Some trou­bles get­ting all the Brics per­fectly lined up

The Star Early Edition - - NEWS - Bloomberg

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.


Brics Lead­ers (left to right): Brazil Pres­i­dent Michel Te­mer, In­dia Pres­i­dent Naren­der Modi, China Pres­i­dent Xi Jin­ping, Rus­sian Pres­i­dent Vladimir Putin and South African Pres­i­dent Ja­cob Zuma.

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