BRICS: is here to stay China must adopt an approach that is more prudent than pushy

Spotlight By Diplomatist Bureau

BRICS

The establishment of NDB, head-quartered in Shanghai, suggests international financial institutions should have been more flexible in accommodating the increased role of BRICS in the world. It is true that NDB took off exactly because it fits into China's grander New Silk Road or "One Belt, One Road" vision.

BRICS coalition is an outcome of the changing global economics. In the beginning years of this grouping’s growth, countries such as Brazil, Russia, India and China, that were deemed to be at a similar stage of newly-advanced economic development, came together. Today, however, China is the leading member of the bloc.

In 2001, Jim O’Neill, then Chief Economist of Goldman Sachs, who coined the acronym BRIC, expected these countries to grow faster than the developed countries and to play an increasingly important role in the world. And so they have done so far.

Gideon Rachman, a journalist, 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.” O'Neill recently pointed out: “The size of the original four BRICs economies, taken together, is roughly consistent with the projections I made all those years ago."

Skeptics, however, thought differently. For years, Western newspapers depicted the grouping as nonsensical. After Brazil and Russia entered recession and growth in China slowed in recent years, Washington-based observers predicted imminent demise of this grouping. They are wrong. BRICS is strengthening, and member countries have continued their cooperation.

Jim O’Neill’s point has been that the world is changing. The leading role of the Group of Seven (G7) and, more broadly, of the Organisation for Economic Cooperation and Development (OECD) is no longer undisputed. Most multi-lateral institutions were designed in the era when the West dominated the world. The US and Europe are over-represented in the IMF and the World Bank. Along with Japan, they control most regional development banks.

Western international leadership failed to see that non-Western powers will take on greater responsibilities, and they could do so without their Western peers. There is a strong feeling in Beijing, Delhi and Brasília that existing institutions have failed to adapt to a new global context and have been unwilling to provide emerging actors with greater space and power.

This imbalance has been especially clear during the global financial crisis when the need for participation by non-G7 countries became evident. This resulted in reviving the Group of 20 (G20) and proposals to redistribute voting rights in international financial institutions. Change, however, has been slow and Western countries continue to control international financial institutions.

Still, importance of BRICS summits has been clear. These meetings provided a unique forum where non-OECD leaders can discuss global challenges and coordinate their actions within and outside global institutions. The small size of the club and the absence of OECD partners help in shaping the discussions at the summit.

Need of a Unified Voice

BRICS has not yet managed to get its act together. Even on key issues like selecting a successor to Dominique Strauss-Kahn at the IMF, BRICS countries were not able to put forward a credible alternative to the conventional approach that IMF should be run by a Western European. Nor have they been able to speak with one voice about the most important global economic and financial challenges.

BRICS lacks a unified voice. Member countries are very different, both in terms of their resources and in terms of their values and goals. Brazil and India are democratic, China and Russia are not. Brazil and Russia export hydrocarbons, China and India are net importers. China and Russia are permanent members of the UN Security Council, the others are not. Structure of financial systems, levels of income, education, inequality, health challenges also differ substantially within BRICS. This is why it is very hard to speak with a unified voice and coordinate action.

BRICS now has a clear leader as it is quickly becoming a China-led club. China’s leadership has turned the long-debated plan for a “BRICS Bank” into a reality. The grouping has founded the New Development Bank (NDB), which will become a major regional development bank – the first one without OECD-countries’ membership. K.V. Kamath is the chief of NDB. He is former chairman of Infosys Ltd.

The establishment of NDB, head-quartered in Shanghai, suggests international financial institutions should have been more flexible in accommodating the increased role of BRICS in the world. It is true that NDB took off exactly because it fits into China’s grander New Silk Road or “One Belt, One Road” vision. NDB, in this sense proves that the BRICS club – like Shanghai Cooperation Organization – is now led by China. In summits, BRICS leaders will talk as equals but whenever BRICS is up to something real, it will be following China’s strategy.

Grouping must Maintain Relevance

BRICS, however, has to maintain its relevance. The BRICS club, which used to be known for its tremendous growth potential, is today in the midst of severe economic woes. Morgan Stanley’s Ruchir Sharma says, “Winners of the last decade may not continue to win in this one.” Even O’Neill has turned his attention to the “MINT” economies – Mexico, Indonesia, Nigeria, and Turkey – the BRICS’ key emerging-country competitors. BRICS, therefore, has work to do. By delaying structural reforms, it has allowed member countries’ economies to accumulate risks and imbalances that have eroded their long-term health. In particular, the BRICS suffers from considerable income inequality.

Working together, the BRICS has a better chance of implementing the reforms needed to boost their economies’ resilience. Indian Prime Minister Narendra Modi’s administration has sought 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, by pushing for reforms to the International Monetary Fund’s weighted voting system.

But despite such efforts for potential benefits for emerging and developing economies, they have provoked considerable anxiety among China’s BRICS partners, which fear its leadership could quickly turn into domination. There are factors that undermine trust and cohesion – there is the obvious fact that China’s economy (not to mention its military) dwarfs the others.

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 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.

What China needs is a cohesive grouping with a strong reputation as a leading provider of global public goods. The differences and disagreements between BRICS countries are real. But obstacles are surmountable. Differences among member countries do not preclude meaningful cooperation. Consider Europe: Italian policymakers oppose Germany’s ambitions to become a permanent member of the UN Security Council, but both countries still cooperate on a range of issues. And Turkey was a key NATO member even when it was non-democratic.

Go to Spotlight

Back to Top

Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

Search