BRICS: Modi meets Xi in Xiamen

MOHAN GURUSWAMY:

The BRICS summit in Xiamen is taking place in the immediate aftermath of a confrontation between its two largest economies and nations. Till it was resolved a few days ago, it was not even sure if the Indian Prime Minister would have traveled to beautiful Xiamen, from where on clear nights one can see the lights of Taiwan. Many observers in New Delhi believe that if Narendra Modi did not take part in the Xiamen, so soon after not participating in the OBOR meeting of twenty-eight countries, it would have meant an irreparable rupture between India and China. But if the Dokolam stand-off stayed, it would have been difficult for the Indian prime minister to visit Xiamen. 

The last meeting between Narendra Modi and Xi Jinping didn’t exactly exude good vibes. While the Indian side was at pains to explain that the two leaders met and spoke some about important matters of mutual interest, the Chinese side quite happily administered a snub nothing more than a handshake and a courteous smiles were exchanged. It now remains to be seen if India-China relations can go back to where they were before the OBOR summit? It is a widely held opinion in India that the Dokolam crisis was deliberately precipitated by China as a payback for not being present at a triumphant moment for China. India for its part does not see any economic value in OBOR for it and sees it mostly a Chinese play to generate business for its industrial over capacity and putting to work its zero yield investments in US securities, by putting them to work for it and transferring the debt to countries like Pakistan and Sri Lanka. It is good business from the Chinese perspective, but clearly India is not amused!

When the Goldman Sachs economist, Jim O’Neill, coined the acronym BRIC in 2001, 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 industrialized economies – USA, UK, Germany, Japan, France, Italy and Canada. These seven accounted for 46% of WGDP in 2001 with just 10% of the world’s population. The BRIC group accounted for 40% of the world’s population with 18% of WGDP. But economists were agreed that by 2030 BRICS would account for 40% of WGDP. BRICS have so far been ahead of the curve. China and India are first and third in the world GDP (PPP) 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 alternate political forum. The first BRIC meeting took place in 2009 and it became a formal organization the following year. However instead of seeking to reform the worlds economic and financial management system, the BRICS began 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 industrialized democracies, BRICS is a disparate group. China is totalitarian. Russia is more authoritarian than democratic, and the other three are practicing albeit institutionally somewhat challenged democracies at varying stages of industrial development. Russia is a technology superpower, while China is an industrial powerhouse that is the world’s leading trader. 

Despite being a political competitor China is economically integrated with the USA, with whom it has a symbiotic relationship as it depends on the US trade deficit to accrue wealth. If the US ever becomes a responsible economic power, then its trade deficit 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 US as that of a drug peddler to a drug addict. Since the peddler needs the addict as much, what happens to the 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 co-operation. 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 co-operation will expand into a BRICS development, like Airbus.

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 the BIMSTEC comprising of seven regional countries - Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is an international organization involving a group of countries in South Asia and South East Asia and is often seen as India’s play to integrate South Asia with ASEAN. 

It had seen dormancy for almost two decades when Prime Minister Modi decided to invite them to Goa, more to showcase his own emergence than anything else. He was doing what Brazil and Russia had done in the previous years when they invited heads of immediate neighbors and regional groups such as Union of South American Nations (UNASUR); and Shanghai Co-operation Organization (SCO 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 neighbors it is reaching 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 others 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 authorized 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 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 involving financial assistance of $811 million, to be disbursed in tranches, supporting 2,370 MW of renewable energy capacity were announced in a Board of Directors meeting held in Washington, ironically enough on the sidelines of the IMF and the 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’s a beginning but its still a far cry from what was envisaged with only $1 billion subscribed as share capital and ninety-nine to go.

Mohan Guruswamy

Email: mohanguru@gmail.com