Special Issue – Research Article

Journal of Current Chinese Affairs

2021, Vol. 50(3) 366–390
Chinese Economic © The Author(s) 2021
Article reuse guidelines:
Statecraft and China’s sagepub.com/journals-permissions
DOI: 10.1177/18681026211057134
Oil Development Finance journals.sagepub.com/home/cca

in Brazil

Pedro Henrique Batista Barbosa

Abstract
Over the last years, Brazil and China’s oil-related finance activities have expanded sub-
stantially. Between 2007 and 2019, Brazilian companies received approximately one-
fourth of Chinese policy banks overseas oil-related loans, and Chinese financial institu-
tions became Brazil’s biggest oil company Petrobras’ main creditor. A deep analysis of these
loans highlights their usage as economic statecraft tools, with impacts on the bilateral crude
trade and investments. Loan-for-oil mechanisms, content purchase requirements, and a
countercyclical lending pattern have helped to influence Brazilian players to behave in a man-
ner conducive to the Chinese state’s energy security objectives and strategic goals, namely
increase of imports, diversification of sources, and internationalisation of firms. With
these loans, China has satisfactorily guaranteed a stable oil supply over time and has helped
Chinese equipment makers and service providers to expand their footage in Brazil.

Manuscript received 13 December 2020; accepted 12 October 2021

Keywords
Brazil–China, oil, economic statecraft, oil-backed loans, content requirements

Introduction
Over the last years, Brazil and China’s oil-related finance activities have expanded sub-
stantially, in parallel with trade and investments. In a relatively short period, between

International Politics, Renmin University of China, Beijing, China

Corresponding Author:
Pedro Henrique Batista Barbosa, International Politics, Renmin University of China, 59 Zhongguancun Dajie,
Beijing 100872, China.
Email: pedrohenriquebbarbosa@gmail.com

Creative Commons CC BY: This article is distributed under the terms of the Creative Commons
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reproduction and distribution of the work without further permission provided the original work is
attributed as specified on the SAGE and Open Access page (https://us.sagepub.com/en-us/nam/open-access-at-sage).
Batista Barbosa 367

2007 and 2019, Chinese financial institutions have become Brazil’s biggest oil company
Petrobras main creditor, surpassing traditional financiers, such as the United States and
Spain. Brazil has equally become an important part of Chinese financial institutions’
overseas credit plans. The USD 30.5 billion provided by the policy banks China
Development Bank (CDB) and China Exim Bank (CHEXIM) to the South American
country represented approximately one-fourth of their total in the oil sector and almost
two-thirds to Latin American nations.
A deeper analysis of these loans highlights their usage as economic statecraft tools,
with impacts on the bilateral crude trade and investments. Loan-for-oil mechanisms
and content purchase requirements have been used to influence Brazilian players, espe-
cially the nation’s main oil firm Petrobras, to behave in a manner conducive to the
Chinese state’s energy security objectives and strategic goals. After the discovery of
the pre-salt oil, Brazil started to play a relevant role in China’s strategy of diversification
of sources and increase in imports. Energy-backed loans (EBL) have been used to foster
oil exports towards China. As of 2019, it was already China’s fifth main partner, being
responsible for 8 per cent of total imports.
The South American country has also become a playfield for Chinese oil corporations.
Some of the loans were tied to purchase requirements, pushing local firms to resort to
using Chinese equipment and services. The case of drilling units is remarkable. Until
2019, half of Petrobras’ FPSO (initials for floating, production, storage, and offloading)
that were partially or entirely contracted abroad, were manufactured in Chinese dock-
yards. The number of contracts has increased sharply after the signature of these loan
agreements. Between 2000 and 2019, Brazil was the world’s largest purchaser of this
kind of vessel.
The strategic objectives behind these loans can also be measured in their timing.
Chinese loans were offered in times of internal political turmoil and economic crisis in
Brazil, which have severely impacted local companies’ activities, exploration plans,
and financial sustainability, such as in the 2008–2009 and in the 2014–2017 periods.
When most international banks were cautious and refraining from lending to Petrobras,
Chinese banks extended a helping hand.
This article aims at shedding some light on China’s oil-related activities in Brazil with an
emphasis on finance and the economic statecraft tools that Chinese banks have made use of
with the intention of achieving national goals, such as the guarantee of long-term supply
streams, diversification of import sources, and internationalisation of companies (Kong,
2019). It argues that China has satisfactorily accomplished these objectives since Brazilian
crude exports towards China have expanded over time – although the agreed target was
not reached in the initial years. Brazil also became an important oil supplier in the country’s
overall import matrix, and Chinese firms have increased their participation in local infrastruc-
ture projects, such as offshore platforms. From the Brazilian perspective, Chinese loans had a
relevant countercyclical role, as they were granted during periods of economic crisis, when
other international banks were reluctant to lend, such as between 2014 and 2017.
Furthermore, this article equally aims at bridging a gap in the current academic literature
on Brazil–China oil relations. Most papers focus on trade, investments (Jia, 2009; Li, 2015;
368 Journal of Current Chinese Affairs 50(3)

Schutte and Debone, 2017; Wu, 2019; Zhang, 2017; Zhou, 2017), and the political aspects
of mounting commerce and increasing Chinese oil equity (Becard and Macedo, 2014; Cui,
2017; Xu, 2017a; Yanran, 2017; Zhong et al., 2016). Analysis on the financial side of this
relationship, especially on Chinese oil-backed loans and content requirements in contracts
with Brazilian companies and their impacts are scarce, with few exceptions (Alves, 2013).
This article is divided into four parts. The following section describes the
Sino-Brazilian booming oil commerce and investment relationship. It explains how bilat-
eral oil relations evolved from almost nonexistent exchanges to thriving trade and invest-
ment flows. The next section presents the numbers and identifies the main players in
China’s oil development finance in Brazil. Chinese policy banks have provided most
of the funds, and Petrobras was the main receiver. The other section discusses the distin-
guishing feature of Chinese credit in Brazil: countercyclical lending. Loans were offered
in times of political turmoil and economic crisis in Brazil, when international financial
institutions were unwilling to provide credit to Brazilian companies. Lastly, the last
section analyses two economic statecraft tools used by Chinese policy banks, namely
EBLs and content clauses. These tools have influenced local players – mainly
Petrobras – to behave in a manner conducive to the Chinese state’s strategic energy secur-
ity objectives.

