Some troubles getting all the Brics perfectly lined up
TRADE ministers of the Brics nations – Brazil, Russia, India, China and South Africa – will meet in Shanghai next week under the shadow of rising trade spats and border tensions between the group’s Asian members.
The meeting precedes the annual leaders’ summit in September and will discuss trade liberalisation, commitment to a multilateral system and other issues, according to a Chinese Ministry of Commerce briefing this week.
But prospects for the group to develop into a united powerhouse of emerging economies look as distant now as at any time since economist Jim O’Neill coined the term back in 2001.
The split among emerging market economies may create strains between winners and laggards, according to Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.
“This tension is likely to get worse rather than better in the coming decade and will reduce the ability of the Brics group to speak with one voice.”
The Brics have found little common ground in recent years as their growth trajectories diverged and geopolitical ambitions spurred tensions. China has kept up its rapid, albeit moderated, growth pace and India has vied with it for bragging rights as the world’s fastest growing major economy.
But life has been tougher for the commodity- dependent economies of Russia, South Africa, and Brazil, with the latter also plagued by political turmoil.
Just three years ago, Chinese President Xi Jinping laid out his “blueprint” for the Brics nations, calling for closer ties within the bloc and a more “integrated market.” His Russian counterpart Vladimir Putin also hoped the group would reshape the global economic order, and named Brics co-operation as a national priority. The $50 billion New Development Bank, with equal capital contributions from the five economies, was launched in Shanghai in 2015 to provide an alternative funding source to the World Bank.
But instead of increasing integration, the club remains loose and divided.
Trade relations between China and some of the other four nations have soured, with the export powerhouse’s rising shipments of manufactured products fuelling calls for protection.
India recently opened an anti-dumping probe into Chinese solar-equipment makers, the latest in a string of such investigations. The south Asian nation launched 12 trade cases against Beijing in the first six months of the year, the most in the world, according to China’s Ministry of Commerce.
Brazil and China have also locked horns. Latin America’s biggest economy extended a probe on Chinese steel, while China imposed additional tariffs on sugar imports, triggering complaints from Brazil.
Yen power Trade relations are heavily tilted in China’s favour. China was the largest trading partner for the other four nations last year.
By contrast, India, Russia and Brazil ranked 13th, 14th and 15th on China’s tally, with South Africa further down the list, according to IMF data compiled by Bloomberg.
Geopolitics is also getting in the way.
Individual Brics nations are more focused on expanding their economic space and geopolitical influence in their immediate geographical neighbourhoods,” said Chua Hak Bin, a Singapore-based senior economist with Maybank Kim Eng Research.
The ambitious Belt and Road initiative, proposed by Xi to link China with Europe, encroaches onto the other Brics nations’ areas of influence, particularly India’s and Russia’s, he said.
In a move to soothe opposition to its massive trade surplus, not least from US President Donald Trump, China has offered to beef up imports from all over the world.
Vice Commerce Minister Wang Shouwen said in a briefing this week that China expects to import over $8 trillion worth of goods in the coming five years, and the other Brics members are welcome to further tap into the vast Chinese market.
The Asian nation’s imports from the quartet hit $70.2bn in the first half of 2017, official data showed – a 34 percent jump from a year earlier.
While trade within the bloc may continue to strengthen as their economies pick up, China’s most important relationships will still be with the US, Europe and the rest of Asia, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong.
The lion’s share of China’s trade is tied to the global supply chain, and none of the four other Brics nations are a major player in that respect, Shen said.
Chinese imports from other Brics nations are mainly raw materials, which are volatile due to commodity price fluctuations, he said.
All of that leaves prospects for meaningful progress next week looking slim.
“To be honest, the Brics grouping has always been a slightly artificial construct,” said Kuijs.
– With assistance from Xin Li. ©2017 Bloomberg L.P.