At the BRICS summit, the bone of contention between India and China is the location of the BRICS Bank. As the BRICS summit gets underway, Team Niti Central takes stock of all the important developments taking place in Brazil. With the formation of the BRICS Bank topping the agenda aside from various bilateral issues, the global media is already pontificating not only on the degree of success the bank will be able to achieve but also on the ability of Brazil, Russia, India, China and South Africa to script a success story. China Securing its Energy Demands, Further Penetrates South America The Chinese premier, before heading to Brazil spoke to media persons from Brazil, Argentina, Venezuela and Cuba, at length outlining the purpose of his trip and giving some insights into the expected outcome of the China – Latin America and the Carribean Summit he is scheduled to attend as well. In the interview carried by Zhang Pengfei of Xinhua on CCTV which was replete with quotes from Chinese philosophers, thinkers and literary references, the President is quoted as saying: “To deepen cooperation means we need to make strategic planning for BRICS’ future development. At the Durban summit last year, I proposed that “BRICS should move toward the goal of integrated markets, multi- tiered network, connectivity by land, air and sea, and greater cultural exchanges”. This is my keen expectation for closer economic partnership among BRICS.” When questioned on the outcome of China and Brazil’s partnership, President Xi replied that “China remains Brazil’s largest trading partner, and Brazil has become China’s ninth largest trading partner… China is ready to work with Brazil under the principle of mutual benefit to promote sustained growth of two-way trade.” His answer vis a vis Argentina was more revealing with the leader saying: “the two sides have had productive cooperation in energy, resources, agriculture, infrastructure development and finance…” The fact that “China has become the second largest trading partner and the third largest source of investment of Latin America and the Caribbean… cooperation in energy and resources, infrastructure, finance, agriculture, manufacturing and high-tech has produced rich results…” is indicative of China’s deep economic penetration and grip of the Latin American markets. These economic ties are bound to be further strengthened by the formation of the China and the Community of Latin American and Caribbean States (CELAC) forum. President Xi took the opportunity during the interview to let all stake holders know unabashedly that China was the economic success of the century even as it continues to abide by the Chinese variation of socialism, an ideology it will resolutely continue to uphold. “In the past 30 years and more, over 600 million Chinese have been lifted out of poverty, accounting for 70% of the global achievement in poverty reduction. The share of the Chinese economy in the world economy has risen from 1% to 12%, and China’s economic growth now contributes to nearly 30% of global growth. “ President Xi’s intentions, to take ‘Chinese solutions’ to other countries across the globe may be realized sooner than later. Recent developments in the Latin – American region, otherwise referred to as America’s backyard may have opened up further opportunities for the Chinese to make inroads in the form of political sympathy. The developments, according to a CFR report are – “Brazilian anger at the Snowden revelations about NSA spying, the Supreme Court’s ruling on Argentinean debt, and the BRICS’ planned development bank.” Apart from signing more multi-million dollar deals and increased cooperation in defense sector (Brazil’s Embraer aerospace and defense company is planning to announce a contract to sell twenty-five airplanes to Chinese airlines, the two countries are also likely to talk “Internet governance and sovereignty.” Edward Snowden’s revelations, that NSA had Brazil under heavy surveillance, have angered President Dilma Rousseff who will naturally turn to the Chinese to counter this American intrusion. The report also categorically states that the Sino-Venezuelan partnership is based on the trade of oil (from Venezuela to China) and arms (sold to Venezuela by China, with at least two Chinese-made systems used by Venezuela’s National Guard to crack down on protesters earlier this year). The last bit is telling of China’s concern regarding the political instability in Venezuela. Beijing it now seems is going about securing its energy requirements from sources that are not influenced by the capitalist West. Russia, Venezuela, and now its keen interest in the shale gas fields of Argentina all underscore its intentions to make sure that its energy supply is uninterrupted. Russia Looks to BRICS to Thwart US Sanctions Like his counterpart in Beijing, Russian President Vladimir Putin too spoke to media organisations before embarking on his trip to Brazil. In an interview to ITAR- TASS he said, “I believe it is time to raise the BRICS’ role to a new level and to make our association an unalienable part of the global management system for sustainable development.” In the interview he also made it clear that the BRICS nations should come together in acting against security threats, terrorism and take the fight the drug nuisance. What the BRICS summit is all about for Russia was pretty clear from the interview. Putin emphasised that “in the economic sphere, we are going to discuss the IMF reform… the increasing cases of unilateral sanction…strengthening the rule of international law and the UN’s leading role in the international