对于中国来说，是三月份一个月会议。首先，中国共产党和中国人民政治协商会议州议会。然后，博鳌亚洲论坛，达沃斯相当于中国人。这标志着在经济意义上的中国新一年的开始，因为进入的政策和发展目标的信号在这些约定好释放。对于2015年，允许较低的增长速度，更多的结构性改革将成为“新常态”，并根据不同的经济部门，保持了7％的增长就足够让中国的十年末达到其目标而这样的年度目标，其实是充满挑战鉴于全球经济形势。更重要的是，新的经济增长引擎正式提出，如互联网产业和技术创新，皮带和道倡议连同其理事机构的AIIB（亚洲基础设施投资银行）。然而，过多的乐观情绪中引起这些镀金的前景和朗朗上口的口号，以支持新的中国模式已经成为微博上的hashtag。然而耐人寻味的新兴企业和互联网企业都，前提是之前中国的经济可能需要依靠 大量的 他们。
尽管许多人认为中国的繁荣的未来产业升级和创新，传统产业，其中许多是由房地产市场的增长和政府投资驱动的谎言，还包括大部分的GDP，并提供特别是在欠发达省份大规模的就业机会。在另一方面，创新的思维方式是根据openminded的教育，鼓励创造性和多样性栽培，而在中国的学术界正在进行的改革可能会达到这样的目标，希望只能由下一代（创“00”）。因此，创新推动成长的愿景应该，也不会注明唯一放弃现有的发展道路，这是投资驱动，政府指导的。相反，从传统行业的平稳过渡到先进的行业就必须政策优惠的老。其一，过去的房地产热潮和基础设施扩建繁荣能源，机械，原材料和家庭设施的市场。在这些业务人员需要重新培训的财政支持，进入新的行业，或将面临失业和工资缩水。其次，技术创新本质上齐头并进的工业活动，并创造性地解决环境污染，提高生产力，提高效率等，可根据内部政策支持范围。一切的一切，也有了解中国提出的新的发展道路很多陷阱。虽然巨大的潜力存在于中国的服务业和消费者的需求，新兴的小型或农业企业和互联网企业可能只是权宜之计，当投资和出口驱动的模式再也无法维持。这样一来，中国的审判日已经到来。
周一，3月30日，伴随着中国的财政部中国人民银行宣布新政策水桶中，除了削减在月初的速度支持住房市场。这包括削减交易税，并要求首付的住房抵押贷款。在财政方面，财政大臣娄肯定，更多的政府债务互换，可能在大约十万亿日元的大小，将全年实行，并且将有大约七万亿日元批准的基础设施投资理财的2015年。我的许多同事，谁比我年长，并一直在做经济研究工作多年，发现今年的政策方向类似，在2009年。 从那时起， 高通胀和咆哮的房价主义及其对扩张性政策和热心市民的反感对不同成长之路。然而，中国的新常态在于较低的增长速度温和通胀和健康的发展道路的精髓。这些后果。而类似的策略重新出现，它们只是旧装置到一个新的末端。
Showing posts with label Economics. Show all posts
Pitfalls of China's New Model
Deflation of the Chinese Characteristics
China's February statistics are all out today. CPI rose to 1.4% from 0.8%, not adjusted for Lunar New Year's price effect. PPI negative growth deteriorated to (-)4.8%, indicating shrinking industrial activities for the 36th month. Growth in total volume of consumable retail, in added value of above-acale industries, in fixed assets and real estate investment all fell considerably and were around 1% lower than expected.
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| Picture Source: Baidu |
With the deeply-rooted tradition of seeking financial stability, deflation in China will cause much more severe consequences than on other economies. As a market economy built on five-year plans, which is hard to not ignore each and every aspect of the economy, industries struggle harder to recover from the business cycle mechanism and obsolete business funded by state capital may grow to big to fail. Household consumption would also fall sharply during deflation and over-thriftiness will dominate again, both due to shrinking returns on property investment (over 70% of Chinese household wealth) and precautionary worries on rising medical and welfare expenses. Asset prices would be tangled into a downward swirl driven by pessimistic expectations and, because China's social insurance funds were largely invested into the stock market, aging problems would intensify and arouse social upheaval. More importantly, no structural reforms could continue delivering positive support for growth under deflation, let alone business innovation and emerging entrepreneurship.
Preempting deflation in China's situation requires not only monetary easing or targeting on inflation. Also a strong and clear policy attitude should be expressed. Although allowing a slower growth rate benefits the economy from a structural perspective, public policy should not beat off the bushes and only keep "calm" faced with downward pressure. As the former chief economist of the World Bank Justin Lin Yifu puts it, China still has the potential of annual growth rate at 8% for the next two decades based on his model. Given China's rather low GDP per capita and capital resources per person, this is a necessary rate to ensure the general welfare improvement of the Chinese as well as China's evolution to a developed economy. According to Mr.Lin, fiscal investment on infrastructure should remain the foremost engine for growth and help facilitate reforms in areas such as the financial market. It is noteworthy that many rural areas in China remain underdeveloped and many agricultural facilities are obsolete, both of which yearns for fiscal support. China's economic growth still abounds with more opportunities than challenges. However, lack of policy attention on these under-exploited potentials will hurt more than deflation.
China's Consumer Demand: A Caged Growth Engine
Last year China failed to achieve its GDP growth target for the first time entering the new century. The authority explained that lower growth is beneficial for structural reform in the long run: consumption, along with emerging enterprises that creates consumer demand, should dominate China's economic growth to replace investment and net export in the next decade. Whatever such economic new normal is visioned to be, the January data cannot disguise the fact that China is on the edge of deflation. Besides another negative PPI for the 35th month and shrinking trade statistics, the January CPI is 0.8%, the lowest in the past five years. Considering the fall in oil price, this is still a dangerous figure indicating weak domestic demand, especially when fresh, usually against-season grocery and transportation tickets are much more expensive around the new year season. Another compelling phenomenon can be observed in most cities, where a considerable amount of small retail shops, department stores, middle-priced restaurants and online shopping logistics were either closed or their business hours were shortened half a month before the Spring Festival holiday starts. Last year, on the contrary, these business worked extra hours during the holiday season. The decline in consumer spending is now hard to be neglected.
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| Source: Baidu |
Why do consumption fall when the government is actually encouraging spending? Some blame on the anti-corruption initiative that damaged related business supported by public funds, which is an unwarranted excuse made up by those at stake, because the essence of the so-called growth and structural reform just lies in better government transparency and improved state enterprises efficiency. But why do commonplace households cut their spending, too? Stumbled economic growth plays a role in, yet what makes consumer demand even more vulnerable to recession is the extra cost of spending in China. Yes, there are "fifty shades" of the tax policy that abuses Chinese consumers that eventually makes their money flee away from domestic market.
