Brazil Infrastructure Upgrades

(Reuters) - Surging Chinese investment in Brazil is reshaping ties between the countries as companies seek to secure resources and tap the rising consumer class in Latin America's largest economy.

From virtually nowhere, China has rocketed to become the biggest foreign direct investor in Brazil this year with purchases ranging from iron ore mines to vast tracts of farmland and the electricity grid.

Following similar forays in Africa and other parts of the globe, Chinese firms backed by cheap state financing are seeking a permanent foothold in Brazil, aiming to diversify their income and meet Brazil's acute need for new infrastructure.

Brazil's hunger for capital is an obvious draw for China, which has more than $2 trillion in foreign reserves and faces low returns on its massive U.S. Treasury holdings. Brazil's large and buoyant consumer market is a welcome contrast to stagnant demand in China's traditional export markets in the United States, Europe and Japan.

"China's interest in Brazil has gone from looking for assets in resources to infrastructure. Its aim is to create a stronger middle class so Brazil becomes a stronger customer and partner for China," said Eduardo Centola, the Americas chief executive for South Africa's Standard Bank.

The boom in Chinese investments in Brazil underlines a shift of global economic power as funds increasingly flow between fast-growing emerging markets and leave out the West.

"What they're looking for is countries that offer attractive natural resource assets and which are politically stable enough to invest in, which is Australia, Canada, and Brazil," said Thilo Hanemann, a China analyst at the Rhodium Group advisory firm in New York.

Brazil’s real estate market, on the other hand, is growing fast. In the past 8 years, more than 20 million Brazilians have been lifted out of poverty and they’ve arrived in a market that, by Lynn’s estimate, currently has about 6 million fewer housing units than it needs.

The Brazilian banking institution Caixa Economica Federal said this year it expects mortgage lending to jump to $42 billion in 2010, up from $28 billion last year.

“The Amazon is Brazil’s No. 1 priority from a strategic viewpoint, given its importance to humanity as a source of water, biodiversity and food production,” Gen. Eduardo Dias da Costa Villas Boas, chief of the Amazon Military Command, said in a telephone interview.