The BRICS (Brazil, Russia, India, China, South Africa) summit in Xiamen, China, which starts on Sunday and ends on Tuesday, comes in the immediate aftermath of a confrontation between its two largest economies and nations. Till the stand-off between India and China in the disputed Doklam plateau was resolved with a withdrawal of troops on Monday, after a 74-day staring contest, it was not even sure if Indian Prime Minister Narendra Modi would travel to beautiful Xiamen, from where one can see the lights of Taiwan on clear nights. Many observers in New Delhi believed that if Modi did not attend the BRICS summit, that too after not participating in the One Road One Belt meeting of 28 countries in Beijing in May, it would mean an irreparable rupture between India and China. But if the Doklam stand-off had continued, it would have been difficult for the prime minister to visit Xiamen.
The last meeting between Modi and his Chinese counterpart Xi Jinping, on the sidelines of the G-20 summit in Hamburg in July, did not exactly exude good vibes. While the Indian side was at pains to explain that the two met and spoke some about important matters of mutual interest, the Chinese side quite happily administered a snub, saying nothing more than a handshake and courteous smiles were exchanged. It now remains to be seen if India-China relations can go back to where they were before the One Belt One Road summit? It is a widely held opinion in India that the Doklam crisis was deliberately precipitated by China as payback for India’s absence at a triumphant moment for China. India, for its part, does not see any economic value for it in One Belt One Road – a project that aims to improve connectivity and cooperation between Asia, Africa and Europe through land and maritime routes. It sees it mostly as a Chinese play to generate business for its industrial overcapacity and to put its zero-yield investments in US securities to work by transferring the debt to countries like Pakistan and Sri Lanka. It is good business from the Chinese perspective but, clearly, India is not amused.
From economics to politics
When Goldman Sachs economist Jim O’Neill coined the acronym BRIC in 2001 (South Africa was inducted in 2010), he had in mind a list of the big and fast-growing economies who would be generating the greater part of world economic growth for the first half of the new century. In the order of size then (and potential), these were China, Russia, India and Brazil, which should have suggested the rather inappropriate acronym CRIB. Instead, he preferred the more evocative BRIC, suggesting a new building block in the world economy.
Till then the world economy was driven by the G-7, an informal bloc of seven industrialised economies – the United States, the United Kingdom, Germany, Japan, France, Italy and Canada. These seven accounted for 46% of world gross domestic product in 2001 with just 10% of the world’s population. The BRIC group accounted for 40% of the world’s population with 18% of global GDP. But economists agreed that by 2030, BRICS would account for 40% of global GDP. BRICS have so far been ahead of the curve. China and India are first and third in the world GDP (PPP, or purchasing power parity) pecking order. But despite this, the global financial architecture remains as before with the control in the hands of the West.
Since the G-7 was as much a political and military alliance network, BRICS too has begun to shape up as an alternative political forum. The first BRIC meeting took place in 2009 and it became a formal organisation the following year. However, instead of seeking to reform the world’s economic and financial management system, BRICS started looking at itself as a political counterweight to the western system. The addition of South Africa, a country that ranks 35 by GDP, to give the group a full transcontinental spread was a clear indication of this. Clearly, economic weight was no longer a criterion for membership. If that were so, Nigeria, which is several places higher than South Africa, would have made a more eligible candidate.
Unlike the G-7, which is a group of industrialised democracies, BRICS is a disparate group. China is totalitarian. Russia is more authoritarian than democratic, and the other three are practising albeit institutionally somewhat challenged democracies at varying stages of industrial development. Russia is a technology superpower while China is an industrial powerhouse and the world’s leading trader. Despite being a political competitor, China is economically integrated with the United States, with whom it has a symbiotic relationship as it depends on the US trade deficit to accrue wealth. If the United States ever becomes a responsible economic power, then its trade deficit (the amount by which the cost of a country’s imports exceeds the value of its exports) should compress to well below the $502 billion it was last year. Its trade deficit with China alone is about $300 billion. Clearly, China is hugely invested in America’s profligacy and holds its US gains mostly in US banks, which finance the next cycle of US profligacy. American economists jocularly refer to China’s relationship with the United States as that of a drug peddler to a drug addict. Since the peddler needs the addict as much, what happens to reform of the world system?
Clearly, China needs to find new ways of generating new markets and spaces for investment. India and Brazil are the newest fast-growing economies and offer cash-rich China just this opportunity. There is much room for intra-BRICS cooperation. The civilian aviation sector, where China and India will provide most of the world expansion, is one. Russia and Brazil have the capabilities and experience in this sector and India hopes that incipient Russia-China cooperation will expand into a BRICS development.
With global economic reform no longer its focus, BRICS has become more of an annual political fest. It is now more of a platform for the BRICS summit hosts to showcase their political influence. Last year, India sprang a surprise by inviting member nations of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation – which includes Bangladesh, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal apart from India itself – for an outreach programme on the sidelines of the BRICS summit in Goa. This regional organisation is often seen as India’s play to integrate South Asia with the Association of Southeast Asian Nations. The group had been dormant for almost two decades before Modi decided to invite it to Goa, more to showcase his own emergence than anything else. He was doing what Brazil and Russia had done in previous years when they invited heads of immediate neighbours and regional groups such as the Union of South American Nations, the Shanghai Cooperation Organisation, and the Eurasian Union, a Russia-dominated group of former Soviet republics.
China is now taking this one big step further by inviting Egypt, Kenya, Tajikistan, Mexico and Thailand. It is clearly casting the net far and wide as if to signal its global stature. China has also been semaphoring its intent to seek the expansion of the BRICS, clearly to give itself a larger global group to dominate. From immediate neighbours, it is reaching out across the oceans to invite Egypt, Kenya and Mexico. Of these only Mexico (16 in GDP) is a somewhat significant economic player.
The early BRICS promise of trading in each other’s currency and thus balancing bilateral trade has not happened. China clearly prefers to hold dollars rather than roubles or rupees. The BRICS Development Bank, which was the brainchild of Indian Prime Minister Manmohan Singh in 2012, came to life as the New Development Bank during the Fortaleeza summit in 2014 with an authorised capital of $100 billion and is now headquartered in Shanghai with the stated task of developing a strong pipeline of projects and responding in a fast and flexible manner to the aspirations and interests of its members.
India would like to see a quicker expansion of the New Development Bank and its greater investment in the development of member countries. Since subscription of capital might pose some problems, as apart from China, the others are not exactly flush with cash. India would like to see the enhancement of the bank’s operations by Chinese investment in its bonds. This will vastly enhance the bank’s reach without altering its shareholding structure.
The first set of loans worth $811 million, to be disbursed in tranches, supporting 2,370 mega watts of renewable energy capacity was announced last year at a Board of Directors meeting in Washington, ironically enough on the sidelines of the International Monetary Fund and World Bank group spring meetings. The bank is to provide $300 million to Brazil, $81 million to China, $250 million to India and $180 million to South Africa. It is a beginning but still a far cry from what was envisaged with only $1 billion subscribed as share capital and 99 to go.