For one, imported consumer goods are subject to an average of 15% custom tax, 17% value added tax and 30% consumption tax for recreational goods (cigar, liquor, cosmetics, and vehicles). A typical Chanel lipstick sold in Beijing charges 20% more than that sold in Manhattan (NY consumer tax included), and the same bucket of milk powder charges around 30% more in China than in Australia. Since cheaper domestic substitutes are exposed to severe quality problems, the business of "online buyers" emerged. From luxury products to baby food, from Japanese electronic appliances to Laduree's Paris-limited snacks, there are always Chinese people living abroad to purchase these products and sell them online to Mainland China. They either physically bring goods back to China, or use shipping agencies for tax exemption. Even with arbitrage, the price domestic consumers pay is significantly more reasonable. When China's economy was in boom, some better-off people may directly buy domestically, and many of them use cash coupon of large face value (such coupon is now forbidden under the anti-corruption regulation) to make purchase. However, due to economic malperformance and policies suppressing property market growth, household wealth of the Chinese shrank, and they became more prudent to buy only at the lowest possible price. The three new engine for China's economic growth is given by officials as domestic consumption, infrastructure investment and foreign investment. At least for now, the first engine remains a fanciful blueprint rather than a pragmatic instrument unless there are tax cut for imported goods and severer quality supervision for domestic products.
Another lifelong worry that prevents the Chinese from spending their savings is the lack of social and medical welfare. With no social safe net, spending today means potential life threat tomorrow. Even the richest group of people have these precautionary concerns, and they'd rather invest over 85% of their wealth in the real estate market for financial stability after retirement. Many young couples have to afford the medical and nursing expenses of four parents (usually from rural area, not eligible for free medical insurance) while raising their children. Therefore, the fiscal policy should create purchasing power for households on a life-quality-improving purpose. Most directly, the personal income tax should be collected on a family basis instead of individual by individual to account for average disposable income among family dependents. Tax exemption can also be practiced as an award for those who promoted social good, eg. micro-business entrepreneurs, blood donators and (dependents of) organ donators, organic agriculture farmers, etc. With a distorted tax structure, the Chinese consumer demand is a caged tiger, niggardly fed by the zoo keeper, highly expected for outperformance in the market circus, and secretly spoiled by the exotic speculating audience. Should it be unchained and appropriately stimulated, this could have been a potent beast to combat deflation and a beauty to attract foreign business investment.
Finally into the easing club: PBoC to cut reserve ratio by 0.5%
The PBoC have just announced its decision to cut commercial bank reserve ratio by 0.5%, marking a new round of expansionary cycle for China's monetary policy. Renminbi has depreciated drastically in recent days. In December China have suffered from the greatest capital outflow since 1998. I have analyzed before that China has to implement expansionary measures to preempt domestic deflation risks. While the most efficient policy now may be another interest rate cut, succeeding capital outflow would cause intensified systematic risk for the domestic financial market. With the 20% more reserve ratio an unnecessary barrier to multiplying effect, cutting the RR can serve to both release liquidity and maintain relatively stable exchange rate market.
The timing of this policy is special, too. With China's Lunar New Year two weeks ahead, PBoC has greatly boosted market optimism. I also expect another interest rate cut to be announced before or after National People's Congress coming in March, where China's 2015 growth rate target will be determined. Until then, China will join the club of monetary expansion with Eurozone, Canada, Australia and so on with a real ticket in hand.
Thank you for reading and Happy Spring New Year!
After ECB, how will PBoC react to worldwide combat against deflation?
The ECB has just announced its huge QE program with monthly bond-buying of €60 billion, beginning from March until September, 2016. Within the past week, central banks of Switzerland, Denmark, Turkey, India, Peru and Canada have also announced interest rate cut. With IMF expecting a lower global growth rate for 2015 and 2016, deflation has become the foremost threat against economic development as well as the major target for monetary policies.
China's central bank PBoC, however, remains quite recently. Premier Li Keqiang also re-emphasized China's monetary discretion in Davos that no huge stimulus would be practiced, despite that the newly released CPI was lower than expected and 2015's GDP growth has achieved record low. Deflation also haunts China, yet what's PBoC's plan?
I still regard cuts in reserve ratio and interest rate as large probability events for the first two quarters of 2015. China's mainstream media has brainwashed the market that any expansionary measures from PBoC are huge incentives and "money-printing". In fact, these are merely rebalancing approaches to keep price stability for China at this stage. With increasing risks of deflation (adjusted for fall in oil price), I also expect more deregulation measures in the real estate market, such as tax cut and less purchase restrictions, to coordinate with PBoC's appeal for commercial banks to improve housing mortgage service with higher approval rate. China's economic malperformance in 2014 were largely due to stalled growth in real estate investment. And China's property sales were largely correlated with bank's ability to issue loans. Premier Li explained on World Economic Forum that China's housing market demand remains high from a long-run point of view, which indicates the government, including PBoC, will take measures to preempt potential recession in this sector.
While there is no need for PBoC to follow ECB's anti-deflation practices such as QE, China's central bank has to implement monetary expansion to the extent greater than the so-called targeted easing in 2015. There might be new policy tools, but PBoC should address the overall deflationary pressure existing in the market and boost the confidence of Chinese households and investors.
All pictures from Google
All eyes on ECB's policy decision: QE? Size S M L?
In near moment, the European Central Bank will hold the press conference and announcing its first monetary decision of 2015. It is strongly expected that the ECB is to launch a QE program. European stock market opened high in Monday for anticipation of this almost sure to happen monetary stimulus. The biggest concern centers at the size of this QE package, and speculators expected this to be between €50 billion to €60 billion a month. In less than 10 minutes the decision will be unveiled. Global central banks are now pursuing monetary expansion through different approaches. I will then follow up ECB's announcement with an overview of global central banks' strategies.
China's New Economic Normal Backs O’Neill’s Optimism
At
college, I have been dedicated to studying Jim’O’Neill’s vision of BRIC
economies. The seeming under-performance of these four emerging markets now seem
to pale into insignificance compared to U.S. economic recovery and the ambitious
Abenomics. However, Jim’O’Neill staysbullish on China in the year 2015. His article listed three reasons to be
optimistic about China: the collapse of oil price will boost the purchasing
power of the Chinese, deflationary pressure renders monetary expansion
expectable, the presumed fall in real estate price is unlikely to cause credit
crunch and will instead stimulate the sales of housing. While Monsieur O’Neill’s
confident depiction of China in 2015 is overall realistic, I’d like to offer my
alternative point of view on China’s prospect under the "new normal".
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| Shanghai's Bund Bull Source: Google |
China’s
December CPI and PMI have both hit new low, indicating increasing risks of
deflation. Stimulating measures such as cut in interest rate and reserve ratio
are thus expectable in the first quarter of 2015. However, the long-term
strategy of Renminbi internationalization requires PBoC’s discretion to stabilize
domestic capital market and exchange rate. Thus targeted easing policies, whose
importance has been re-emphasized in PBoC’s annual report, are more foreseeable.
