China and Brazil signed their first trade agreement in 1978, marking the beginning of a fruitful trade relationship between the two countries. Over the past four decades, these trade agreements have significantly boosted bilateral trade, resulting in a staggering 750-fold increase in Brazil-China trade volume from 1979 to 2023. Owing to bilateral trade agreements, China is now also the leading trading partner of Brazil.
Recently, the President of Brazil, Luiz Inácio Lula da Silva, visited China, accompanied by a suite of significant business leaders and politicians. This visit resulted in the signing of 15 memorandums of understanding (MoU) and 20 agreements, focused broadly on foreign trade and other wide-ranging issues. Given the historical context, it’s reasonable to expect that these Brazil-China trade agreements and memorandums will have a similar impact to their predecessors.
INS Global believes that these agreements are set to change the scope of Brazilian businesses in China and vice versa. This deal and other factors are creating new avenues for growth. It’s a golden opportunity for Brazilian businesses and if acted promptly with the right strategy, could significantly transform the country’s trajectory.
Here, we discuss the implications of the Brazil-China trade deals for global companies and 5 specific factors that should help boost growth.
Chinese Business Practices
New Brazil-China trade deals open up a world of opportunities for Brazilian companies as they can enter the local market now with greater ease than ever. China has a capital control policy, which restricts the importers’ access to the dollar. With the new agreement, importers have direct access to local currency, going beyond the set limitation.
The significance of local presence can’t be overstated when it comes to trading in China. Exporting products to China is one thing, but expanding and competing with local businesses is an entirely different challenge because local competitors possess a deep understanding of the culture and will already have existing longstanding relationships in place.
Trade in Real and Yuan
One of the agreements, in particular, allows traders to conduct trade in local currencies, the real and the yuan, reducing their reliance on the US Dollar.
This is a big step to simplifying any Brazil-China trade as it removes the dollar as a necessary intermediary, reducing costs and clarifying trade details. To facilitate this, China has established a clearing bank in Brazil, and likewise, Brazil has announced the decision to do the same.
The Removal of Exchange Rate Ambiguity
Being able to predict patterns in exchange rates is an important factor for businesses and investors alike. It empowers merchants to make informed decisions – forecast profits, revenue, taxes, and assess trade volume accordingly. However, exchange rates are especially subject to changing conditions in the worldwide economy, making them inherently unstable.
New agreements promise more stability, instilling confidence in businesses with more control and ultimately increasing overall trade volume.
For example, in 2022 alone, the Brazil-China trade volume surpassed $157 billion, compared to $65 billion in 2015. Stable exchange rates have the potential to multiply this trade volume in the years to come.
A Decrease in Transactional Costs
In addition to removing confusion surrounding exchange rates, conducting business in local currencies would expedite trade and reduce costs. Merchants no longer have to wait for days for clearance on dollar amounts, nor do they have to undergo multiple currency conversions that result in significant losses. For example, a Brazilian company exporting to China will receive payment in yuan, ending the need for conversions to dollars and then to real.
What’s more, the transaction cost associated with every conversion of currency will also decrease as a result. Currently, business partners have to go through conversions twice, losing more in transaction fees.
Brazilian companies, in particular, need to take advantage of this opportunity before the market is too saturated for new players to enter. This is where working with a partner accelerates your growth. For example, instead of setting up a new business on your own over several months, you can rely on a global Professional Employer Organization (PEO) like INS Global that can do it for you in a matter of weeks.
Improved Market Access for Trade
One of the agreements also focuses on improving market access. A Brazil-China trade working group comprising representatives from both countries will oversee and streamline trade routes to ensure better transportation access, and improve railway and seaport infrastructure. The group will also identify and minimize unnecessary barriers to trade and expedite customs clearance procedures.
The aim is to reduce transportation and production costs for Brazilian companies, thereby further promoting trade. If you’ve hesitated to expand due to infrastructure concerns in Brazil, now is the time to reconsider your expansion plans.
