China floats BRICS free-trade deal, while Russia’s Vladimir Putin calls for an alternative to US dollar

China’s vice-commerce minister Wang Shouwen says a free-trade deal will help tap economic potential of the five nations
Russian President Vladimir Putin says the emerging economies are exploring their own international reserve currency

Brics

Orange Wang

Published: 10:15pm, 23 Jun, 2022

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China has proposed a free-trade bloc among the five BRICS countries in a bid to enhance economic ties within the decade-old grouping, as its geopolitical rivalry heats up with the United States.

Trade between Brazil, Russia, China, India and South Africa has huge potential to expand, as it accounts for only 6 per cent of the countries’ combined trade today, despite the major emerging economies contributing to about one-fifth of global trade, said vice-commerce minister Wang Shouwen.

“To build a free-trade agreement is a very important means to tap this trade potential, which China is willing to discuss with other BRICS countries,” he told a panel at the BRICS Business Forum on Wednesday.

Beijing is trying to consolidate its trade interests as Washington tries to box in China’s economic influence with the Indo-Pacific Economic Framework (IPEF), while banning imports from Xinjiang over alleged forced labour.

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India, though part of the BRICS grouping, is a member of IPEF and the US-led Quad alliance.

China does not have a free-trade deal with any of the other four BRICS countries.

Its relations with Moscow have been put under the microscope after Russia’s invasion of Ukraine, while ties with India remain strained due to border issues.

Earlier at the forum, Russian President Vladimir Putin said the countries were exploring the creation of an international reserve currency based on a basket made up of real, roubles, rupees, yuan and rand, as an effort to develop an alternative for international settlements dominated by the US dollar.

Putin also said that contact between the Russian business community and BRICS partners had intensified.

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Negotiations were under way to open Indian chain stores in Russia and increase the share of Chinese cars, equipment and hardware entering the Russian market. There has also been a “noticeable increase” in the exports of Russian oil to China and India.

But there was no mention of a free-trade deal or alternative international reserve currency in a document outlining new initiatives for the business community released on Wednesday.

The document said BRICS countries will cooperate on the economy and trade, while stepping up investment coordination to enhance the stability, diversity and resilience of the supply chain.

Wang said the five nations were the backbone of the multilateral trade system and criticised decoupling.

He cited a study by the World Trade Organization, saying that if the global industrial chain was divided into two separate trading groups, long-term economic growth was likely to drop by 5 per cent, similar to the harm caused by the 2008 financial crisis.

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“There are indeed a lot of uncertainties and challenges in the world economic recovery, for the BRICS countries … it is in the common interest to work together to deal with these challenges,” he said.

The International Monetary Fund (IMF) last month raised the weight of the Chinese yuan in the Special Drawing Rights (SDR) basket – an international reserve asset – a move which was viewed as another advance for China in the global financial system.

Chris Turner, global head of markets at ING, said Putin’s remarks on the new reserve currency could be interpreted as a move to allow BRICS nations to break dollar dominance and build their own sphere of influence, but questioned any imminent progress.

“While there could be some high-profile statement of political ambitions to embark on this project, we doubt the mercantilist nations involved in BRICS would want to transfer valuable FX reserves into this more local sphere of influence,” he wrote in a note on Wednesday.