In addition, fiscal stimulus will play a larger role to push the economy closer
to the target. Approximately ￥7 trillion infrastructure
investment are initiated to begin construction in 2015. This fiscal expansion
in general serves to rebalance the economy by modernizing the vast rural areas
in less developed provinces and renovating obsolete urban public facilities. It
also corresponds better to China’s proposed new normal economics, which
suggests better public welfare, more environmental-friendliness, and a healthier
economic structure that emphasizes fairness and equality. Therefore, China’s
growth in 2015 lies more on the fiscal side. The monetary authority will
implement some expansionary measures, but the magnitude could hardly resemble a
quantitative easing equivalent.
On
the other hand, one should no longer view China’s real estate market an
integrated subject matter from 2015 on. For extra large cities, Beijing,
Shanghai, Guangzhou and Shenzhen, year-end statistics of 2014 reveal an average
of 10% growth in housing price, while the growth rate has shrunk a little
compared to 2013. Major cities, such as Tianjin and Nanjing, witnessed moderate
or zero growth in property price. The rest of Chinese cities experienced
different degrees of recession in the housing market. However, Monsieur O’Neill’s
idea that lower housing price increases sales is unlikely in the last two
scenarios, where real income growth stumbled as a result of diminishing household
wealth and bank’s growing reluctance to approve mortgage loans. The actual
rationale behind the role of real estate in China’s economy involves government
revenue through land auction, which is the greatest part of fiscal income for
all local governments. Rising housing price funds fiscal spending, backs up
banking leverage, and supports the growth in related industries and service
sectors. By looking at the successful land bids in 2012, whose floor price in
Beijing’s case is at least 5% higher than current price, one can infer the
interval of housing price growth in 2015 with confidence, because estate
projects built on these bids will be available for sale next year. The expectation
of growing estate price boost household confidence, dispels loan provider’s
circumspection, and increase business opportunities in construction-and-home-related
industries, thus improves the economy as a whole.
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| Guanlan Jiayuan, Beijing's most upscale estate to be sold in the second quarter of 2015, is now under construction. The most expensive apartment is estimated to be worth ￥70 million, and average price per square meter amounts to ￥165,000. Source: Baidu |
Due
to asymmetric information in the stock market and the lack of social-wide
pension system, housing is the most secured and inflation-proof type of
investment for ordinary Chinese families. China’s real estate price has been
increasing at an incredibly high rate for the past ten years, corresponding to
China’s GDP growth and Chinese people’s income growth. However, as China now
allows for a lower growth target, housing price, along with related financial
assets, will continue to step higher but at a moderate and sustainable pace.
The same description can be applied to China’s new normal economics as well. With
fiscal stimulus underway at the same time, there is enough reason to be bullish
on China and its contribution to the global economy.
Setting the tone for China 2015
If you are in my WeChat sphere you would know that I have been both busy and excited since last month. I've been chasing this chance for so long and that's why I haven't been posting often from September. I got an assistantship with an awesome professor and I will formally delve into China's economic future in the mid-long term (new normal, mid-high growth, structural reform, whatever it is called). So I will constantly write my own version of economic reviews for China and other related regions and post them here. If you are interested in China's financial market and macroeconomic policy, you can find some useful facts and ideas here. All the ideas her are inspired by Prof. Ju and the misconceptions are of course mine. : )
~
There are a lot to expect from this confidential conference. First, China's GDP growth target. The goal should still be set anywhere above 7% to ensure a doubled gross domestic product by 2020, but may be below 7.5% for 2015, allowing space for the market to digest the economy's downward drags. The reality is, China could no longer sustain its previous growth model driven by low labor costs, huge fiscal expansion and state sector investments, while the new normal emphasizes steady and moderate growth fueled by household consumption, business innovation and the development of the service sector.
Second, PBoC's monetary policy. Unfortunately, Chinese central bank's qualitative easing measures, namely the PSL(Pledged Supplementary Lending), the targeted interest rate and reserve ratio cut, didn't establish a valid market expectation thus failed to realize its assumed goal. The overall interest rate cut on 22nd November embarked on a new round of monetary expansion, despite PBoC's iteration of its prudence. We can expect a reserve ratio cut after the conference concludes on 11th and before January.
Third, the risks and opportunities. It is interesting to observe an unusual upsurge in the Shanghai Composite Index that rocketed over 3,000 on Monday and plummeted back to 2,800 today. This fluctuation was partially accredit to the Shanghai-Hong-Kong Stock Connect program, and greater volatilities will become a normality for China's stock market after the short selling mechanism and T+0 transaction is permitted next year. On the other hand, China's real estate market has bottomed out, with Beijing and Shanghai showing positive growth in housing price. This lowered the risk of massive credit crunch in China's banking system, which has been deleveraging since 2012. 2015 may be another booming year for real estate investments, similar to that of 2007 and 2009, when the business cycle has entered the expansion phase.
In short, my tone for China's 2015 economy is reserved optimism. The market reform in state sectors and the financial market liberalization will contribute to higher capital efficiency for the economy as a whole. Online business and banking, namely Alibaba's Taobao and Alipay, still has potential territories to explore, by targeting on China's mass populated senior citizens and importing authentic foreign labels to set up official web shops on T-mall. Nonetheless, the excess capacity in China's traditional industries forms a barrier to industrial upgrade and innovation. The coming five years for China is critical. To find the new engine for economic growth determines if China would fall into the middle income trap, or successfully evolve into Asian's largest developed country.
OPINION: China’s July Economic Data Reveals Market’s Diffident Expectations
An array of economic data for China’s economy in July
indicates a moderate slowdown in investment and production, despite the multiple
government and monetary stimuli taken at the same time. Growth of M2 was 13.5%,
lower than the corresponding period of last year. The data also demonstrated
discouraged corporate and social financing.New loans increased in July were
only ￥385.2 billion, falling
far below the expected ￥700 billion as well as
previous month’s ￥1.08 trillion. This
figure has thus become the lowest since 2009.
Sheng Songcheng, PBoC’s director of Statistics Division,instantlyclarifies
the steep fall in M2 growth as attributable to stricter regulations on
interbank lending and the decreased amount of funds outstanding for foreign
exchange. He also cited historical data, which shows July tends to be a month
of shrinking lending statistics, as well as June’s data, that may somehow
overdraw July’s lending potential.
However, the sudden fall of banking statistics ismore of an
indication of the market’s diffidence to invest, due to rising risks in
property market and credit defaults in the banking system, although these risks
are still controllable at current stage. A mismatch between demand and supply essentially
discouraged investors and banks from loans. Real estate projects are held back
because of housing market’s malperformance, which is partially due to homebuying
and mortgage restrictions. Small and micro businesses are faced with excess
capacity, and existing venturessuffer from decreasing business orders in the market
for property construction. Banks lowered risk preferences and theyhesitate to
loan out even with abundantliquidity. The biggest threat still lies in the housing
market thataccounts for one fifth of the economy, which has been experiencing
cyclical falls since the beginning of 2014.
