Coronavirus

The Economic Ripple Effect Of Chinese Supply Chains

The auto and electronics sector in Brazil is a prime example of how manufacturers around the world came to depend on Chinese-made supplies, and are now struggling because of it.

A textile factory in Campinas, Brazil
A textile factory in Campinas, Brazil
Helmuth Hofstatter*

-Analysis-

CURITIBA — China is the world's principal products supplier, and various nations depend on its exported goods to propel their own economic activities and to process raw materials to produce basic or even luxury goods.

Over the past two decades, many firms settled in China to take advantage of cheap labor and produce and export goods at competitive prices, though in doing so they also took on risks.

On the back of big growth rates, China has become the main trading partner for many countries, including Brazil. Last year, Brazilian exports to China constituted 28.1% of all its sales abroad, and imports from China were 19.9% of all the country's purchases.

The dependence of Brazilian factories on Chinese products became an important risk to production in the first quarter of 2020, as the COVID-19 pandemic took off in China. The virus was first registered in Wuhan, China, on Dec. 31, 2019. To contain it, Chinese authorities extended the new-year holidays and confined people to their homes, first in Wuhan, then elsewhere.

Brazilian factories are highly vulnerable in terms of their need for Chinese products.

From Jan. 25 to Feb. 10, total confinement was imposed, production halted, and the economy became paralyzed. For the first time in 30 years, Chinese industrial production shrank by 13.5%. This affected not just its economy but those of its main trading partners, as affected areas like Wuhan — a manufacturing hub — are at the center of many global supply chains. Chinese exports fell by about 17%, reducing the inflow of foreign capital and destroying jobs, local incomes and consumption and further along, growth and development.

The consequences will impact the world economy, with possibly lasting results as many countries base their own economies and productions on goods from China. Brazil is one such country, where factories have seen production disrupted due to a shortage of supplies and components that often are only made in China. Brazilian factories are, in other words, highly vulnerable in terms of their need for Chinese products.

Brazil's trade balance registered a 3.6% drop in imports compared to the January-February period in 2019. The transformation sector, which turns raw materials into products like cars, electronic goods, household appliances or textiles, was the worst hit. According to the country's foreign trade ministry (SECEX), 60% of supplies, components and raw materials for making electronic products are imported, and only 40% come from inside.

The consequences will impact the world economy.

Imports of telecommunication equipment and components fell 5.9% (in the January-February period), those of electrical machinery and devices fell by 2.4%, cloth, weaves and synthetic textile materials fell 6.7%, and aluminum 21.3%. The figures may not seem much to some, but if we understand that most industries work with limited stock, a drop in imports can come to affect the survival of firms.

The products cited are essential components for making Brazilian goods like ovens, fridges, washing machines, hairdryers, audiovisual equipment, ventilators, cars and more. The Brazilian Electrical and Electronics Industry Association (ABINEE) found on March 27 that work had slowed in 24% of the country's electronics factories, with a partial paralysis in 58% of them and total stoppage in 42%. In the sector, 70% of firms said they had trouble obtaining supplies and components from China, though as China began to renew supplies, Brazilian firms were now obliged to implement contingency plans as the virus had come to Brazil.

These firms say industry will return to normal only 63 days after a total reactivation of supplies from China, all else being equal here. No new products would be launched furthermore until the pandemic had passed. The economic imbalance, lack of production, the dollar's appreciation will all mean more costly products, to be paid, in principle, by the end consumer.



*Helmuth Hofstatter is a founder of the Curitiba-based IT and automation consultancy LogComex.



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Green

In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.


It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park

Xinhua/ZUMA

Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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