Peripheral Revision

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News Analysis: What can world learn from BRICS summit in Sanya?

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Ming Jinwei, Xinhua, April 14, 2011

Sanya, China’s southernmost city in Hainan province, is said to be a place where five of the major rivers in the region converge before flowing into the ocean. On Thursday, five emerging economies in the world also met here to help create a new world order.

The leaders of China, Brazil, Russia, India and South Africa wrapped up a one-day summit with repeated calls for reforming the global monetary and financial system and more promises of cooperation among themselves, but uncertainties lingered over how the so-called BRICS mechanism could fit in a fast-changing world.

VISION FOR CHANGE

Five summiteers, from four different continents, spoke four distinct languages.

When the leaders of China, Brazil, Russia, India and South Africa met for the BRICS Leaders Meeting in Sanya, the gathering itself spoke a lot how much the world had changed as decades of strong economic growth pushed major emerging economies not only closer to each other but also to the center of the world stage.

Aware of this change of the world economic order, the BRICS countries called for changes in the global economic governance architecture so that it could better reflect their voices on global economic issues.

“The governing structure of the international financial institutions should reflect the changes in the world economy, increasing the voice and representation of emerging economies and developing countries,” said the Sanya Declaration released at the end of the meeting.

Besides, they also aimed at reforming the international monetary and financial system.

“Recognizing that the international financial crisis has exposed the inadequacies and deficiencies of the existing international monetary and financial system, we support the reform and improvement of the international monetary system,” they said.

The current global economic order, established over decades after World War II, had long been dominated by developed countries, a fact criticized more and more often by major emerging economies.

Traditional economic powerhouses like the United States and some other European countries had not only enjoyed a much larger say at the International Monetary Fund (IMF) and the World Bank, they also had tended to make crucial decisions on global economic issues at the exclusive summits of the Group of Eight (G8) countries.

The arrangement had worked for decades, but appeared increasingly incompetent in the past decade as the rise of major emerging economies dramatically changed the world economic landscape, with fast growing developing countries like China and India accounting for a bigger and bigger chunk of the world economy.

Many of the changes the BRICS countries eyed, however, might not come easily.

Yielding to pressure from developing countries, the World Bank decided to transfer 3.13 percent of its voting rights from developed countries to developing members in 2010. The IMF, meanwhile, said it would increase the quotas of the developing countries by 6 percent before 2012.

But even after those changes, the developed countries still had a larger representation at the two organizations.

As for changing the international monetary system, the task could prove to be even more difficult.

The BRICS countries believe the dollar has failed to provide much needed stability to the world economy as the value of the greenback fluctuated dramatically based on the U.S. domestic economic situation and monetary policies.

But the dollar still accounted more than 60 percent of global foreign exchange reserves. None of the currencies of the BRICS countries are now widely used outside their respectively countries.

But the BRICS countries seemed determined to change the status quo, partly by increasing financial cooperation among themselves.

A Russian bank said at a financial forum held on the sidelines of the BRICS leaders meeting that it was considering issuing bonds denominated in the Chinese yuan in Hong Kong.

BRICS bank officials also said the five countries could conduct bilateral trade in their own currencies to reduce reliance on the dollar and pave the way for their own currencies to play a bigger international role.

Analysts expect changes to the international organizations and the current global monetary system to come only gradually as the BRICS countries had to bargain their way onto the center of the world stage with the developed countries.

A strengthened BRICS mechanism where the five countries could speak in a unified and stronger voice was helpful in this process.

MESSAGE OF COOPERATION

Another repeated message of the BRICS summit in Sanya was cooperation among the five countries.

Analysts said the five major emerging economies, with different domestic and international priorities, had to manage their differences properly to ensure their relations would not be derailed by internal squabbles.

The economies of the five countries had become more and more connected with each other in the past five years and they seemed all to agree they could benefit from expanded trade and business ties despite reoccurring trade disputes.

Internal trade among the BRICS countries registered an average annual growth rate of 28 percent from 2001 to 2010. The total volume reached 230 billion U.S. dollars in 2010. The countries were increasingly serving as major export markets for each other.

The trade relations, however, were not exempt from strains. Both Brazil and India slapped restrictive measures against Chinese imports as they complained that large quantities of inexpensive goods from China had posed a threat to local industries and employment.

Brazil and Russia, two big exporters of commodities, also feared they could become a junior partner with China as they relied heavily on exports of raw materials to China while importing mostly manufactured goods from the Asian economic giant.