To underpin the descending housing market, Ministry of
Housing and Urban-Rural Development has acquiesced in cancelling restrictions
on home-purchaseand mortgage for many non-mega cities. At monetary level, the
PBoC has showed full discretion in releasing expansionary forward guidance and
the speaker of PBoC pre-disclosed early statistics of August to demonstrate
economic stability. While PBoC’s targeted easing schemeto support fiscal
expansion is yet to yield concrete growth, the oriented nature of such policy
behaves as a disincentive to and crowds out the real economy, as the real cost
of borrowing remains high. If the third quarter growth rate falls below 7.6%, the
reputed economic microstimulation
would expect a transformation into moderate, or stronger, incentives. An
all-round reduction in the reserve requirement ratio, loan-to-deposit ration or
the interest rate is to be anticipated, along with an overall liberalization
for transactions in the property market.
Ahead
Everyone,
For the past few months, I’ve been engaged in the content creation for fifiqin.com and lots of graduation matters. Meanwhile, I kept myself updated with the latest dynamics from the housing market, the luxuries market and China’s financial market reform with little in-depth thoughts. Suddenly I spot in news that Shanghai will be the headquarter of BRICS Development Bank, and, as a result of tactic maneuvering, India will chair the BDB for the first tenure. These are exactly what I have analyzed in my last article BRICS and the Global Economy, which is a great inspiration for me to continue research in the field of economics and global finance.
For a brand new start, I’d restructure this site into a webzine synthesized of information and opinions from the world of economy, finance, lifestyle and luxuries. FiFinomics is, and will be, dedicated to the intricate correlations between data and market, in the effort to approximate the haute quality of life to the sublime.
With love,
FiFi Qin
Editor in Chief of FiFinomics
BRICS And The Global Economy Part II：Ideas
Chapter
1 Literature Review and Research Structure
1.1
Introduction to the BRICS
In 2001, Terence James "Jim"
O'Neil, the retiring chairman of Goldman Sachs Asset Management Global, coined
the acronym the BRIC that has become well known nowadays, to refer to the four
rapidly developing countries that symbolize the global economic power shift
away from the developed G7 economies. The four countries are Brazil, Russia,
India and China. The term BRIC was first proposed in Jim’O’Neil’s report, The World Needs Better Economic BRICs, a
paper he wrote for Goldman Sachs's Global
Economic Paper series. Later, South Africa, in 2011 at the third summit of
the BRIC, gained its entry to the group, which was renamed as the BRICS since
then. The BRICS grouping marks a tectonic shift, or the so-called “great
transformation” of the world economy, where the impact of the BRICS and other
similar emerging economies expand and, very possibly, would eventually outstrip
the major developed countries.
Politically, no apparent similarities
exist between the BRICS members. Instead, their internal political structures
differ significantly. Among the five politically divergent states, Brazil,
India and South Africa are well-established democracies, while Russia’s claimed
democracy is largely affected by an authoritarian and oligarchic regime. China,
the largest and most powerful socialist people’s republic, is under a unique
political structure that is also depicted by the Western World as
authoritarian. However, the BRICS countries have common pursuits in the
international society. They form a considerable force in seeking joint action
and allying other developing economies in UN resolutions and other
international negotiations. For example, Brazil, India and South Africa are
seeking a greater voice in the international peacekeeping efforts through the
reform of United Nations Security Council. China and Russia are trying to
achieve larger influence in the International Monetary Fund (IMF) through IMF
Quota Reform. On the other hand, BRICS members on their own are either regional
leaders or powerful emerging economies that contribute significantly to
regional development. By associating with each other, BRICS countries are able
to justify their regional prominence and create a broader platform for
cooperation with developing economies of mutual interest.
Economically, the BRICS nations
represent a considerable weight in the global economy. According to 2012
estimate on a Purchasing Power Parity (PPP) basis, the Gross Domestic Product
(GDP) of the five nations amounted to $22,539 billion in total, approximately
25% of the global GDP. They also account for
45% of the world’s population, and 40% of the world currency reserves.[1] In
2013, trade flow within the group amounts to 212 billion USD or around 16% of the
global commerce. Economists have projected that in 40 to 50 years, the BRICS
nations may very well catch up to the OECD countries in their economic prowess.
At the outset, these five nations are seemingly disparate with regard to economic
structure, development strategy, and macroeconomic policies; however, they have
a common thread in that they are all large developing nations with a
significant growth potential. The Goldman
Sachs Global Economics Paper No.208 estimated in 2011 that, by around 2030,
the BRICS economy as a whole will outstrip the G7 developed economies in total.[2] The
strength in economic growth has led to the transformation of the BRICS notion
from a conceptual economic term to a formal political grouping based on common
developmental interests. With official BRICS summits held and joint communiqués
released, a polycentric system in global affairs is trending up towards the use of non-
institutionalized mechanisms of global governance and network-based diplomacy,
and the growing economic interdependence of states, where the BRICS grouping is
gaining authority as an exemplary framework.
1.2
Research Structure
The following part of the thesis will
mainly focus on two parts. First, the foreign policy strategies BRICS countries
are generally taking and the implications on international affairs. Second,
which is the motivation behind the formation of the BRICS, the economic
linkages and prospective cooperation among BRICS nations and the impacts
generated on the global economy.
Chapter
2 The Foreign Policy Indications of The BRICS
2.1
BRICS’ Foreign Policy Indications on Its Member Nations
2.1.1
Brazil
Over the past few years, Brazil has
been rigorously achieving its aspiration to ascend to a higher level on the
global chessboard. Not only has Brazil witnessed major socioeconomic
development in the past decade, but it also acquired stronger military
competency as well as increasing significance in both the geographically
defined Western Hemisphere and the economically defined Global South.[3] In
addition, Brazil has also been eagerly crusading for a permanent seat in the
United Nations Security Council (UNSC). If successful, it will stand out reasonably
to represent the interests of countries in Latin America and the Caribbean in
the presumed UNSC structural reform. Furthermore, Brazil is hosting two
international games in the coming years in Rio, the 2014 FIFA World Cup and the
2016 Summer Olympics, which justified Brazil’s credentials as a rising global
power. Despite concerns over its stagnated
economic growth rates and issues of governmental corruption, Brazil remains an
eligible member of the BRICS group and will be the rising Latin American star
in the following years in terms of its economic expansion as well as its
international influence. Therefore, Brazil’s foreign policy is fairly open to intra-BRICS
activities with its fellow members, which emphasizes for Brasilia’s inter-BRICS
trade links with Beijing Moscow, New Delhi and Pretoria.
2.1.2
Russia
On 12 February
2013, Russia’s Ministry of Foreign Affairs published the new Concept of the
Foreign Policy of the Russian Federation. This report has offered critical
insights into Russia’s stance in the changing international environment after the
2008 financial and economic crisis, where it sees regional grouping, especially
with the BRICS, as a prominent feature for how it will act towards the new
international society.[4]
More than ever, Russia gives greater emphasis to the BRICS grouping and has
published a separate Concept of
participation of the Russian Federation in BRICS before the fifth BRICS
summit in Durban, South Africa. In the report, Russia listed specific
objectives for its involvement in the BRICS, such as enhancing international
political cooperation with BRICS partners for joint UN resolutions and the
promotion of international security, strengthening economic and financial
collaborations with BRICS members to contribute to global economic recovery,
financial market stability and the International Monetary Fund (IMF) reform, as
well as creating more favorable conditions for multilateral trade, especially
for Russian exports.[5]
In total, these objectives highlighted Russia’s pursuit of active participations
in the BRICS that seeks to turn it into a more comprehensive and cooperative
institution.
