The Smartest Thing China Could Do Right Now: Invest US$ 200 Billion in Brazil – Part 2

Brazil train in Raiz da Serra, São Paulo

The Brazilian and Chinese governments should sign a long-term agreement (35
to 50 years) regarding these long-term Chinese investments in Brazil including
schedule of interest payments and so forth. Brazil would create a new Brazilian
government agency to be in charge and to be accountable for the flow of Chinese
money of these various investments into Brazil.

The new agency would operate with complete transparency to avoid scandals and misappropriations of funds, on both sides of the deal; on the Chinese and on the Brazilian side, related to all aspects of this new type of financing of very large projects.

The investments would be done taking into consideration both the Brazilian and Chinese long-term strategic needs, and here are the main areas for China to invest in Brazil. I would suggest that China invest at least US$ 170 billion in five major areas in Brazil plus another US$ 30 billion in a mutually beneficial space program as follows:

1) Nuclear power plants – US$ 60 billion

2) Strategic infrastructure – US$ 40 billion

3) High-speed broadband infrastructure – US$ 20 billion

4) High-speed rail networks – Bullet Trains – US$ 30 billion

5) Mortgage market – US$ 20 billion

6) Space development and exploration – US$ 30 billion

Major investment areas in Brazil regarding this plan

1) Nuclear power plants – US$ 60 billion

I would suggest first, that Brazil borrow US$ 60 billion from China, and use the money to add at least 20 new 1,000-megawatt (MW) nuclear power plants over a 10-year period in strategic areas of Brazil (these nuclear reactors cost less than US$ 2 billion each), and also use part of the money to do some upgrading of its current uranium enrichment facilities. Today, Brazil has one plant, located at Resende, less than fifty miles from Rio de Janeiro, and this plant was designed to initially enrich only 60 percent of the material needed to supply their original two reactor plants. Ultimately, Brazil aims for complete nuclear energy self-sufficiency.

Brazil is home to the world’s sixth-largest uranium reserves, and developing its uranium enrichment facilities makes economic sense since the global nuclear power plant business is making a comeback in many countries, and it is growing with potentially large commercial global markets as more countries build new nuclear power plants.

Besides the 20 new nuclear power plants, Brazil should invest part of the money in a state-of-the-art nuclear waste reprocessing plant instead of having to find a place to store the spent nuclear fuel.

Used nuclear fuel (often called spent nuclear fuel) is nuclear fuel that has been irradiated in a nuclear reactor (usually at a nuclear power plant) to the point that it is no longer useful in sustaining a nuclear reaction. If not reprocessed to retrieve the remaining usable uranium and plutonium, it is a form of radioactive waste.

Nuclear reprocessing separates any usable elements (e.g., uranium and plutonium) from fission products and other materials in spent nuclear reactor fuels. Usually the goal is to recycle the reprocessed uranium. It is the process that partially closes the loop in the nuclear fuel cycle.

Use of breeder reactors combined with reprocessing could extend the usefulness of mined uranium by more than 60 times.

The technology for making reprocessed uranium fuel is well established, and there is no technical reason limiting its adoption. And nuclear reprocessing is a much better choice than the one the United States decided to adopt where used nuclear fuel is currently planned for disposal in deep geological formations, such as Yucca Mountain, where it has to be shielded and packaged to prevent its migration to mankind’s immediate environment for thousands if not millions of years.
2) Strategic infrastructure – US$ 40 billion

Developing the proper infrastructure is an important part of an economic development plan and serves as a foundation for any developing country to be able to achieve its goals regarding industrialization, urban development, and speeding up the movement of goods not only for the domestic market but also for international trade.

One advantage of being an emerging country is that you can benefit from leapfrogging in all areas of your economic development when you try to implement the best models that were available around the world at the time – you learn from other people’s successes and mistakes.

Today certain types of infrastructure development are a requirement for a country that is trying to achieve economic growth and also is trying to survive in a very competitive global economic environment.

There are various definitions of what constitutes infrastructure, but generally infrastructure refers to the large-scale public systems, services, and facilities of a country or region that are necessary for economic activity to become reality.

The economic infrastructure includes such systems as the transportation networks with its highways, bridges, tunnels, airports, and ports, the water and sewerage facilities, the various types of energy distribution (electric and gas), and the various telecommunication networks distributed via cable or satellite.

These entire economic infrastructures play an important supporting role when a country is trying to secure its place in the global supply chain. It is important for the movement of goods inside the country – local goods or imported goods – as well as for the goods and commodities produced for distribution via international trade.

Let me give you just one example – today Brazil has 47 ports in the country – but the government needs to upgrade at least ten of them to international standards of technology and productivity – this modernization would be imperative to keep pace with Brazil’s export explosion in the coming decades.

But the government probably will need to build a few more new ports in the future to accommodate the economic expansion that is under way and help to lower shipping costs for Brazilian exporters.