system… setting rules of responsible behavior in the global information space” , etc. Russia’s concern mainly revolves around the West’s degree of influence and its bid to keep Russia out of global economic circles. To counter that Russia has suggested that not only the BRICS nation set up the bank but also a foreign currency reserve pool. This is being seen as coup of sorts says Peter Hobson in The St Petersburg Times . As per the author “Each country would hold the amount in their own reserves. In the event of a crisis, the pool would be used to buy up the unlucky country’s local currency to staunch the outflow of capital.” The author feels that in spite of Russia’s fears it is quite capable of combating crises on its own – its foreign currency reserves total $480 billion and counting. Putin is also looking for a buffer against the various sanctions placed on it by the West. A Reuters’ report quotes by a Russian leader as told to Itar-Tass, “Recently Russia has been exposed to a sanction attack by the United States and its allies.” Directing criticism at its old for America he further added “Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies, but would promote a civilised dialogue on all points at issue based on mutual respect.” Russia is also looking at doubling its trade with Brazil. According to a report in the La Prensa , “Brazil and Russia signed Monday an accord by which they plan to boost trade through the promotion of mutual investments.” The report further says, “Putin suggested exploring the possibility of a cooperation agreement between the Union of South American Nations and the Eurasian Economic Union, made up of his country, Belarus and Kazakhstan.” Challenges facing Modi At the BRICS summit, the bone of contention between India and China is the location of the BRICS Bank. While China may feel it ought to be Shanghai if it is to be the largest contributor, some Chinese economists that the idea of New Delhi playing host to the bank is a viable option as well. Zhu Dan of CCTV.Com in his report quotes Ting Lu, head of China Economics, Bank of America Merrill Lynch as saying: “Of course, as Chinese, I prefer it’s in Shanghai, but New Delhi is also a very good place, I think it’s quite logical to put the headquarters in New Delhi, so I believe both of them have quite a good chance.” Manjeet Kriplani writing for the The Financial Times blog however feels that Mumbai would be the ideal place to set up the bank. Among various other reasons cited she feels, “Mumbai is a microcosm of the developing world. With its urbanisation, population, poverty and security challenges, it is a perfect laboratory for the bank.” These could also very well be the reasons Mumbai’s name hasn’t cropped up. But has an agreement already been reached. A Reuters report in the Guardian carries a quote by Russian presidential adviser, Yuri Ushakov saying “ The bank’s headquarters will be located in Shanghai. This is fixed in the documents.” Another indication says the report is that an Indian government official played down the debate on Monday and said “India’s top priority was to make sure members of the institutions all had equal voting rights…” The Bali Trade deal that the other member nations want to implement sidelining India’s concerns is proving to be a problem for Modi. Going by a Reuters report, India is opposed to it because it favours trade facilitation ahead of a ‘compromise on agricultural subsidies.’ While others are confident that the deal will be passed others fear that in the event that India does not agree it could: “ derail the latest effort to free up to $1 trillion (590 billion pounds) in global trade flows .” Another report by Bloomberg in Thanhnien News quotes Brazilian Trade Minister Mauro Borges as saying “The meeting of the BRICS trade ministers did not intend to forge a common position on the ratification of the Bali agreement.” NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy, says in the report, that Modi is unlikely to rock the boat and domestic issues like inflation and much required growth top his agenda. The BRICS platform itself is under immense scrutiny especially because it offers emerging countries a way out from institutions that have been historically dominated by the West and which refuse to give way to new economic and political realities. The BRICS Bank, Currency Reserve pools are all being largely viewed as opponents to existing financial structures even though some feel they can work alongside just fine. So can these nations together and alone achieve what they have set out for and bring about a change in the established world order? The answer might lie in reverse parking (yes you read right). A guest post on Financial Times correlated reverse parking rates with major indicators of economic performance in a number of countries: the BRICS (Brazil, Russia, India and China) and mature economies as well. The article argues that “ The correlation between reverse parking rate and productivity gains for all six countries is very high: 0.832 (correlations range from 0 (no correlation) to 1 (perfect correlation)). The correlations between reverse parking rates and GDP growth rates (0.792) and savings rates (0.906) are also very strong. In sum, the higher the reverse parking rate in a country, the higher its productivity gains, GDP growth rate and savings rate.” The percentage figures of all BRICS nations, both for reverse parking and GDP growth rate, are higher than the mature economies of Taiwan and America.
Posted on: Tue, 15 Jul 2014 17:23:00 +0000
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