2.1.3
India
During the 1990s, India has transformed
its foreign policy objectives to adapt itself to the new dynamics of the global
society. The end of the Cold War and the breakdown of a bipolar world marked
the beginning of an era symbolized by globalization. Changing global scenarios
and domestic economic problems compelled India to reorient its foreign policy
on a multilateral basis. India has thus played a keen role in several
multilateral groupings, such as the IBSA (India, Brazil and South Africa) and
the BRICS. Economic and trade cooperation is a key of India’s policy towards
the BRIC. India’s active participation in the BRICS with other major emerging
economies also conveyed its enthusiasm for multilateral collaborations to solve
shared problems and confront challenges of globalization, with the aim to
collectively boost its bargaining power and political clout on global issues as
well as strengthen economic and political ties to counterbalance the Western superpowers,
namely the G7 alliance. Dr. Manmohan Singh, the current Prime Minister of
India, made a statement at the BRIC Summit in Brasilia in 2010 (before the
entry of South Africa into the grouping), which demonstrated India’s
willingness and appeal for close cooperation with BRIC members: "We are
four large countries with abundant resources, large populations and diverse
societies. We aspire for rapid growth for ourselves and for an external
environment that is conducive to our development goals”. [6]
2.1.4
China
Many Chinese academics have seen China’s cooperation with the BRICS as a
gradual and step-by-step ‘‘logical choice’’
without an intentional policy decision in that China has fewer stakes in the
BRICS grouping. China alone is the world’s second largest economy, the largest
holder of foreign exchange reserves, a nuclear weapons state, a permanent
member of the UNSC as well as one of the largest trade partners for other BRICS
countries.[7] The rising global status of
China today as the leading Asian economy and one of the world’s most important
powers has already gained recognition in the international society. Therefore,
China’s participation in the BRICS has actually contributed to lifting the
global profile of other BRICS members and bringing economic opportunities to
its BRICS partners. However, the BRICS grouping nevertheless serves to benefit
China in several aspects.
Most importantly, the BRICS
grouping builds a friendly international platform for China to implement its
goal of diplomacy since ”reform and opening’’ in the late 1970s, that is to
create a stable and peaceful international environment conducive to domestic
economic development. Joining the BRICS allows China to establish common
grounds and mutual interests with other late developing economies, notably with
its neighboring countries Russia and India, and to promote China’s idea of “Peaceful Rise” to counterbalance U.S. Hegemonism.
Peripherally, being part of the BRICS also enables China to exchange ideas and
share responsibilities with fellow members on key global issues such as
financial crisis, food security, global warming and sustainable development,
and to seek opportunities for group work within the BRICS to preempt potential
threats imposed by these problems.[8] Thus, the stand-to-gain
stance of China in the BRICS justified the grounds for China’s active
involvement in BRICS affairs during the Fifth BRICS Summit in Durban and during
the G20 Summit in St. Petersburg, which allowed China to take priority in
foreign affairs right after the country’s power transition in 2012.
2.1.5
South Africa
Despite Jim O'Neill’s opinion on South
Africa as having too small an economy to be included and that alternative countries
such as Nigeria are stronger candidates for the future of the BRIC, the third
BRIC summit, held in 2011, officially announced the evolution of the BRIC to the
BRICS that included South Africa into the grouping. On March 27, 2013, South
Africa hosted the Fifth BRICS Summit in Durban and was appointed as the
2013-2014 Chair of the BRICS. Notwithstanding skepticism on whether South
Africa’s national strength could well catch up to the other four countries, South
Africa’s joining in the BRICS has been considered as a win-win situation. In November 2012, The
South African Cabinet adopted A BRICS Strategy, specifying four foreign policy
goals for South Africa’s membership in the BRICS: First, to boost South
Africa’s domestic economic growth, increase job opportunities, and expand trade
with BRICS members; Second, to promote Africa’s regional integration
initiatives and to stimulate Africa’s sustainable development with an emphasis
on infrastructure development programs that could possibly be funded by the proposed
BRICS Development Bank; Third, to pursue global governance reform; Finally, to
strengthen intra-BRICS cooperation on an organizational level.[9]
Additionally, assuming itself as Africa’s regional leader and the
“gateway to Africa” for the BRICS, South Africa’s participation is also
strategically constructive to this grouping and the other four members. South
Africa’s comparative advantage within the BRICS lies in its abundant reserves
of mineral wealth, which, according to the US-based Citigroup Bank, worth an
estimated US$2,5 trillion. South Africa is the world’s largest producer of
platinum, chrome, vanadium and manganese, the third-largest gold-miner, as well
as the provider of state-of-the-art mining-related professional services. The recent World
Economic Forum’s World Competitiveness Report placed South Africa as the second
financial system in the world in terms of soundness of banks, whose financial services
sector has been globally recognized as sophisticated and highly competitive. Moreover,
the expansion of South Africa’s trade volume and direct investment with BRICS members
continues to grow. According to Standard Bank, BRICS total trade with Africa
reached US$340 billion in 2012, with China and India being its major partners. Thus,
the inclusion of South Africa into the BRICS will help facilitate
industrial and infrastructure development of the BRICS nations through
provision of essential natural resources and create a benign investment
environment for both the proposed BRICS Development Bank and BRICS private
sectors. Globally, the addition of South Africa also extended the scope of the
BRICS into the African region, rendering the grouping more inclusive and
representative of the developing world, which amplifies its institutional
importance on world financial and economic reforms as well as on reshaping the
global governance architecture.
2.2
The BRICS In International Affairs and Global Governance
The BRICS notion, initially put
forward to describe the massive economic potentials of these emerging
developing powers, was now an increasingly influential bloc in world affairs,
symbolizing the shift of economic power from the developed G8 economies to the major
developing countries that reshaped the Grand Chessboard. The growing economic
strength of the BRICS countries also enabled these nations to pursue more
progressive diplomacy and seek greater leverage in the decision-making process
of major international organizations.
