André Clark, CEO of Siemens Brazil, talks about his own experience with Chinese investors over the years, and in his current position with Siemens. He points to strong business acumen, adaptability and long-term strategic thinking as some of the Chinese investors’ core strengths and the secret ingredient to their long success in Brazil. Clark also highlights opportunities for new investment in greenfield projects, nuclear projects, projects with state-owned enterprises, and the growing trend of local-level infrastructure investment, which he has witnessed Chinese investors capitalize on with great success

China has invested heavily in Brazil over the years and continues to do so today. What is your take on the interests of China in Brazil and the connection between these two economies?

I’ve witnessed China’s growing presence in Brazil first-hand for a decade now. Back during the first investment wave, I worked for a construction company called Camargo Correa—one of our clients at Siemens now—where I negotiated the sale of some of the company’s assets to Chinese investors. I am also board member of the Conselho Empresarial Brasil China (CEBC), and accompanied Vice President Mourão on his first trip to China. China is a critically important partner for Brazil, and by extension, for Siemens. Almost a quarter of Siemens’ global revenues are based in Asia and Australia. Over 70,000 of our employees are based there, as are 21 R&D hubs and many manufacturing sites. We have been in China for 140 years, and we are one of the biggest names there. Chinese companies have been clients and competitors over the years here in Brazil.

There have been four main waves of Chinese investment in Brazil thus far. What do you see as the next investment horizon?

Now we’re seeing investment in infrastructure at the subnational level. I think it’s a very smart move. Greenfield projects will be an important area of future investment. The largest greenfield investment the Chinese have completed thus far was the Xingu transmission line, which was executed with Siemens. Greenfield investment projects have been limited, simply because the projects are not yet optimal over brownfield investments for foreign investors.

FDI in Brazil is also highly regulated in comparison to China. How do you see Chinese investors adapting and finding success in this investment climate?

Investment legislation in Brazil is more restrictive than in China, and in the first waves, Chinese investors came with a lot of capital, but struggled to navigate the legislative system. However, the first wave Chinese investors quickly learned how to make their way through the system. A challenge investors face is that a lot of the attractive investment targets, for instance, large state-owned companies like State Grid, are very well financed as national strategic assets. For instance, our National Grid Operator and our state-owned companies in the oil sector do operate and control their assets independently, and this provides opportunity for foreign investors. We’ve helped Chinese investors bid on transmission lines, power plants, roads, ports, etc.

How does the Belt and Road Initiative play into China’s investment strategy in Brazil? What has been the response from the Brazilian side?

The Chinese system is undoubtedly different than ours. However, the Chinese are adept at understanding the environment they are in and adapt rapidly. For example, the Brazilian business environment did not allow the Chinese to move forward with the Belt and Road Initiative (BRI) in the way it was initially proposed. Although the BRI includes 96 countries with different legal landscapes, once foreign investors are incorporated here, we treat them as Brazilians. I’ve seen the Chinese understand that mentality and reshape the BRI strategy not only for us in Brazil, but also in Colombia, Chile and Peru.

What is the interest of Siemens in bridging these two nations?

We have a globally connected supply chain of manufacturing sites connecting Brazil and China. No matter where we operate, if we can create a value proposition for a client, we are happy.  China offers competitiveness and scale that can help with Brazil’s development plan. Our infrastructure gap has been a consistent problem. We’d like to see more greenfield projects in the pipeline now that more funding is available.

What is your take on the Central Bi-oceanic Railway Corridor?

Greater infrastructure connectivity across South America is strategically advantageous for us and for China. However, I’m not convinced a railway system across the rivers and mountains of the Amazon is the best way to do it. Is connecting logistics systems across the region and extending it across the Pacific and Atlantic Oceans to China beneficial to all parties? Absolutely. China is our biggest trade partner and I don’t see their strategic importance to us changing. We have advancements in cyberspace, the Fourth industrial revolution, Industry 4.0, the world is changing quickly. On 5G standards, it is a battle right now, and one that does not abide by the Geneva Conventions. There are no boundaries and no rules.

