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China Deepens Ties to Brazil, Plans to Build Railways

China's President Xi Jinping (l) with Brazil's President Dilma Rousseff after a signing ceremony at Planalto presidential palace in Brasilia, July 17, 2014.
China's President Xi Jinping (l) with Brazil's President Dilma Rousseff after a signing ceremony at Planalto presidential palace in Brasilia, July 17, 2014.
Reuters

China expanded its trade partnership with Brazil on Thursday with $7.5 billion in financing for Brazilian miner Vale, the purchase of 60 passenger jets from planemaker Embraer and renewed commitment to invest in infrastructure.

In a raft of energy, finance and industry accords signed before presidents Xi Jinping and Dilma Rousseff, the two nations agreed to team up to build railways to help Brazil reduce its infrastructure deficit and feed China's hunger for commodities.

One project under study is building a railway from Brazil's Atlantic coast through the Andes to Peru on the Pacific that could cut the cost of shipping Brazil's grain to China by $30 per ton, a senior Brazilian official said.

Trade between China and Brazil soared to $83.3 billion last year from $3.2 billion in 2002, with iron ore, soy and oil making up the bulk of Brazilian exports, making China the South American nation's biggest trade partner.

“China's two main strategic concerns are energy security and food security. Brazil is an ideal partner on both counts,” said the official, a cabinet member who asked not to be named.

Xi visited Brasilia after a BRICS summit that set up a new  $100 billion development bank, to be based in Shanghai, that will fund infrastructure projects, providing developing nations with an alternative source of funding to Western-dominated multilateral financial institutions.

In a sign of deepening financial ties between the two members of the BRICS bloc of emerging nations, the China Construction Bank formalized acquisition of 72 percent of Brazilian mid-size lender Banco Industrial e Comercial SA, a 1.62 billion real deal agreed in October.

China's Eximbank extended a three-year, $5 billion credit line to Vale to buy ships and equipment from Chinese companies, but there was no mention of a solution to an impasse over China's refusal to allow giant, bulk iron ore carriers used by Vale SA to dock at Chinese ports.

Vale, the world's largest exporter of iron ore, ships the vast majority of its production to China.

The Bank of China opened a second $2.5 billion credit line for Vale to buy Chinese equipment and services.

Embraer, the world's third largest commercial plane maker, will sell 40 of its E-190 planes to China's Tianjin Airlines, its biggest client in Asia. The Industrial and Commercial Bank of China Ltd. will buy up to 20 planes under an agreement to provide leasing for Embraer.

China has promised to invest in Brazil for years and but has delivered little. A $2 billion plan for soy-crushing plant and  storage hub in Bahia announced three years ago is still an empty field, while China's largest truck maker Dongfeng Motor Corporation this year shelved a plan for a $450 million factory after falling out with its Brazilian partner.

The pace of investment could pick up with the new Chinese focus on Brazil's deficient infrastructure.

State Grid Corporation of China signed an agreement with Brazil's Eletrobras utility to build high-voltage transmission lines for the 11,233-megawatt Belo Monte hydroelectric dam under construction on the Xingu River in the lower Amazon. China Three Gorges Corporation also signed a partnership with Brazilian utilities to bid for a new dam project on the Tapajos River.   

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