On Sunday, Luiz Inácio Lula da Silva, popularly known as Lula, was once again inaugurated as the president of Brazil after defeating far-right incumbent Jair Bolsonaro in a tight race. Because Lula’s track record of cooperating with China runs counter to Bolsonaro’s aggressive Sinophobic rhetoric, many anticipate that Lula will bring about a renewed era of Brazil-China relations. China has gestured as much itself, sending a high-level delegation, including Vice President Wang Qishan, to Brazil for the inauguration.
But Lula’s aspirations for Brazil’s relationship to China will need to evolve from his prior presidency from 2003 to 2010. His old set of policies would not be well suited for President Xi Jinping’s China in 2023. The current Brazil-China relationship looks much different than it did during Lula’s first term, with Brazil’s growth in the global commodities trade, China’s shift away from official bilateral loans to engagement in multilateral forums, and increased animosity between Washington and Beijing. To protect Brazilian interests, Lula should maintain a realistic outlook of China’s more constrained financial capacity, engage with China in multilateral settings, and leverage Brazil’s trade strengths.
In his first stint as president, Lula hoped China would be a diplomatic partner in achieving his vision for a more equitable voice for Global South nations. He saw China as an equal to Brazil—two countries on the periphery of Western-dominated institutions. He believed Brazil and China were aligned on an agenda of South-South cooperation, as a way to “construct a new world geography.” Lula was instrumental to the 2006 formation of the group now known as BRICS—the emerging economies of Brazil, Russia, India, China, and South Africa that joined together as an alternative to alliances dominated by industrialized Western countries. By the end of Lula’s first presidency, Brazil-China trade had gone from virtually none to almost $60 billion. In 2009, China became Brazil’s top trade partner, and Brazil received a record-size deal of $7 billion from China Development Bank for offshore oil development.
In the decade since Lula’s departure, these economic ties moved from burgeoning to essential. Brazil came to account for 47 percent of China’s foreign direct investment in Latin America, totaling more than $66 billion since 2010. Chinese development finance, bolstered during the height of the Belt and Road Initiative (BRI), has also proliferated in Brazil: from 2010 to 2021, Brazil received $22.47 billion from China Development Bank and China Export-Import Bank.
Even amid political storms, economic integration remained strong, in large part thanks to the commodities boom of the late 2000s and early 2010s. During this period, many Latin American nations’ economic ties with China grew rapidly due to China’s interest in their raw materials. As a major petroleum, iron, and soybean exporter, Brazil was at the forefront.
But since then, China’s global role and priorities have fundamentally shifted, making the growing trade and investment ties ushered in during Lula’s first term seem like a honeymoon period. After borrowers such as Venezuela and Ecuador struggled to repay their loans, Beijing became increasingly reluctant to lend, dashing hopes that China could be an alternative financier for Latin American development. After a record high of $7.5 billion in 2015, Chinese loans to Brazil slowly dried up until they were virtually nonexistent heading into the 2020s.
In addition to exercising more restraint on deals, China’s development finance regime has undergone a rebrand. Xi has transitioned away from the behemoth BRI—mentions of it has all but disappeared from his speeches. Even if Brazil takes the much anticipated action of formally joining the BRI, with BRI’s relevance on the decline, that move would be significantly less pivotal than it would have been a few years ago Additionally, the BRI focuses on building transportation and renewable energy infrastructure as well as securing state-owned firm oil deals. Now, Xi’s focus is the Global Development Initiative (GDI), which has distinct priorities and financial instruments with a focus that appears to be much more similar to traditional development assistance. As an upper-middle-income country, Brazil is not a good beneficiary.
In Latin America, Xi no longer has to wage the same diplomacy fights as it did a decade earlier. Until recently, fifteen of the thirty-three countries in Latin America and the Caribbean formally recognized Taiwan as an independent country. Now, after years of a charm offensive, only eight countries in the region still recognize Taiwan. China has built strong bilateral relationships and free trade agreements with Chile, Costa Rica, Panama, and Peru, and twenty-one Latin American and Caribbean countries have signed onto the BRI. Even Mexico, the Unites States’ staunchest ally in the region, saw a record of almost $400 million in foreign direct investment from China in 2021, fueled by pandemic and trade war disruptions. China’s formidable economic influence in the region has been cemented.
