Good morning! We’re covering Jair Bolsonaro’s much-anticipated trip to China. Where Brazil stands on the World Bank’s Doing Business ranking. And the Mercosur crisis. (This newsletter is for platinum subscribers only. Become one now!)

Jair Bolsonaro visits China: What to expect?

After a visit to Japan, President Jair Bolsonaro arrives in China today—where he will

meet with President Xi Jinping and several businesspeople. The president&#8217;s agenda will be focused on bringing investments and opening up routes for business. Here are the main topics on his agenda:</p> <ul><li>Expanding and diversifying exports (especially for agricultural products);</li><li>Attracting investments in infrastructure, 5G technology, and tourism;</li><li>Signing science and tech cooperation deals, especially in the energy sector.</li></ul> <p><strong>Why it matters.</strong> Ten years ago, China became <a href="">Brazil&#8217;s top trading partner</a>. It is the destination of over one-quarter of all Brazilian exports and almost half of the country’s commodity exports. But relations between President Bolsonaro and Beijing have been tepid at best—during the G20 Summit, in June, President Xi stood up Mr. Bolsonaro after the pair had scheduled a meeting.&nbsp;</p> <p><strong>No hard feelings? </strong>But the Chinese government seems to be willing to turn on a new page on this relationship, providing an impressive structure for Mr. Bolsonaro&#8217;s visit, including meetings with the President, Prime Minister, and dinner with major Chinese CEOs.</p> <script src="" type="text/javascript" charset="utf-8"></script> <p><strong>Damage control.</strong> During the 2018 campaign, Mr. Bolsonaro was extremely aggressive towards China—saying that the Asian nation was &#8220;buying Brazil.&#8221; He also denounced Chinese land-grabbing, telling voters that it would jeopardize food security in Brazil. The president has toned down his rhetoric since taking office, and government officials hope this week&#8217;s trip will iron out any problems between the two countries.</p> <p><strong>Silk road.</strong> China wants Brazil to formally join its Belt and Road Initiative—the largest infrastructure project in the world, laid out to enhance Chinese influence across the globe. The bump in the (belt and) road, however, is Mr. Bolsonaro&#8217;s alignment with Donald Trump&#8217;s White House. &#8220;Brazil should be more pragmatic in its foreign relations and seize the rift between China and the U.S. as an opportunity to gain the most from each partner,&#8221; says Maurício Santoro, an international relations professor at the State University of Rio de Janeiro.</p> <p><strong>Opportunity.</strong> Brazil is the world&#8217;s top coffee producer—and should invest more in specialty grains to cater to the growing Chinese market. The country, which traditionally consumes much more tea, has increased its demand for coffee by 40 percent in recent years.</p> <p><strong>Dependence.</strong> Brazil&#8217;s over-reliance on basic products also makes the country extremely exposed to Chinese economic hiccups. And the slowing down of economic growth in the Asian behemoth (to the lowest rates since 1992) has raised red flags in Brasília.</p> <div class="flourish-embed" data-src="visualisation/815566"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>Doing business in Brazil remains hard</h2> <p>The World Bank released its latest &#8220;Doing Business&#8221; report—ranking countries according to how &#8220;business-friendly&#8221; they are. Among 190 nations, Brazil ranked only 124th—but its overall score has actually improved from last year, thanks to a reduction in red tape for opening companies.</p> <p><strong>Why it matters.</strong> Bureaucracy has been a major deterrent to private ventures in Brazil ever since Portuguese colonizers reached our shores in the 1500s. Companies spend almost 2,000 hours every year to comply with tax regulations—almost twice as much as they do in neighboring Bolivia.</p> <div class="flourish-embed" data-src="visualisation/816178"></div><script src=""></script> <p><strong>Liberalizing.</strong> Presidents Michel Temer (2016-2018) and Jair Bolsonaro (2019-) have passed legislation to try and cut corners of Brazil&#8217;s labyrinthine bureaucracy. One major change came when Mr. Temer signed a law last year to end the requirement for signatures to be &#8220;authenticated&#8221; at notary offices.</p> <p><strong>Side effects.