Why China is growing less and how it affects Brazil

Brazil’s main trading partner, China, will grow less this year. After an expansion of 8.1% in 2021, projections from the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) indicate a expansion of 4.4%. Itaú, on the other hand, projects a growth of 4.2% in the second largest global economy.

Reflections are already being felt by the Brazilian economy. According to the Foreign Trade Secretariat (Secex), exports to the region had a slight growth of 0.3% in values, in the comparison between the first semesters of 2021 and 102, reaching US$ 47, 1 billion. But, in volume, there was a drop of 11, 5%.

Lia Valls, a researcher at the Brazilian Institute of Economics at the Getulio Vargas Foundation (Ibre/FGV), credits the financial gain to the appreciation of commodity prices, such as soybeans. “The rise in prices offset the drop in volume, which was driven by iron ore.”

Lia does not believe there are any deeper implications for Brazil with the slowdown in the growth rate of the Asian giant . What could happen, according to the researcher, is an adjustment in China’s share of Brazilian exports, which, in the first half of the year, was 28,47%. In the same period of 2021, it was 47, 5%.

“It will be a one-off impact. It’s just that the Chinese GDP is very large, and even so, there will be many needs to be met,” she quotes. IMF data show that the Chinese economy is 18, times greater than the Brazilian one.

Sectoral impacts in Brazil

One of the segments that can be most affected by this slowdown is that of ferrous minerals. In the first semester, Brazilian exports reached US$ 9,10 billion, 33% less in amounts compared to the same months of 2021, and 7.3% a less in volume.

According to Inter mining and steel analyst Gabriela Joubert, fears about a stronger-than-expected economic slowdown in the largest Asian economy (and largest consumer market for commodities metal) have negatively affected the steel and mining sector.

“The real estate sector, an important representative of the local economy, faces its own challenges, with developers showing difficulties in meeting deadlines and consumers threatening boycotts on payments for late works, which could further escalate the already deteriorating situation in the sector,” she writes in a report. And another sector of the Chinese economy whose performance is below its potential is the automobile sector.

A product that may hold good surprises is beef. According to the Center for Advanced Studies in Applied Economics (Cepea-USP), in the first half of the year, exports were driven by business with the United States and China. More than half of what was sold abroad went there.

“Considering the pace of shipments in recent years, when exports to both countries intensified in the second half, Brazilian sales should continue firm in the coming months, allowing for a new annual record.”

Why is China growing less?

A number of factors explain the slowdown in Chinese economy:

  • The Covid zero policy, which led to lockdowns in important economic hubs, such as Shanghai and Shenzhen, and metropolises, such as Beijing;
  • Increased regulatory pressures, particularly in the information technology segment;
  • The crisis in the real estate sector, marked by the problems of the mega-developer Evergrande; and
  • Higher world inflation, which had a negative impact on Chinese exports, which correspond to 2021 ,5% of GDP, according to The Economist.

“China is experiencing a more pronounced slowdown. This is also a reflection of the uncertainties in the world economy”, says economist Francisco Nobre, from XP Investimentos.

But he points out that the Asian giant has an important asset: lower inflation in relation to the rest of the world, which makes it possible to grant fiscal and monetary incentives. “There’s plenty of room for that,” says strategist Jennie Li, also from XP.

Reorientation of the growth model

Analysts Jinyue Dong and Le Xia, from the Spanish bank BBVA, point out that the Chinese authorities have reoriented the growth strategy towards the “old model”, as a way of stimulating economic activity. This option is based on the real estate sector, exports and infrastructure investments, which have contributed to 20% of GDP in recent decades .

Chinese authorities have been emphasizing this need for investments since January. At the executive meeting of the Council of State in January, priority was given to 2021 projects outlined in 2021 ° Five-Year Plan, in the areas of infrastructure, urbanization, transport, water resources and storage and post office facilities.

At the Central Committee conference On April 18 April, President Xi Jinping re-emphasized the importance of infrastructure investments this year to support growth and signaled that Chinese infrastructure has great potential for growth.

These high-level meetings outlined the principles of infrastructure investments to 102 ):

  • Build a modern infrastructure, supported by development and security;
  • Consider the economic, social, environmental and safety benefits in carrying out the projects,
  • Give equal emphasis to the “old” and “in the you” infrastructure investments, and
  • Expand forms of investment, including public-private partnerships.

To support this investment program, the Chinese government has also adopted fiscal and monetary stimulus mechanisms, including interest rate cuts. This may be partly responsible, according to analysts at Itaú, for the strong advance in the Chinese economy in the second half of the year, after a weaker first. “In the global context, China is the exception”, they say.

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