Financial Relations Background: Booming Oil trade

and Investments
An analysis of the Sino-Brazilian economic relations over the last two decades indicates
that a new product became one of the most traded between both countries and has also
directed to Brazil increasing Chinese investments, related engineering services, and
loans: crude oil.
From 3 per cent of Brazil’s exports towards China in 2000, it has increased to
almost 25 per cent in twenty years, becoming the second most exported product to
the Asian country, which is now Brazil’s main oil destination, absorbing 63 per
cent of its oil exports as of 2019 (ITC, 2020). Petrobras’ exports towards China
have expanded almost tenfold between 2006 and 2019, from 40 to 379 million barrels
a day (mbd). China’s share of the company’s global exports has equally risen from 12
to 71 per cent. In 2015, the country became Petrobras’ main oil partner (Petrobras,
2020a).
In two decades, Chinese global crude imports have boomed, and Brazil became one of
its most important suppliers, responsible for 8 per cent of its imports and becoming its
fifth main partner in 2019, ahead of traditional exporters, such as Iran, Kuwait, and
Venezuela, for example. In numerical terms, imports expanded from 1.7 million
barrels per year (mby) in 2000 to 295 mby in 2019. This represents a growth of 176
times, the fastest pace in all of China’s bilateral oil trade relations (ITC, 2020).
This exponential growth has reasons that go beyond business considerations, which
also include government strategic calculations. China’s energy security policies have
Batista Barbosa 369

two deep-rooted features: expansion of imports and diversification of sources (Barbosa,

2020a, 2020b; Hogenboom, 2017). Figure 1 shows that, in the 2000–2019 period,
Chinese oil demand has increased 195 per cent, from 4.7 to 14.1 mbd, accounting for
around 41 per cent of the global growth in oil consumption. While China’s oil consump-
tion surged, its production lagged behind. The latter has not grown at the same speed and
even decreased from 2016 on, regaining some force in 2019, when reached 3.8 mbd (BP,
2020). Under these circumstances, China had no option other than to resort to global
energy markets. Not only has the country’s percentage of world imports increased year
by year, but also its dependency rate, which reached 72 per cent in 2019 (BP, 2020;
ITC, 2020).
Energy security became one of the main concerns of Chinese policy-makers, who
were afraid that oil could become a bottleneck to the country’s economic growth (Cui,
2015: 46; Wu, 2019: 4; Xu, 2017b: 34; Yanran, 2017: 34). Resorting to global
markets was the solution and international cooperation has become a motto for policy-
makers (Hogenboom, 2017). This concern has been voiced in energy policy papers
and strategic planning documents. For instance, in the 12th Five-Year Plans for Energy
Industry Development, which covers the period 2011–2015, “energy security” was
written ten times, and there is a target of capping of the oil import dependency rate at
61 per cent by 2015 (NEA, 2013). The rate was 56 per cent by the end of that year.
Expansion of imports would need to grow hand in hand with the diversification of
supply sources, an apprehension that has gradually increased with rising political

Figure 1. China’s Crude Oil Supply and Dependency Rate.

Source: British Petroleum`s (BP) Statistical Review of World Energy for domestic production and Trade Map for
imports (BP, 2020; ITC, 2020).
Note: The measure of import dependency rate is: Total imports/productions supplied (or total consumption)
multiplied by 100 (Skinner, 1995).
370 Journal of Current Chinese Affairs 50(3)

instability, ethnic tensions, security breaches, and oil production disruptions in the
Middle East and Africa, historically China’s main crude suppliers (IEA, 2014: 27).
OECD member states and great producers outside OPEC, chiefly Russia and Brazil,
would be new trade and investment partners (IEA, 2014: 7; EIA, 2015).
This strategy of diversification of crude suppliers can be seen in China’s global oil
imports’ records. In 2000, Middle East represented 54 per cent of China’s crude oil
imports, ending 2019 with 44 per cent. Likewise, Africa’s share has ranged from 24 per
cent to 18 per cent. In contrast, Europe and North America – where most of OECD
members are situated – have seen some percentual growth in their share, but the only
region that has sustained a continuous growth of oil exports towards China was Latin
America, from almost 0–13 per cent in the period (ITC, 2020). Brazil has an important
role in this expansion, not only as a source of imports but also as a destination of
investments and technical and financial services (Barbosa, 2021; Leao and Puty, 2018;
Liao, 2015).
The exponential growth of trade relations between Brazil and China has gained force
with the remarkable expansion of production and exports in Brazil after the discovery of
pre-salt oil basins in 2006. At this point, the interests between the world’s largest crude oil
importer and an emergent player in the world’s oil export markets have matched and com-
plemented each other. Estimates about new reserves differ substantially, but, in general,
they range from 50 (Ribeiro, 2008) up to 176 billion barrels of a lighter, better, and more
commercially valuable oil than the heavy Brazilian one (Jones and Chaves, 2015). In the

Figure 2. Brazil’s Crude Oil Production and Exports.

Source: National Agency of Petroleum, Natural Gas and Biofuels (ANP) for internal production and Trade Map
for exports (ANP, 2020b; ITC, 2020).
Batista Barbosa 371

