Growing economic might is giving China and India a real platform on the world stage

Indian Prime Minister Narendra Modi and Chinese President Xi Jinping are about to meet again, this time at the BRICS summit in Xiamen.

It will hopefully be a better meeting than their last one – on the sidelines of the G20 summit in Hamburg in July – which didn’t exactly exude good vibes. While the Indian side was at pains to explain that the two leaders met and spoke about important matters of mutual interest, the Chinese side administered a snub, saying nothing more than handshakes and courteous smiles were exchanged.

With the cloud of the Doklam border stand-off lifted we can hope for more substantial discussions and agreement on issues of mutual concern.

When Goldman Sachs economist Jim O’Neill coined the acronym BRIC in 2001, he had in mind a list of the big, fast-growing economies that would generate the greater part of world economic growth in the first half of the new century. He gave the grouping the rather evocative acronym BRIC – suggesting a new building block in the world economy. Its basis was clearly economic.

But BRICS has moved on since then. It is fast becoming an influential political forum for the world’s new powers.

In 2001 the Group of Seven – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States – accounted for 46 per cent of the world’s gross domestic product but had just 10 per cent of its population. The BRICS countries – Brazil, Russia, India, China and South Africa – meanwhile accounted for 40 per cent of the world’s population and 18 per cent of its GDP.

But economists were agreed that by 2030, the BRICS would account for 40 per cent of the world’s GDP.

The BRICS have so far been ahead of the curve. China and India are first and third in the world GDP pecking order, based on purchasing power parity. But despite this, the global financial architecture remains as before, with control in the hands of the West and mostly serving their interests.

The immediate impetus for a permanent BRICS forum was the 2008 US meltdown, which demanded a major reform of the world economic and financial system. Unfortunately the reform of the global economic and financial system is now on the BRICS back burner.

The biggest transformation of this century has been the rapid rise of China and the US-China economic relationship. Despite being its political competitor, China now has a symbiotic relationship as it depends on the US trade deficit to accrue wealth. If the US ever becomes a responsible economic power, then its trade deficit should compress to well below the US$502 billion it was last year. Its trade deficit with China alone is about US$300 billion. Clearly China is hugely invested in America’s profligacy and holds its US gains mostly in US banks, which finance the next cycle of US profligacy.

China needs to find new ways of generating new markets and spaces for investment. India and Brazil are the newest fast-growing economies and offer cash-rich China just this opportunity. There is much room for intra-BRICS cooperation. The civilian aviation sector where China and India will provide most of the world expansion is one. Russia and Brazil have the capabilities and experience in this sector and India hopes that incipient Russia-China cooperation will expand into a BRICS development, like Airbus.

With global economic reform no longer its focus, BRICS has become more of an annual political fest. It had become more of a platform for the summit hosts to showcase their political influence. Last year, India sprang a surprise by inviting members of the regional BIMSTEC grouping – Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. It was doing what Brazil and Russia had done in previous years when they invited heads of immediate neighbours and regional groups such as the Union of South American Nations, the Shanghai Cooperation Organisation and the Eurasian Economic Union.

China is now taking this one big step further by inviting Egypt, Kenya, Tajikistan, Mexico and Thailand. It is clearly casting the net far and wide as if to signal its global stature. China has also been semaphoring its intent to seek the expansion of BRICS. If this happens the BRICS acronym would be inadequate, and perhaps a new one will have to be found to reflect the new realities.

The early BRICS promise of trading in each other’s currency and thus balancing bilateral trade has not happened. Clearly the BRICS prefer to hold dollars rather than renminbi, roubles, rupees, rand or reais. The other big idea was the BRICS Development Bank, which was the brainchild of then Indian prime minister Manmohan Singh in 2012 and came to life as the New Development Bank during the Fortaleza summit in 2014 with authorised capital of US$100 billion. It is now headquartered in Shanghai with the stated task of developing “a strong pipeline of projects and responding in a fast and flexible manner to aspirations and interests of its members”.

India would like to see a quicker expansion of the New Development Bank and its greater investment in the development of member countries. Since subscription of capital might pose some problems – because apart from China, the others are not exactly flush with cash – India would like to see the bank’s operations enhanced by Chinese investment in its bonds. This will vastly improve the bank’s reach without altering its shareholding structure.

The first set of loans involving financial assistance of US$811 million, to be disbursed in tranches and supporting 2,370 MW of renewable energy capacity, were announced in a board of directors meeting held in Washington – ironically enough on the sidelines of the International Monetary Fund and World Bank spring meetings. The bank is to provide US$300 million to Brazil, US$81 million to China, US$250 million to India and US$180 million to South Africa. It’s a beginning but it is still a far cry from what was envisaged with only US$1 billion subscribed as share capital and US$99 billion to go. But let’s hope that is the first step leading to a new world.

Mohan Guruswamy is the chairman of the Centre for Policy Alternatives in New Delhi