacturing. But it’s worth noting that the government and commercial sector has long anticipated a clampdown on access to EDA software, advanced lithography equipment, and other key technologies. China is in scramble mode right now – but the convergence of domestic research and support from countries such as Brazil may facilitate breakthroughs in spite of US efforts to choke off China’s ability to develop advanced AI capabilities.

Takeaways

The takeaways from the Sino-Brazil summit are less about the tactical MoU’s and trade agreements and more about visible steps forward on the part of China and its partners to break free of what they perceive to be US hegemony. This is not an overnight process, but the summit in Beijing was a major step forward for both countries – Brazil has resurrected its role as “an old friend” of China and China has re-established support for its expanding role on the world stage.

NOTES

References and Disclaimers

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Works Referenced

Berg, Ryan C., and Carlos Baena. “The Great Balancing Act: Lula in China and the Future of U.S.-Brazil Relations.” CSIS, https://www.csis.org/analysis/great-balancing-act-lula-china-and-future-us-brazil-relations.

Brazil, U.S. Mission. “Joint Statement Following the Meeting between President Biden and President Lula.” U.S. Embassy & Consulates in Brazil, 11 Feb. 2023, https://br.usembassy.gov/joint-statement-following-the-meeting-between-president-biden-and-president-lula/.

Dmalloy. “What Came out of the Lula-Biden Meeting?” Atlantic Council, 11 Feb. 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/what-came-out-of-the-lula-biden-meeting/.

“Lula State Visit Rekindles China-Brazil Trade and Investment Relations.” China Briefing News, 21 Apr. 2023, https://www.china-briefing.com/news/china-brazil-relations-areas-of-strengthening-trade-commerce-investment-cooperation/.

“President Xi Jinping Holds Talks with Brazilian President Lula Da Silva.” YouTube, YouTube, 14 Apr. 2023, https://www.youtube.com/watch?v=wK9TNtvqRas.

Trinkunas, Harold. “Testing the Limits of China and Brazil's Partnership.” Brookings, Brookings, 9 Mar. 2022, https://www.brookings.edu/articles/testing-the-limits-of-china-and-brazils-partnership/.

“World Integrated Trade Solution (WITS).” World Integrated Trade Solution (WITS) | Data on Export, Import, Tariff, NTM, https://wits.worldbank.org/.

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PLEASE NOTE – We’re in the process of developing a full Retrieval Augmented Generation (RAG) component that will tap into a database of economic, tech trends and other data associated with our research reports. This initial prototype includes content that we’ve already published in the form of text articles, but we’ll soon be adding structured content that will enable in-depth analysis not generally available through public chat apps.

Retrieval Augment Generation refers to generative AI that is supplemented with proprietary structured data, text, images, audio and video content that we have curated from our research.

Thanks for your patience! This initial prototype will soon be replaced with a more advanced UI capable of generating complete multi-modal reports. Please bear with us – this prototype is text and speech only.

Other Data Insights

"Things change gradually at first...

...then all at once..."

China GDP vs UST Holdings (2010-22) (billions)

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China GDP vs UST Holdings (2010-22) (billions)

Data Source – World Bank

Global FX Exchange Reserves (2001-22) (% of total)

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Global FX Exchange Reserves (2001-22) (% of total)

Data Source – World Bank

Global FX Exchange Reserves (2001-22) (% of total)

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Global FX Exchange Reserves (2001-22) (% of total)

Data Source – World Bank

Western media is starting to pay attention to China’s efforts to influence members of the so-called Global South, or more specifically the BRICS+ and Shanghai Cooperation Organization (with substantially overlapping membership), to denominate international trade in the Chinese Renminbi (RMB), aks the Chinese Yuan (CNY) and/or other local currencies. For very different reasons, Russia has promoted the idea of an entirely new currency for trade settlement. This is an accelerating trend among countries that have formed close economic and political relationships with China.

Coincident with the pivot to the RMB for trade settlement is a growing sentiment among the BRICS+ and SCO members that holding USD as their primary reserve currency poses a risk in the event the US declares sanctions and/or freezes a country’s assets, as happened with Russia and Belarus in 2022.

The combined effect of these two trends should be observable in a country’s US Treasuries holdings, and that’s exactly what we’re seeing in the chart above – China’s USD and Treasuries holdings peaked at $1.277 trillion in 2013 and declined by more than 32% in 2022.

Things change “slowly at first, then all at once”...
Ernest Hemingway, The Sun Also Rises Tweet

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Sino-Brazil Leadership Summit – 2023

Sino-Brazil

Summit - 2023

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DUMMY HEADING (reset color if used)

Executive Summary

Brazil Exports/Imports to/from China (billions) (2011-2021)

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Brazil Exports/Imports to/from China (billions) (2011-2021)

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Summit Details

Background - US – Brazil Relationship

Background – Sino-Brazil Relationship

Brazil Exports to China (billions) (2011-2020)

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Brazil Exports to China (billions) (2011-2020)

Brazil Imports from China (billions) (2011-2020)

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Brazil Imports from China (billions) (2011-2020)

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A Clear Message Regarding Chinese Tech

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Retrieval Augmented Generation

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China GDP vs UST Holdings (2010-22) (billions)

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China GDP vs UST Holdings (2010-22) (billions)

Global FX Exchange Reserves (2001-22) (% of total)

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Global FX Exchange Reserves (2001-22) (% of total)

Global FX Exchange Reserves (2001-22) (% of total)

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Global FX Exchange Reserves (2001-22) (% of total)

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