future, Brazil would become a big oil producer and exporter according to International
Energy Association’s predictions (Husar and Best, 2013: 14).
Predictions became reality. It can bee seen in Figure 2 that, between 2000 and 2019,
internal production has expanded by 60 per cent, from 1.23 to 2.79 mbd. Pre-salt oil has
progressively filled a major share of national production, at the same time that post-salt
and onshore production numbers have decreased over time. With more oil available,
exports have boomed and increased by 220 per cent, from 0.02 to 1.17 mbd. In 2000,
Brazil exported only 1.5 per cent of its national production, a value that increased to
42 per cent in 2019, when the country was the world’s twelfth largest exporter (ANP,
2020b; ITC, 2020).
Not only have the exported quantities changed, but also the destination of the product.
The United States, historically Brazil’s main partner, was consistently buying increasing
quantities of Brazilian oil until 2012, when numbers started to decrease, mostly due to its
growing internal shale gas production (Vasquez, 2018). Subsequently, a year later, China
became Brazil’s chief oil partner (ITC, 2020).
The discovery of the new reserves has uniformly brought technological, operational,
and financial challenges, mainly due to their geographical location: on average 300 km
off the coast, between 5,000 and 7,000 meters deep into the Atlantic Ocean. The
Brazilian government’s initial plan was to give almost exclusive rights of exploration
to its state-owned companies. However, this idea has changed, primarily because of
new international and internal conditions, and new international players – including
Chinese – have progressively arrived to invest and finance exploration projects in
Brazil (Husar and Best, 2013: 14; Schutte and Debone, 2017).
On the global front, the 2008 economic crisis has made local and international oil com-
panies reconsider their investment plans and even disinvest part of their assets.
Portuguese and Spanish operators in Brazil were some that have sold part of their over-
seas E&P projects, some of which acquired by Chinese counterparts.
The world financial crunch notwithstanding, internally, the combination of eco-
nomic recession and a corruption scandal that has engulfed most local players in
Brazil’s oil sector, especially Petrobras, the country’s main operator, have created
an attractive scenario to cash-surplus Chinese oil firms, machinery builders, service
providers, and financial institutions eager to expand activities in the South
American giant (Barbosa, 2020b).
China’s biggest oil companies – mostly but not exclusively Sinopec, CNPC,
Sinochem, and CNOOC – have directed increasing sums of foreign direct investments
(FDI) to Brazil, and have substantially increased their acreage in the post and pre-salt
fields. Databases and reports on Chinese investments in Latin America and in Brazil,
such as those from the China-Brazil Business Council (CEBC, 2019), the Brazilian
Ministry of Economy (Camex, 2019), the Center for Chinese-Mexican Studies
(Cechimex) (Red ALC-China, 2020), and the Boston University Global Development
Policy Center (GDPC) (Ray and Barbosa, 2020) demonstrate similar trends. Either in
the form of new projects or mergers and acquisitions (M&A), Chinese oil firms has
enlarged their footprint in Brazil’s oil sector, mostly upstream. FDI has started, mainly
372 Journal of Current Chinese Affairs 50(3)

in 2010, and until 2019 has expanded substantially. Infrastructure projects have followed
this same upward trend. As a consequence, as of 2019, Chinese concessionaires were
already the third-largest oil producers in Brazil, with 32.2 million barrels extracted, or
3.2 per cent of national figures (ANP, 2020b; Barbosa, 2021).
At the same time that Brazil was becoming an important destination for Chinese oil
firms’ overseas investments, official cooperation between both countries has substantially
increased. Both governments established a subcommission on energy affairs in 2007, in
which ministers of energy from each side exchange regular contacts. These meetings
happen under the umbrella of the China-Brazil High-Level Cooperation and
Commission (COSBAN, initials in Portuguese), which has both country’s vice presidents
as coordinators. Also, all joint declarations of visits of heads of state and of government
from 2009 onwards mention the relevance of bilateral collaboration in oil. Equally, the
Brazil–China Joint Action Plans 2010–2014 and 2015–2021 and the Ten-Year
Cooperation Plan 2012–2021 all have chapters dedicated to petroleum. Brazil was dis-
tinctively mentioned in the 2012 white paper as one of China’s main partners (State
Council, 2012).
Additionally, most of the loans and big investment deals were decided and announced
during bilateral visits of both countries’ leaders. For instance, both 2016 and 2017 CDB’s
loans and 2016 CHEXIM’s credit were the results of a cooperation agreement between
CDB and Petrobras signed during Premier Li Keqiang’s visit to Brazil in May 2015
(Petrobras, 2016b, 2016c, 2016d). The 2009 loan was agreed upon during President
Lula’s visit in May 2009, when CDB, Sinopec, Petrobras, and BNDES signed several
contracts (Xinhua, 2009).

China’s Oil Development Finance in Brazil: Numbers

and Players
At the same time that bilateral trade and investment relations were booming, increasing
amounts of Chinese credit started to flow into Brazil. Chinese policy banks, commercial
banks, and multilateral financial institutions on which China has leading roles have
started to provide loans to Brazilian companies in 2007, one year after the discovery
of the pre-salt basins.
The pre-salt breakthrough and the subsequent growth of production, exports, and all
the Brazilian oil sector as a whole has made the country become a very promising long-
term oil source and a viable alternative in China’s oil diplomacy, according to Chinese
scholars (Xu, 2017; Zhang, 2017: 50). Some researchers mention that a “window of
opportunities” was opened for the expansion of Chinese imports, investments, and
loans (Cui, 2017: 18; Xu, 2017: 37; Zhong et al., 2016: 86; Zhou, 2017: 30). Others high-
light that complementary circumstances have emerged. On the one hand, China’s large
financial reserves and appetite to use them to help its companies to “go out” and to
secure regular supplies of oil. On the other hand, Brazil’s crude wealth and its need
Batista Barbosa 373

for capital to fund exploration and to find new markets to export it (Hogenboom, 2017:
173; Vasquez, 2019: 2; Zhou, 2017: 29).
Table 1 shows that, from 2007 to 2019, Chinese financial institutions lent as much as
USD 36.8 billion to Brazilian firms, but out of this only USD 31.7 billion was actually
disbursed. There were fifteen loans, and Petrobras was the main beneficiary. Only one
credit line – the first one – did not go directly to the company. Moreover, out of the total
amount of disbursed loans, USD 17 billion is related to loan-for-oil mechanisms, and
USD 6.75 billion has proven Chinese content requirements.
Chinese policy banks CDB and CHEXIM have provided most of the funds. CDB
offered USD 28.75 billion in the period, of which USD 28 billion went directly to
Petrobras and USD 750 million to the Brazilian Development Bank (BNDES, initials
in Portuguese). Although the first loan went to BNDES, it is aimed at financing one of
Petrobras’ midstream projects, one part of the Gasene pipeline, built by Sinopec. CDB
was also responsible for all EBLs and part of credit lines with proven Chinese content
clauses.

Table 1. Chinese Oil Fnancing in Brazil (2007–2019).

