This month the vessel that will come to define early 21st-century trade between Latin America and Asia arrived in Guanabara Bay, the picturesque harbour of Rio de Janeiro.
The Vale Brasil, commissioned by Vale SA, VALE-N the Brazilian miner and the world’s largest exporter of iron ore, is the first of a new breed of bulk carrier, known as the Chinamax. With a capacity of 400,000 tonnes and measuring 362 metres in length and 65 metres in width, this goliath can carry twice as much iron ore as most vessels now plying the route between Brazil and China.
Just as the caravel symbolized the age of discovery and early colonial trade between Portugal and Brazil, the Chinamax encapsulates China’s growing hunger for the natural resources of Latin America’s largest economy.
As these two leading emerging economies draw each other into an ever closer embrace - one of the first overseas trips by Brazil’s new president, Dilma Rousseff, was to China - few doubt that the world is witnessing the birth of one of the great commercial relationships of the future.
“Brazil will export a lot of the strategic commodities that China needs and China will export manufactured goods and invest in assembly plans in Brazil,” says Charles Tang, head of the Brazil-China chamber of trade and industry.
But far from being a smooth passage, it is a relationship that will be fraught with challenges and misunderstandings along the way. It would be difficult to find two large countries in the modern world that are less familiar with each other than China and Brazil or that are more different socially, politically and culturally. Already there are growing tensions, with most of them originating from the Brazilian side.
While Brazil welcomes Chinese demand for its commodities, it is angry at an influx of cheap Chinese manufactured imports that it says undermine Brazilian industry. Brasilia also accuses Beijing of closing its market to imports from Brazil and of maintaining an artificially cheap currency to make its exports more competitive.
“China has a clear position on what it wants from Brazil,” says Geert Albers, general manager for Brazil of Control Risks, a consultancy. “But Brazil needs to clarify somehow what it wants from China.”
The speed with which this relationship has developed has meant that most potential flashpoints are only emerging now.
Between 2000 and 2009, Brazil’s exports to China rose 18-fold, driven by commodities such as iron ore and soya beans. In 2009, China surpassed the U.S. as Brazil’s biggest trading partner, accounting for 12.5 per cent of the Latin American country’s exports.
Bilateral trade rose a further 53 per cent last year to $56-billion (U.S.), while Brazil’s trade with the U.S. increased 30 per cent to $45-billion.
When it comes to commodities, Beijing has discovered that Brazil offers something of a one-stop shop. Latin America’s biggest economy is the world’s largest exporter of iron ore and of a host of agricultural products, including coffee, sugar and - of special interest to China - the “soya complex” of beans, oil and meal.
Brazil’s discovery of vast offshore oilfields, which are set to catapult it into the top ranks of the world’s oil producers, are also of increasing interest to China.
“The economic benefits of Brazil’s and China’s trade relationship remain high,” wrote Standard & Poor’s, the credit rating agency, in a paper late last year.
The trading relationship is rapidly being duplicated in investment. Last year, China became Brazil’s largest foreign direct investor for the first time.
China accounted for about $17-billion of Brazil’s total foreign direct investment inflows of $48.46-billion in 2010, up from less than $300-million in 2009, according to Sobeet, a Brazilian think-tank on transnational companies.
