30
Jul
As much of the world focuses on Greece’s travails, the BRICS countries—Brazil, Russia, India, China and South Africa—have been working to advance their own economic agenda, most recently at their seventh annual summit in the Siberian city of Ufa. But, though Russia hosted the meeting, it is China that was viewed as dominating the grouping. Indeed, BRICS has already proved to be a force multiplier for Chinese diplomacy, and can remain so if China is careful not to push its national interests too hard.
So far, China has played a pivotal role in driving progress toward real cooperation in BRICS. In recent weeks, its members have each pledged $10 billion to their New Development Bank, which should start lending next year; released a common strategy for economic and trade cooperation; and agreed to a $100-billion contingency fund to provide temporary assistance to members facing balance-of-payments pressures.
But BRICS’ future remains uncertain, owing to strong economic headwinds. Brazil is wracked by corruption scandals and stagnating output. Russia is probably in recession, owing largely to Western sanctions imposed in response to its intervention in Ukraine. India has been suffering from a depreciating currency and soaring public debts. China’s GDP grew by only 7.4 percent last year, the lowest rate in 24 years. And South Africa’s growth has been weak, not least due to energy shortages.
Given these developments, many Western observers have come to believe that BRICS is broken. Morgan Stanley’s Ruchir Sharma has emphasized that the winners of the last decade may not continue to win in this one. Even Jim O’Neill, who coined the term “BRIC,” has turned his attention to the “MINT” economies—Mexico, Indonesia, Nigeria and Turkey—BRICS’ key emerging-country competitors.
But not everyone is bearish about BRICS’ prospects and global influence, whether taken individually or as a grouping. Journalist Gideon Rachman has suggested that “the rise of non-Western economies is a deeply rooted historic shift that can survive any number of economic and political shocks.” China seems to be counting on that being true.
In fact, BRICS remains an economic force to be reckoned with, accounting for 25.7 percent of world GDP, 42 percent of the global population, and 17 percent of total trade. The five countries attract more than 18 percent of the global total of foreign investment, hold 40 percent of all foreign-exchange reserves, and account for 30 percent of total foreign holdings of US Treasury bonds.
Moreover, BRICS consumption markets are worth more than $4 trillion, equivalent to those of the eurozone. And, according to Goldman Sachs, about 85 percent of the world’s middle class will be living in BRICS and other developing countries by 2030. Moreover, with many of the factors that have fueled BRICS’ rapid growth—including relatively low labor costs, rising productivity, trade liberalization, and the free flow of information and capital—still in play, writing off BRICS would be premature.
Still, the five countries have work to do. By delaying structural reforms, they have allowed their economies to accumulate risks and imbalances that have eroded their long-term health. In particular, they suffer from considerable income inequality, with their average Gini coefficient (where zero signifies absolute equality and one is absolute inequality) ranging from 0.37 to 0.50 in 2010-2013.
Working together, they have a better chance of implementing the reforms needed to boost their economies’ resilience—an opportunity that they have already identified. Indian Prime Minister Narendra Modi’s administration has sought massive support from China in implementing its national manufacturing policy and overcoming obstacles to developing infrastructure.
China is now going further, urging the rest of BRICS to institutionalize their cooperation, not just pursue domestic reform. China contends that a stronger BRICS would help safeguard the interests of all developing countries. To that end, China is also spearheading the effort to reform the global economic architecture, including by pushing for reforms in the International Monetary Fund’s weighted voting system.
But despite such efforts’ potential benefits for emerging and developing economies, they have provoked considerable anxiety among China’s BRICS partners, which fear that its leadership could quickly morph into domination. Beyond fundamental differences in the BRICS’ countries political systems, social values, and cultural traditions—factors that undermine trust and cohesion—there is the obvious fact that China’s economy (not to mention its military) dwarfs the others’.
Indeed, bilateral trade between China and the rest of BRICS accounts for 85 percent of total intra-BRICS trade. Furthermore, China’s BRICS partners face keen competition from cheap Chinese-manufactured goods (intensified by what many view as China’s undervalued currency). Most trade-related complaints against China in the World Trade Organization in recent years were lodged by developing countries, including India and Brazil. China’s relationship with India is particularly fraught, owing to their seemingly intractable territorial dispute, as well as disagreements over the reform of the United Nations Security Council.
If China wants BRICS to continue to deepen ties, it should seek to act as a guiding hand within the grouping, adopting an approach that is more prudent than pushy. That means, above all, curbing its geopolitical competition with India and Russia. At the same time, in dealing with its advanced-country counterparts, it should be open and pragmatic, championing an inclusive global policy agenda that connects the developed and developing worlds.
A united anti-West bloc would not serve China’s interests any more than a grouping characterized by antagonism and divisions. What China—and the rest of the emerging and developing economies—needs is a nimble and cohesive BRICS with a strong reputation as a leading provider of global public goods. Project Syndicate
Minghao Zhao is a research fellow at the Charhar Institute in Beijing, an adjunct fellow at the Chongyang Institute for Financial Studies at Renmin University of China, and a member of the China National Committee of the Council for Security Cooperation in the Asia Pacific.