USD USD
million million Energy-backed Chinese
Year Lender Borrower approved approved loan (EBL) content Duration
2007 CDB BNDES 750 750 No Yes -
2009 CDB Petrobras 10,000 7,000 Yes Yes 10
2013 BOC Petrobras 1,000 1,000 - - -
2014 CDB Petrobras 3,000 3,000 No - 10
BOC Petrobras 500 500 - - -
2015 CDB Petrobras 3,500 3,500 No Yes 10
CDB Petrobras 1,500 1,500 No Yes 10
ICBC Petrobras 2,000 1,000 No - 10
leasing
2016 CHEXIM Petrobras 1,000 1,000 - Yes 3
CDB Petrobras 5,000 5,000 Yes - 10
Hai Feng Petrobras 1,000 1,000 - - -
2017 CDB Petrobras 5,000 5,000 Yes - 10
2018 NDB Petrobras 200 200 No No 4
BOC Petrobras 500 500 - - 5
2019 CHEXIM Petrobras 750 714 - - 2
Total 36,780 31,664
Source: Author’s calculations are based on data from Petrobras’ annual reports. (Petrobras, 2006, 2007, 2008a,
2009, 2012, 2013a, 2014a, 2015, 2016a, 2017, 2018, 2019a, 2020a).
Note: BOC = Bank of China; CDB = China Development Bank; CHEXIM = China Exim Bank; NDB = New
Development Bank.
374 Journal of Current Chinese Affairs 50(3)

In contrast, CHEXIM has only two loans in Brazil. The first one was in 2016 – USD 1
billion – and was related to the purchase of Chinese equipment and goods (Petrobras,
2016f). The second one was in late 2019 and was given to Petrobras’ subsidiary PGT
BV (Petrobras, 2020a: F-106).
One of the reasons CHEXIM provided a smaller fraction of the loans and more con-
centrated in the last few years is a result of a clash between the Chinese financial institu-
tion and Brazil’s content requirements. CHEXIM’s insistence to increase the share of
Chinese content in the 2007 loan has collided with Brazil’s then strict import laws and
it ended up being replaced by CDB (Alves, 2013).
Chinese commercial banks, such as Bank of China (BOC) and Industrial and
Commercial Bank of China (ICBC), have both strengthened ties with Brazilian oil com-
panies. BOC had a total of USD 2 billion in three different loans, and ICBC, through its
subsidiary ICBC Leasing, has equally offered USD 2 billion to Petrobras, but only half
was withdrawn. This transaction was aimed at leasing two Petrobras’ FPSO units –
namely P-52 and P-57 – to the bank, but only the first ended being negotiated
(Petrobras, 2016e). ICBC Leasing equally signed a USD 1.08 billion sale and lease-back
deal with Schahin Engineering during President Xi Jinping’s visit to Brazil in 2014, but

Figure 3. Petrobras’ Global Financing (2009–2019).

Source: Author’s calculation are based upon data from Petrobras’ annual reports. Numbers only include
banking finance, thus do not include capital market-related bonds emissions (debentures, etc.), stocks, and
others. They include loans, financing, export credit notes, export prepayments, bank credit notes, transactions
with export credit agencies (ECAs), leases, and others. Values shown are according to the date of
disbursement. Only disbursed values are considered. Recipients of these loans are Petrobras S.A. and its
subsidiaries PNBV, Petrobras International Finance Company, PIBV, Citepe, Petrobras Global Trading BV, and
Petrobras Logistica de Exploracao e Producao S.A. (PBLog). The following subsidiaries are not included:
Transpetro, Ibiritermo S.A., Arembepe Energia S.A., Innova S.A., Liquigas Distribuidora S.A., Energetica
Camacari Muricy S.A., Companhia Petroquimica de Pernambuco, and TAG. Loans from international banks
include those made by Brazilian branches of foreign banks. For loans in currencies other than USD, the
exchange rate used is that of the day of the transaction.
Batista Barbosa 375

this contract ended up being canceled, after the company filed for bankruptcy (SRI,
2015). Besides, the BRICS’ New Development Bank (NDB), which is based in
Shanghai, has given a loan of USD 200 million, aimed at upgrading two refineries of
Petrobras according to local environmental legislation (NDB, 2018).
When these numbers are put on a global scale, the strategic importance of Brazil in
China’s world oil development finance is highlighted. Resorting to data from the
“China’s Global Energy Finance,” a database developed by the Boston University
GDPC, CDB and CHEXIM have provided roughly USD 124.5 billion in loans to oil
and gas projects around the world from 2000 to 2019, which is roughly 35 per cent of
all their credit in the period. Comparing these global figures with those from Brazil pre-
sented above, the South American giant was the second recipient of China’s oil finance,
just after Russia. Brazil’s USD 30.5 billion provided by both policy banks represented
approximately one-fourth of the total and almost two-thirds of all Latin American
loans. China’s global oil finance is actually concentrated in two countries, Brazil and
Russia, which altogether represented more than half (Gallagher, 2020; Gopal, 2018).
Chinese funding was equally strategic to Petrobras’ development plans. Although
Chinese financial institutions started to lend to the oil firm only in 2009, they have
become its main creditor after eleven years, surpassing other traditional lenders, such as
the United States and Spain. Between 2009 and 2019, Petrobras received no less than
USD 160 billion, of which approximately USD 107 billion from international banks and
USD 53 billion from domestic ones (Figure 3). In this sense, the Chinese part of
roughly USD 32 billion in disbursed loans would represent almost 20 per cent of the
total – national and international sources – and 30 per cent of the external loans of the
company.

Countercyclical Lending: Arrival in Times of Internal Crisis

A distinguishing feature of Chinese credit in Brazil, especially that from policy banks, is
that they counteract fluctuations in the global economic cycle. Chinese loans were
offered in times of internal political turmoil and economic crisis, which have severely
impacted local companies’ activities, exploration plans, and financial sustainability,
such as in 2008/2009 and in the 2014–2017 periods. When most international banks
were cautious and refraining from lending to Petrobras, Chinese banks have extended
a helping hand.
Back in 2007–2008, Petrobras’ biggest challenge was – and still is – to explore
Brazil’s vast pre-salt oil reservoirs, which are more expensive to exploit, because they
are in deep waters. According to the company’s 2008–2012 Strategic Investment Plan,
USD 65 billion in E&P investments were necessary in those years, an increase of 32
per cent comparing to the preceding plan (Petrobras, 2007). The following planning
document – for the 2009–2013 period – reviewed the amount of capital necessary and
predicted disbursements of USD 105 billion (Petrobras, 2009).
The company had the technological skills to undertake the subsalt endeavor, but
needed additional financial support and started to look for funding in domestic and
376 Journal of Current Chinese Affairs 50(3)