Independently, each BRICS
member plays an eminent role in the relevant regional economic and political
issues. For instance, China and Russia each made leading efforts in
coordinating nuclear talks with North Korea and Iran. Joining the World Trade
Organization in 2001 and 2012 respectively, China’s and Russia’s contribution
to settling challenges faced by the Asian economy grew significantly as the two
countries take more open-economy practices at macroeconomic level. In addition,
the Brazilians are instrumental in UN’s peacekeeping missions in Haiti as well
as the international reactions to the 2009 Honduran coup d'état.[10]
Jointly, the BRICS group has a
common objective as to build a fairer world order by reforming current
international organizations and financial institutions. Diversified approaches
were taken among BRICS members to represent greater influence of the developing
world. The 2009 United Nations Climate Change Conference in Copenhagen
witnessed the formation of the BASIC (Brazil, South Africa, India and China)
grouping as the four potential superpowers worked together to negotiate with
the United States and other developed nations on the common minimum position
towards emission reductions and climate aid money to tackle climate change. The
IBSA (India, Brazil and South Africa) grouping, at the same time, aims at
promoting UN Security Council reform and galvanizing South-South cooperation at a higher
level through cooperation in the field of agriculture, trade, culture, science
and technology.
In
conclusion, as
their overall national power strengthens, the BRICS countries will invariably
possess the capacity to influence and benefit from the global affairs on issues
such as environmental protection, regional security crises, financial market
stability, etc. The rise of the BRICS nations coincides with the process of
globalization that presents brand new challenges to the international
community, e.g. climate change, financial crises, conflicts in Syria, etc. As
major stakeholders, it is for the BRICS’ own good that they should take more
international responsibilities so as to secure their own global interests.
At the same time, many
spectators point out a lack of specific and unified position within the BRICS
as the declarations from BRICS summits consisted of only conceptual frameworks
and visionary outlooks. However, a clear and common goal that firmly connects
the BRICS countries together is their task to stimulate their domestic economies,
the process of which involves both infrastructure modernization and R&D
(research and development) investment. To fulfill this task requires close
intra-BRICS trade linkages that maximize comparative advantages as well as an
institutional financial instrument that makes funds available for development
projects. In the following chapter, the essay will closely examine the economic
impacts of the BRICS group on the global economy from two aspects, trade and
finance, and briefly analyze how their economic prowess as a whole will
influence the international economy in the foreseeable future.
Chapter
3 The Global Economic Impacts of the BRICS
The BRICS nations have been
engaged with one another for mutually beneficial endeavors in various economic
and financial areas. Intra-BRICS economic cooperation has been expanded
significantly over the past five years. In
2012, trade among BRICS members amounted to approximately 310 billion US
dollars and was 12 times of their total volume in 2002, while intra-BRICS trade
has increased substantially during the past 10 years. On the other hand, the
2012 BRICS Summit in Delhi put the creation of a new development bank on the
agenda, symbolizing the extension of BRICS economic links into the field of
global finance institutionally. The following two parts will address the
influence closer BRICS cooperation will have on international trade and
finance, and examine possible reactions the G8 nations as well as existing
international institutions will take towards the BRICS’s increasingly proactive
role in the global economy.
3.1
Trade: Intra-BRICS trade linkages and Potentials for Deeper Cooperation
"Three of the four BRIC countries have a BRIC counterpart as one of
their top trading partners," as Jim O'Neil of Goldman Sachs described
in his 2001 report, indicating the massive potential existing in intra-BRICS
trade. In general, the comparative advantage of each BRICS member can compliment
one another.[11]
For example, Brazil, Russia and South Africa are abundant in the commodity and energy
sectors, while China and India’s rigorous infrastructure development lead to
strong demand in these categories. India and China are reputed as the world
factory due to their low-priced labor costs, where Brazil, Russia and South
Africa are among the top 5 major trading partners of them. According to BRICS Joint Statistical publication, both
China and India dominate the manufacturing sectors with different trade
emphases. China profits mainly from mechanical and electrical products, high
and new technology products, as well as machine components. India has
comparative advantages in producing pharmaceutical products, telecom and
computer software products as well as apparels and textiles. In 2011, the
intra-BRICS trade volume was tantamount to US$ 230 billion. At BRICS Business
Forum 2012, industry leaders of the five nations agreed to double intra-BRICS
trade to at least US$ 500 billion by 2015.
According to BRICS: Trade Policies, Institutions and
Areas for Deepening Cooperation, the research report published by Prof
Sajal Mathur & Meghna Dasgupta at the Centre for WTO Studies in March 2013,
the possible areas for BRICS to enhance trade cooperation exist at both policy
and sector level. For policies, lower tariff rates and less import restrictions
should be implemented to a reasonable extent. Meanwhile, intellectual property
rights legislations as well as trade remedies such as anti-dumping measures
and countervailing subsidies should also be enforced. Besides, a uniformed intra-BRICS
quality management system should be adopted to standardize tradable goods and minimize the
side effects of technical barriers to trade (TBT) and sanitary and
phytosanitary measures (SPS).[12] The Delhi Declaration also
concluded the Master Agreement on Extending Credit Facility in Local Currency
under BRICS Interbank Cooperation Mechanism to facilitate intra-BRICS trade
financially. In addition, the Delhi Action Plan listed several new areas of
cooperation in trade, such as the energy sector, the service sector, health and
environmentally-friendly ventures as well as scientific and technological
exchanges,[13]
which would bring BRICS’ multilateral economic partnerships to a greater depth.
3.2
Finance: Projections of the possible outcomes of The BRICS Development Bank
The proposal for a BRICS Development
Bank (BDB) was approved during the Fifth BRICS Summit in Durban by its member
nations: Brazil, Russia, India, China, and South Africa. The BDB aims to create
a new paradigm to advance the reform of international financial institutions, to
reflect changes in the global economy, and to create conditions for a more just
world order. The BDB is supposed to serve as an alternative to
Western-dominated Bretton Woods institutions, particularly the World Bank and
the International Monetary Fund (IMF). Its functions would include: funding development
and infrastructure projects in developing countries; providing long-term
lending to countries in need during economic and financial crises; acting as a vehicle
for risk-sharing and issuing convertible debt bonds purchased by all member
nations’ central banks.
Thus far, leaders of the BRICS have
agreed on key initiatives for the BDB, including providing initial funding for
infrastructure projects in developing countries as well as co-financing for
sustainable development. A consensus has also been reached with regard to the
BDB’s capital structure, membership, shareholding, and governance. The BDB will
have an initial subscribed capital of US$50 billion, and member nations will
have equal voting power. The Contingent Reserve Arrangement (CRA), a foreign
currency reserve, will also be established to alleviate short-term liquidity
pressures and avert future financial crises. The fund will be managed by the
central banks of the member countries.[14]
The bank’s organizing principles, investment allocations, headquarters
location, and the nomination of executives are the technical details that
currently await consensus.
With the founding of the BDB, a new
model of economic diplomacy will be established. This new model can
significantly influence the BRICS nations, the global economy, and existing
international organizations. Based on this assumption, this part of the essay will
mainly focus on the possible impacts of the BDB on the abovementioned three
aspects.
3.2.1
Positions of BRICS nations
The BRICS nations represent a
considerable weight in the global economy. They account for 45% of the world’s
population, approximately 25% of the global GDP, and 40% of the world currency
reserves. The creation of the BDB further unifies the five emerging economies
through an independent financial institution, thereby establishing a model of
global cooperation between the developing economies through shared risks and
joint investment, which likewise facilitates intra-BRICS trade linkages and
democratization of BRICS financial institutions. Given their largely
diversified political and economic structures, BRICS members have their own
needs from the proposed bank, although they are able to obtain mutual benefits
by accomplishing shared goals.