Construction costs for most of the infrastructure systems such as the energy, water and sewage, and transportation sectors is enormous and the construction period is also very long. Prediction of demand pattern and investment allocation, which are some of the key factors of infrastructure development planning, must be based on a long term economic development trend and land use planning, which also predict the country’s future demographics and possible economic structure.
3) High-speed broadband infrastructure – US$ 20 billion

The federal government in Brazil, in partnership with state and local governments, needs to create and promote the universal availability of high-speed broadband infrastructure throughout the country, connecting the major communities in Brazil with the rest of the world.

Today, universal access to broadband is in the interest of the majority of the population in Brazil, and it is becoming almost a requirement for a country to be connected with a state-of-the-art high-speed broadband infrastructure to be competitive in the new global economy.

The investment in high-speed broadband infrastructure should be viewed in the same way governments view federal investments in basic infrastructures in a country, such as the highway system, water system, airport system, bridges and tunnels and so on…

Brazil should adopt the leading edge in technology available at the time of its investment regarding high-speed broadband infrastructure, and the government should keep in mind the infrastructure such as the systems in operation in South Korea, Japan and China.

An article published on the San Francisco Chronicle said: “If you live in South Korea, it is an everyday reality to have always-on super fast Internet – broadband – both in your cell phone and in your home.

South Korea is the most wired country on the planet. Some South Koreans can get up to 20 megabits of data per second – breakneck speed by today’s standards. Americans are lucky if they get 4 Mbps.

While South Korea leads in the rollout of broadband, the United States – supposedly the world’s technology leader – comes in no better than No. 13, according to experts. About 76% of households have broadband in South Korea. The figure is 30% in the United States.

Broadband widens the digital data pipeline to allow complicated files, including pictures, graphics and video, to be downloaded at near-instant speed. Experts consider the development of broadband networks to be the single most important step for expanding digital technology and bringing cutting-edge computer applications directly into people’s lives.

“There is no point in Korea where you can stand without receiving a signal,” said Joy King, director of industry marketing at Hewlett-Packard. “In the U.S., we are still at the ‘can-you-hear-me-now’ level. When Europe and Asia are moving to multimedia text messaging, the U.S. has just started text messages. The U.S. is a Third World country in this aspect.”
…Silicon Valley used to be hailed as the world’s high-tech capital. Now many consider South Korea the king…. U.S. technology leaders are sounding the alarm that the nation is falling dangerously behind in broad areas of digital innovation, including broadband.

…In South Korea the government spent billions of dollars building a fiber grid, reaching schools and government buildings, and offered another billion in financial incentives to phone companies that strung broadband links to homes. Tough competition drove prices down, demand surged and the country was on a roll.

…HP’s King cites several reasons for slow broadband development. “North America is lagging because first of all it didn’t have one underlying standard,” she said. “Secondly (it’s lagging) because the government has not really invested directly in infrastructure. “

The US is a generation behind Japan and Korea in high-speed broadband, according to Technology Futures, Inc. While the U.S. languishes at 1 to 6MB/s, Japan and Korea are already rolling out next generation 20MB per second speeds.

On September 7, 2006 Questex Media published an article saying: “Some 62 million Americans are still using their telephone lines to dial into the Internet, according to recent figures from the Pew Internet and American Life Project. Other figures from research firms like Forrester show that only about 40% of Americans have high-speed connections at home, 30% rely on dial-up and 25% don’t have any Internet connections at all!

This at a time when China is poised to overtake the US to become the world’s largest broadband market. New figures from Ovum show China will have 79 million broadband subscribers by next year. And overall penetration is just above 3% in China, which means there’s plenty of room to grow. Ovum predicts 139 million subscribers by 2010, and a subscription growth rate of 75% annually.”

On June 26, 2007 DSL News published an article “US broadband speed lags behind” and the article said: “The availability of high-speed broadband in the US is significantly lower than in many other countries around the globe, according to a new report from Communications Workers of America (CWA).

According to the report, the median download speed in the US is 1.9 Mbps, compared to 61 Mbps in Japan and 45 Mbps in South Korea. France outstripped the US on broadband speeds as well, reporting an average 17 Mbps.

CWA President Larry Cohen said: “Speed defines what is possible on the Internet. Speed determines whether we will have the 21st century networks and communications necessary to grow our economy and jobs.”
Other nations around the world, especially “economic competitors”, have concretely decided to stress high-speed networks and by delaying, America is doing no less than “(putting its) economic growth at risk”.

The investment by the Brazilian government in a state-of-the-art high-speed broadband infrastructure around the country will play an important part in helping in the economic development of Brazil in the coming decades.

Private companies and local governments should connect to such infrastructure and supply services to the local populations, but competition between these service providers should help lower the cost of using the system to most customers as is the case in various countries where they have that type of set up.