international markets. However, the outbreak of the 2008 global crisis made its prospects
dim. World financing waned, putting into question the exploration of pre-salt projects.
This negative circumstance notwithstanding, in November 2008, CDB agreed to lend
USD 10 billion to Petrobras (Alves, 2013: 116; Fitch, 2019: 87). The amount was dis-
bursed in 2009. From then on, a closer relationship between the company and Chinese
financial institutions has started.
The company’s situation during the 2008 crisis and afterward was not so critical such
as in the 2014–2017 period. From 2014 on, besides the prolonged effects of the financial
crunch, Petrobras has started to face other serious problems, especially when a corruption
investigation under the Car Wash Operation started. In March 2014, national investiga-
tors and prosecutors have found a huge scheme of mismanagement, money laundering,
and illegal payments inside the company, which ended up being at the centre of the
largest corruption scandal in Latin American history (Petrobras, 2019a: 16). From then
on, new difficulties have gradually come to shore.
Lawsuits in different countries were filed against the company, which started to
incur heavy losses (Petrobras, 2020a). After a peak of USD 112 per barrel in 2011/
2012, Brent oil prices went into downfall, reaching USD 52, USD 43, and USD 54 in
the 2015–2017 period respectively (BP, 2020). The company’s shares equally went
down, decreasing from an annual average of USD 24.9 in 2009 to USD 9.2 in 2015,
when they have started to improve until reaching USD 27.2 in 2019 (Investing.com,
2020a).
Furthermore, the Brazilian currency real has progressively depreciated over time, from
an annual average of BRL 1.83 per US dollar in 2008 to BRL 3.93 in 2019
(Investing.com, 2020b). This depreciation has brought considerable pressure on the com-
pany’s ability to pay its external debts since it needs bigger amounts of local currency to
pay the same quantity in US dollars. In 2015, the parcel of Petrobras’ debt in US dollar
reached a peak of 74 per cent (Petrobras, 2016a). Further, it has increased the cost of
importing gasoline and other derivates, not to forget equipment and services.
Besides, the real’s devaluation has worsened the impacts of the discrepancy of domes-
tic and international gasoline prices implemented by the government from 2011 on as part
of its strategy to contain inflation. This situation has decreased the firm’s local revenues
(earned in real) and, at the same time, has forced it to increase imports (paid in US
dollars), to meet the internal demand (Almeida et al., 2015b: 554).
Moreover, the corruption scandal has involved several other companies in Brazil and,
thus, has severely affected all the national oil industry. Several firms started to have
liquidity problems, some even went bankrupt. Those involved in corruption charges
were prohibited from making deals with the government and its SOEs, including
Petrobras. Delays and disruptions in the supply of materials and services have become
recurrent and, therefore, have affected Petrobras’ oil production expansion strategy
(Petrobras, 2014b: 25). For instance, in its previous business plans, the company had
forecasted production of 2.7 mbd by 2013 (Petrobras, 2009: 9) and 3.2 mbd by 2018
(Petrobras, 2013b). According to ANP, the actual figures were 1.8 mbd and 1.9 mbd
in those two years respectively (ANP, 2020a).
Batista Barbosa 377

Under this difficult scenario, Petrobras’ debt progressively went up. In the 2008–2019
period, the net debt has grown from BRL 49 billion to BRL 318 billion – or roughly USD
27 billion and USD 81 billion, according to average exchange rates at those years
(Investing.com, 2020a) – reaching a peak of BRL 392 billion in 2015 (USD 118 billion
at that time), when it started to decrease. Incomes have increased at a slower pace, from
BRL 57 billion to BRL 129 billion (or USD 31 billion and USD 33 billion at those
years). In 2015, it was only BRL 74 billion (USD 22 billion at that time). Therefore, the
coefficient net debt/Ebitda, which better reflects the capability of the corporation to pay
its debts, raised from 0.85 in 2008 to 2.46 in 2019. The peak was reached in 2015 with
5.31 (Petrobras, 2020a). The situation of Petrobras’ employees became tough as well.
For instance, there were delays in payments of wages in late 2014 and 2015, which
sparked protests in different parts of the country (Almeida et al., 2015a).
As a result of the company’s increasing financial deterioration, the rating agencies
Moody’s, Standard & Poors, and Fitch downgraded Petrobras’ evaluation to non-
investment grade in February 2015, September 2015, and May 2016 respectively
(Petrobras, 2016a: 27). These decisions have virtually closed the access to international
financing, putting the company’s operational capacity in peril.
Facing financial distress or strangled in a liquidity crisis, Petrobras has found in China
a helping hand. Chinese banking institutions, mainly CDB and CHEXIM, offered credit
propping up Petrobras when the company was in need, such as in the 2009–2010 period,
and when the firm was almost unable to find credit from elsewhere, such as in the 2014–
2017 period. Therefore, Chinese banks have operated in a countercyclical way, quite dis-
tinctively to other international and domestic financial institutions, which were reluctant
to provide funds, especially in the second phase.
For instance, when oil prices went down from 2014 on and, consequently, Petrobras
had problems keeping its financial solidity and expanding its production, Chinese banks
started to pour money into the company (Figure 3). When the company’s net debt/Ebitda
coefficient increased substantially from 2013 on and has kept high levels in 2015, 2016,
and 2017, Chinese banks offered billions of dollars in credit. In the worst year of
Petrobras’ crisis in 2015, CDB’s loans might have saved Petrobras from defaulting in
the short-run (Hogenboom, 2017: 201). Remarkably, CDB’s loan in April 2015 were
made just after Moody’s canceled the corporation’s investment grade, which virtually
closed the doors to the international credit market (Schutte, 2016).
Interestingly, Chinese policy banks have also behaved in a different manner than oil
companies. Barbosa (2021) shows that Chinese oil corporations have sped up their
investments in Brazil when oil prices were high or going up, but have pushed back dis-
bursements during times of elevated risk and decreasing oil rates.
As shown above, CDB and CHEXIM have done the contrary, providing loans exactly
when Petrobras really needed financing, especially in the 2014–2017 period. This behav-
iour illustrates the strategic role of the company and the country in these banks’ lending
considerations. The prospect of continuous expansion of Brazilian crude production and
exports in the future fitted well in the Chinese government’s long-term energy security
concerns (Downs, 2011; Kong, 2019). Indeed, Chinese loans were relevant not only to
378 Journal of Current Chinese Affairs 50(3)

