BRICS Insights: China-India Role in BRICS

In 2001, Jim O’Neill, then chief economist with Goldman Sachs, first proposed the idea of “BRIC” that comprised Brazil, Russia, India, and China. In 2010, it was renamed BRICS after the addition of South Africa. The BRICS countries performed noticeably well during the early days of the global economic crisis, serving as an engine of growth as the world began navigating global economic recovery. The BRICS summit, aiming to intensify cooperation among its member states, has received considerable attention. However, in recent years, the BRICS countries have experienced differentiated growth: Each country has presented a “new normal” in macro-deceleration. Some, including Brazil and Russia, have even endured negative growth. Doubts have arisen about the strength of their sustainable development at a relatively fast pace. The prospects of the BRICS need to be further evaluated.

From the perspective of global economic development, the BRICS countries have a good excuse for the deceleration. In recent years, the world has been plagued by considerable roadblocks to prosperity, leading to decreased market demand for goods from these countries. Since the 2008 financial crisis, the majority of developed economies have been performing in a fatigued and weak way. Europe and Japan, for instance, have both implemented quantitative-easing, hyper-normal monetary policies, and since 2015, they have launched a negative interest rate policy. The U.S. Federal Reserve is showing early signs of a possible interest rate hike as the United States continues with a steady recovery. The polarization of monetary policy from central banks of major international currencies has triggered large-scale cross-border capital flow from the emerging economies in the BRICS, resulting in a less certain international economic environment that has left countries like Brazil and Russia in a precarious position, not to mention the economic downturns in some other countries.

On the other hand, however, China and India have maintained relatively high-speed growth since the financial crisis, despite some short-term fluctuations, indicating that not every BRICS country faces an economic dilemma. As predicted by the International Monetary Fund in a report on the growth of global major economies released in July 2016, China and India will grow at 6.6 percent and 7.5 percent, respectively, in 2016, and 6.2 percent and 7.5 percent, respectively, in 2017. The other BRICS countries, Brazil, Russia, and South Africa, are predicted to grow at 3.8 percent, -1.8 percent, and 0.6 percent, respectively, in 2016.

How could China and India avoid such struggles? The reasons are fairly complicated.

All BRICS member states are developing countries that are striving to catch up with developed nations. All of them can push their economies forward by optimizing the late-mover advantages. But why did China and India outshine the other three members?

Further analysis suggests that Russia, Brazil, and South Africa sharply contrast with China and India in industrial structure: The former three are resource-oriented economies that can be more easily impacted by global economic demand. The prosperity cycle of the global economy may hasten the growth of popular commodities at a breakneck speed, while a world economic downturn can shake the structure of staple commodities.

The current deceleration of the global economy has led to the pricing for staple commodities remaining low, which challenges exporting nations to maintain fast growth.

From this perspective, both China and India are more capable of avoiding such risks, making their role as major drivers of the BRICS economic development even more important.

The probability of Russia, Brazil, and South Africa returning to high-speed economic growth will not be great without global staple commodities experiencing another cycle of prosperity. They will be more dependent on China and India because of the latter two’s increasing economic aggregate — 60 percent prior to 2008 to 79 percent in 2015, and 82 percent in 2016, as predicted.

Despite the fact that the three countries have suffered distinct deceleration, both China and India have maintained relativelystrong economic growth, which has reinforced the important position of the BRICS in global affairs. Hence it is inappropriate to assume that the governance mechanism of the BRICS summit is out of date.

Experts predict that both China and India will maintain relatively-fast economic growth and that their economic aggregates will remain high. They believe that the two countries can play an important role in the construction of the governance mechanism of the BRICS summit.

Against this backdrop, intensified cooperation between China and India will surely fire up broader cooperation among the BRICS as a whole, further optimize their economic structures, improve their systems and mechanisms, and lay a solid foundation for their economic growth.

China and India are expected to join hands to produce more dynamism for the common development of the BRICS.

The author is deputy director of the World Economy Division under the International Institute for Strategic Studies, Party School of the Central Committee of the Communist Party of China.