Why is China investing in Brazilian oil, when no one else is?

. Nov 19, 2019
Why is China investing in Brazilian oil, when no one else is? Gas station in Beijing. Photo: Pixiaomo/Shutterstock

Earlier this month, the Brazilian government held what was supposed to be “the biggest oil auction on Earth,” selling off part of its massive deepwater pre-salt oil reserves. Instead, while the tender did bring in a record amount of money for auctions of this type (BRL 69.96 billion), it was regarded as a political flop, raising only two-thirds of the BRL 106.5 billion expected. Nearly every international competitor refused to make bids, with some not even attending the tender itself. The exceptions were only two firms: CNOOC and CNODC.

</p> <p>These two companies—relatively unknown to the Brazilian public—are Chinese state-owned firms with large outputs. According to consulting firm Wood Mackenzie, CNOOC produces 1.3 million barrels of oil equivalent every day, corresponding to close to one-third of the output of Brazil&#8217;s state-owned oil company Petrobras. The firm is focused on internationalization, exploiting deepwater oil and natural gas.&nbsp;</p> <p>In Brazil, CNOOC already has shares in three oil fields, ranging between 10 and 30 percent. It also owns 25 percent of a 5-billion-barrel oil field in Guyana, two reserves in Mexico, and exploits deepwater oil in American waters in the Gulf of Mexico.</p> <script src="" type="text/javascript" charset="utf-8"></script> <p>But why did CNOOC and CNODC make a move in Brazil&#8217;s latest oil auction, while all other foreign competitors preferred to stay away?</p> <p>The move makes sense considering China&#8217;s increasingly large footprint in Brazil, taking part in infrastructure projects, land purchases, and now oil. “Brazil is Latin America&#8217;s biggest country and a key food and meat producer. For China, that represents a great field of investment opportunities,” says Thomas Law, chairman of the Brazil-China Socio-Cultural Institute (Ibrachina).</p> <p>The involvement of CNOOC and CNODC in this month&#8217;s oil auction came as a continuation of rapprochement efforts between Presidents Jair Bolsonaro and Xi Jinping.&nbsp;</p> <p>On the campaign trail, Mr. Bolsonaro&#8217;s China rhetoric was very different indeed. He rarely missed an opportunity to speak ill of the Asian giant, saying China wasn&#8217;t buying <em>in</em> Brazil, it was &#8220;buying Brazil.&#8221; He also expressed fears that Chinese companies were silently usurping Brazil&#8217;s agricultural capacity through land-grabbing deals.</p> <p>Since becoming president, however, Mr. Bolsonaro has changed his tune. Earlier this year, he sent his Vice President Hamilton Mourão and Agriculture Minister Tereza Cristina to visit China, helping to improve the relationship with Beijing. Last month, <a href="">Mr. Bolsonaro visited China himself</a>, where he reportedly asked Xi Jinping to push CNOOC and CNODC into making bids on Brazilian oil fields, fearing a complete no-show of foreign firms. When the Chinese leader visited Brasília last week for the <a href="">11th BRICS Summit</a>, Mr. Bolsonaro was all smiles and hugs, after Xi had fulfilled his promise.</p> <h2>Belt and Road</h2> <p>Experts interviewed by <strong>The Brazilian Report</strong> agree that China&#8217;s &#8220;patience&#8221; with Brazil has two main reasons: Brazil is a major commodity supplier, and Beijing wants to include Latin America&#8217;s biggest economy in the Belt and Road Initiative—the largest infrastructure project in the world set to enhance Chinese influence across the globe.</p> <p>&#8220;Many call it the &#8216;Chinese Marshall Plan,&#8217; but I see it instead as international integration,” says Mr. Law.</p> <p>Speaking to our <a href=""><em>Explaining Brazil</em> podcast</a>, Charles Tang, head of the Brazil-China Chamber of Commerce and Industry, said: &#8220;China invented a new system of international relations. Since the beginning of history, stronger nations dominated weaker nations by sending their armies. China doesn&#8217;t send its marines anywhere. China basically sends its businesspeople, its entrepreneurs, to trade and invest.&#8221;</p> <script src="" type="text/javascript" charset="utf-8"></script> <p>China&#8217;s production capacity backs up its push for global expansion, also validating the country&#8217;s participation in geopolitical matters. &#8220;In Latin America, China has seen a lack of presence from the U.S.,&#8221; noted José Ricardo dos Santos Luz Junior, head of the <a href="">LIDE China</a> group.</p> <p>Besides a drop in investments in Brazil last year, now, some 40 percent of Chinese money being pumped into Latin America is going straight to Brazilian territory. &#8220;China won&#8217;t give up on Brazil. If we recall, earlier this year, the Chinese were one of the few who supported Brazil during its <a href="">Amazon fires crisis</a>,&#8221; says Mr. Luz.</p> <p>The bilateral relations between the two countries also have a regional effect in Brazil. Suhayla Khalil, a politics and sociology professor at the University of São Paulo, notes that state governments (such as São Paulo) have been conducting direct business with China and Chinese investors. This could end up having repercussions on the 2022 presidential race, with two major governors—João Doria (São Paulo) and Wilson Witzel (Rio de Janeiro)—emerging as potential candidates. &#8220;João Doria, for instance, has opened an office of the São Paulo state government in Shanghai,&#8221; Ms. Khalil notes. </p> <p>&#8220;This movement has put pressure on the federal government because we also have the governors of Minas Gerais and Pará—as well as many from the Northeast—saying that they will visit China.&#8221;

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Brenno Grillo

Brenno has worked as a journalist since 2012, specializing in coverage related to law and the justice system. He has worked for O Estado de S. Paulo, Portal Brasil, ConJur, and has experience in political campaigns.

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