The meaning of Yekaterinburg
The first BRIC Summit served as a political showcase for the emerging giants.
On June 16, the leaders of the BRIC countries (Brazil, Russia, India and China) hold their first summit in the Russian city of Yekaterinburg. Capping months of high-profile statements by BRIC officials, challenging the dominance of the U.S. dollar and calling for the creation of a supranational reserve currency, the BRIC Summit seemed to end quite disappointedly without any substantial agreement. Journalists and analysts pointed to the BRIC countries’ lack of consensus and their inability to form a group of equals. Some even questioned if a club that includes countries as radically different as Brazil, China, India and Russia make any sense at all. However, the mainstream media has misread the meaning of Yekaterinburg as well as the meaning of BRIC.
The four emerging giants lumped together as a group following Goldman Sachs’ thesis that the combined economies of the BRICs could eclipse the combined economies of the current richest countries of the world by 2050. In fact, the BRIC’s percentage of global GDP has more than doubled since 2001, when the BRIC acronym was first used. Despite their enormous potential growth, the BRIC group should not be seen as a multilateral economic bloc, as the ties that bind the four states together are weak. The BRIC group is very much a symbolic cooperation among emerging powers aimed at gaining political influence and making a statement that the world affairs involve multiple players. To expect that the BRIC group will be a cohesive political block is far from reality. With sharp internal differences and, in certain ways, divergent political ambitions, the BRIC countries have little in the way of a common policy agenda. Although they are all populous countries with emerging market economies, the BRICs differ vastly in their cultures, industrial bases, political systems and overall progress. China and India are manufacturing-based economies and big importers, while Brazil and Russia are large exporters of natural resources. Brazil and India are liberal democracies, while Russia is a limited regime and China is a one-party state. Most importantly, each of the BRIC countries has a very different relationship to the United States, the world and each other.
Despite all their disparate, the BRIC group reflects the growing self-confidence of its members. Also, the existence of such a group points out to a shift in the global balance of power, as the commanding heights of the global economy are no longer the sole influence of the United States, the European Union and Japan. Although the BRIC group is far from being a cohesive political entity, it represents emerging countries desire for increased economic reform and a stronger voice in international institutions such as the G-20, IMF, World Bank and World Trade Organization. In fact, the BRICs deserve their spot at the center of global economic policy-making. The four countries together represent 42 percent of the world’s population, 25 percent of global land coverage and 15 percent of global GDP – more than half the size of the U.S. Almost 60 percent of all the increase in world output that occurred in 2000-08 happened in developing countries; half of it took place in the BRIC alone. In 2009 and 2010 any GDP growth the world gets is going to be dominated by the BRIC countries. That the BRICs are not involved in the G7, G8, IMF and World Bank is embarrassing to say the least.
The first BRIC Summit in Russia should be viewed against this background. The meeting was aimed neither to produce a blueprint for international reform nor to be a serious attempt to counterbalance the United States, as some may have expected. It was indeed, a political showcase to gain awareness among the leaders of the developed world, and to make sure developing countries’ interests continue to receive attention at the G8 and G20 meetings. The BRIC representatives have agreed to continue their four-way courtship next year in Brazil. But don’t expect to see a cohesive group with a common agenda by then. The BRIC group is rather informal with few themes that unite them and several issues that divide them. To expect anything more than that, is to not fully understand the meaning of BRIC.
SOYBEANS AND OIL – A Closer Look at the Brazilian-Chinese Relationship
These past months have been intense for Brazilian-Chinese relations. In April, China overtook the United States as Brazil’s top trading partner. Last May, Brazilian President Luiz Inacio Lula da Silva had a three-day visit to China in which were signed more than a dozen agreements covering energy, finance and other areas. The relationship between the two BRIC countries is growing steadily, as a direct result of an economic partnership Brazil and China have been building for the past years. Strong trade relations and cooperation between both emerging countries have two major global implications. First, such bilateral trade is validating a framework that is reshaping global agricultural trading, with Brazil racing to meet increasing demand from China. Second, this partnership points out to China’s growing influence amid the global economic downturn.
Brazilian President Luiz Inacio Lula da Silva and Chinese President Hu Jintao, May 19, 2009
Soybeans and Commodities: a transformation of global agricultural trading
Trade and economic relations between China and Brazil were intensified in 2001, when China became Brazil’s leading trading partner in Asia, and Brazil became China’s leading trading partner in Latin America. According to Brazil’s Foreign Trade Ministry figures, in the first quarter of 2009, 73% of the country’s exports to China were commodities and basic products, such as soy, iron ore and petroleum; whereas imports from China in the same period consisted of 96.5% industrialized products, including parts for telephones, L.C.D. monitors and coal.