</strong> Bureaucracy is corruption’s Siamese twin. In Brazil, we say that in many institutions, servants create hurdles in order to sell access. Bureaucracy can also be co-opted by political desires, social movements, but also corporatist interests. A big chunk of Brazil’s important posts have become fiefdoms of parties with appointments decided in opaque behind-the-scenes negotiations.</p> <hr class="wp-block-separator"/> <h2>Reforming—or wrecking—Mercosur?</h2> <p>Government officials have once again talked about the Brazilian government&#8217;s willingness to ostracize Argentina within Mercosur—the free-trade bloc that also includes Uruguay, and Paraguay. Brazil wants to lower import tariffs (which must be agreed upon by all countries), but soon-to-be-elected Kirchnerist presidential candidate Alberto Fernández is resistant to the idea. Uruguay and Paraguay, however, are in favor of the change.</p> <p><strong>Why it matters.</strong> Mercosur is dominated by the presence of Brazil and Argentina, as the two economies are far larger than the bloc&#8217;s other two partners. Any feud between the two could spark a major crisis within the already-dysfunctional group.</p> <p>Argentina is also Brazil&#8217;s third-largest trading partner—and disturbances in trade could affect local industries.</p> <p><strong>Unfulfilled potential.</strong> In the late 1990s, there were talks of creating a common Mercosur currency. But the truth is that the bloc never took off as a true free-trade zone, with its members constantly trying to slap protectionist measures against one another.</p> <hr class="wp-block-separator"/> <h2>What else you need to know</h2> <p><strong>Oil spill 1.</strong> Environment Minister Ricardo Salles said President Jair Bolsonaro ordered the government to formally ask the Organization of American States for Venezuela to make a statement on the massive oil spill in over 200 locations of Brazil&#8217;s Northeast coast. Analysts say there is no doubt the crude oil is a blend produced in Venezuela (but these analysts have not pondered on <em>how</em> it was spilled). Mr. Bolsonaro suggested last week that the spill could have been criminal—and backed by Caracas. This hypothesis seems far-fetched, considering how expensive it would be to simply throw away hundreds (possibly thousands) of tons of oil in the ocean.</p> <p><strong>Oil spill 2.</strong> The oil spill that has been affecting Brazil&#8217;s Northeast shore could be far greater than we think, says navigation company OceanPact. The Navy says over 900 tons of oil has been removed so far. If the origin of the spill (which remains uncertain) is a leak from a damaged tanker, we could be talking about a volume of over 15,000 tons in the ocean. Oil tankers can carry up to 3,000 tons of crude—which, in contact with water, starts a process of emulsification, growing by up to five times in volume.</p> <p><strong>Big tech, fake news.</strong> Brazil&#8217;s congressional investigation committee on the spread of fake news to tamper with elections will try to collect a statement from U.S. Senator Elizabeth Warren, one of the <a href="">frontrunners</a> to become the Democratic presidential candidate in 2020. Ms. Warren has argued in favor of <a href="">breaking up big tech companies</a> in order to limit their power over the spread and consumption of information. With an intense schedule leading up to the primary season, which starts in February, it would be a surprise if Ms. Warren were to take the time to speak to the Brazilian Congress.</p> <p><strong>Supreme Court.</strong> Four of 11 Supreme Court justices have voted on whether prison sentences can be carried out before defendants have exhausted all appeals. So far, the score is 3-1 in favor of that possibility, with each justice voting as expected. The swing vote on this matter is Justice Rosa Weber—who many believe will cast the deciding vote. The court resumes the trial today, starting with Justice Weber&#8217;s vote.</p> <p><strong>Digital banks.</strong> Brazilian fintech companies such as Nubank will have a heavyweight competitor in 2020: German digital bank N26. The company says it will gamble on increasing levels of customization in the banking experience, &#8220;<a href="">something Brazil is not yet accustomed to</a>.&#8221; The bank will not offer accounts for companies—only individuals.

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Daily BriefingOct 24, 2019

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.