balance the firm’s accounts in moments of financial distress and international economic
crisis but also to make the company’s investment plans – mainly in the pre-salt area –
financially viable, which would create increased production surpluses to be exported,
as discussed above. Petrobras is historically Brazil’s main concessionaire and exporter,
representing almost 74.1 per cent of total production in 2019 for instance (ANP,
2020b), so its exploration performance directly impacts the country’s production and
exports’ figures.
It is worth highlighting that Brazil’s upward trend in crude exports (Figure 2) started in
a period of transition in global oil markets. At the same time that China was raising its
imports (Figure 1), the United States was decreasing its external oil dependency, due
much to its booming internal shale gas production. From 2000 to 2009 and in 2011
and 2012, the United States was the chief destination of Brazilian crude. However,
China’s increasing imports from Brazil over time have made the Asian nation temporarily
surpass the United States in 2010 as Brazil’s chief oil destination. From 2013 on, China
has consolidated its first position and become an important alternative market to the South
American country’s swelling exports (Hiratuka and Deos, 2019: 223; Rosito, 2017: 10;
Wu, 2019: 27; Xu, 2017: 54). Therefore, much of the Chinese lending ended up creating
an oil surplus scenario in Brazil that has directly benefited Chinese crude importers.
To sum up, providing credit to Brazil in a timely manner and making use of oil-backed
loans and Chinese-content purchase requirements – to be discussed below – Chinese
policy banks have created a competitive scenario in the South American country for
Chinese enterprises to obtain novel crude supply sources, expand equipment and con-
struction services’ exports, and acquire local oil equity assets.

China’s Economic Statecraft Tools: EBLs

and Chinese Content Clauses
Economic statecraft is a concept that has been revisited by the rapid rise of China in the
last decades. David Baldwin is one of the pioneer authors to write a systematic study of
the use of economic tools in interstate relations. In his book published in 1985, he pro-
vides an analytical framework of the utility of these instruments in comparison to military
means and divides them into positive sanctions – or incentives – and negative sanctions
(Baldwin, 1985: 19). In the book’s 2020 edition, Baldwin acknowledges that China has
become an active user of economic statecraft since 1985 and that this phenomenon
deserves attention not received in his publication (Baldwin, 2020: xi). Interestingly,
China-related studies of economic statecraft have helped to change the historical focus
from negative to positive tools – a general trend already under way since the 1990s
(Mastanduno, 1999: 301) – because the use of economic inducements, such as develop-
ment finance, FDI, and foreign aid, have prevailed over economic sanctions in China’s
foreign policy (Alves, 2017: 213; Macikenaite, 2020: 7).
Alves (2017) analyses Chinese foreign aid to African countries since the Mao era.
Morgan (2019) also investigates China’s economic statecraft in Africa to observe how
Batista Barbosa 379

Chinese trade, FDI, and aid have helped to boost – or not – the country’s soft power in the
region. Urdinez et al. (2016) argue that China filled the void left by the US in Latin
America through increasing FDI, bank loans, and international trade. Liang (2019)
also focuses on Latin America, but makes differences between Brazil and Mexico,
which are considered successful and unsuccessful cases respectively. Pardo (2018)
argues that BRI is a tool of Chinese economic statecraft and shows its effects on
Europe’s financial security. Lastly, like this article, some publications focus on
China’s oil finance and describe instruments such as oil-backed loans and purchase
requirements. Alves (2013) compares China’s oil development finance in Brazil and
Angola. Gallagher and Irwin (2015) argue that commercial profit is a major force
behind China’s equipment purchase requirements and oil purchase contracts in Latin
America.
This article uses the above-mentioned and other related publications as a foundation
and seeks to present an updated analysis of the usage of Chinese economic statecraft
tools in the Brazilian oil sector and of their impacts in areas such as trade, investments,
and infrastructure projects. This paper resorts to the definition of economic statecraft
given by Norris (2016: 14), according to whom it is the deliberate attempt of a state to
incentivise private actors to act in a way that creates security externalities favourable
to the state’s strategic interests.
In this sense, resorting to loan-for-oil mechanisms as well as content requirements as
economic tools, Chinese policy banks, to some extent, have influenced local players –
mainly Petrobras – to behave in a manner conducive to the Chinese state’s strategic
energy security objectives, namely increase of imports, diversification of sources, and
the internationalisation of Chinese corporations, one of the main banners of the “going
out strategy.” EBLs have helped to guarantee stable and increased oil flows to China
over time, especially from 2015 on. Chinese content clauses have created market oppor-
tunities in one of the most thriving sectors of Brazil’s oil industry: drilling units. Until
2019, Brazil was the world’s chief buyer of FPSO, and half of its demand was satisfied
by Chinese dockyards.
In 2009, Chinese banks initiated a new modality of credit with Brazil: EBLs. The
loan-for-oil mechanism consists typically of a trilateral long-term credit agreement
between a Chinese policy bank (the financer), an international oil firm (the supplier),
and a Chinese oil company (the buyer). Although each contract has its own features, the
funding is usually not repaid in kind, but through the proceeds of oil sales, whose value
is deposited into the borrower’s account in the lending institution. A contract is signed
with a Chinese corporation, which will buy a specific number of barrels of oil per day
during a certain period at an agreed-upon price, which is not necessarily fixed and can
follow oscillations of international crude oil prices (Alves, 2013: 101; Wu, 2019: 27).
Oil-backed loans are not a Chinese invention, they were quite common in the 1990s
amongst Western banking institutions. After the global financial meltdown in 2008–
2009, they once again became an important economic statecraft instrument that knits
together interests of the Chinese government, policy banks, and oil corporations, since
they limit lending risks, increase imports’ protection against oil price and exchange
380 Journal of Current Chinese Affairs 50(3)

Figure 4. Petrobras’ Current and Agreed Exports to China (tbd).