That type of infrastructure set up is helping these countries not only to keep their high-speed broadband infrastructure at the leading edge of technological development, but at the same time they are able to provide all kinds of state-of-the-art services to customers at the lowest market price possible. Real competition at this level helps to lower the price to the end users.

4) High-speed rail networks – Bullet Trains – US$ 30 billion

One of the major infrastructure projects that should be developed in Brazil as part of this Brazil/China partnership is the construction of a high-speed rail network in Brazil connecting vital areas of Brazil with a network of high-speed railway lines using the latest in technology regarding high speed bullet trains.

They can start with the construction of a 1,000-mile rail network system that should cost about US$ 30 billion and connect an important area between Sao Paulo, Rio de Janeiro and immediate areas.

Brazil should build a high-speed railway system similar to the one that they have in Japan. The Shinkansen is a network of high-speed railway lines in Japan operated by Japan Railways. These trains can be up to sixteen cars long. With each car measuring 25 m (82 ft) in length, the longest trains are 400 m (1/4 mile) from front to back. Stations are similarly long to accommodate these trains.

Before 1964 conventional trains had to spend more than 6 hours traveling between Tokyo and Osaka (322 miles (515 km)). With the introduction of Tokaido Shinkansen, the traveling time has been reduced to 3 hours and 10 minutes. Now the fastest Shinkansen connects Tokyo to Osaka in just 2 hours and 30 minutes.
Even though the fare is much cheaper for a highway bus between Tokyo and Osaka, few passengers choose it, due to more than 8 hours of travel.
Due to the high-speed railway system in Japan, the trains run speeds have been 443 km/h (275 mph) for conventional rail, and up to 580 km/h (360 mph) for maglev trainsets.

I am not suggesting that Brazil should develop a maglev train system, because of radiation concerns. I am suggesting the construction of the fastest conventional bullet train system available today.

This new bullet train system would help move not only the Brazilian people around, but also would play an important role as Brazil develops further its international tourism industry.

5) Mortgage market – US$ 20 billion

The Federal Bank of Atlanta published a report in August 2006 – “A Revolution in Consumer Banking – Developments in consumer banking in Latin America” – and the report said:

“In Brazil, Mortgage lending took off in 2002 after 20 years of virtually no growth and despite high average interest rates. The boom was ignited by the central bank’s gradual reduction of deposit requirements in other sectors of the economy while pressuring banks to increase their participation in home financing.

“Accordingly, mortgage lending rose by 60% to US$ 2.1 billion in 2005 supported by improved price and employment stability, and the establishment of a new mortgage guaranty. The government has earmarked approximately US$ 1 billion from the 2006 budget to finance and guarantee housing loans for low-income families, with some of the funds coming from a worker’s severance pay fund called FAT. The government has also reduced taxes on building material to encourage the housing construction business.

Financial liberalization and stabilization of inflation and exchange rates have brought significant changes to the region’s housing finance systems. For example, mortgage denominated in indexed units linked to the general price index or workers’ salaries in Brazil have helped reduce the risk of default.”

On July 5, 2007 The New York Times published an article “Loan Changes in Brazil Motivate New Buyers and Home Building” and the article said: “Talk about an untapped market. Brazil’s newfound economic stability and changes in lending laws are for the first time making it possible for the country’s working poor to buy their own homes. And using money that has been pouring in from foreigners who sense a lucrative investment – US$ 4.8 billion since September 2005 – the country’s construction and real estate companies are building as fast as they can.

“…But since Luiz Inácio Lula da Silva became president in 2003, interest rates have tumbled to 12% from 25% and appear set to continue falling. Inflation was 3.1% last year and is well under control. And both the minimum wage and workers’ salaries are rising at rates exceeding the cost of living, according to government figures, meaning workers have more disposable income. Buying a small home is finally a real possibility for many Brazilians.

“…The country’s biggest mortgage financier, the government-run Caixa Econômica Federal, estimates that Brazil needs 7.9 million new homes.

“…Now, though, banks and other lenders are loaning up to 80% of the property’s value, allowing borrowers up to 30 years to pay them back and offering fixed interest rates for the first time.

“…Banks are lending more thanks in large part to a 2004 law that makes it easier for them to seize property from borrowers who fail to repay their loans. Previously, repossessing homes took banks six to eight years. Now it can take less than a year….That law means Brazil now has one of the most modern mortgage systems in the world…”

The Chinese government can take advantage of this real estate boom that is under way in Brazil, and they can invest at least US$ 20 billion in this unique long-term opportunity. By getting in early on the real estate boom in Brazil they can tap the borrowers who are the lowest risk.

The major real estate companies in Brazil are all getting prepared to build millions of new homes to meet this new demand.

This article is part 2 of a four-part series.

Ricardo C. Amaral is a writer and economist. He can be reached at


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