The real winner from the two BRICS-initiated financial ventures is China, with BRICS left carrying the can.
Brahma Chellaney, Nikkei Asian Review
On paper, the five BRICS countries — Brazil, China, India, Russia and South Africa — look like a powerful grouping: the member states combined represent more than a quarter of the earth’s landmass, over 42% of the global population, almost 25% of the world’s gross domestic product, and nearly half of the global foreign exchange and gold reserves. In reality, though, BRICS is still struggling to define a common identity and build institutionalized cooperation among its members. Their just-concluded summit, held in the Indian beach resort of Goa on Oct. 14-15, underscored inherent challenges.
As the first important non-Western global initiative of the post-Cold War world, BRICS reflects ongoing global power shifts, including the slow retreat of Atlantic dominance.
If BRICS can get its act together, it will be able to exercise significant geoeconomic and geopolitical clout and evolve into a major instrument to bring about fundamental changes in the architecture of global finance and governance. By serving as the building blocks of overhauled financial and governance systems, the BRICS economies would be a catalyst in the qualitative reordering of power and in reshaping the entire international order.
After all, in a spectacular reversal of fortunes, the developing economies, with their large foreign reserves, now finance the mounting deficits of the wealthy economies. More importantly, the BRICS economies are likely to remain the world’s most important source for future growth.
However, given that BRICS is just an extension of the BRIC concept conceived by Goldman Sachs economist Jim O’Neill in 2001, it is surprising that the grouping has stuck to an alien acronym. BRIC (Brazil, Russia, India and China) became BRICS with the addition of South Africa in late 2010. Had the grouping pursued a more forward-looking approach, it could have simply called itself the “R-5” after the names of its members’ currencies — the real, rand, ruble, renminbi and rupee — and presented itself, in contrast to the obsolescent Group of Seven (G-7), as the face of the future.
The plain fact is that the challenges BRICS faces today are fundamental, making its future uncertain. These disparate countries have starkly varying political systems, economies, and national goals, and are located in different corners of the globe. There is little in common among the BRICS states.
For example, what is common between the world’s largest democracy, India, and the largest autocracy, China? The biggest real estate claimed by a revanchist China is an Indian state almost three times larger than Taiwan — Arunachal Pradesh, an ecological paradise of virgin forests, orchids and soaring mountain ranges. How can BRICS create rules-based cooperation among its members if international norms of behavior are flouted, as by China’s territorial creep in the South China Sea and its shielding of Pakistani terrorism at the United Nations Security Council and by Russia’s annexation of Crimea?
To compound BRICS’ challenges, the Brazilian, Russian and South African economies have nose-dived in recent years, even as China’s faltering growth and downside deflationary risks have unsettled global markets. Only India has defied the BRICS’ slump, priding itself as the world’s fastest-growing major economy.
Almost six years after it expanded from four to five member-states, BRICS has yet to evolve into a coherent grouping with defined goals and an institutional structure. Of course, it has created the Shanghai-based New Development Bank and set up, as a shield against global liquidity pressures, the $100-billion, China-dominated Contingent Reserve Arrangement. The real winner from both these initiatives is China, with BRICS left carrying the can.
Despite its utility as a non-Western grouping, BRICS cannot remain just a “talk shop.” The Goa summit was a reminder that it has yet to devise a common action plan to go forward.
To be sure, the annual BRICS summit provides a useful platform for bilateral discussions on the sidelines, as between the Chinese president and Indian prime minister on a host of issues that bedevil their countries’ bilateral relationship. Some member states, by piggybacking on the BRICS summit, hold their own bilateral summits before or after the event. For example, the annual India-Russia summit was held in Goa just before the start of the BRICS summit.
Still, BRICS faces nagging questions about whether its members, with their different priorities and interests, can unite on key international issues. If BRICS is to build collective clout, its members must frame common objectives and approaches to tackling the pressing international issues. Take the scourge of terrorism: The Goa Declaration omitted any reference to cross-border terrorism or state sponsorship of terror or even to any Pakistan-based terrorist group at the instance of China, which sought to protect its close ally Pakistan from charges that its intelligence service was behind recent grisly attacks in Afghanistan, Bangladesh and India.
The G-7 began as a discussion platform like BRICS but, by defining its members’ common interests, it advanced within years to joint coordination on key international issues. BRICS, lacking the shared political and economic values that bind the G-7 members together, cannot stay relevant if it does little more than bring together its leaders and various stakeholders for discussions. Indeed, the most important bilateral relationship for each BRICS country is not with another BRICS member but with the United States.
Worse still, an overly ambitious China, seeking to dominate the grouping and emerge as America’s peer rival, has cast a lengthening shadow over BRICS. For example, as part of its quest to build the yuan, or renminbi, as a global currency that could eventually rival the dollar or euro, a cash-rich China is using BRICS as an important vehicle to expand the renminbi’s international role, including by offering renminbi loans to other BRICS members. Lending and trading in renminbi helps China to boost its exports and international clout.
China’s hidden export subsidies, however, have been systematically undermining manufacturing in the other BRICS states. Chinese dumping is blighting Indian and Brazilian manufacturing in particular. Consequently, China’s rapidly growing trade surplus, for example, with India has doubled since Narendra Modi became prime minister two-and-a-half years ago. This has armed Beijing with greater leverage over New Delhi.
For Brazil, India, Russia and South Africa, BRICS offers largely symbolic benefits, including underscoring their growing international role and their desire to pluralize the global order. By contrast, China, which needs no recognition of its rise as a world power, is milking BRICS for tangible benefits, including to advance its economic and political benefits.
Even on international institutional reforms, China is hardly on the same page as the other BRICS members. The present international order emerged in the post-1945 period as a U.S.-led hierarchical order involving a group of likeminded countries, largely in the West. Since then, the global institutional structure has remained largely static, even as the world has changed dramatically. As a result, the global financial and governance systems, ranging from the International Monetary Fund and the World Bank to the United Nations Security Council, no longer look truly global in terms of representation. This has made fundamental reforms to international institutions and rules imperative.
China is a revisionist power with respect to the global financial architecture, seeking an overhaul of the Bretton Woods system that emerged in the mid-1940s. It also seeks to dominate the first tangible challenge to the Bretton Woods institutions, as symbolized by the BRICS’ New Development Bank and the China-created Asian Infrastructure Investment Bank, headquartered in Beijing.
China, however, is a status quo power in regard to the U.N. system and wishes to remain Asia’s sole country with a permanent seat in the Security Council, which means keeping fellow BRICS member India (and Japan) out. China’s strategy, by extension, also seeks to shut out India from other political institutions, including the Nuclear Suppliers Group, where it has almost singlehandedly blocked a U.S.-led push for India’s entry.
Against this backdrop, if BRICS remains just a “talk shop,” it will not only fail to fulfill its true potential but will also wither away under the weight of its contradictions. The Goa summit did little to belie the contention of cynics that BRICS is just an acronym with little substance.
Brahma Chellaney, a geostrategist and author, is Richard von Weizsäcker Fellow at the Robert Bosch Academy in Berlin and professor of strategic studies at the Center for Policy Research in New Delhi.