China Wants to Build a Railway Through Brazil Linking the Atlantic to the Pacific

China wants to build a railway in BrazilChina expanded its trade partnership with Brazil with US$ 7.5 billion dollars in financing for Brazilian miner Vale, the purchase of 60 passenger jets from plane-maker Embraer and renewed commitment to invest in infrastructure.

In a raft of energy, finance and industry accords signed before Presidents Xi Jinping and Dilma Rousseff, the two nations agreed to team up to build railways to help Brazil reduce its infrastructure deficit and feed China’s hunger for commodities.

One project under study is building a railway from Brazil’s Atlantic coast through the Andes to Peru on the Pacific that could cut the cost of shipping Brazil’s grain to China by US$ 30 per ton, a senior Brazilian official said.

Trade between China and Brazil soared to US$ 83.3 billion last year from US$ 3.2 billion in 2002, with iron ore, soy and oil making up the bulk of Brazilian exports, making China the country’s biggest trade partner.

“China’s two main strategic concerns are energy security and food security. Brazil is an ideal partner on both counts,” said the official, a cabinet member who asked not to be named.

Xi visited Brasília after a BRICs summit that set up a new US$ 100 billion development bank, to be based in Shanghai that will fund infrastructure projects, providing developing nations with an alternative source of funding to Western-dominated multilateral financial institutions.

In a sign of deepening financial ties between the two members of the BRIC bloc of emerging nations, the China Construction Bank formalized acquisition of 72% of Brazilian mid-size lender Banco Industrial e Comercial SA, a 1.62-billion reais deal agreed in October.

China’s Eximbank extended a three-year US$ 5 billion credit line to Vale to buy ships and equipment from Chinese companies, but there was no mention of a solution to an impasse over China’s refusal to allow giant, bulk iron ore carriers used by Vale SA to dock at Chinese ports.

Vale, the world’s largest exporter of iron ore, ships the vast majority of its production to China. The Bank of China opened a second US$ 2.5 billion credit line for Vale to buy Chinese equipment and services.

Embraer, the world’s third largest commercial plane maker, will sell 40 of its E-190 planes to China’s Tianjin Airlines, its biggest client in Asia. The Industrial and Commercial Bank of China Ltd will buy up to 20 planes under an agreement to provide leasing for Embraer.

State Grid Corporation of China signed an agreement with Brazil’s Eletrobras utility to build high-voltage transmission lines for the 11,233 megawatt Belo Monte hydroelectric dam under construction on the Xingu River in the lower Amazon. China Three Gorges Corporation also signed a partnership with Brazilian utilities to bid for a new dam project on the Tapajos River.

Free Trade Agreement

The president of the European Commission (EC), José Manuel Durão Barroso, called on Friday for concluding negotiations and finalizing a free trade agreement between the European Union and Mercosur, which includes Brazil, Argentina, Paraguay, Uruguay and Venezuela.

In an address at Brazil’s University of Brasília, where he was presented with an honorary doctorate, Barroso said it was time that the more than a decade-long talks with Mercosur nations concluded in a deal.

Such an agreement would represent an increase of billions of dollars in the gross domestic product (GDP) of Mercosur nations, and a nearly 40% increase in their exports to Europe.

The two sides were scheduled to meet at the beginning of this year to exchange proposals as part of the agreement, but the gathering was repeatedly postponed.

“The Mercosur and the EU have been ‘engaged’ for more than 15 years. Isn’t it time to take the next step and make it official?”, said Barroso, using language usually reserved for two people who have put off getting married.

“Brazil has a leadership role here. We know that it wants to make progress, but we also know that it does not decide alone and that the pace of other Mercosur members are different,” he acknowledged.

“It’s important not to waste time however, because we could end up being last,” added Barroso, in reference to other trade agreements being negotiated by the EU, particularly with the US.

Both sides, EU and Mercosur, allege they have been ready to meet for some time, but their counterpart has put off presenting its proposals on various occasions. Apparently Argentina is rather reluctant in opening its domestic market to EU manufactured goods while several European countries fear the agriculture muscle of Mercosur.

The Portuguese-born Barroso, who met privately with Brazil’s President Dilma Rousseff at the presidential residence, is set to step down from his EC post in August to make way for the Luxembourger Jean-Claude Juncker, who was elected to replace him this week.

It is well known that Barroso would like to step down from his post having signed the EU/Mercosur trade agreement, which would represent a great achievement for his years on the job.

Embraer’s Outlook

Brazil leading aircraft manufacturer and space research company, Embraer, has released its Market Outlook 2014-2033 which details the company’s forecast for deliveries of new 70 to 130-seat jet aircraft over the next twenty years. The report examines the main drivers contributing to air transport growth and reviews projected deliveries by world region.

The Market Outlook identifies a need for 6,250 jet aircraft in the 70 to 130-seat capacity category (2,300 units in the 70 to 90-seat segment and 3,950 units in the 90 to 130-seat segment). Replacement of ageing aircraft will represent 56% of new deliveries and 44% will support market growth.

The world fleet-in-service of jets with up to 130 seats will increase from 3,850 aircraft in 2013 to 6,580 by 2033. The value of all deliveries is approximately 300 billion dollars (list price).

70 to 130-Seat Jet Deliveries – Forecast by Region: North America, 2,010 (32%); Europe, 1,140 (18%); China, 1,020 (17%); Latin America, 700 (11%); Asia Pacific, 420 (8%); CIS, 380 (6%); Middle East, 250 (4%); Africa, 230 (4%), Total world, 6,250 from 2014 to 2033.

Embraer expects jets in the 70 to 130-seat category to sustain hub-and-spoke efficiency, to complement narrow-body operations, to provide an optimal balance of frequency and seats, and to encourage new market development with lower-risk, incremental capacity. Those roles will generate significant demand for new aircraft in the segment.

Embraer foresees worldwide demand for air transport, measured by revenue passenger kilometers (RPKs), increasing an average of 4.8% annually through 2033. By then, demand will reach 13.6 trillion RPKs for all commercial aviation segments.

By region, the Middle East and China will lead with annual RPK growth of 7.1% and 6.8% respectively, followed by Latin America at 6.0%. Asia Pacific, the CIS (Commonwealth of Independent States) and Africa will each have growth rates of around 5%.

Because they are more mature markets, Europe (3.9%) and North America (2.7%) will grow more slowly.

By 2033, Asia Pacific and China will be the largest air travel markets in the world, accounting for a combined 40% of total global RPKs. Comparatively, Europe and North America will generate 36% of world demand.



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