Factors to Consider When Working on Brazil-China Trade Deals
If you’re a Chinese company planning to expand into Brazil, you need to familiarize yourself with the new government and stay updated on changing regulations. Likewise, if you’re expanding into China from Brazil, you must stay ahead of their rapidly evolving rules and regulations for business.
Having a local partner that understands the regulations of both countries can provide invaluable assistance, guiding you through the process and helping you navigate various hurdles. Again, this is where a global EOR (Employer of Record) services provider like INS Global can help. With experience in helping companies expand in Brazil and China, INS Global offers you the chance to expand without the need for a local entity and all the responsibilities and risks that this brings.
A Bright Future for Brazil-China Trade: Taking Charge of Your Global Expansion Opportunities with INS Global
The current prospects indicate a favorable environment for the two countries to expand trade further, building upon an already substantial trade volume worth hundreds of billions of dollars.
It’s worth noting that President Luiz Inácio Lula da Silva’s visit to China occurred a mere 4 months into his new presidential term, suggesting the potential for more Brazil-China trade agreements in the future that would benefit entrepreneurs and merchants from both countries.
If your business is poised for expansion and already has a well-established presence in your home country, this is an opportunity worth seizing. Based on both the nations’ leaders’ comments, there is a strong indication that bilateral ties will continue to strengthen, and as new rules and regulations come into play, your business stands to benefit greatly if you’re already present in the country.
That’s why INS Global, a global expansion services provider with more than 15 years of experience helping companies to reach their global potential, can be your best point of contact in Brazil or China.
We offer all the services needed to safely and simply expand operations in more than 100 countries worldwide, including Brazil and China. Whether you are looking to outsource your recruitment, payroll, legal, or employment responsibilities to a professional expert, INS Global has you covered.
Talk to one of our experienced expansion advisors today to learn more about how we can help.
FAQs: Your Questions About Brazil-China Trade Answered by INS Global Expansion Experts
What are the main areas of opportunity for Brazil-China trade
Various opportunities currently lie in investment and collaboration in sectors like agriculture, technology, renewable energy, manufacturing, and more.
How does the current trade relationship between Brazil and China stand?
Brazil and China already have a significant trade relationship, with China being Brazil’s most important trading partner. The countries share advantages in several key industries like agriculture and manufacturing, boosting the opportunity for collaboration in supply chains or knowledge.
How can I find reliable business partners in Brazil or China?
There are a lot of options you can explore. For example, you can use trade associations, local chambers of commerce, or online business networks to find potential partners. However, approaching potential partners directly will be key to strong relationships, so attending general or specific Brazil-China trade fairs and networking events can be useful.
What language barriers exist when doing business between Brazil and China?
Yes, language can be a barrier in many cases. Portuguese is the official language of Brazil, while Mandarin is China’s official language. Neither country has particularly high levels of fluency in the other’s language. As a result, working with local translators or hiring bilingual staff can help bridge this gap.
How do I safely navigate the legal and regulatory aspects of Brazil-China trade deals?
It’s always recommended to hire local support, including legal counsel or intermediaries who specialize in international business. Because of the local legal frameworks in both countries being notoriously complex, this can help you navigate the regulatory landscape.
What are the tax implications of doing business between Brazil and China?
Taxes can be complex, especially if you aren’t familiar with the local language or best practices. In particular, Brazil and China have not yet signed a Bilateral Investment Treaty, however, they do have a double tax avoidance agreement dating from 1991.
Are there any specific government incentives or programs that promote Brazil-China trade relationships?
Both governments may offer incentives and programs to encourage international trade and investment. Organization such as the China-Brazil Business Council (CEBC), Brazilian Trade and Investment Promotion Agency, and departments of the BRICS bloc help to further trade between these countries.
How can I protect my intellectual property when Pursuing Brazil-China trade?
With an increasing focus on IP rights, it’s a good idea to register your intellectual property in both countries before signing any deals. Be cautious about sharing sensitive information while you approach potential partners or invest in research and development. Always work with legal experts to enforce your IP rights if necessary.