Of particular importance is Brazil’s export of soybeans to China in light of the impact it may have on the global trade scenario. For thousand of years, soybean has been a staple of China’s diet for both people and animals. As the country’s economy grows, it will need higher volumes of soybeans as animal feed. China’s ravenous lust for natural resources will lead to a change of agricultural trading around the world. China’s ability to feed itself is limited, due to scarce cropland and dwindling water supplies, and the country needs to source more of its staples elsewhere. Although the U.S. has been the world’s largest food exporter, the economic crisis and the increased use of farmland to produce biofuel has pushed China to look for trade partners in South America where land is still cheap and plentiful. Brazil is now racing to meet demand from China, whose population of 1.3 billion seems a paradise for such an agricultural giant as Brazil.
In this sense, Brazil and China bilateral trade relations can change the global competition for agricultural trade. While Brazil still has lagging infrastructure and finance constraints and the U.S. has a far superior system for transporting its crops to global market, the longer-term trends are apparent. In 2008, Brazil exported nearly 11 million tons of beans to China, a 50 percent increase from the previous year and almost double the amount shipped in 2004. While the United States remains the largest producer of soybeans, last year Brazil became the biggest export. On top of that, analysts believe that Brazil, which farms about 175 million acres, has the potential to double its available cropland to equal the scale of the U.S.
Brazil’s strong economic performance is based partially on a highly competitive agricultural sector. Brazil is a leading producer of soy, meat, and orange juice, among other commodities. Also, the country has an ambitious foreign policy and has emerged as a key player in the developing world and among emerging economies. In this context, Brazil’s closer relationship with China is target to assuming a more visible and important role in global affairs. However, Brazil is facing some challenges in achieving its goal.
Part of the problem is that Brazil desperately wants China to treat it as a strategic partner, yet the reality shows that China has found in Brazil a supplier of whatever commodities it needs, without having to give much in return. This was clear during Mr. Lula recent trip to Beijing, which was shortened to three from five days, and several events were cancelled. One of the Brazilian government’s main goals towards China is to increase the options of its exports, shifting away from raw materials to higher value-added products. In this sense, the partnership hasn’t yield much benefits.Brazilian textile industry leaders have been unable to get any voluntary reductions in exports out of the Chinese, whose imports have flooded the Brazilian market this year. Also, efforts to jump-start a stalled 45 plane contract between Embraer and the Chinese were unsuccessful. Most importantly, Brazilian government has pushed for China to open its markets to Brazil’s pork exports, as China is the world’s biggest consumer of pork meat. However, the Chinese government has demanded several requirements that invalidated the deal.
Some Brazilian analysts fear that Brazil-China trade will throw the country back to old colonial days, when rich countries used poor ones as a cheap source of commodities for their own industrial production. In fact, Brazil’s foreign policy successes have been limited compared to the country’s aspirations. But, Brazil has much to benefit from a closer economic and political relationship with China. What Brazil needs is to move forward from rhetoric to gain confidence in its position as a major player in the developing world. The South American BRIC should build a solid foundation for growing power by forging strong alliances not only with China, but also with other emerging economies such as Turkey, India and Saud Arabia. Mr.
Oil Financing: China’s growing influence amid the global economic downturn
Brazil-China economic relations go further than soybeans and include strategic areas such as oil, infrastructure and finance. The most important outcome of Mr. Lula’s trip to Beijing was China’s agreement to unleash billions of dollars of credit to help Brazil exploit its massive oil reserves. In return, Brazil will guarantee oil shipments to Chinese companies.
Brazil has recently discovered enormous offshore oil reserves, which has the promise to elevate Brazil into the ranks of major oil producers. The deal includes a $10 billion loan by the Chinese Development Bank to Petrobras – Brazil’s state-controlled oil giant – in exchange for 150,000 barrels of crude oil per day to Chinese refiner Sinopec this year and 200,000 barrels per day for nine years starting in 2010. In addition, the Chinese Development bank will unleash U$ 800 million in credit loans to Brazil’s Social and Economic Development Bank (BNDS). This fact clearly signs China’s willingness to extend huge foreign loans to further the country’s long-term energy-security goals. Also, China has provided more than $45 billion in oil loans to Russia, Kazakhstan and other countries, in an overt effort to lure a diverse set of global suppliers and secure a presence for its oil companies in strategic regions.
China’s funding to Brazil’s oil industry is the latest sign of how Beijing’s influence is growing amidst a global economic downturn. In a credit-scarce world, China has both the means and ambitions to help Brazil explore its oil reserves and ensure China’s energy-security goal. China is taking advantage of the current crisis to boost its strategic influence and gain greater political clout, quite a contrast from its past focus on economic development.
Although some are quietly bowing to China as the superpower with all the economic momentum, China still has a long road to go before becoming a global supremacy. For all China’s economic influence, the Asian giant is not really ready to call the shots, even regionally. Even though China is much bigger than its neighbors in terms of the size of its economy, it lags behind on important areas such as technology, per capita GDP and the strength of its institutions. Japan’s economy has been hit hard by the global economic crises, but it still is 10 times larger than China’s. And although China excels at producing huge volumes of low-cost products, Japan and South Korea are leaders in innovation and high-tech goods.
