China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

BRICS II – another BRICK in China’s global strategy

August 31, 2023

We recently noticed the BRICS summit in South Africa. Expectations in our part of the world were not hopeful before the summit in a sense that decisions from Johannesburg would mean an encouraging injection for the global economy. However, it was recognizable that China managed to launch another brick in its global political economic strategy by establishing its de facto leadership for the new and enlarged BRICS II organization.

Democracy clearly underrepresented …

I have been watching BRIC(S) from its start in the early days of this century – i.e. before South Africa was invited to join – as quite an unnecessary organization. BRIC(S) was initially launched as a smart financial marketing idea of an American investment bank without any other logical unifying argument than putting together Brazil, Russia, India and China as the four largest emerging markets with – then – potentially good economic prospects.

Then, two of these four founding countries were not democratic (China -and at least partly – Russia), and two others could be described as democratic (India and Brazil, plus joining South Africa some years later).

Now, when BRICS II will come into force in a few months time, this previously quite balanced democratic participation in BRICS will not be maintained when the six invited new members will become part of BRICS II as well.

These six new BRICS countries are:

Iran, Saudi Arabia, United Arab Emirates (UAE), Egypt, Ethiopia and Argentina.

It is indeed very obvious that none of these invited six countries can offer democratic standards and/or economic strength. There is all reason to believe that democracy in the new BRICS II will become clearly underrepresented.

… and weak economies totally overrepresented

Another angle may be a pure economic one. Also in this context there is nothing encouraging to find – apart from currently more or less healthy macroeconomic stability in India, Brazil and the oil producers of Saudi Arabia and UAE.

So what can the 11-nation BRICS II finally offer themselves and the rest of the world? In my view not very much. There are too many internal imbalances.  May be some increase of intra-trade (mainly for oil and other commodities) could show up. An obvious disadvantage is the missing positive homogeneity between the countries.

However, one more aspect still remains to be considered in the BRICS II context: China’s global political and trade economic strategy with BRICS II as perfect tool.

Application of the old and new Chinese diversification efforts

As I have written before in this blog, China has been starting to work more ambitiously on its intensified and revised geopolitical strategy. I have followed China’s internationalization and globalization for many years and have to admit that China since the start of the opening-up reform policy by the prominent reformer Deng Xiaoping had a logical strategy in their search for enlarged international partnership through all the years.

The international reform steps in the opening-up context were during the years about FDI and more foreign investment in China, the move of Western labor force (experts) to China, increasing exchange of students with abroad both from and to China, mutual cooperation in research –> altogether different steps to improve skills, technology, products and productivity with ideas from outside China. So far about the traditional diversification objectives.

Gradually after China’s important WTO entry, Chinese political leaders also announced objectives for developing China into a technological superpower and for increasing its global political power, more lately very much by focusing on (emerging) countries that appreciate incoming Chinese investments and (expensive) financial support (https://blogg.lnu.se/china-research/?paged=3, from February 17, 2023). Thus, we also have some examples of China’s modern diversification strategy, happening to a high extent geographically.

When summing up some international/global organizations below with obvious strategic interest, you can find some obvious examples where China already is or will become the dominant player, such as:

BRICS II – certainly an organization ready for increasing Chinese influence

Belt & Road Initiative (BRI) – infrastructure projects, fully led by China

RCEP (The Regional Comprehensive Economic Partnership RCEP) includes 14/15 East Asian and Pacific nations working for free trade among each others in a longer perspective (without having the U.S. in the organization). It is quite easy to imagine that China at some point will become more active within RCEP as well.

Looking at these examples clarifies well that China wants to expand its global influence. This will happen via bilateral action or via international organizations. Strengthened global platforms will become even more important to President Xi Jinping and the CP, since China nowadays domestically performs insufficiently after many years of boom.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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The foreign image of Russia and China

September 16, 2022

Most countries in the world care about their international image. But how do Russia and China think in this respect? 

Russia is looking for more international recognition

There is no easy answer to the question above. However, my feeling is that at least Russia currently is looking for better international participation and recognition. For this reason, the SCO conference – more exactly the conference of the Shanghai Cooperation Organization, a quite unknown regional Eurasian political, economic and security organization – in Samarkand/Uzbekistan this week served as an excellent occasion for Russia to meet a number of other countries,. Russia got the opportunity to show up internationally at a major meeting together with seven other Asian SCO-member countries (China, India, Tajikistan, Kazakhstan, Kyrgyzstan, Pakistan, and Uzbekistan and ten Observer States and Dialogue Partners).

