Brics grapple with China’s dominance

Cheap Chinese exports have decimated Brazil’s shoe industry and South Africa’s textile sector. India has slapped anti-dumping duties on an array of Chinese goods. Russia is sparring with Beijing over the price of oil it sells to China.

If trade is the mortar holding together the Brics — Brazil, Russia, India, China and newcomer South Africa — the omens would appear poor for the grouping, which holds its annual summit on Thursday in the southern Chinese island of Hainan.

To its detractors, Brics is an artificial construct — an example of life imitating not art but Goldman Sachs, which coined the acronym BRIC in 2001 for four fast-growing, politically diverse countries that it reckoned were reshaping the global economy.

Yet a more optimistic view holds that the explosion in South-South trade, which leapt to 17% of the global total in 2009 from 7% in 1990, has a long way to run.

Moreover, some experts say the Brics caucus has already shown its worth as a counterweight to the West in global talks on trade and climate change and, within the Group of 20, on how to redistribute power in international financial institutions.

In each case, despite differing positions, the five have acted collectively to prevent advanced countries from driving a wedge between them, said Sourabh Gupta with Samuels International Associates, an international trade and political risk assessment firm in Washington.

“There is a certain basic logic to their economic interaction,” Gupta said. “They have not allowed themselves to be co-opted by Western countries. Either they’re going to hang together or hang alone.”

This is not to deny that China’s export juggernaut is causing strains, exacerbated by Beijing’s determination to let the yuan rise only slowly.

Countries such as Brazil — but also the likes of Portugal — that are above China on the value chain are struggling to compete in intermediate, capital-intensive products.

“They have genuine reasons to be worried. If nothing else, at least the unfairness arising from the yuan’s undervaluation is an issue that needs to be tackled pronto,” Gupta said.

Brazilian President Dilma Rousseff will broach the issue of the yuan, but her officials say she will avoid direct confrontation.

“What we want is more reciprocity,” Rodrigo Baena, the presidential spokesman, said about the objectives of her five-day visit to China starting on Tuesday. [ID:nN07149192]

Policy failings
Indian manufacturers have also grumbled at being hollowed out by their Chinese rivals, but Gupta does not expect an unmanageable surge in protectionism.

“There is a good deal of anger about Chinese products, but there is also, deep down, an awareness in India that part of this is policy failings at their end,” he said.

India would stand a better chance of broadening the base of its exports to China, now dominated by commodities, if it eased labour laws that put manufacturers in a straitjacket.

More generally, Southern economies are shooting themselves in the foot by levying much higher import duties on goods from other Southern countries, 6,1% on average, than the 2,5% they face in the West, according to the Asian Development Bank (ADB).

Still, the Manila-based bank expects the South-South share of global trade to double in the next two decades.

With developing Asia accounting for about 75% of South-South commerce, and China alone taking up about 40%, the challenge for the Brics is to divide the cake more evenly.

The trade share of Latin America and Africa is in fact rising fast, but that is because of China’s hunger for oil and raw materials, bought in exchange for low-cost consumer goods. Some China critics have branded this model of trade as neo-colonial.

One answer, the ADB says, is to expand the production networks of “Factory Asia” to other regions in the South to churn out goods for price-sensitive local consumers.

“Not only will developing Asia’s foreign direct investment in these new networks enhance employment opportunities, raise workers’ incomes, increase domestic demand, and enhance growth prospects, it will also address in part global imbalances by recycling high savings in developing Asia into investment in the South,” the ADB said in a report last week.

You’re welcome, more or less
Simon Freemantle, who analyses Africa’s political economy for Standard Bank in Johannesburg, said China was already repositioning itself as a “development partner” for Africa and learning the lessons from episodes of anti-Chinese sentiment.

Zambia recently dropped charges against two Chinese managers accused of attempted murder for firing at 11 coal miners during a protest over pay.

Despite such incidents, Africa is by and large receptive to booming Chinese trade and investment, Freemantle said.

The textile industry in South Africa and Botswana has taken a big blow, but across the continent families can now afford new Chinese clothes instead of making do with Western hand-me-downs.

Around four in five Nigerians and Kenyans in a recent BBC World Service poll welcomed China’s growing clout. “All African countries view China’s increasing economic power positively,” the survey said.

Standard Bank sees no let-up in the acceleration of commercial ties. By 2015, Sino-African trade could easily exceed $300 billion, compared with $93-billion in 2009 and about $125 billion in 2010, Freemantle said.

And, as this week’s Brics summit shows, where trade goes, politics will follow, especially as economic power moves East in the wake of the global financial crisis.

“African countries are increasingly aware of this global shift and placing China in a more central role in their foreign policy objectives,” Freemantle said. – Reuters


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