Moreover, the China model is hardly superior to its rivals for Asian leadership, as the country’s growth has been supported by wasteful investment, massive capital export, inflated foreign-exchange reserves and increased pollution. Equally important, China’s military capabilities are far from reaching supremacy. As the undisputed military power, the U.S. has a much wider range of capabilities, including 11 aircraft carriers that allow its Navy to project power over long distances. Some estimate it will take China a least a decade to launch its first aircraft. For all these reasons, China’s increasing economic and political influence in world affairs does not necessarily mean it has become a superpower. The new world order is not a hegemony, much less a bipolar one where only the U.S. and China would call the shots. In a multi-polar world order, traditional and established powers have to take into consideration new emerging forces – such as China, Brazil and India – and political and economic actions spurred at the global and regional levels are even more intertwined.
Carolina Freire, May 2009
BRIC and the New World Order
The fact that the world’s largest emerging markets (the so-called BRIC: Brazil, Russia, India, and China) will alter the global financial landscape in the coming decades has become a substantive argument and gained ground in the investment community. However, at what extent can the BRICs convert their growing economic power into greater geopolitical clout, presenting a strong geopolitical influence and reshaping the world affairs?
While the global recession is expected to delay for much of this year and next in the U.S., Japan and Western Europe; BRIC’s economic scenario is not so alarming. Although Russia was severely caught in the financial storm, economic output in China, India and Brazil continue to grow and finances are sound, supported by prudent policies, large foreign currency reserves and growing domestic markets. BRIC’s economic growth rate has slow down due to weaken demand from matures’ markets, but it is offset by affluent domestic markets and increasing trade cooperation among emerging economies. According to the World Bank, developing countries’ share in world trade rose from 16% in 1990 to 30% in 2006, led by China and with Brazil and India not far behind. The World Bank also projects further increases in developing countries’ share in world trade to 45% by 2030. Unlike past global crises, this crisis differs in a way that it started in the Western economies and that emerging markets are in a much stronger position due to accumulation of foreign reserves, large domestic markets and increasing trade cooperation.
Despite the fact that the four BRIC nations have been seeking to form a political club, none of them has gained influence in the leadership structure of the IMF or World Bank. And although Russia is part of the G-8, it is under severe pressure to be kicked out as it political and economic situation worsens. To be able to convert their growing economic power into greater geopolitical clout, the BRIC nations need to overcome internal conflicts and align their political interests.
The link among the BRIC countries has always been weak. Although they are all populous countries with emerging market economies, the BRICs have huge differences in their industrial bases, political systems and overall progress. China and India are manufacturing based economies and big importers, while Brazil and Russia are large exporters of natural resources. Brazil and India are liberal democracies, while Russia is a limited democracy and China is a one-party state.
Domestic problems and regional conflicts may also prevent BRICs from gaining global political influence. The four BRIC nations need to strength their rule of law and root out corruption if they were to become dominant forces in the global political stage. Moreover, China’s and Russia’s disregard for human rights and democracy could be a problem in the future, as is the possibility of conflict over Taiwan in the case of China. India’s border conflicts with Bangladesh and dispute with Pakistan over Kashmir can restraint India’s political power in the region as well.
Besides their problems and issues, the BRICs have become major players on the world scene. Brazil is energy self-sufficient, one of the world’s foremost producers of alternative fuels and a powerful voice in global-trade talks. Although Russia does not have a particular economic strength, it is a strategic energy exporter and military power. India has the world’s fastest-expanding work force and has become a very important technological center. It is also very active in energy diplomacy, exploring oil and gas in Southeast Asia, the Middle East and Africa. Finally, China, as the world’s fastest-growing economy, has gained considerable political strength and defies international conventions on currency, copyrights, Darfur, and Tibet.
The U.S. foreign policy should not underestimate BRICs’ potential to project their power in the world. BRIC nations are starting to set the agenda in their own neighborhoods, and they are also conducting global diplomacy very confidently. The U.S. foreign policy should aim to restore trust and confidence in America’s standing and leadership in the world by strategic and cooperative partnership with BRIC nations in order to redesign a new world-order. World policy-making forums should be reorganized and the G-7 should be adjusted to incorporated BRIC’s representatives.
In a world shaken by global recession and with the decline of U.S. hegemony, the BRIC nations have the economic power and international ambitions to conquer geopolitical clout. Although the U.S. will regain some degree of influence, the global balance of power is changing rapidly to a multi-polar order. The major factors that may prevent BRIC from strengthen its political influence lie in the group internal differences and political divergences. If the BRIC nations can overcome these differences and see their interests aligned, they can become a coherent and powerful organization with political clout to change the world order.
