Chinese FDI in Brazil A Case Study on Chery. Andre Soares Research Coordinator China Brazil Business Council

Transcription

1 Chinese FDI in Brazil A Case Study on Chery Andre Soares Research Coordinator China Brazil Business Council

2 Brazil - China Economic Relations: a Deepening Trend China: Brazil s largest trading partner US$ 75 B in ,1 75, ,6 36,9 56, ,4 6,7 9,2 12,2 16,4 3,2 4, Source: MDIC Preparation: CBBC

3 Chinese Investments in Brazil: (june)

4 From Trade to Investment: the new dynamics Chinese outward FDI as a significant phenomena started in the 2000s; by 2010, China overttok Japan and became the fifth largest direct foreign investor, with 5% of the global total (< 1% in 2007) Chinese investments in Brazil - 60 projects amounting to US$ 68.5 billion, of which so far 39 were confirmed for US$ 24.4 billion Number of Projects Total of 60 projects Projects Value USD (million) Totalof US$ % Confirmed (39 projects) 36% Confirmed (US$ millions) 65% Announced (21 Projects) 64% Announced (US$ millions) Source: CBBC s consolidated list

5 75% 100% 50% 64% 67% Number of Projects 62% The 2010 Leap Why the surge in announced and confirmed investments? Announced Confirmed (june) Source: CBBC s consolidated list

6 Drivers of Chinese Investments After-effects of the Great Recession U.S. and Europe less attractive targets Brazil: Market and Production Platform A new middle class; Well-established industrial base Chinese Internal Factors Secure access to natural resources; China will no longer be selfsufficient in food

7 Number of Projects Which Companies are Investing in Brazil? 44 Chinese companies have announced investments in Brazil 7 are part of a special group of SOEs (backbone of China's economy) Central SOE SOE Private Most projects (47 out of 60) have the government directly or indirectly as an equity partner (june) Source: CBBC s consolidated list

8 What determined entry? Resource-seeking companies dominant in 2010 were replaced by market-seeking players in 2011 Source: CBBC s consolidated list

9 The entry mode: mostly greenfield investments Often preferable: creates new capacity; demand for local suppliers and jobs (estimated at 20 thousand) Source: CBBC s consolidated list

10 Sectoral distribution of investments Focus on manufacturing and regulated sectors (power); 2010 emphasis on natural resources appears to be one-off; Few investments in agribusiness; Recent inflows directed to services (financial). 14% 14% 14% 15% % Automotive Agribusiness Telecommunications Machinery and Equipment Mining 5% 5% 5% 9% 9% 5% 5% % 19% 14% Energy (oil and gas) Mining Automotive Agribusiness Construction Equipment Banking Education Electrical Energy Infrastructure Steel 7% 7% 7% 14% 7% 14% % 15% Automotive Electronics Machinery and Equipment Telecommunications Chemicals Energy (oil and gas) Mining Railway 17% 5% 5% 17% 11% 17% 17% 5% 6% 2012 (june) Automotive Electrical Energy Electronics Machinery and Equipment Banking Energy (oil and gas) Infrastructure Mining Telecommunications Source: CBBC s consolidated list

11 Chinese FDI in Brazil s automotive sector

12 Sectoral distribution of investments Majority of projects in the automotive sector: Automotive sector (16/63 projects) 25% 75% Source: CBBC s consolidated list

13 Amount of US$ 2,16 billion in announced investments $675,0 Announced Confirmed $1.941,5 Source: CBBC s consolidated list

14 Cars Chinese companies in Brazil Motorcycles Trucks

15 Investments announced Year Chinese Company Partner in Brazil Brief Description Announced Value USD$ 2007 Fei Ying Motor (FYM) - Construction of a motorcycle factory $ Traxx - China South Industry Corporation Group - Construction of a motorcycle factory $ Traxx - China South Industry Corporation Group - Expansion of a motorcycle factory $ Chery - Construction of a car factory with production capacity of 50, 000 units per year $ Jianhuai Automotive Co. (JAC) - Establish sales network to sell cars $ CR Zongshen - Factory installation to produce motorcycles under Kasinski brand $ Foton Aumark do Brasil - Installation of a truck factory $ Shineray - Construction of factory to produce motorcycles $ JAC SHC Construction of a car factory with production capacity of 100, 000 units per year $ Lifan Grupo Effa Construction of a factory with initial production capacity of 10,000 cars per year $ Shaanxi Automobile Group (SAG) - Installation of an assembly plant to produce trucks with 10,000 units capacity $ Shiyan Yunlihong Industrial and Trade (arm of Dongfeng Motor - Construction of factory for trucks and light commercial vehicles $ Corporation) 2012 Changan International Corporation - Construction of an automobile factory $ Sinotruck Construction of a car factory with production capacity of 8,000 units per year $ Great Wall Latin American Motors (LAM) Construction of a car factory Geely Grupo Gandini Establish sales network to sell cars -

16 Chinese automotive market In 2012, China had over 80 million registered vehicles (compared to five million in 1990) and its annual sales reached the level of 19 million cars. 25,0 20,0 18,1 18,5 19,3 15,0 13,6 10,0 9,4 5,0 0, Source: CEIC

17 Chinese automotive market

18 Independent Automakers It is important to draw attention to two aspects regarding independent automakers: development of own brands and products and decision- making autonomy

19 Chery Motors Founded in 1997, Chery Automobile Ltda. is the largest independent automaker in China. Headquartered in the city of Wuhu, Anhui Province, Chery is present in 80 countries, has 15 production units and employs approximately 25,000 employees worldwide.

20 Chery investment plans in Brazil Chery is the first Chinese automaker to invest in building a factory in Brazil. The start-up is scheduled for 2013 and the annual production capacity will be 150 to 170 thousand units. With future installation in Jacarei, São Paulo state, the unit project will be fully funded by the Chery, with total investment of $ 400 million, according to the overall plan. The plant will be located in an industrial park, with an area of 1,000,000 m2. Chery will hire 1500 employees to work in the factory The project includes a CKD factory with 30% of local content

21 Selling price in China Minicars Elaboração: CEBC

22 New regulation in automotive sector in Brazil 30 pp increase in IPI Requirement of 65% of local content New legislation: Inovar-Auto Unidades

23 Chery s reaction to the new policy Change the leadership, bring a Chinese to become president of the operation in Brazil Bring local suppliers from China to produce at the new factory Chery Day -> Select local suppliers in order to meet the local content requirements -> stamping, bumpers, wheels and electric cables. Work with MNE companies that already supply parts and components for Chery in China: Bosch, Delphi e Magneti Marelli Accelerate the construction of the Production Plant, bringing the structure from China First Chinese company approved by the new Inovar-Auto policy: Invest 0,15% of revenue in R&D Invest 0,5% of revenue in Engineer and Local Suppilers development

24 Thank you