The China Signal - March 11
800 buses to Mexico, potential $2bn China Three Gorges Brazil IPO, Russia/China/LatAm commodities complications
G’day, and welcome to The China Signal. This week, 800 natural gas buses delivered to Mexico, China Three Gorges considers $2 billion IPO of their Brazilian business, a Russia/China/LatAm commodity crunch amid sanctions and spiralling prices, Alibaba launches Brazil-China cargo flight, Belize’s prime minister leads a delegation to Taipei, plus much more. Read on.
Remember, comments from our esteemed interns Ignacio Albe and Richard Puppin are denoted IA and RP, respectively, while mine are MH. I want to give them credit, and for you to know the good work they’re doing.
Clean Energy/Public Transport
Mexico 🇲🇽
Chinese company delivers 800 natural gas buses to Mexico | Xinhua - March 9, 2022
*Note: Xinhua is a Chinese state-sponsored media outlet.
Anhui Ankai Automobile Co., Ltd. delivered 800 passenger buses powered by natural gas to Mexico on Tuesday, marking China's largest passenger bus export order to Mexico to date.
The eco-friendly buses will run on natural gas and be put into use in Mexico's third-largest city of Monterrey.
Background: Anhui Ankai Automobile Co., Ltd.
Headquartered in Hefei (Anhui region), Anhui Ankai Automobile Co., Ltd. is a Chinese listed subsidiary of state-owned Anhui Jianghuai Automobile Co., Ltd (commonly known as JAC Motors). The company produces high-end large and medium-sized buses and auto parts. With over 3,000 employees, it has an annual output of 15,000 buses. Established in 1966, the company has been listed on the Shenzhen Stock Exchange since July 1997.
Anhui’s products have been exported to over 80 countries including the United States, the United Kingdom, France, Italy, Saudi Arabia, Russia, South Korea and Australia. (RP)
Infrastructure
Brazil 🇧🇷
China Three Gorges Said to Weigh $2 Billion Brazil Unit IPO - Bloomberg - March 9, 2022
China Three Gorges Corp. is exploring an initial public offering of its Brazilian unit as the Chinese energy giant seeks to raise funds for expansion in Latin America, according to people familiar with the matter.
The Chinese state-owned company has held talks with prospective advisors to prepare for the potential share sale in Sao Paulo, which could raise about $2 billion, the people said. A listing could happen as soon as the end of this year…
Commodities
Brazil 🇧🇷 + Argentina 🇦🇷 + China 🇨🇳 + Russia 🇷🇺
Amid rapidly rising commodity prices, Chinese buyers have moved in to book large amounts of corn, soybeans, and wheat from the US as Russia’s invasion of Ukraine and a severe drought in Brazil have cut global foodstuff supplies short. Drought in large areas of Brazil and Argentina have worried analysts for months as prices continue to soar. Growing purchases of US commodities also stand in contrast with earlier concerns raised by the USTR that China had fallen $100 billion short of fulfilling its commitments to buy more American agricultural products in 2020 and 2021, as agreed to in Presidents Trump and Xi’s “Phase One” trade deal in January 2020. China has also exceeded previous expectations for its total soybean imports in the first two months of 2022, although non-commercial buying may have pushed up arrivals:
China's soybean imports in Jan-Feb beat market expectations | Reuters - March 7, 2022
China, the world's top importer of soybeans, brought in 13.94 million tonnes of the oilseed in the Jan-Feb period, up 4.1% from 13.41 million tonnes in the same period in the previous year, data from the General Administration of Customs showed.
Russia’s invasion of Ukraine has also placed doubts on the mid-term future of the region’s agribusiness, as the conflict threatens Brazil’s supply of essential fertilisers coming from Russia:
Ukraine War Hits Farmers as Russia Cuts Fertiliser Supplies, Hurting Brazil | WSJ, March 5, 2022
The Latin American country is the largest producer of coffee, soybeans and sugar, and the most dependent of the world’s agricultural superpowers on imported fertiliser. Brazil imports some 85% of its fertilisers and about a fifth of those imports come from Russia.
These fertiliser imports have played a vital role in Brazil’s transformation in recent decades into a global foodstuff exporter, a boom in production that was quickly snatched up by rising demand in China. Incidentally, in the days before Russia launched its offensive in Ukraine the Brazilian government announced a campaign to reduce its dependency on fertiliser imports by more than a quarter to nearly 60% of national consumption by 2050.
Brazil aims to cut fertiliser imports by quarter | Argus Media, February 24, 2022
Brazil intends to discuss at the Organization for Economic Co-operation and Development (OECD) ways of attracting international and national investors to the fertiliser market. The discussions will be valuable in encouraging bilateral agreements with leading global producing markets, such as Belarus, Canada, China, Morocco and Russia, among others.
