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The Political Economy of the BRICS Countries


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These external surpluses are caused in part by China’s remarkably high saving rate. Because China’s national saving rate is even higher than its rate of domestic investment, the country has excess funds to lend in the global capital market; it follows from the balance-of-payments accounts that China’s net lending abroad (or its acquisition of foreign assets) equals the country’s current account surplus. A large portion of this lending finances foreigners∈ purchases of Chinese net exports (the trade surplus). High household saving and the corresponding low level of consumption in China contribute to the trade surplus by depressing the demand for imports and by forcing domestic firms to look abroad for markets” (Bernanke, 2006).

      This has profound implications for the trade cooperation among the BRICS countries.

      Fiscal Policies

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      Figure 4:Fiscal position in the BRICS economies.

      Source: Calculated from World Economic Outlook Database, April 2018, IMF.

      Foreign Trade

      What has been the pattern of foreign trade in these countries? We have already seen that in terms of current account balance, China and Russia are the surplus countries while India, Brazil, and South Africa are deficit ones. Thus, there is a differing degree of openness among these countries. Illustratively, while the rank of China in terms of merchandise exports is first, the closest next Russia is at seventh (Table 5).

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      Source: World Trade Organisation, available at http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx.

      But why does the trade performance differ so much across the BRICS nations? What are the drivers of export growth? Econometric analysis of growth drivers across emerging market economies tends to focus on the following variables: (i) real effective exchange rate change; (ii) growth of real non-oil goods import demand of trading partners; (iii) change in most favored nations’ (MFN) tariff rates; (iv) inflow of foreign direct investment (FDI); (v) change in export diversification; (vi) change in manufacturing export quality; (vii) number of documents required for export; and (viii) change in good market efficiency score (IMF, 2017). In terms of export diversification, while China, India, and South Africa are fairly diversified, expectedly, exports of Russia and Brazil are far more concentrated.

      In terms of the determinants mentioned above, the situation in China seems to be grossly distinct from its other BRICS partners. In fact, Chinese trade is comparable to other advanced countries — its share in global exports is higher than countries like the US, Japan, France, and Germany. Mathai et al. (2016) have noted:

      “China has become the world’s largest trading nation and the center of the global supply chain. A negligible player in global trade just a few decades ago, China now accounts for more than 12 percent of world exports and 10 per cent of world imports, more than any other single country. Nominal exports grew by 17 per cent on average each year from 1990 to 2012, receiving a particular boost after China’s accession to the World Trade Organization in 2001. … China is now the world’s largest importer of intermediate goods and the anchor of the global supply chain trade. The number of China’s major trading partners rose several-fold over the same period …, and as trade grew, so also did foreign direct investment, of which China is now the world’s largest recipient (as well as an increasingly important source)” (Mathai et al., 2016: 6).

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      Notes: *China’s imports from China can be explained by the reimport activity. It is related to processing trade. More than 90% of China’s imports from China are produced in China, exported to Hong Kong, and then reimported to China. 73% of products reimported are used as inward processing materials and 70% are imported by the province of Guangdong, due to the geographic and logistic convenience of Guangdong with Hong Kong. Goods entering for processing trade are exempted from import duties. The business management of multinational enterprises and their distribution centres are often based in Hong Kong.

      Source: Exim Bank (2016).

      Future of BRICS Cooperation

      Having discussed the extent of heterogeneity among the BRICS, this penultimate section looks at the possible vistas of economic cooperation among BRICS. BRICS summit declarations and official statements are normally euphoric and may not reflect compulsions of reality. Illustratively, the Government of India (2012) enumerated 13 fields of economic cooperation among the BRICS block; these include the following: (i) Intra-BRICS Trade and Investment Cooperation; (ii) Cooperation in Infrastructure Financing; (iii) Industrial Development and Cooperation; (iv) Cooperation in Transportation; (v) Cooperation in Food Security; (vi) Cooperation in Technical Education; (vii) Cooperation in Financial Market Development; (viii) Cooperation in Research and Development; (ix) Cooperation in Area of Culture and Tourism; (x) Cooperation in International Issues; (xi) Cooperation in Energy Security; (xii) Cooperation to Build Effective Institutions; and (xiii) International Development Bank for Fostering South–South Investment. While the list may appear to be quite exhaustive — the current experience tends to indicate differing degrees of success across these fields. Also, some of the developments in this regard seem to be symbolic in nature. Illustratively, there is a BRICS business council that was established in March 2013 during the Fifth BRICS Summit held in Durban, South Africa. The BRICS Business Council aims to facilitate cooperation between the five countries in various sectors as well as promote trade and industry amongst them. In its Report on the BRICS Business Council Meeting in India