Source: Author’s calculations are based on data from Petrobras’ annual reports. Agreed exports’ figures refer
only to valid loans-related contracts every year, excluding pre-paid loans.

rate fluctuations, and secure continuous flows of oil from oil-rich countries – usually with
low credit ratings (Alves, 2013: 100; Hogenboom, 2017: 180; Yunbo, 2019: 26). It is esti-
mated that about 40 per cent of all China’s loans are backed by oil sales (Gallagher et al.,
2018: 317). Besides Brazil, several countries have equally signed such agreements with
China, for instance, Russia, Venezuela, Turkmenistan, Angola, Kazakhstan, Ecuador,
Bolivia, and Ghana. In common, they all have restrictions to access credit and were hit
hard by the fall of oil prices (IEA, 2017: 14; Vasquez, 2019: 11).
Under such a mechanism, Petrobras signed three contracts, in 2009, 2016, and 2017.
The first one was of USD 10 billion and was conditional to sales of 150,000 barrels a day
(tbd) in 2009 and 200 tbd between 2010 and 2019 to Sinopec’s subsidiary Unipec Asia
Co. Ltd (Fitch, 2019: 86). In January 2018, the company pre-paid the residual balance of
this contract, ending the oil sales’ commitment (Petrobras, 2019b: 78).
The other two loans were part of a term sheet signed with CDB in February 2016
(Petrobras, 2016b, 2016c). The 2016 one is of USD 5 billion and established the prefer-
ential supply of 100 tbd, in compliance with market conditions, for a ten-year period, to
China National United Oil Corporation – subsidiary of CNPC – China Zhenhua Oil Co.
Ltd, and ChemChina Petrochemical Co. Ltd – both subsidiaries of ChemChina
(Petrobras, 2016b, 2016c). The 2017 loan has the same value and condition, but the
Chinese oil buyer is Unipec Asia Co. (Samora, 2017). In December 2019, Petrobras
paid in advance the second loan (Petrobras, 2019b).
Batista Barbosa 381

With these three contracts, CDB has fulfilled one of China’s energy security objectives:
a stable and increasing flux of Brazilian oil to China over the years, which also helped to
diversify supply sources, with Brazil’s growing participation in China’s crude import
matrix. In the years that the loans were approved, crude exports grew by 67 per cent, 13
per cent, and 21 per cent in 2009–2010, 2016–2017, and 2017–2018 respectively.
Calculating the number of barrels that Petrobras was expected to sell each year and
taking into consideration pre-payments made (Ray and Barbosa, 2020: 6), the
company should have supplied 150 tbd in 2009, 200 tbd between 2010 and 2016, 300
tbd in 2017, and 200 tbd in 2018 and 2019 (Figure 4). Interestingly, Petrobras did not
fulfill its contractual obligations in the initial years, possibly because of the company’s
then struggle to keep its financial solidity and production expansion plans at the same
time. From 2015 on – except in 2017 – actual export figures reached the ceiling estab-
lished in the deals (Petrobras, 2020a) and manitained an upward trend since then.
Remarkably, in 2018 and 2019, exports largely surpassed the contractual targets.
Another feature of Chinese economic statecraft in Brazil are Chinese content clauses.
This is a common condition in the country’s policy banks’ loans, which require that part
of the money lent be used in the acquisition of Chinese goods and services (Kong and
Gallagher, 2017: 7). It is believed that this mechanism is present in most of CDB’s
and CHEXIM’s deals around the world (Brito et al., 2016), but their existence is not
always revealed, so as to avoid negative repercussion in local society and media and
opposition from worker unions (Alves, 2013: 108).
This clause fits well with the policy banks’ targets of fostering Chinese firms’ interna-
tionalisation. Under the “going global” initiative umbrella, both CDB and CHEXIM have
made their loans increasingly global, as a way of improving Chinese companies’ physi-
cal, contractual, commercial, and technological access to energy around the world (Kong,
2019: 46). Brazil was clearly part of this strategy, considering its favourable prospects for
infrastructure projects, machinery selling, engineering services, amongst others.
Interviewees have hinted that all Chinese loans from CDB and CHEXIM in Brazil
have this kind of obligation (Anonymous 1, 2019), but only in five of them can it be
confirmed.
CDB’s 2007 loan to BNDES has inaugurated this modality in Brazil. For gaining the
right to build two tranches of the Southeast-Northeast Interconnection Gas Pipeline
(known as Gasene), Sinopec consented to buy a minimum Brazilian content of 75 per
cent during construction, which started in 2006 (Alves, 2013: 115). As mentioned
above, CHEXIM’s insistence on a higher percentage of Chinese content has led it to
quit negotiations and to be replaced by CDB.
Out of the 2009 CDB’s USD 10 billion credit, USD 3 billion was destined to be used
with Chinese contractors. The percentage should be higher but was reduced to 30 per cent
to be in accordance with then stringent local content regulations in Brazil (Alves, 2013:
121). Petrobras decided not to withdraw this part of the loan, disbursing only USD 7
billion of the total.
The two 2015 CDB’s loans included a clause that 60 per cent of the total USD 5 billion
must be spent on Chinese products and services (Xu, 2017: 36). This obligation was
382 Journal of Current Chinese Affairs 50(3)

confidential until it was leaked and published by a Brazilian newspaper, sparking a diver-
gence between Petrobras and ANP, which is responsible for ensuring compliance with
local content regulations (Alves: 2013, 108; Brito et al., 2016; Vasquez, 2018: 12).
Petrobras was obliged to make a public statement acknowledging the existence of the
requirement, after a request from the Securities and Exchange Commission of Brazil
(Petrobras, 2016f). These loans were made in a different context than the previous
ones. The ongoing economic crisis and corruption investigation that engulfed all of
Brazil’s oil sector and supply chain have created hurdles to buy locally equipment and
services. Chinese firms were one of the players that benefited from this situation.
CHEXIM has offered funds to four local oil firms to buy Chinese equipment, but only
one took place: USD 1 billion to Petrobras (Hogenboom, 2017: 201). This credit was
related to contracts that Petrobras has already signed with Chinese companies and that
involved the purchase of equipment and goods (Petrobras, 2016f).
To track compliance with these requirements and the extent of percentages is a dif-
ficult task since Petrobras does not provide this kind of information, at least not in an
aggregated way. Nonetheless, the history of relations between the company and
Chinese engineering contractors, machinery makers, and service providers offers some
hints about how Chinese-content requirements might have been implemented and have
helped to increase the participation of Chinese equipment and service providers in
Brazil’s oil sector.
Between 2006 and 2019, Petrobras spent as much as USD 3.4 billion on infrastruc-
ture projects performed by Chinese firms in Brazil (Barbosa, 2021). After the Gasene
project, Sinopec was established as a service provider to Petrobras and other Brazilian
companies. Two examples are the construction of a terminal of regasification in Bahia
state in 2012 (A&M, 2018), and the Fertilizer Unit III (UFN3) in Tres Lagoas in 2013
(OGlobo, 2014).
Other Chinese service firms have followed Sinopec’s example and disembarked in
Brazil, such as Jiangsu Asian Star Anchor Chain (JASAC), BDG Brasil, and
Shandong Kerui. From 2014 on, JASAC signed eight contracts with Petrobras, mostly
related to anchoring services. BDG offered seismic data services in 2018 (Petrobras,
2020b). Shandong Kerui, in a joint-venture with Potencial Engenharia, is responsible
for building Petrobras’ natural gas processing unit (UPGN, initials in Portuguese) at
the Complex of Rio de Janeiro (Comperj) (Valor, 2017).
Besides growing relations with Chinese firms established in Brazil, Petrobras has also
quickened cooperation with Chinese shipbuilders. Media reports affirm that part of the
decision to reallocate the construction of some of its FPSO projects to Chinese dockers
dockyards derives from the necessity to comply with agreed content requirements
(Rosa, 2017).
After pre-salt discoveries, Petrobras announced, in 2008, a plan to contract ten new
FPSO, two would be leased and eight would be owned by the company (Petrobras,
2008b). Local shipbuilders were the preferred option. However, the following economic
crisis and recession have made the firm change its original idea (Petrobras, 2019a: 65). As
mentioned above, the whole Brazilian oil chain was severely affected, and, for example,
Batista Barbosa 383