The US has tried to isolate China in global trade and it did not work. How does Brazil balance its relationships with both countries?

We are in the middle of this geopolitical calculus. China is an important partner. Huawei has around a 40 percent market share here. We are in the middle of the auctioning off the 5G network. The 5G discussions include topics related to security and standards that put us into the realm of geopolitical security. If worse came to worst, and we were pushed in a national security matter, Brazil would align with the US. The current government is very clear that Brazil aligns with the West. We have even been invited to be a premium NATO partner. It’s symbolic, and states that in the world of a cyberwar, war, geopolitics and security, Brazil sides with the West. 

When Chinese and Brazilian collaborators work together, how do you break through cultural barriers?

We often work with large teams of Chinese engineers in projects at Siemens. Frequently, they don’t speak Portuguese or English, and we don’t speak Chinese. However, we manage the project. We communicate. What these teams do is amazing, not only in terms of design, but also in using smartphone translators for very long technical conversations. The Chinese are doing very well and the projects are going fine. Now they understand Brazil very well and they have behaved very wisely. In the first projects, they worked with local partners such as Eletrobrás, and they were very respectful and learned very quickly.

These infrastructure developments will need to follow the sustainable way of development that Brazil wants to carry and adapt to its energy matrix. How do you see the future of the electricity sector?

In the next decade, Brazil will develop its wind and solar very quickly because it will have the cheapest marginal cost in the world. The wind is fantastic here, and we have not even started exploring offshore wind yet. We also clearly see a lot of sun. However, with the growth in renewables, we’ll need dispatchable energy, like gas. In the next ten years, Brazil will build about 20GW in gas-powered plants along the coast, from the south to the north. Part of this gas is Brazilian, part is Bolivian, part is Argentinean and part is from Guiana. This will represent a huge transformation in the energy sector here, in terms of sources. We have some hydropower, but not many large plants, most are small.

What about nuclear power?

Nuclear is a very important part of this matrix because Brazil produces a lot of uranium. Nuclear is not just about nuclear energy; it’s about the whole supply chain. It’s an industrial policy, above the power plant itself, so the strategy is completely different. We will see the Chinese, the Russians, the French and maybe the Koreans bidding for the Angra III nuclear project. I should note there’s also a huge boom in opportunities in oil and gas at the city-level.

Energy at the city-level is a quite new and trendy approach to the sector. Where are you involved in these discussions?

We are very involved. The problem we are facing is, what are the regulatory models that allow for investors to take on subnational regulatory risks? For example, there are 67 different regulatory agencies in the sanitation sector across the 5000+ municipalities. It’s very rare for large-scale investors to trust such a varied and unstable model. The model is being changed and there is new public private partnership legislation in the pipeline that will redesign PPP frameworks and allow greater stability in the market. In capitalizing on this market niche, the Chinese are one step ahead. The Chinese work on relationships and trust. They take a long time to start trusting whoever is on the other side and to understand what they need. They are moving ahead with drafting proposals despite of the fact that they know there’s still no business yet. They will not invest until something real happens, because the risk is tremendous. But they have the project proposal ready. They have an overcapacity of engineers back home, so they have the bandwidth to do this. in terms of engineering back home. Remember that 45 percent of the Brazilian population live in 30 major cities. The Chinese are very well prepared for that sort of scale. Very few other nations are.

Do you believe, then, that China will be the only country able to compete on these projects?

Everybody is competing, not just China. The Chinese undoubtedly have strong proposals, good technology, and competitive systems. However, the Europeans and the Canadians have those strengths too. There’s a big European presence in Brazil. Collectively, they are the largest foreign investors here.

Where does Siemens fit in that? Do you work with everybody?

Siemens tends to work with everybody. We are both global and local, with business in 232 countries and 162 local operations in manufacturing. We already have a business unit in China. That’s the biggest market and they supply every other market, so we have strong leadership placed there.