LATIN AMERICA

China and Chile agree to expand tradeChina and Chile on December 16 of 2010 agreed to expand trade and investment. Chinese President Hu Jintao held talks with his Chilean counterpart Sebastian Pinera， who is on a three-day state visit to Beijing， in the Great Hall of People， followed by the signing of three agreements on economic cooperation.Hu suggested the two countries diversify and expand trade ties by boosting cooperation in areas like agriculture， science and technology， mineral development， light industry， household appliances and machinery.Chile was the first Latin Ameri- can country to sign a bilateral agreement on China’s entry into the World Trade Organization， to recognize China’s full market economy status and sign a bilateral free trade agreement with China.Chile is China’s second biggest trade partner in Latin America and China is Chile’s biggest trade partner. Bilateral trade in 2009 rose 2.1 percent to US$17.72 billion.Hu urged the two countries to deepen political trust， increase cultural exchanges and enhance coordination within international and regional organizations.Pinera said Chile was ready to work with China in terms of economic cooperation in the Asia-Pacific region， the Doha Round trade talks， the reform of global financial institutions and climate change. (Xinhua)Brazil cuts taxes to stimulate long-term corporate debt marketBrazil will cut taxes and provide incentives to stimulate the domestic corporate debt market and supply longer-term credit for infrastructure investments.As part of the measures announced on December 14 of 2010 by Finance Minister Guido Mantega， the state-run development bank known as BNDES will set aside 10 billion reais(US$5.8 billion) to purchase longerterm debt issued by corporate borrowers， helping provide liquidity to the secondary market for the paper.Individual and foreign investors purchasing bonds with maturities of at least four years and linked to infrastructure projects will be exempted from paying taxes on their earnings， Mantega said. Institutional buyers will see their tax rates reduced to 15 percent from as high as 34 percent currently.The new rules should boost local debt issuances to 70 billion reais per year， BNDES President Luciano Coutinho told reporters in Brasilia. In 2010， companies raised 41 billion reais， according to the Brazilian capital markets association known as Anbima.Latin America’s biggest economy is ramping up spending on infrastructure as it prepares to host the World Cup and Olympics as well as develop the biggest oil discovery in the Americas since 1976. The government plans to oversee 955 billion reais in investment over the next four years.The government will create a privately-managed fund using about 2.2 billion reais in bank reserves to provide liquidity to the secondary market for the domestically-issued bonds， said Nelson Barbosa， the secretary of economic policy. Short-term buying and selling of the paper will no longer be levied a transaction tax.A tax on foreign capital inflows that was tripled this year will be reduced to its previous 2 percent for foreign-based private equity investors who want to finance Brazil’s infrastructure drive.Brazil raised the so-called IOF tax in October in a bid to take pressure off its currency， which has strength- ened 35 percent against the U.S. dollar since the start of 2009， the secondbiggest gain among 25 emerging market currencies.Local debt issuance by Brazilian companies is lagging behind Russia’s US$27 billion and China’s US$163 billion in 2010. Only India， at US$18 billion， has had less corporate debt issuance among the biggest developing economies， or BRICs.Central bank President Henrique Meirelles said in Sao Paulo that the new measures are “step in the right direction” in Brazil’s bid to stimulate longer-term credit.It’s too early to say whether the new rules will achieve their intended effect， said Jankiel Santos， chief economist at Espirito Santo Investment Bank.“Since you’d have more liquidity in the secondary market， people are going to start thinking about using more and more the capital markets rather than just going to banks to fund themselves，” he said in a phone interview from Sao Paulo. (Bloomberg)China’s state grid to buy brazilian power firmsChina’s giant utility State Grid Corp. has agreed to a deal worth nearly US$1 billion to buy seven Brazilian power transmission companies， the latest in a series of big bets by Chinese corporations in Latin America.The deal is the latest of a string of investments by Chinese companies in Brazil， as Beijing seeks to reinforce its links with the Latin American country which is emerging as a big force in commodities markets due to high demand in China， from soybean and iron ore to sugar and crude oil.State Grid has also secured a 30-year concession to operate power lines， substations and other infrastructure that transmit power mainly to the densely populated southeastern region， which includes major cities like Rio de Janeiro and Sao Paulo.The deal allows Brazilian authorities to renew the license for a further 20 years， a statement on the website of the state-owned Assets Supervision and Administration Commission of the State Council said on December 21 of 2010. State Grid， one of the world’s largest utility companies， is wholly owned by the Chinese government.The deal for the seven power transmission companies is expected to generate more than US$110 million in annual earnings for State Grid， the statement added.A State Grid media official confirmed earlier reports that the acquisition involves the subsidiaries of Spanish companies Grupo Cobra， Elecnor S.A. and Brazil’s Grupo Isolux.This is the first foray for a Chinese company in the transmission-line auctions in Brazil. A consortium that includes Zhejiang Insigma United Engineering won the biggest lot on offer at this month’s auction， earning the right to build 102 kilometers of transmission lines and four electric substations in Rio Grande do Sul state. Insigma has a 40% stake in the group， with Brazilian companies controlling the rest.Brazil， the region’s biggest economy， is on track to grow above 7% this year， according to Barclays Capital. Barclays forecasts growth of 10.6% in Argentina， 5.7% in Chile and 8.9% in Peru.So far， China’s biggest energy deals in Latin America had been in the oil and gas sector.Earlier this year， China Petrochemical Corp. agreed to buy Occidental Petroleum Corp.’s unit in Argentina for US$2.45 billion. That deal came two weeks after Beijing-based Cnooc Ltd.’s joint venture in Argentina paid US$7.06 billion to take full control of Pan American Energy LLC， the country’s second-biggest oil and gas producer， from BP PLC.In October， Repsol S.A. of Spain announced the sale of 40% of its Brazilian assets to China Petrochemical Corp. for US$7.1 billion. In a series of lower-profile deals， China also has been expanding its footprint in the region’s power sector.Deals struck this year include the US$600 million Sopladora hydropower plant in Ecuador， which will be built by China’s Gezhouba Corp. The agreement was negotiated at the same time as China Development Bank set out terms for a US$1 billion loan to the Andean country.A separate contract for China’s Sinohydro Corp. to build the 1.5-gigawatt Coca Codo Sinclair plant in Ecuador was underpinned by a US$1.7 billion credit loan from China’s Exim Bank.State Grid had US$164 billion in revenue in 2008. The company was founded in 2002 as part of China’s efforts to overhaul and streamline its power grids， which had been managed by provincial governments with competing interests.State Grid is spending billions of dollars on new infrastructure in China， such as the installation of ultra-high voltage power lines to ship electricity from resource-rich western provinces to cities like Shanghai in the east.However， its position as China’s monopoly power distributor in all but five provinces limits its opportunity to cultivate new markets at home. That has driven management to seek opportunities overseas. In 2007， State Grid was part of a consortium that made a winning US$3.95 billion bid to develop and run the Philippines’ national electricity grid for 25 years.On December 13 of 2010， State Grid said it set up a subsidiary， State Grid Brazil Holding Ltd.， to run its operations there.State Grid plans to turn its Brazil subsidiary into a “stronger， more competitive and influential first-class power business in South America，” the statement on Sasac’s website said. (Wall Street Journal)