An outline of a "five-point consensus" between the two governments was revealed as Brazil announced a major military exercise on the Paraguay border that will include simulated warfare over a strategic hydroelectric dam.

Brazil, awash with earnings from commodity exports and steady economic growth, has moved swiftly to revive its armaments manufacturing, modernize armed forces and send a message to neighbors about its claim to pre-eminence in Latin America.

The pact with China and plans for a military exercise involving more than 8,000 members of the Brazilian army, navy and air force follow weeks of arms shopping that has seen U.S. and European military suppliers competing for Brazilian defense contracts worth more than $20 billion.

Brazilian Defense Minister Nelson Jobim, who announced the new military cooperation pact in Beijing after talks Monday with Chinese Defense Minister Liang Guanglie, has been scouting for military technology transfer deals since President Luiz Inacio Lula da Silva unveiled his military regeneration plans last year.

He said Brazil is looking to boost domestic technical and defense production capacity with its military purchases and is not "a Venezuela, buying in the world's arms supermarket."

Explaining the strategy to Brazil's Congress, Jobim said, "We're not on a shopping spree. We're on a spree to boost national capacity."

Brazil has already contracted to buy submarines and helicopters from France and tanks from Germany but has not yet decided on a major deal for fighter jets, for which Boeing's F18 and Dassault's Rafale are in the race with Sweden's Saab Gripen NG.

Brazil has been insisting on maximum transfer of technology on all defense deals.

Defense industry suppliers were drawn to Brazil's announcement of a major military exercise next to landlocked Paraguay with the main "target" being the recovery of a jointly owned hydroelectric dam -- a reference to the Itaipu complex -- from enemy hands.

Analysts said the exercise was the largest simulation of a major conventional conflict ever staged in Latin America and could only lead to copycat actions in other neighboring countries before it could intimidate Brazil's neighbors.

"We are training our people for dissuasion, so that nobody trespasses our frontiers," Brazilian military commander Gen. Carlos de Nardi said.

Analysts said the exercises would heighten concerns that Latin America could be heading for an arms race despite denials from all sides.

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