chinese fdi in brazil a case study on chery · chinese fdi in brazil – a case study on chery...
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Chinese FDI in Brazil – A Case Study on Chery
Andre Soares Research Coordinator – China Brazil Business Council
China: Brazil’s largest trading partner – US$ 75 B
in 2012
Brazil - China Economic Relations: a Deepening Trend
3,2 4,1
6,7 9,212,2 16,4
23,4
36,6
36,9
56,4
77,1 75,5
0
10
20
30
40
50
60
70
80
90
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: MDIC Preparation: CBBC
Chinese
Investments in
Brazil: 2007-2012 (june)
From Trade to Investment: the new dynamics
65%
35%
Number of Projects
Confirmed (39 projects)
Announced(21 Projects)
Total of 60 projects
36%
64%
Projects Value USD (million)
Confirmed(US$ 24.422 millions)
Announced(US$ 44.117 millions)
Totalof US$ 68.539
• 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
Source: CBBC´s consolidated list
The 2010 Leap
Why the surge in announced and confirmed investments?
Source: CBBC´s consolidated list
4
12
21
14
18
3
1
13
912
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012 (june)
Nu
mb
er
of
Pro
ject
s
Announced
Confirmed
75%
100%
50
%
62
%
64%
67
%
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 self-sufficient in food
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)
• Most projects (47 out of 60) have the government directly or indirectly as an equity partner
Source: CBBC´s consolidated list
0
12
3
9
3
6
8
6
4
3 3 3
0
2
4
6
8
10
12
14
2007-2009 2010 2011 2012 (june)
Nu
mb
er
of
Pro
ject
sCentral SOE
SOE
Private
What determined entry?
Resource-seeking companies –
dominant in 2010 – were replaced
by market-seeking players in 2011
Source: CBBC´s consolidated list
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
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).
Source: CBBC´s consolidated list
43%
15%
14%
14%
14%
2007-2009
Automotive
Agribusiness
Telecommunications
Machinery and Equipment
Mining
24%
19%
14%
9%
9%
5%
5%
5%5%
5%
2010
Energy (oil and gas)
Mining
Automotive
Agribusiness
Construction Equipment
Banking
Education
Electrical Energy
Infrastructure
Steel
29%
15%
14%
14%
7%
7%
7%
7%
2011Automotive
Electronics
Machinery and EquipmentTelecommunications
Chemicals
Energy (oil and gas)
Mining
Railway
17%
17%
17%17%
11%
5%
5%
5%6%
2012 (june)Automotive
Electrical Energy
Electronics
Machinery and EquipmentBanking
Energy (oil and gas)
Infrastructure
Mining
Telecommunications
Chinese FDI in
Brazil’s
automotive sector
Sectoral distribution of investments
• Majority of projects in the automotive sector:
Source: CBBC´s consolidated list
25%
75%
Automotive sector (16/63 projects)
$675,0
$1.941,5
Announced
Confirmed
Amount of US$ 2,16 billion in
announced investments
Source: CBBC´s consolidated list
Trucks
Motorcycles
Cars
Chinese companies in Brazil
Year Chinese Company Partner in Brazil Brief DescriptionAnnounced Value
USD$
2007 Fei Ying Motor (FYM) - Construction of a motorcycle factory $3.000.000
2007Traxx - China South Industry
Corporation Group- Construction of a motorcycle factory $6.000.000
2008Traxx - China South Industry
Corporation Group- Expansion of a motorcycle factory $20.000.000
2010 Chery - Construction of a car factory with production capacity of 50, 000 units per year $400.000.000
2010Jianhuai Automotive Co.
(JAC)- Establish sales network to sell cars $200.000.000
2010 CR Zongshen - Factory installation to produce motorcycles under Kasinski brand $20.000.000
2011 Foton Aumark do Brasil - Installation of a truck factory $500.000.000
2011 Shineray - Construction of factory to produce motorcycles $50.000.000
2011 JAC SHC Construction of a car factory with production capacity of 100, 000 units per year $500.000.000
2011 Lifan Grupo Effa Construction of a factory with initial production capacity of 10,000 cars per year $100.000.000
2012 Shaanxi Automobile Group (SAG) - Installation of an assembly plant to produce trucks with 10,000 units capacity $500.000.000
2012Shiyan Yunlihong Industrial and
Trade (arm of Dongfeng Motor
Corporation)
- Construction of factory for trucks and light commercial vehicles $92.500.000
2012Changan International
Corporation - Construction of an automobile factory $75.000.000
2012 Sinotruck Construction of a car factory with production capacity of 8,000 units per year $150.000.000
2012 Great Wall Latin American Motors (LAM) Construction of a car factory -
2013 Geely Grupo Gandini Establish sales network to sell cars -
Investments announced
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.
9,4
13,6
18,1
18,519,3
0,0
5,0
10,0
15,0
20,0
25,0
2008 2009 2010 2011 2012
Source: CEIC
Chinese automotive market
Chinese automotive market
It is important to draw attention to two aspects regarding independent automakers: development of own brands and products
and decision- making autonomy
Independent Automakers
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.
Chery Motors
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
Chery investment plans in Brazil
Elaboração: CEBC
Minicars
Selling price in China
30 pp increase in IPI Requirement of 65% of local content New legislation: Inovar-Auto
New regulation in automotive sector
in Brazil
Unidades
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
Chery´s reaction to the new policy
Thank you