some local dockyards delayed their projects or had to relinquish contracts to Chinese
counterparts (Petrobras, 2014a; Sinaval, 2015; Valle, 2014).
Between 2000 and 2019, twenty out of thirty-nine Petrobras’ FPSO partially or
entirely contracted abroad were manufactured in Chinese dockyards, a tendency that
was intensified in the second decade of the period. Since 2014, almost all Petrobras’
FPSO were partially or totally built or converted in China (IHSMarkit, 2019: 47), the
same period that Chinese loans to the company started to increase. Over this period,
Brazil was the world’s largest purchaser of this kind of vessel (IHSMarkit, 2019: 44).

Conclusion
The history of Chinese oil development finance activities in Brazil over the last years
shows a remarkable evolution in four pillars, namely trade, FDI, infrastructure projects,
and loans. From almost non-existent exchanges, both countries became reciprocally
important oil partners, and Brazil has consolidated itself as a hotspot of Chinese oil
imports, investments, services, and finance.
A detailed analysis of the bilateral oil financial relation demonstrates that, beyond
commercial aspects, relevant strategic concerns were present in Chinese policy banks’
loans. In its relation with Brazil, the Chinese state has resorted to economic statecraft
instruments, in order to influence business transactions, manipulate economic interac-
tions, and, thus, further its energy security and development goals.
Brazil’s expanding national crude production and exports have fitted well into China’s
quest for energy security, which aimed at boosting imports, diversifying partners, and
pushing the internationalisation of its firms. Since the detection of huge untouched oil
reserves, Brazil offered what China wanted to access: natural resources to import, strate-
gic assets to explore, and economic opportunities for its engineering and machinery com-
panies to grasp.
To make these objectives achievable, Chinese policy banks have operated in a coun-
tercyclical way and have resorted to two economic statecraft tools: EBLs and Chinese
content clauses. CDB and CHEXIM have provided loans in moments of the global finan-
cial crisis and when Petrobras’ financial sustainability was in peril. When other interna-
tional banking institutions were hesitant to provide credit to the Brazilian firm, such as
between 2014 and 2017, Chinese policy banks have extended a helping hand.
With the help of these loans, China has satisfactorily guaranteed a stable oil supply
over time and has helped Chinese equipment makers and service providers to expand
their footage in Brazil. Out of the almost USD 32 billion disbursed in Brazil, USD 17
billion were under loan-for-oil mechanisms and were set to be paid through the proceeds
of oil sales. This scheme has helped boost Brazilian exports to China, which have
expanded ten times between 2009 and 2019. Brazil became an important piece in
China’s crude imports matrix, accounting for 8 per cent of its imports and becoming
its fifth main partner in 2019, ahead of traditional exporters, such as Iran, Kuwait, and
Venezuela. China’s share in Brazil’s exports grew considerably from 14 to 63 per
384 Journal of Current Chinese Affairs 50(3)

cent. Petrobras, the main recipient of Chinese loans, saw its exports to the Asian country
increase significantly from 18 to 71 per cent of its global exports.
Chinese content clauses were important tools to enlarge Chinese engineering compan-
ies and service providers’ footprint in Brazil. At least USD 6.75 billion in loans had pur-
chase requirements. Information regarding compliance, percentages, and related projects,
products, or services are scarce, but the existing information provides relevant insights.
Between 2006 and 2019, Chinese firms were progressively involved in several oil-related
infrastructure projects in Brazil. Remarkably, Chinese dockyards became the chief man-
ufacturers of Petrobras’ ambitious offshore platforms’ construction plans, which is the
world’s largest.
This article relates to the current literature on China’s economic statecraft and aims to
present an updated and detailed analysis of the usage of Chinese economic statecraft tools
in the Brazilian oil sector and of their impacts in the areas of trade, FDI, and infrastructure
projects. The findings might offer a basis for future case-studies of particular Chinese oil
investments and loans in Brazil.
Brazil is an interesting case for analysing how the Chinese government has used its
financial might to facilitate its energy security policies and development objectives. In
China’s oil development finance in the South American country, relevant strategic con-
cerns and economic statecraft considerations were joined together with business interests,
bringing impacts in other pillars of the bilateral relationship, such as trade, investments,
and infrastructure projects.

Author’s note
Pedro Henrique Batista Barbosa is a PhD candidate in International Politics at Renmin University of
China. His research fields are international political economy and Brazil-China relationship, with a
focus on energy issues. He has published several articles in Brazilian, Chinese and other interna-
tional journals about Sino-Brazilian relations in the electricity and oil and gas sectors.

Acknowledgement
The author is immensily grateful to the reviewers and the editors for all comments.

Disclaimer
The article reflects the author’s perspectives and not those of the institutions with which he is
affiliated.

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Author biography
Pedro Henrique Batista Barbosa is a PhD candidate at the School of International Studies,
Renmin University of China. His research interests include Chinese foreign policy and Brazil-
China political and economic relations, especially energy.