The annual BRICS summit, hosted by China in Xiamen on September 3-5, is the second major international event in China this year to focus on issues confronting developing economies, following the Belt and Road Initiative in Beijing in May. President Xi Jinping, in his speech to the BRICS Business Forum before the summit opening, clearly outlined why China is placing so much emphasis on what is popularly known as “South-South cooperation.”
Xi noted that “through ten years’ development, the BRICS countries have become a new highlight of the world economy,” and expected them to continue to play a decisive role: “It is time to set sail on the rising tide. Going forward, BRICS countries have major tasks to accomplish – to grow their economies and create a second ‘golden decade’ of cooperation.”
This strong focus by China on initiatives involving developing countries reflects changes taking place in the world economy. As Xi Jinping emphasised economic development remains the foundation of BRICS: “Economic cooperation is the foundation of the BRICS mechanism. … This year BRICS countries have made progress in the operation of the New Development Bank and Contingent Reserve Arrangement and in e-commerce, trade and investment facilitation, trade in services, local currency bond issuance, scientific and technological innovation.”
To accurately assess this increasing weight within the world economy of initiatives involving developing economies, and more specifically BRICS, it is useful to use the IMF’s projections for the current five-year growth in the world economy up to 2021. Use of this IMF data does not necessarily imply accepting that all the details of the forecast are correct. But:
The IMF is a bastion of Western economic orthodoxy and therefore cannot be accused of producing data artificially favouring China or BRICS.
As will be analysed, the BRICS economies are so large, and their dynamics so well defined, that in most cases the broad parameters of their impact on world growth are unlikely to be affected by any plausible divergences from IMF forecasts.
The concentration of the world economy
To analyse the overall significance of BRICS it is necessary to grasp the concentration of the world economy in a few countries. Politically, and in terms of respect of course, the foundation of China’s foreign policy is that the more than 200 countries in the world should be treated on the basis of “equality and mutual benefit.”
This corresponds to China’s fundamental foreign policy concept of a “community of common destiny.” Nevertheless, in economic terms the world is highly concentrated, which explains the decisive role of BRICS as the most important organisation of developing economies.
In 2016, at current exchange rates, a mere five economies accounted for 54 per cent of global GDP, and 20 economies for over 80 per cent. Measured in purchasing power parity (PPP) the top five economies accounted for 48 per cent of world GDP and the top 20 economies for 76 per cent. Economic growth is more concentrated still. The IMF projects that the majority of world economic growth in the coming five years will be accounted for by only three countries – China, the U.S. and India. They will account for 54 per cent of world growth measured at current exchange rates and 52 per cent measured under the PPP formula. China and India are BRICS members and only the U.S. is within the G7 group of advanced economies.
This fact that a very small number of very large states dominate the global economy is crucial because it removes misunderstandings concerning BRICS and their significance. The original term BRIC was put forward by Jim O’Neill, then Chief Economist of Goldman Sachs. Others, wrongly believing that the global impact of O’Neill’s term was merely an example of his skill in coining a good name, have made attempts to propose other groups of economies to replace the original term. All they failed for reasons that became clear as the real significance of BRICS was understood.
The reason no other acronym has emerged successfully is that, whether other developing economies grow rapidly or not, the reality is they are too small to decisively affect the course of the global economy. For example, an attempt was made to popularise “MINT” (Mexico, Indonesia, Nigeria, and Turkey). But in the next five years, even measured in PPP terms, the MINT economies on IMF projections will account for only 6.4 per cent of world growth compared to 44.5 per cent for BRICS.
Therefore, no matter how measured, the BRICS economies are a much more powerful locomotive of world growth than the G7 – entirely in line with the assessment made by President Xi that: “BRICS cooperation has now reached a crucial stage of development.”
Thus, the large size of the BRICS economies, their scale of contribution to world economic growth, gives added weight to key initiatives of the BRICS such as the New Development Bank – still better known under its original title of BRICS Development Bank.
It is clear, therefore, BRICS is not an exclusive organisation but a core around which joint initiatives of developing economies can be developed. As President Xi put it: “We should get more emerging markets and developing countries involved in our concerted endeavors for cooperation and mutual benefits. BRICS places high premium on cooperation with [them] and has established effective dialogue mechanisms with them… [We] should promote the BRICS Plus approach to build an open and diversified network of development partners.”