MercoPress. South Atlantic News Agency
Brazil aware its relation with China raises the risk of “Dutch Disease”
President Rousseff arrived in Beijing Monday to begin a state visit to China that will incorporate Thursday’s summit of BRIC leaders. However Ms Rousseff’s trip to China is symbolically important since it is her first overseas visit outside Latin America and underlines the growing importance of the Brazil/China relationship, points out Capital Economics. Read full article
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Disclaimer & comment rulessimple explanation of the Dutch disease is the deindustrialization of a nation's economy that occurs when the discovery of a natural resource (North Sea gas) raises the value of that nation's currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports. What people also must know is, the profits of gas exports were invested in “welfare” rather than in more productive areas of the economy.
Apr 11th, 2011 - 11:04 pm - Link - Report abuse 0What raises such a risk isn't only, or even mainly, trade with China. It's rather currency valuation. I find utterly mysterious how most economic analyses of the BR economy fail to take that into account. D. Disease is being caused by inflows to capital markets, not commodity exports. And as the currency value goes up due to speculative capital, manufactures lose competitiveness. Up until '06, manufactures made up about 55% of total exports. But as FDI and speculative inflows picked up in 2007, that percentage has fallen steadily. As for the trade surplus against CN, that was the case only in 2010, and it was due to the spike in iron ore prices. Up until '09, Brazil, just like most other countries, ran a trade dificit with China.
Apr 12th, 2011 - 12:45 am - Link - Report abuse 0”This (...) should help to shift production up the value chain.“
Um... WHAT? CN isn't interested in buying high value added products. It doesn't want to buy steel, for instance: it wants to import iron ore to later export steel. Trade with CN has actually moved Brazil the value chain DOWNwards. CN only commits to buying high-value added products when it's interested in acquiring technology. That's what happened to Embraer in CN. Though the last decade CN promised to order Embraer some few jets, it later set a joint venture with Embraer so as to force it to transfer technology to a Chinese SOE, the China Aviation Industry Corporation II.
”exports to and investment from CN has been concentrated in the commodities sector.“
Then it shouldn't have been said above that Chinese FDI helps BR boost its investment rate.
”This is part of the reason why BR’s currency Real looks so overvalued...”
No. The reason manufactures suffer has little to do with CN; it has to do with speculative capital from mostly western countries. BR has had a wide current account deficit since 2007: that means more money leaving, than entering, BR by trade it. That is, if it was up to trade alone, the real wouldn't be overvalued and manufactures wouldn't be struggling.
Trade should be on a willing buyer and seller basis. Similarly with investments. Then no one will owe someone else a living. This will remove any justification for unhappiness.
Apr 12th, 2011 - 02:18 am - Link - Report abuse 0“it later set a joint venture with Embraer so as to force it to transfer technology to a Chinese SOE, the China Aviation Industry Corporation II.”
Apr 12th, 2011 - 03:01 am - Link - Report abuse 0The Chinks already have a bigger joint venture with Boeing (with transfer of technology), singned when Mr Hu visited Patty Obozo. We'll know how “great” that will be for the Chinese airplane industry.
Thanks, Forgetit @ #2.
Apr 12th, 2011 - 11:31 pm - Link - Report abuse 0You have saved me from writing the same thing,
but you have done it without my well-known Sinophobic presentation.
Good, informative posting.
Geoff.
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