China’s foreign policy battles have also shifted toward technology. Xi has doggedly focused on cultivating China’s indigenous innovation capacity and securing its status as a high-tech powerhouse. China now has additional priorities around international standard-setting and access to advanced technologies on which its foremost gains would come from courting advanced economies. Here, Brazil’s support is less meaningful.
As an emerging economy reliant on commodity sales, Brazil faces a tech-oriented China that could amplify an already lopsided bilateral relationship. In 2018, Chinese ride-sharing giant Didi purchased 99, Brazil’s local ride-sharing company. This is one part of a growing presence of Chinese tech investment in Brazil, with some Chinese apps gaining market share while the share of U.S. app downloads compared to total Brazilian app downloads stayed stagnant in the last five years. If China continues to guide the Brazilian tech sector’s growth, Brazil’s ability to achieve the “equal partner” status Lula imagined will be even more limited. More worryingly, in an all-out tech war between China and the United States, any allegiance to Chinese tech might be seen as hostile to the United States and could subject Brazil to undue scrutiny. So in his second presidency, Lula must pursue a pragmatic course with China—and he is well positioned to do so.
With his country’s slow growth, high unemployment, and debt, Lula will likely be preoccupied with strengthening the economy, limited in his ability to expand international partnerships, and unable to rely on economic ties and South-South cooperation rhetoric to drive Brazil’s relationship with China. But Lula’s Brazil has several strengths that point to ways in which the two countries can recalibrate. Lula himself has also shown promising signs of navigating international power dynamics.
First, commodities. Even as commodity prices tumble, recent years have highlighted the leverage they provide resource-rich economies. Brazil is the only major Latin American economy posting a sizable trade surplus with China—largely due to the stellar performance of commodity exports. Brazil has been China’s top source of soybeans since 2013, and its share of total Chinese soy imports skyrocketed amid the U.S.-China trade war. China is ever more reliant on Brazil for this major import, as no viable alternative source other than the United States exists at the scale it needs. Even though Brazil’s reliance on raw materials can be a hindrance to its sustainable development, it is also a source of undeniable advantage in a more unpredictable global trade schema.
Second, multilateralism. With bilateral funding down, Lula might be able to channel some Chinese financing through multilateral institutions, albeit not nearly to the same magnitude as it did in the early 2000s. Xi has made a marked shift to more regional and multilateral collaborations with the developing world, establishing a joint forum with the Community of Latin American and Caribbean States (CELAC) in 2015 and founding the Asian Infrastructure Investment Bank in 2016. China has more than quadrupled its contributions to multilateral development institutions since 2010. Lula has already said that Brazil plans to rejoin the China-CELAC forum, which has become a major site of Chinese financing deals.
Lula may also benefit from reasserting Brazil’s presence within the BRICS. He has already met with ambassadors of the other member nations, during his presidential campaign. However, he should be prudent about what further BRICS engagement could signal about his government’s stance on the Russia-Ukraine war. Lula is unlikely to step away from Bolsonaro’s pro-Russia stance—he has stated he does not support the U.S.-led sanctions but thinks “Putin shouldn’t have invaded Ukraine.” He met with Russian and Ukrainian delegations as one of his first acts as president, and even spoke with Russian President Vladimir Putin in December, where they agreed to strengthen ties through BRICS. If Lula treads carefully, he could reassert Brazil’s presence in these institutions and build on the multilateral foreign policy he began in the 2000s.
Brazil’s strengths offer hope for a strong but likely asymmetric partnership. In 2021, Lula stated that he admired China’s path to economic and geopolitical strength and wished the same success for developing countries like Brazil. Since China is no longer an “equal partner,” as Lula seems to recognize, Lula would be well served by leveraging Brazil’s advantages to fortify ties to China in multilateral forums, while not embracing Beijing with such fervor that he alienates an increasingly leery Washington. Lula seems aware of this balance, as he plans to visit both China and the United States within his first three months in office.
As Lula ascends to the presidency once again, he has been fervently committed to the vision that “Brazil is back.” This time, its relationships with the world’s powers will need to be more pragmatically managed. Gone are the honeymoon days of multibillion-dollar Chinese deals and warm, uncomplicated rhetoric about cooperation. Lula must move forward carefully to reengage China while maximizing his country’s own economic interests.