Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Beyond Borders

  • HOME
  • CATEGORIES
    • Asia – LAC
    • Innovation and Technology
    • Investment Attraction
    • Public-Private Alliances
    • Regional Cooperation
    • Regional Integration
    • Trade & Investment Agreements
    • Trade Facilitation
    • Trade Promotion
  • Authors
  • Spanish

The interest of Chinese Electricity Companies in Brazil

November 15, 2016 by André Soares 1 Comment


Over the last month, news on the Brazilian energy sector revolved around two mega-operations involving Chinese capital: the purchase of CPFL by the State Grid Corporation of China and that of Duke Energy by the China Three Gorges Corporation (CTG). These investments have increased the standing of the two companies in their respective areas: State Grid now distributes 20% of Brazil’s electricity, and CTG is the second-largest energy generator in the country. These figures are not the only striking factor: both State Grid and CTG are state-owned enterprises that are overseen by the central Chinese government and their presidents enjoy ministerial status.

So why are these Chinese companies interested in Brazil?

We need to demystify the role that central Chinese government firms are playing on the international market. It is no longer viable to assume that these companies are coming into Brazil with the strategic objective of gaining control of energy assets that will later put Brazil at a disadvantage in possible negotiations with China. Indeed, Brazil has sufficient institutional mechanisms to prevent the creation of monopolies, especially when it comes to those controlled by foreign governments. What is attracting these companies to Brazil is an interesting combination of domestic factors within China and certain features of the Brazilian market.

Within China’s borders, the first factor is a certain degree of saturation in the possibility for expanding investment in the electricity sector.

In the hydropower sector, China currently has 320 GW of installed capacity, and the Five-Year Plan for the sector stipulates potentially increasing this by up to 180 GW, 130 GW of which are economically exploitable.

It should be remembered that China’s hydropower potential lies on the edges of the Himalayas, a region that is not only far from the country’s major urban centers but is also of great political importance for Beijing.

The central Chinese government would certainly not wish to have to deal with relocations and possible protests against the construction of hydroelectric power stations there. The plan for electricity distribution is to expand China’s current grid by up to 40%, which implies more than one million kilometers of new gridlines. Although these numbers may seem high, they are actually lower than what these companies have achieved over the past decade.

As a consequence, there is pressure from within China for them to go international.

According to Forbes, State Grid is the second-largest company in the world and its interests now reach far beyond domestic Chinese demand. The two firms currently need to seek investments that bring them greater returns than they would obtain on the Chinese market. Before the global financial crisis, the returns on investment of state-owned Chinese enterprises was very similar to those of private companies, with barely a 5% gap between the two. Today, state-owned companies are far less profitable than private ones, with an average rate of return on investment that is almost 10% below that of the private sector. The Chinese government has thus encouraged its state-owned enterprises to look to the international market for better investment alternatives.

The Brazilian market’s potential for expansion is precisely what is attracting Chinese companies there.

For example, in the hydropower sector, Brazil has an installed capacity of 92 GW and a potential capacity of 260 GW. Brazil and China are geographically similar, which also contributes to Chinese companies venturing to make inroads into the Brazilian market. As in China, vast distances separate the places where energy is generated in Brazil and where it is consumed. The characteristics of the Brazilian market are not the only thing that Chinese firms find attractive: technology is another fundamental factor behind State Grid’s arrival in Brazil. In China, State Grid is the market leader in the construction and management of ultrahigh voltage power lines, which transmit high voltages while minimizing transmission losses. This type of technology is currently being used at the Belo Monte project and is extremely useful given the enormous distances mentioned above. This technology implies the importation of Chinese machinery and equipment into Brazil to be used for both electricity generation and transmission.

The great challenge ahead of these companies is how to expand within the Brazilian market.

So far, it is clear that their integration strategy is through mergers and acquisitions of companies that are already operating in Brazil. However, the Brazilian market’s expansion capacity is linked to a series of greenfield projects. The natural path would be for Chinese companies to learn from their local partners and then leverage this learning for more complex projects. What will eventually unfold remains to be seen.


If you would like to know more about China-LAC relations, we invite you to read our latest publication: Uncovering the Barriers of the China-Latin America and the Caribbean Trade. 


Filed Under: Asia - LAC, Investment Attraction, Public-Private Alliances Tagged With: Asia-LAC, Foreign Direct Investment, International trade

Reader Interactions

Comments

  1. sbobet says

    November 18, 2016 at 4:52 am

    Thank you for information.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

Search

Productivity and Trade

This space explores how trade, investment and sustainable development in strategic sectors can boost productivity and strengthen more dynamic, inclusive and resilient economies in Latin America and the Caribbean. From trade facilitation and export and investment promotion to entrepreneurship, the development of public-private synergies, agri-food systems and tourism, we address challenges and opportunities for growth in the region.

Related posts

  • Five Highlights of China’s 13th Five-Year Plan that Matter to Latin America and the Caribbean
  • How Can Latin America and the Caribbean Improve Trade Relations with China?
  • Twelve Heads of State and More than 1,000 Business Leaders Take Part in the CEO Summit of the Americas
  • Innovation and export diversification: how to renew the regional agenda with China
  • Foreign Investment: How to Attract It and Make Good Use of It

Categories

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

    Blog posts written by Bank employees:

    Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


    For blogs written by external parties:

    For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

    The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

    Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



    Privacy Policy

    Copyright © 2025 · Magazine Pro on Genesis Framework · WordPress · Log in

    Banco Interamericano de Desarrollo

    Aviso Legal

    Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

    facebook
    twitter
    youtube
    This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
    To learn more about cookies, click here
    X
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
    Non-necessary
    Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
    SAVE & ACCEPT