Latin America's Lessons in Chinese

By Sean Burges

Just a few weeks after the Australian government launched its Asian Century white paper, the Brazil-China Business Council ran a major one-day conference in Sao Paulo to discuss the challenges and opportunities of China. While Australia received only passing mention, the larger context of the discussions underlined why Canberra should be pursuing a hedge against China.

In blunt terms, Brazil is considerably more important than Australia as a global political and economic actor. Affairs in South America are often quietly managed from Brasilia. African nations are increasingly turning to the South American giant for counsel, aid and investment.

Global governance tables have made room for and are listening attentively to Brazilian ideas.

Despite all of this, there was a real sense at Sao Paulo that China was inclined to treat Brazil as something of a vassal state.

The Chinese ambassador to Brazil, Li Jinzhang, employed a subtle mix of oblique messaging and ancient imperial strategies to quietly underline relative power relations and the limits on Brazilian aspirations. Jinzhang deliberately spoke in Mandarin rather than in Portuguese.

The message was clear: you must come to us and adapt to our ways and priorities.

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Quiet reminders that China is the dominant player in the relationship were accompanied by a subtle warning to Brazilian industrialists complaining of the flood of Chinese imports and calling on Brasilia to engage in further protectionist measures.

Jinzhang told the story of a small Chinese village that, like Brazil, was a predominantly agrarian community. Through hard work and innovation, this village transformed itself into an industrial powerhouse, contributing just over 2 per cent of China's exports from a territorial footprint of well under one tenth of 1 per cent of the country's landmass.

While gently delivered, the message for Brazilian business leaders was very simple: we are not going to slow down our pace of exports and it is up to you to innovate and compete with us.

More chillingly for Brazil's leading agro-industrial business sector, he said a central policy goal of the new administration in Beijing was food security, with an ultimate aim of self-sufficiency.

These direct messages to the Brazilian audience are instructive for Australia because the two countries have a similar export profile and are both struggling to maintain an industrial capacity in the flood of cheap Chinese exports. They also raise the question of how to manage the challenge from China. Fortunately, the Chinese ambassador was kind enough to offer some answers.

First, increase the rate of innovation. The Chinese industrialisation model is instructive here because it is founded on waves of foreign direct investment inflows bringing new technology and processes. In other words, Chinese firms are engaged in international collaboration to drive innovation.

Australian universities are already beginning to tap into the process. Vice-chancellors from the Group of Eight universities are regular visitors to Latin America in search of new research partnerships. Business should follow and seek dynamic partners with whom new markets, products and process can be explored and developed.

Government should encourage this with expanded export and research financing as well as a dramatically enhanced Austrade presence in key centres of Latin American innovation such as Brazil, Chile, Colombia, Mexico and Peru and the provision of analytical and background material in Australia's capitals.

Second, part of any intelligent Asian strategy will involve ideas for managing powerful countries. In the foreign policy literature, Australia is often described as a middle power, predicating its ability to influence global affairs on close relations with the US.

While a similar unilateral strategy is unlikely to work with China, a more sophisticated balancing strategy involving a partnership with Brazil and Canada might be able to force concessions from China. Australia, Brazil and Canada are the three major mineral and food exporters to China, and are consequently subject to a divide and conquer strategy from Beijing.

Carefully constructed collective negotiating stances from what we could call the new ABC countries could force major concessions on tariffs that prevent value being added to mineral and agricultural products before export to China.

Undoubtedly, China is going to be the economic reality for Australia and Latin America. What has not been discussed adequately is how to manage and shape the relationship.

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