China said repeatedly it sought to build balanced and mutually beneficial trade relations with its partners and would like to achieve so-called common development.

But for many, those trade disputes and tensions did not undermine the rationale for strengthening the BRICS mechanism. On the contrary, they rather highlighted the need for major economic countries to have a platform like BRICS to work out their differences.

Apparently, the leaders of the BRICS countries believed in Sanya that those internal quarrels would not undermine the rationale for enhancing their cooperation.

“We are determined to continue strengthening the BRICS partnership for common development and advance cooperation in a gradual and pragmatic manner,” the Sanya Declaration said.

Attached to the Sanya Declaration was an action plan for the BRICS countries to further enhance cooperation in various areas. The three-part plan pledged to expand existing cooperative initiatives and create new ones.

Under the plan, the BRICS countries would further deepen their cooperation on political, economic, social and cultural matters.

After three summits in three years, the BRICS mechanism did find more blood and flesh in their cooperative initiatives.

Some three weeks prior to the leaders meeting, representatives of think tanks in the BRICS countries met in Beijing, preparing recommendations to be considered by the leaders. The meeting also discussed major issues concerning the development of the BRICS mechanism and measures to broaden interactions among BRICS think tanks.

On the sidelines of the leaders meeting in Sanya, BRICS countries held the first meeting of economic and trade ministers to explore trade and investment opportunities.

Governors of the development banks of the BRICS countries also met to discuss cooperation in areas like trade and development finance. Another economic forum brought together prominent business leaders of the five countries.

The most difficult part of achieving meaningful cooperation among the BRICS countries stemmed from the simple fact that the mechanism was too young. The term BRIC came to be known by the world only 10 years ago. The leaders of the major emerging economies met regularly some five years ago. The first stand-alone BRICS summit was hosted by Russia in June 2009.

Most believe the BRICS mechanism would take years or even decades before they could build an extensive network of cooperation at political, economical, academic and cultural levels.

FUTURE AS BRICKS, NOT ANOTHER G8

As major emerging economies speak more and more in a unified voice on global issues, some might speculate that the BRICS could eventually become a G8 for the emerging economies. That, however, was a notion the leaders of the BRICS countries tried hard to reject in Sanya.

By highlighting the openness and transparency in BRICS activities, they tried to assure other developing countries they did not intend to create an “exclusive club” of their own while telling the developed countries they would not seek a confrontational approach when it came to building a new world order.

“We reiterate that such cooperation is inclusive and non-confrontational,” the leaders said in the Sanya Declaration.

They added that the BRICS countries were open to increasing engagement and cooperation with non-BRICS countries, in particular emerging and developing countries, and relevant international and regional organizations.

At a closer look, the statement seemed to be more like a reflection of real world politics than a routine show of class and politeness.

For example, despite its increasing trade links with other developing countries, China needs the crucial export markets offered by the U.S. and major European countries. The developed countries also could offer China much needed technology know-how and foreign direct investment that other BRICS countries might not be able to easily supply.

Other BRICS countries also maintain close trade and business relations with various developed countries. Cooperation among BRICS countries was important. But at the expense of their ties with the U.S. and major European countries? Not likely.

Furthermore, with all the attention that the BRICS leaders meeting in Sanya attracted from around the world, the five countries have a long way to go to catch up with the developed world in economic and social development.

The combined GDP of the five countries had grown steadily in the past decade, but it was still smaller than the world’s largest developed economy.

The U.S. economy accounted for some 23 percent of the world economy in 2010, bigger than the 18 percent contributed by the BRICS countries.

The BRICS countries, with their strong economic outlook, might eventually overtake the G7 countries as the largest economies in the world, but the catch-up work seems immense at the moment.

Besides, the BRICS countries all have their economic vulnerabilities in one way or another. China has been trying to boost domestic demand to reduce its over reliance on exports as a source of economic growth.

Brazil and Russia, two big exporters of energy and other commodities, are vulnerable to fluctuations in the prices of crude oil and iron core. The two countries are seeking to diversify their economies.

India needs better infrastructure while South Africa had to raise its growth rate.

The BRICS countries might call for reforming the global monetary system, urge speedy action to broaden the participation of developing countries in the global economic governance process, and express frustration when change does not come timely.

But they would not seek to completely replace the current global economic order all of sudden. A more likely scenario would be that BRICS countries will continue to complain about the shortcomings of the current system, but they would stay and work from within to try to make it better.

http://news.xinhuanet.com/english2010/china/2011-04/15/c_13829493.htm

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Written by peripheralrevision

04/14/2011 at 8:23 pm

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