3.2.1.1
Brazil, Russia, India, and South Africa
Brazil has recently attracted attention
because of its large oil reserves. In addition, it is also the host of the 2014
FIFA World Cup and 2016 Olympic Games. Given its current economic slowdown,
Brazil hopes that the BDB could generate infrastructure funding in the fields
that correspond to the country’s current hotspots, such as oil extraction
technologies, construction of sports facilities, and conservation projects in
the Amazon rainforest, to stimulate the Brazilian economy. The establishment of
the BDB would also reinforce Brazil’s financial cooperation with China, with
whom Brazil signed a currency swap agreement prior to the Durban Summit, and
strengthen economic links with African countries, which have resources that are
attractive to Brazil.
Having recently joined the World Trade
Organization (WTO), Russia is more devoted to the BRICS bloc in defense of
national interest and as a means to expand multilateral trade and further trade
links with BRICS states. Russia also hopes that the establishment of the BDB
could contribute to the mobilization of its foreign reserves and
diversification of Russia’s foreign investments.[15]
If established, maneuvering louder voices in the BDB would propel Russia to
promote government transparency and rule of law as well as to undertake
structural reforms to shift the economy from traditional sectors to modern and
high-tech industries.
India first raised
the idea of the BDB during the Fourth BRICS Summit, emphasizing that the
paramount developmental problem faced by emerging economies, including India,
is the deficiency of long-term financing and investment in capital stock. From
India’s perspective, the establishment of the BDB can therefore be the source
of such investments to compensate for the World Bank’s inefficiency in funding
infrastructure gap for developing countries. However, India is attempting to
dilute China’s influence on the BDB and is refuting the prevalent idea to
establish the bank in Shanghai. Instead, India is presenting itself as a more
suitable location for the bank given its democratic environment and growth
potentials.
South Africa is known as the gateway to
Africa. Its inclusion in the BRICS strengthened its global profile and
leveraged its leading position in the African Union. Thus, at the Fifth BRICS
Summit in Durban, South Africa expressed its enthusiasm to utilize its BRICS
membership to benefit the whole African continent by mobilizing its domestic
savings and woo investments for infrastructure and sustainable projects. Active
involvement in the BDB is also in line with South Africa’s foreign policy
initiative, which will strengthen economic relations with Southern African
states and promote African integration.
3.2.1.2
China
China’s dominance in the BDB is
inevitable in light of its overwhelming GDP, its position as one of the
countries with the largest foreign exchange reserves that are in need of
diversification, and its ascending role in global politics that no other member
nations so far could emulate. On one hand, the introduction of the BDB offers
China better security and liquidity as an alternative channel other than dollar
assets to manage its foreign exchange reserves. On the other hand, the bank may
replace the World Bank and IMF for China as the body with a greater decision-making
power to negotiate directly on infrastructure loans with recipient countries.
Thus far, China holds the largest share in the CRA, and Shanghai is considered
the most likely location for the BDB’s headquarters.[16]
Notwithstanding discontent from other members who seek a stronger presence, the
BDB, intentionally or unintentionally, would make China a major beneficiary,
which in turn would coincide with some of China’s foreign policy goals,
including RMB internationalization that aims to comprehensively reform the
economic structure.
First, with the establishment of a
pilot free trade zone, Shanghai is an even more suitable location for the head
office of the BDB and further allows the RMB internationalization scheme to
reach the BRICS market. With the floating exchange rate and interest rate
liberalization in the pilot zone, Shanghai successfully overcame obstacles to a
free global financial market. Moreover, given the large number of business and
financial organizations in Shanghai, the BDB would efficiently integrate into
and function well in the city’s globalized environment. China’s economic and
political stability as well as its high-ranking bank scale also ensure
Shanghai’s resistance to potential crises and risks that would threaten the
stability of the BDB.
Second, the RMB has a greater influence
on the global economy than any other currency in the BRICS group. At the
beginning of 2014, the RMB is allowed to float within a broader range (from
0.5% to 1%) so as to pave way for the financial reform the government is
determined to achieve. With RMB’s increasing global influence and its liberalization
toward the international financial market, the BDB may adopt RMB as the
official currency for transaction to retain the strength of the CRA and diversify
foreign exchange reserves from the dollar as the US’s rapid withdrawal from its
quantitative easing scheme will further fluctuate the dollar and intensify
instability within the BDB. Brazil and China have previously signed a currency
swap agreement to facilitate bilateral trade in 2013. Similar arrangements
could be extended to all BRICS nations. Consequently, the RMB would be the most
convertible and eligible to act as the official exchange currency that
facilitates the BDB’s transactions. If the RMB is adopted, the BDB will be a
pioneering, non-dollar-oriented organization outside the Bretton Woods system.
Thus, it can promote the national interests of the developing economies without
recourse to IMF voting power. For China, the RMB is also effectively
internationalized at an institutional level.[17]
From an international perspective,
China’s influence as the world’s second largest economy cannot be ignored. The
world could benefit from China’s greater responsibilities and leadership role
in a financial organization.
3.2.2
Influences on other regional economic powers
The BDB is unique from the Bretton
Woods system in that it is based on the principle of mutual benefits and
noninterference in internal affairs. Unlike other regional institutions (e.g., the
ECB) that aim to achieve economic integration, the BRICS is essentially a
political alliance that promotes the common goals of its members; such goals
include trade facilitation and foreign exchange reserve mobilization.[18]
The projected establishment of the BDB would thus impose foreign policy
indications on other countries and regional bodies, particularly on US-centered
allies and African countries.
The US’s
Trans-Pacific Partnership (TPP) initiative intends to control the international
trade regime by further liberalizing the Asia-Pacific economies and to restrain
the impacts of the emerging economies, particularly China and Russia. The US
hopes that this geographically comprehensive arrangement could further fortify
trans-Pacific political allies of the US and eventually persuade major
developing economies to join the TPP and accede to terms of accession that are
favorable to US interests. However, its effort to further expand TPP membership
to South American and Asian countries will possibly be derailed after the
establishment of the BDB. For nations that are currently under TPP negotiation,
such as Colombia, Indonesia, and India, being potential BDB fund recipients
would divert their attention from becoming TPP members. Closer economic
linkages and financial cooperation with BRICS members will encourage these
countries to sign free trade agreements within the BRICS framework instead. The
noninterference principle of the BRICS group allows these emerging economies to
facilitate trade without complying with higher intellectual property protection
and labor market standards established by developed countries.[19]
Stricter requirements in opening up financial sectors and fair competition
between state-owned and private companies are also avoided, thereby achieving
the same end with fewer expenses.
Africa is expected to be the major
destination of aid from the BDB, particularly from China, whose economic activities
in the continent has consistently increased over the past years. The Fifth
BRICS Summit in Durban has reached a consensus with regard to the BDB’s
co-financing target on Africa and sustainable development to promote an
integration agenda led by South Africa. The funding scope in Africa could vary
from education, infrastructure, and technology to research and development.
