BRICS’ prospects: China’s guiding hand needed

The Chinese government is now going further, urging the rest of the BRICS to institutionalize their cooperation, not just pursue domestic reform. China contends that a stronger BRICS grouping would help to safeguard the interests of all developing countries

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, the 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 among the BRICS countries. 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 the 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% 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 the BRICS are 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 – the BRICS’ key emerging-country competitors.

But not everyone is bearish about the BRICS’ prospects and global influence, whether taken individually or as a grouping. The 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, the BRICS countries remain an economic force to be reckoned with, accounting for 25.7% of world GDP, 42% of the global population,and 17% of total trade.

They attract more than 18% of the global total of foreign investment, hold 40% of all foreign-exchange reserves, and account for 30% of total foreign holdings of US Treasury bonds.

Moreover, the BRICS consumption markets are worth more than $4trillion, equivalent to those of the eurozone. And, according to Goldman Sachs, about 85% of the world’s middle class will be living in the BRICS and other developing countries by 2030. Moreover, with many of the factors that have fueled the 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 the BRICS would be premature.

Working together, the BRICS 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.

The Chinese government is now going further, urging the rest of the BRICS to institutionalize their cooperation, not just pursue domestic reform. China contends that a stronger BRICS grouping would help to safeguard the interests of all developing countries. To that end, the country is also spearheading the effort to reform the global economic architecture, including by pushing for reforms to the International Monetary Fund’s weighted voting system.

Indeed, bilateral trade between China and the other four BRICS accounts for 85% 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 under valued 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 the BRICS to continue to deepen their 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 grouping with a strong reputation as a leading provider of global public goods.

Zhao is a research fellow at the Charhar Institute in Beijing, and an adjunct fellow at the Chongyang Institute for Financial Studies at Renmin University of China.

©  Project Syndicate, 2015