In 2023, the international trade chain between Brazil and China reached a record value in the Ministry of Development and Industry (MDIC) historical series (US$157.5 billion), in part due to our exports, which surpassed, for the first time, the US$100 billion mark. In 2024 (up to the end of November), the US$147.8 billion trade flow was driven by our imports of Chinese goods, which jumped 20.4% compared to Jan–Nov '23.

China has thus established itself as Brazil's largest trading partner, accounting alone for just over 1/4 of our international exchanges.

In the last two and a half decades, the Chinese progression in our foreign trade has been exponential, especially after the global crisis of 2008/2009. Between 1997 and 2000, it represented, on average, only 1.8% of Brazilian exports and 1.9% of our imports. In 2023, its share reached 30.7% and 22.1%, respectively.

Between 2019 and 2023, our sales to China increased 64.7%, in current values, while Chinese sales to Brazil rose 47.6%. Although the value of our imports grew less than our exports to China in the period, it should be noted that in some industrial branches the Chinese presence was felt much more strongly— some as examples are base metals, vehicles and auto parts, chemicals and machinery and equipment.

The deepening of Brazil-China trade relations was accompanied by changes in our exports, to the Chinese market itself but also to other markets, and in our imports, with implications for the complexity of the Brazilian economy and the country's industrial development.

In this Letter IEDI, we explore asymmetries in the export baskets of Brazil and China and in the commercial relations they nurture among themselves, with emphasis on industrial and manufacturing products. We also characterize the evolution of the economic complexity of our export basket compared to China's between 2014 and 2021. To this end, data from the Atlas of Complexity and information on foreign trade from Trademap and Comtrade were cross-referenced.

The temporal range of the study was defined based on the availability of the databases used and the moment prior to the sequence of deep crises that Brazil went through, that is, the 2015/2016 crisis and the shock of the COVID-19 pandemic. 

The study will be complemented by two more Letters IEDI to be released soon. One of them will analyze the evolution and complexity of Brazilian and Chinese exports to the main markets that demand goods from our industry, that is, it will evaluate the foreign competition that China has represented to Brazilian goods. Another will analyze the entry of Chinese products into our domestic market, based on the evolution of the import coefficients of manufacturing and its different branches.

The approach to economic complexity used in this Letter IEDI was developed by economists Ricardo Hausmann (Harvard University) and César Hidalgo (MIT), who argue that the complexity of exports is decisive for the long-term economic growth of countries. Thus, the productive complexity of countries is measured from the export structure of these economies.

What is observed is that China's share gain in our foreign trade was accompanied by a significant decline in Brazil's Economic Complexity Index, compromising, according to Hausmann and Hidalgo's theory, our economic dynamism.

More complex countries are those that have a more diversified productive structure and export basket, and sell more sophisticated products. This sophistication is measured by the low ubiquity of exports, which means that only a few countries are able to produce and export these products. 

The idea is that some groups of products in the core of the productive fabric— the most complex, which are usually more technology-intensive and with greater value added — are essential to boost other productive activities due to their chain and spillover effects. These can be supply effects, because they reduce production costs and generate technical progress, or demand effects, because they create and expand markets. 

On the other hand, economies with a poorly diversified export basket —concentrated, for example, in primary goods or those with low industrial transformation— and whose export products present high ubiquity —that is, that more countries can produce and export— are less complex economies.

The evolution of Brazil's Economic Complexity Index (ECI) between 1995 and 2021 (last available data) shows a significant and persistent worsening. In 1995, we occupied the 25th position in the world ranking of complexity and in 2021 we reached the 70th position. Argentina, Chile, Colombia and Paraguay also lost positions between 1995 and 2021, but much less intensely than Brazil. 

Mexico, which integrated into the global economy through NAFTA, rose from 29th to 22nd place between 1995 and 2021. Although foreign industrial units, called “maquilas”, have not provided Mexico with links of greater value added nor led to the internalization of technological advances, they seem to have contributed to making its economy more complex.

China, on the other hand, was one of the countries that gained the most positions in the complexity ranking in the period in question. Despite slight fluctuations, it advanced continuously from 1995, moving from 46th to 30th in 2000, then to 24th in 2010 and to 18th in 2014. Following that, it maintained its 18th position in 2021. It is worth noting that Chinese resilience was not only observed in its relative position in the ranking, but also in the value of its ECI, of 1.32 in 2014 and 1.33 in 2021.

The difference in trajectory between Brazil and China in the complexity ranking is due to the reprimarization of our export basket, largely due to Chinese demand itself, which also boosted international commodity prices. 

Another prominent factor is the Brazilian lack of care with its industry by not ensuring a favorable macroeconomic environment (competitive and stable exchange rate and low interest rate) and conducive conditions to its modernization and the constitution of technological and innovative capacities. This made us more vulnerable to the intensification of Chinese competition in the international market.

In the period analyzed, considering the composition of Brazilian exports of goods, the share of mineral and agricultural products, which was already very high in 2014 (54.3%), increased to 65.2% in 2021. 

The most significant setbacks occurred predominantly in more technology-intensive and more elaborate products. These were the cases of vehicles (from 5.9% to 3.6%), machinery (from 4.6% to 3.6%) and chemical products (from 6.4% to 5%).

For the Chinese market, our exports are concentrated in only three products: iron ores, soybeans and crude oil, both in 2014 and 2021, which together represent almost 80% of the total sold to the country.

In contrast, China's export basket of goods is more diversified and shows a greater presence of more elaborate manufacturing products than in Brazil’s — which has been the case since 2014. From then until 2021, there was an increase in this presence, and the set of the two main types of products (electronics and machinery) rose from 44% in 2014 to 47.2% in 2021 of the Chinese export basket.

It is worth remembering here the Chinese effort in recent years to advance in the world production of more technologically advanced products. Previous IEDI releases, such as Letter n. 827, of Mar'18, and Letter n. 1094, of Jul'21, analyzed China's industrial development strategy with an emphasis on innovation and the constitution of technological skills of the so-called industry 4.0.

By presenting a more diversified export basket —and, in addition, more intensive in manufacturing goods— China has larger and denser “product spaces,” raising the possibility of producing new goods and increasing their complexity.

In 2021, China had 391 products with revealed comparative advantages, more than triple the number of Brazil, which had 124 products.

A highly connected product space suggests, according to Hausmann and Hidalgo's approach, that it is easier for the economy to raise its economic complexity, increasing the number of products produced and exported. On the contrary, when connections are dispersed, it is more difficult to advance the country's economic complexity. 

Thus, the probability that China will further increase its economic complexity is higher than Brazil's. China has more points of connection between the goods it already produces and the set of nearby products it may manufacture because the country already has industrial skills similar to those required to make them. Brazil has a much more dispersed production network with fewer points, increasing the difficulty to make its economy more complex. And it is worth remembering that less complexity means fewer conditions to grow.

This alert goes on the same direction as other studies that employ different approaches. Letter IEDI n. 1101 analyzes a study in which UNCTAD states that the international experience indicates that developing countries dependent on commodities, which is increasingly the case of Brazil, remain stuck for long periods in a situation of low GDP growth and weak socioeconomic development, macroeconomic instability, high exposure to shocks and to the volatility of international commodity prices, among other problems.

Another example is the World Bank study discussed in Letter IEDI n. 1221. For the Brazilian case, the work showed a positive and significant impact of a company's entry into the international market on the adoption of more sophisticated technologies for most business functions, with particularly high coefficients for business administration, production planning, supply chain management and quality control. It is a factor that favors higher productivity.

The full text is available in Portuguese.