China Research

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

Emerging markets and a strong dollar

May 27, 2024

Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This inflow can be done in the three following ways:

¤ by receiving currency reserves via foreign direct investment (which often does not work as an available or sufficient financial source),

¤ by borrowing money in foreign currency (mostly in U.S. dollar, USD), or

¤ by selling stocks, bonds, etc to foreign investors (if such financial products exist in the emerging country and foreign demand for these papers is there).

Statistics show that emerging markets borrow the lion share of their foreign credits in USD which may be challenging in times when the American dollar is strong on global currency markets. This is actually the case. Serving existing debt in USD uses to be even much more challenging.

By the way: During a meeting the other day with American financial analysts, I heard the view that the USD historically tended to be strong when investments in research and development (R&D) in the U.S. were high. This is explained by an increasing demand for American technology stocks and also foreign action for FDI in the U.S., thus leading to a high demand for the dollar and therefore to the strengthening of the American currency. I am not quite sure about the general validity of this suggested correlation. But it can be observed that such conditions can be found these days.

Back to emerging markets. What we can see today is an increasing willingness of certain emerging markets to avoid or decrease new borrowing in USD. However, this is not easy to achieve since USD markets function by far as the biggest global supplier of new loans, also to emerging markets. 

The ongoing situation with the strong dollar is, of course, particularly difficult for emerging countries with high indebtedness in USD. Such countries may be found in all continents – countries that are or have been reporting growing pressure on their currencies in 2024 such as the Nigerian Naira, the Egyptian Pound, the Turkish Lira, the Indonesian rupee, the Argentine peso or the Brazilian real (watch for this the following IMF table: Of course, some of these and other weak currencies of emerging markets have also been impacted by other negative factors than the strong dollar, for example domestic political ones.

At the same time, there are also countries trying to reduce their exposure to the dollar (which also can be seen in the IMF table quoted above). Indonesia is such an example. However, such a trend will not be easy to achieve – but Thailand actually managed it in the past few decades. Perhaps another option may gain momentum as it is currently the case in South East Asia, i.e. trying to expand borrowing within the region at the expense of the USD.  

Conclusion: Analysts of emerging markets should watch the further development of the USD and its impact on indepted emerging markets.

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

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 (, 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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African debt issues

June 13, 2023

African debt needs more transparency which I pointed at several times before. Too much of African countries’ borrowing is summarized on aggregate (macro) levels, too little in micro numbers. However, an interesting change has recently been presented.

Interesting news from the Kiel Institute

Some weeks ago, a serious attempt to create more detailed debt statistics on African  micro levels has been launched by the Kiel Institute for the World Economy/Germany (which conducts a lot of international research, also on emerging countries including since two years ago the introduction of the bimonthly, very quickly updated World Trade Indicator with 75 participating countries and regions, quite a number from the emerging world as well ( These global trade statistics are based on water-transport big data and interesting AI applications.

You can now look at the following link to get more details on African debt (

The Kiel Institute shows understandably that global private and Chinese (governmental) lenders on average charge essentially higher interest rates from African borrowers than multilateral public organizations like the World Bank or the IMF do. This attitude is not really fair – neither as shown by the Chinese and their influential political ambitions nor as applied by global private institutions vis-à-vis tax payers and their indirect contributions to subsidized loans.

According to the Kiel Institute averages credit conditions from multilateral public organizations in the past two decades – as exemplified above – tend to be clearly softer (around 1 %) than the average conditions given by Chinese government banks  (3.2 %) and private bond issuers (6-7 %) .

Altogether, the database of the Kiel Institute contains circa 7400 international loans and bond issues to African borrowers, many times with widely diverging credit conditions. This fact urges for more transparency.

Another three reasons for underlining the need of better transparency for international credits to African countries (projects) can be added:

1) Africa’s capital needs must expand further for achieving visible development progress.

2) Therefore, African debt burden – which already has been increasing strongly in the past few decades – should do so as well in the future.

3) When improving international borrowing and lending transparency, it would be a win-win situation for both the stability of international financial markets and therefore also for single African countries.

Conclusion – the way forward is obvious 

In order to manage the challenges described above, African borrowers should  – together with their lenders – work more ambitiously on the transparency of their international finance conditions. Particularly African borrowers could benefit from such good moves – also by the avoidance of potential financial accidents!

PS: Now I will spend around two months on vacation and special studies – and will be back at the end of August. All the best to you all!


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


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