This is why Brazil is worried about China's shaky economy

The World
A Chinese ship is anchored at Port of Santos in Brazil while being loaded with soybeans. May 19, 2015.

Stock markets across the globe rebounded today. But not China’s. The Shanghai Composite Index plunged more than seven percent for a second straight day.

The economic news isn't just troubling for Chinese investors. Countries like Brazil depend heavily on exports to China — iron ore, crude oil and soy. Since 2009, China has been Brazil’s main trading partner.

“One of the main factors that led to the huge growth in the Brazilian economy between 2006 and 2010 was the Chinese imports from Brazil,” says Claudia Antunes, an independent journalist in Rio de Janeiro and former international editor at Folha de São Paulo, Brazil’s largest newspaper.

That relationship has slowed significantly. Bilateral trade has fallen 17 percent this year. At one of Brazil’s major mining companies, Vale do Rio Doce, revenues have fallen about 30 percent due to decreased demand from China.

Brazil’s stock market, the Sao Paolo Stock Exchange Index, like all the world's markets, has been on a rocky road the the past few days. It's been a terrible run for Brazilian stocks. The index has fallen steadily for six years — Brazilian stocks are now at levels last seen in 2009.

But don’t blame China’s sputtering economy entirely for Brazil’s woes.

“The China factor only adds to a crisis that was both economic and political, that was already ongoing in Brazil,” says Antunes, referring to Brazil’s Petrobras scandal, a corruption probe around the state-owned oil company. Prosecutors allege that construction companies colluded to bid up the prices for contracts with Petrobras in exchange for kickbacks to politicians.

Antunes has been closely monitoring what Brazilian economists and analysts are saying about what China’s economic slowdown could mean for Brazil. She says everyone is puzzled. 

“I don’t know if it (Brazil’s lowered exports) is an accommodation to what the Chinese call the ‘new normal,’ a different level of growth. Or if it’s the beginning of a catastrophe, something like the Asian Crisis almost 20 years ago.”

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