Post COVID-19, China Rebound Could Assist Brazilian Exports
China is now recovering from the COVID-19 outbreak that originated in Wuhan, Hubei Province, with factories now largely returned to full time production, and office workers in major cities on 50 percent day on / day off attendance. Pent up demand, in what remains the world’s largest consumer market has also seen retailers, such as Japan’s Uniqlo and US’ Apple reopening all their stores. The China Consumer Confidence Index is at its highest level for five years.
However, this has come as the COVID-19 has spread across all of Europe and the US. With both regions apparently incoherent and seemingly chaotic in their management of the outbreak, cases in the West are rising fast. It is ironic that just as China manufacturing begins to recover, European and American factories themselves are facing weeks of down time and lost production.
In fact, this represents an opportunity for Brazilian and other Mercosur-based exporters. China, recovering from lock down imposed since late December, is now looking to buy – just when the EU and US are themselves going into coronavirus hibernation. Given the relative lack of civilian discipline in these regions compared with China, their downtime can be expected to be rather longer. South American exporters and entrepreneurs can take advantage and look to China as recovery there begins.
China is Brazil’s largest trade partner, and Brazil gained trade volume during the US-China Trade War. The same thing should happen as the US goes into lock down and is unable to supply China with the commodities it needs – albeit for reasons to do with coronavirus rather than politics. China is also the largest trade partner for Mercosur members Uruguay and Paraguay, and the third largest for Argentina.
Although China is purchasing a lot of commodities from Latin America, there are opportunities for small traders too, especially in the consumer markets. Brazilian readers may be surprised to note that Cha-Cha, the Cuban dance, has long been a popular keep-fit rhythm right across China, dating back to the Soviet Union days and Fidel Castro and Chairman Mao when Cuban movies and music were shown across China in brotherhood propaganda film.
Cha-Cha is still commonly seen as part of early morning Tai Chi – exercise classes – throughout the country and is much loved. This phenomenon explains the easy acceptance and popularity of Latin themed restaurants, bars, and nightclubs across China. While Chilean wine has long been on Chinese supermarket shelves, wines from the Mercosur regions have not, and the same is true of other consumables from sauces to spices. Mercosur’s ability to export its cuisine to China has lagged behind the Chileans. Yet there are well over 200 South American restaurants and bars in the three primary cities of Beijing, Shanghai, and Guangzhou alone. Can one find a bottle of wine or beer from Brazil or any of the other Mercosur producers? It is very rare.
Brazil, in particular, holds much fascination for Chinese consumers. When the Chinese national football team fails to qualify for the World Cup Finals, Brazil is a favorite national team to adopt. Over 100 Brazilian footballers have played in the Chinese Super League, including famous names like Hulk, Oscar, Paulinho, and many others. That goodwill can be put to good use when wanting to sell to Chinese consumers.
There is also the issue of a declining favor towards the US – many Chinese consumers and factories felt stigmatized by the US-China trade war and have begun feeling that Washington’s policies victimize the Chinese and create supply chain uncertainty. This has led to a reduction in the appeal of American-made products. For example, Apple – which used to be a brand leader in smartphones in China has now slipped to sixth position. US brands are not as desirable as they once were, while in Brazil, American products are ubiquitous.
This means that many Brazilian manufacturers may assume that American brands are world-beaters, and in many cases that is true – with the exception of China where a young, wealthy, and increasingly trend-setting consumer base wants something new. As the US goes into a low production mode while battling the virus, and a recovering China shows strong signs of consumer growth – now is the time and challenge for Brazilian, and Mercosur-based manufacturers to step up and invest to fill in the resulting gaps in market.
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Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. Patricia Varejao assists the South America desk. Their firm has 28 offices across Asia and several hundred staff, assisting Brazilian and other foreign investors into China and Asia and can assist with market research, import, duty, and trade establishment issues. Please contact them at firstname.lastname@example.org or visit www.dezshira.com.
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