Brazil Looks to China for Industrial Policy

When Brazil’s President Dilma Rousseff begins her first visit to China today for a summit of leaders from the BRICs club of fast-growing emerging markets， she will be interested in more than just diplomacy.While she will raise Brazil’s gripes with Beijing， such as China’s allegedly undervalued currency and greater reciprocity for Brazilian manufactured exports， Ms Rousseff will be keen to witness first-hand the Asian economic powerhouse’s successful experiment in statist industrial policy， an approach her government is increasingly moving towards at home.Concerned about Brazil’s increasing dependence on raw material exports， Ms Rousseff and her predecessor， Luiz Inácio Lula da Silva， both from the leftwing Workers Party， have been pushing for greater development of domestic industry through policies targeting large， statecontrolled companies. They have been also aggressively building national champions through the use of state credit.“A lot of the kind of the model that they (Brazil’s government) have in their heads is China; the way that the Chinese either directly or indirectly through the financial system guide the private sector into fulfilling greater economic development aims，” said Tony Volpon， head of emerging markets research for the Americas at Nomura.Ms Rousseff’s first priority during the five-day visit will be to build on a bilateral commercial relationship. Two years ago， China overtook the US to become Brazil’s largest trading partner and， last year， its biggest foreign direct investor.Latin America’s largest economy wants the Chinese to not only buy its iron ore， soymeal and other commodities but also Brazilian manufactured goods， such as jets produced by Embraer. To this end， Ms Rousseff will be accompanied by 309 business leaders， one of Brazil’s largest delegations.In addition， she is expected to raise Brazil’s concerns with alleged exchange manipulation by the US and China. For a development economist like Ms Rousseff， the visit will also be a prime opportunity to test her government’s views on state planning and corporatism.In an example of the rising importance of this new doctrine in Brazil， the government shareholders of Vale， the Brazilian miner， last week decided not to extend the tenure of Roger Agnelli， the company’s chief executive， after he ignored calls to invest more heavily in the local steel and fertilizer industries.Historically， Brazil has tended to pursue policies of state-led industrial development. During the 1980s and 1990s， governments became preoccupied with runaway inflation and national debt， which they tried to tackle through liberalization.Only when Brazil’s economy stabilized in the mid-2000s was the government able to refocus on industrial policy. “The big change that has occurred in Brazil over the past five years is we have had the return of industrial policy，” said Christopher Garman， director for Latin America at political risk consultants Eurasia Group.Mr Lula da Silva’s government took the first major step by changing the law to give Petrobras， the statecontrolled national oil producer， the central role in the development of Brazil’s new offshore oil finds. The aim is to create a domestic oil services industry， even if this means higher costs for Petrobras.The government has also stepped up lending by the state-owned development bank， BNDES， which has taken equity stakes in companies.Today， up to 20 per cent of Brazilian-listed companies – representing 47 per cent of the market capitalization of the stock market – have federal or state governments directly or indirectly among their top five shareholders， according to a report by Itaú Securities， a private-sector brokerage.But analysts caution the Workers party of Ms Rousseff – much like China’s ruling party – is a more pragmatic， centre-left outfit than a decade ago， and is adopting a rules-based approach to industrial policy.In one sign of this， the government will replace Mr Agnelli when his contract expires next month with a respected former executive of the company， Murilo Ferreira， rather than a politician.The government will also seek to guide Vale into building more national industries through a new mining policy， rather than day-to-day intervention in management， analysts say.And the government seems willing to ditch orthodoxy when necessary， analysts say. To speed up development of the country’s airports， for instance， it wants partly to privatise Infraero， the state-owned air operator.“Who is Dilma – technocrat or statist? She is both，”said Eurasia’s Mr Garman. “This is an industrial policy that is more sophisticated than we had in the past.” (Financial Times)