However, the BDB and African countries should adopt certain performance metrics
in evaluating the efficiency of investment strategies and supervising
implementation of related policies to ensure a successful outcome. A
“BRICS-from-below” meeting[20]
was held during the Durban Summit, accusing the BRICS of new imperialism in
Africa due to massive investments in raw material extraction, industrial
construction, and exports of manufactured products. This meeting, organized by
an African civil society, has offered notable indications for future
investments in Africa. From the BRICS perspective, donor countries should
ensure that the BDB investments in Africa are focused on the region’s
environmental protection and job creation, thereby boosting Africa’s growth in
terms of actual economic development rather than in terms of cash flow. From
the standpoint of Africa, effective utilization of BDB funding requires local
governments to exert effort to reinforce anti-corruption and transparency
policies, with corresponding economic reforms being initiated to accommodate
industrial modernization.
3.2.3
Influences on existing international organizations
Although considered a rival to the
World Bank and the IMF, the creation of the BDB lies in BRICS’ intention to represent
and fulfill the needs of the developing world, performing a complementary role
to existing Washington-based institutions.
The establishment of the BDB is the BRICS’
first step to institutionalize the bloc, thereby creating a platform for
consensus building at the United Nations (UN) or WTO on international issues
and trade rules. The UN expressed optimism toward the global investment
activities of the BRICS. According to Khalid Malik, development economist and
Director of the UNDP Human Development Report Office, the BDB as a novel
financial instrument is essential for the BRICS to utilize their foreign
reserves profitably, to create opportunities for developing countries to
promote growth, and to stabilize global finance. These aims are consistent with
the UN’s vision of an equal and prosperous world order.
Unlike other
multilateral development banks, the BDB encompasses a wide range of major
developing regions in the world: Africa, Asia, and South America. The World
Bank welcomes the BDB and is ready to assist the new bank in terms of financing
and governance. The World Bank’s close partnerships with regional development
banks, including the African Development Bank, the Asian Development Bank, and
the Inter-American Development Bank, where BRICS members are major
participants, may also link a matured BDB with these regional institutions to
issue joint projects. Meanwhile, the IMF is “following with great interest” the
BDB initiative. Affirming infrastructure funding and sustainable growth is “of direct
concern” to the IMF. As growing contributors that are unsatisfied with their
marginal role in IMF’s decision making, the BRICS’ step in creating their own
financial instrument would serve as a significant driving power in promoting
IMF reform of its activities, lending facilities, and governance.
3.2.4
The BDB’s Potential Impacts on the Global Economy
The BRICS bloc emerged in response to
the growing roles of developing countries in the global economy. The BDB is
expected to create a new model for regional development banks. It unifies
geographically diversified countries through joint investments and could
represent the diversified interests of the mass of the developing world. Its
equal voting structure could help address international issues that have been
overlooked by the Bretton Woods institutions and hence act as a potent
financial tool to enhance efficiency and transparency in international banking. Moreover,
the noninterference principle of the BDB would innovate the notion of
conditionality toward the evaluation of liability and policy making. Thus, the
successful establishment of the BDB is expected to redirect the world economy
onto a more positive trajectory and constitute a new pillar for global
financial stability.
Chapter 4 Conclusion
The BRIC notion, first as an
economic term for emerging markets and later as a global political alliance,
has become an investment hotspot over the past decade and has expanded into the
BRICS to represent emerging economies from a broader perspective. This thesis
therefore examines their impacts on the global economy from two aspects,
foreign policy and international economics, in an attempt to derive an overall
picture of BRICS’s international position nowadays.
In the realm of global affairs,
the BRICS countries each represent the major continents of the developing world,
whose emerging economic powers enabled them to have greater decision power and
stronger influence on international issues that affect the sustainability as
well as security of the global society as a whole. On the other hand, the BRICS
members are also actively making contributions to the international community
in the fields of environmental protection, economic development, regional
financial funding and nuclear security, etc. With boosted national strength and
economic competence, the BRICS countries are rigorously seeking for opportunities
on a global scale to further stimulate their domestic growth and promote the
general welfare of their people. The closer interactions within the BRICS group
are in line with each nation’s development objectives, and together the BRICS
countries could seek for greater impacts on the future of global governance.
From the economic perspective,
the BRICS countries have even broader common interests. Besides the increasing
intra-BRICS trade volume and burgeoning investments on inter-BRICS
infrastructure projects, the BRICS is seeking for deeper and institutional cooperation
to jointly increase their economic potential, which prompted them to establish
the BRICS Development Bank, a multi-regional development bank aimed at funding
for the developing world. At current stage, the bank is considered as a
would-be Bretton Woods alternative that gives greater voice to emerging markets
and developing nations in terms of international banking. However skeptical
this prediction remains, giants in the BRICS group, namely China and Russia,
will benefit from such a self-governed financial institution as they could
diversify the destination of foreign reserves and become less dependent on the
IMF and the World Bank. For Brazil, India and South Africa, they are most
likely to become the first batch of funding recipient of the BDB as soon as it
is officially created. The creation of the BDB marks an upper level of intra-BRICS
cooperation, which is both institutional and more sustainable.
To conclude, this
thesis first analyses the intra-BRICS cooperation in global affairs and
economic developments during the past decade, and provides an insight into the
future prospects of BRICS’s role in the global economy. Although many
economists following Jim’O’Neil has provided data analysis for this topic, a comprehensive
econometric model hasn’t been fully established to reflect the overall
situation of the BRICS economies. For future research on this topic, a dynamic
evaluation metric could be derived from current database to thoroughly examine
the political, financial and economic effects of BRICS activities before and
after the establishment of the BDB to reveal the future global impacts of the
BRICS economics quantitatively.
[1] International Monetary Fund (IMF), "World Economic
Outlook", http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=91&pr.y=5&sy=2011&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223%2C924%2C922%2C199%2C534&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a=http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=91&pr.y=5&sy=2011&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223%2C924%2C922%2C199%2C534&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a=
[2] Dominic Wilson, Kamakshya Trivedi, Stacy Carlson and José
Ursúa. The BRICs 10 Years On: Halfway
Through The Great Transformation, Goldman
Sachs Global Economics Paper, No.208, December 2, 2011. Goldman Sachs
Global Economics, Commodities and Strategy Research at https://360.gs.com
[3] W. Alejandro Sánchez & Amandha Lopes, Brazil’s Foreign Policy— putting the B in
BRICS, Council On Hemispheric Affairs Policy Memo, #1,
www.coha.org/wp-content/uploads/2013/05/COHA_Policy_Memo_1_Brazil_BRICS_April_2013_Sanchez_Lopes.pdf
[4] Approved by President of the Russian Federation V. Putin, Concept
of the Foreign Policy of the Russian Federation, THE MINISTRY OF FOREIGN AFFAIRSOF THE RUSSIAN
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