Bilateral arrangements between Russia and Belarus as part of these discussions will be in doubt for the foreseeable future. (IA)
*****
More generally, I’ll be watching closely for second and third order economic impacts that threaten political consequences on LAC and the LAC-China relationship. This can be broken down further into categories: LAC exporters losing access to Russian and Ukrainian markets (eg. Ecuadorian bananas), LAC businesses losing access to inputs from Russia and Ukraine (eg. Brazil’s reliance on Russian fertiliser), and potential movement from Chinese firms pivoting from Russia/Ukraine to Latin America.
For example, Huawei and Xiaomi have basically halted sales of their smartphones in Russia since the conflict erupted. Unlike Western companies, this isn’t a political statement against the Kremlin, which would contradict Beijing’s diplomatic posture, but a business decision forced by economic reality. In order to make a profit against the plunging Russian ruble, these firms would be forced to raise the price of their products higher and higher, beyond what Russians can afford. However both of these firms have a large and growing market share LAC smart phone market, as I’ve covered in TCS August 18. Will they pivot their business to increase sales in LAC to cover their losses from Russia? (MH)
Trade 🚢💱
Uruguay 🇺🇾
When asked about ongoing negotiations to finalise a controversial bilateral free trade agreement with China, Uruguay’s president, Luis Lacalle Pou, told the national news on March 4 that the necessary feasibility studies are about to be finalised. The president has been fending off allegations that negotiations have stalled, as the opposition continues to pressure the government, while MERCOSUR allies remain unmoved. On the current state of relations with Argentina, the MERCOSUR partner which has most strongly protested Uruguay’s moves, Lacalle Pou said that relations are “pretty good,” although he conceded that the Fernandez administration in Buenos Aires remains “unconvinced” and that they are “not happy” with Uruguay’s decision to move forward without MERCOSUR. He also recognised that the other members, Brazil and Paraguay, are also not pleased as the wider issue of a common import tariff reduction pre-agreed to by Brazil and Argentina remains gridlocked.
Montevideo insists that it will not approve a general reduction of MERCOSUR’s common import tariff by 10% so long as the other partners refuse to accept Uruguay’s negotiations for its bilateral FTA with China.
Background: Luis Lacalle Pou’s push for an FTA with China, angering MERCOSUR
In early 2021, amid mounting discontent from his unmoving partners across the Rio de la Plata, President Lacalle Pou told his fellow MERCOSUR heads of state at a summit that the trade block should not become “dead weight” as he made the case to make the regional common market a more flexible arrangement that could accommodate bilateral deals with countries outside the block. US policymakers and observes have repeatedly expressed their own concerns over Uruguay’s intentions, citing the negative impacts that unbridled commercial agreements with China could have for the region. (IA)
Brazil 🇧🇷
Alibaba’s Cainiao Teams Up With Qatar Airways on China-Brazil Cargo Charter Flight - March 10, 2022
Cainiao Network, the logistics arm of Chinese e-commerce giant Alibaba Group Holding, has launched a weekly charter flight between China and Brazil in cooperation with Qatar Airways Cargo.
Cainiao has experienced three-figure business growth in Latin American over the past year and has driven a focused air cargo network expansion in recent months to secure smooth supply chain performance, the firm said.
Cainiao has already teamed up with carrier Atlas Air to operate seven chartered flights a week, linking Hong Kong with Miami, Los Angeles, Sao Paulo and Santiago in Chile.
I noted Cainiao’s Santiago route in TCS November 24. (MH)
Taiwan Diplomacy
Belize 🇧🇿
Belize’s Prime Minister John Briceño is currently leading a delegation (March 8-March 12) to visit Taipei in order to reinforce 33 years of bilateral cooperation in infrastructure, public health, agriculture, education, and women empowerment. He will be also conferred two honorary titles as a “sign of goodwill”.
Belize is one of Latin America and the Caribbean’s 8 countries who still recognise Taiwan as a diplomatic partner, from a dwindling total of 14 countries globally. (RP)
Soft Power
Cuba 🇨🇺
Cuba introduces Chinese language course into secondary education-Xinhua - March 8, 2022
*Note: Xinhua is a Chinese state-sponsored media outlet.
On Monday March 7, the Cuban Ministry of Education introduced a Chinese language course into the national education system. Around 130 secondary students in Havana will be involved in this new initiative. As Cuba-China relations continue to strengthen:
Chinese Ambassador to Cuba Ma Hui said the two countries have taken a significant step to develop their relations through culture and education.
The Chinese Embassy in Cuba has provided the school with textbooks, dictionaries, handbooks, and traditional toys to be used as teaching aids during the Chinese language lessons. (RP)