The most important event during the SCO conference was without doubt the summit with Russia and China – i.e. the meeting of President Putin and President Xi Jinping. Certain experts even think that the enlarging cooperation between Russia and China – or in reality rather vice versa – in the longer run may lead to a visible empowerment of a changing political world order and, consequently, declining global influence of the U.S. and the EU. This is exactly what China and Russia finally want to achieve – with China as the stronger partner.

Altogether, we should not neglect that Russia may find ways that will lead to less international isolation both in the short and in the medium run. Russia certainly wants to get there, in my view particularly for economic and national development reasons.

China does not care about its international image when against the CP

It always strikes me when Western interpreters of China’s politics come to conclusions that are set in line with their own Western logic. However, Chinese logic is often unlike Western logic. My experience from many years of China observation is certainly that Chinese political decision-makers do not care about their domestic or international image when the political system at home or certain Chinese political objectives and decisions are questioned or attacked by other governments.

For example, the common Western view that China may improve its environment for pure image reasons in a more determined way than many observers in our part of the world believe, is simply naïve or incomplete. One should at least add that China’s fight for an improved environment only will be favored when such policy decisions are not counteracting even more important political priorities. China’s (foreign) image does not play a role in such a context.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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The analysis of emerging countries in the light of the Russian war

April 7, 2022

The analysis of emerging markets is traditionally part of my lectures and generally not changing very much from year to year. However, this year (and beyond?) is different. A kind of limited global downturn was already in the cards last fall for the forthcoming quarters. But the Russian war makes the outlook for the global economy both worse and more uncertain about both depth and length of the downturn. The world is indeed confronted with the abominable black swan.

The spillover to emerging markets

Also emerging markets all over the world are affected badly by the ongoing terrible war development in the heart of Europe. There are clear spillover effects on the less advanced countries as well. Of course, the Ukraine and Russia itself are hit the most. But there are many other countries in the emerging world that are now meeting worsening conditions that are directly or indirectly linked to the Russian war.

When considering the already existing economic troubles before the eruption of the war Russian war, the timing for the commenced war in February could not be less favorable for emerging countries. But emerging countries are not equally hit by all the deteriorating political and economic developments. In very general terms, one may say that less advanced countries far away with, for example, energy and food resources tend to be better off than countries with corresponding shortages. Altogether, more details should be examined.

Reliable calculations are currently not possible     

I feel pretty sure about the conclusion that accurate point forecasts for individual emerging countries and emerging regions currently are not possible – at least not without precise assumptions about uncertain parameters like the supposed depth and length of the war, energy and other commodity prices and – not to forget – transports and delivery times.

However, when a major event like a big war in Europe happens with a military superpower involved, our models do not work anymore because of the lacking historical experience in a comparable war. Using another one or two different assumption baskets about depth and length of the war, a number of different scenarios could be developed. But still, we are not talking about a forecast. Instead, it is about scenarios.

Thus, further studies on war developments with impact on emerging markets would be beneficial. More can be found.

Influence on emerging markets due to the war

Initially, it would be useful to single out a number of different negative global developments that already had shown up globally in 2021. Here we find

  • rising global inflation, interest rate hikes not far away,
  • rapidly rising energy prices,
  • insufficient supply of chips, other IT components, metals plus transport bottlenecks,
  • since last fall worsening GDP forecasts for the beginning of 2022.

What we now can see as a further consequence of the war, are currently worsening trends for several of the negative developments from last year

—>  more inflation (coming from energy, agricultural products, metals, intermediate IT-goods, transport bottlenecks)

—>  further and/or faster global/American interest rate hikes than anticipated some months ago (means higher costs for emerging countries borrowing in foreign / American currency)

—>  higher American interest rates may mean a stronger dollar (which would lead to higher costs for many emerging markets since most foreign credits by emerging countries have been taken up in dollars)

—>  clear weakening GDP growth both in advanced and emerging countries.

—>  slowing FDI from Western companies in emerging countries as a result of increasing general uncertainty and risk aversion.

Conclusion 1: The foreign debt situation will remain an increasingly important indicator for emerging countries (https://databank.worldbank.org/source/quarterly-external-debt-statistics-gdds). Check it out!

Major producers of oil, gas, agricultural products etc., are, of course, better off than less developed countries that need to import a lot of these commodities. Commodity production at home and imports from abroad are other important factors that should be considered when emerging countries are analyzed, particularly now during the Russian war (https://www.worldbank.org/en/research/commodity-markets).

Conclusion 2: Also commodities play an important role for the development of many emerging countries, particularly during the Russian war.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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