Brazil-China fund now operational with $20 billion

The Brazil-China Cooperation Fund for Expansion and Productive Capacity was brought into operation Monday (Jun 26), and should make some $20 billion available in credit for projects in such fields as infrastructure, transformation, technology, and agribusiness. Firms can now send their initiatives for review to a technical team and a Steering Committee made up by Brazilian and Chinese authorities.

The fund aims to finance Brazilian plans only, and will get $15 billion from China through the China-Latin America Industrial Fund (CLAI Fund). Another $5 billion will be Brazil's part of the deal, which is to be kept at a 1-3 proportion.

The Brazilian credit is to come mostly from Caixa Econômica Federal (also known as Caixa) and the National Economic and Social Development Bank (BNDES). However, according to Jorge Arbache, secretary for International Affairs at the Ministry of Planning, Development, and Management, this should not prevent other Brazilian banks from contributing to the fund.

“Intent on boosting competitiveness, we've favored BNDES and Caixa, but by no means offered them exclusivity. If a project is submitted for review with Banco do Brasil as a supporter, there will be no BNDES or Caixa,” he explained. Arbache noted that no investment is to come from the National Treasury.

Arbache explained that the terms, interest rates, and the type of credit granted will depend on the nature of each project. “The banks from both sides [Brazil and China] will sit and analyze every project,” he announced. Before reaching the banks for review, proposals will be fine-combed by the Steering Committee, which may mark it as a priority plan.

The companies interested in submitting an initiative are advised first to read the operational manual made available by Brazil's Planning Ministry. The next step is to fill out a form to be found on the Brazil-China Fund website.

“We expect the first projects to start coming in sometime over the next few weeks. We know that many are interested. Brazilian banks have already stated they have projects linked to their clients looking to join,” Arbache said. Having initial funds totaling beyond the original $20 billion is still a possibility, depending on the demand, he went on to say.

Shared decisions

If compared to other funds kept by China with other countries, this fund has special features, Arbache added. The Asian country has 16 other funds, all of which unilateral, i.e. the money comes exclusively from China. With investments being shared by both China and Brazil, decisions will also be made jointly, which the secretary described as a “singularity.”

Moreover, there will be no required participation of Chinese companies or mandatory purchase of material from the Asian country so that projects can leave the paper. In addition to the financing of plans, the fund should bring the two countries closer together, Arbache added.

“The fund will bring opportunities for building closer ties and promoting communication between the two countries as well as banks from both sides, which would take time to happen otherwise. We believe the results of this coming together will go much beyond project funding.”

Translated by Fabrício Ferreira