Face It, China Totally Owns The BRICS


(THIS ARTICLE IS COURTESY OF FORBES FOREIGN AFFAIRS)

 

Investing #ForeignAffairs

Face It, China Totally Owns The BRICS

I cover business and investing in emerging markets.  Opinions expressed by Forbes Contributors are their own.

Chinese President Xi Jinping walks with Brazilian President Michel Temer in Beijing on Friday, just two days before the opening of the annual BRICS Summit on Sept. 3. China is far and away the most powerful of the five BRICS. (Photo by GREG BAKER/AFP/Getty Images)

Is it at all humiliating to the Russians, at least a little bit, that the Chinese are far and away the biggest, baddest BRICS nation? Russia used to be a world superpower. It’s a world oil power. A world nuclear power. But beyond that, China is more relevant to the world economy than the Russians.

Brazil. What about them? For years, the commodity bubble made it seem Brazil was on its way to becoming the runaway leader of Latin America, surpassing Mexico, which is basically a U.S. import market. Brazil was, and is, a more diverse economy than Mexico. They weren’t dependent on any one nation, really. Then the commodity bubble burst and Brazil’s purchasing power has dropped, putting it on par with China’s. GDP per capita is also similar. China’s Happy Meal toy making economy has grown up and is home to more new billionaires than anywhere else. And as leaders from Brazil, Russia, India and South Africa meet in Xiamen on Sept. 3, it is clear to everyone watching that China is the leader.

Russia needs China because it is in a never-ending feud with the West. They have two things in common, generally: commodities supply and demand, and a desire for a multi-polar world, though this is probably more Vladimir Putin’s thing than Xi Jinping’s. China is at least as dependent on the U.S. as Russia is dependent on Europe.

Brazil needs China because that’s where all of its soybeans and iron ore goes. Brazil’s agribusiness is vital to the economic recovery now just two quarters young. In May, China and Brazil launched a joint investment fund to increase productive capacity. The fund has an initial sum of $20 billion and will reportedly go to finance investment projects in Brazil (not in China) that are of interest to both countries. Brazil’s president, Michel Temer, is already in China. He wants to convince them to buy airports and participate in other privatization bids as Brazil tries to trim more fat from its federal government.

Following the recent border skirmish, India can probably do without China. India’s main trading partners are the U.S. and United Arab Emirates. But if you include Hong Kong with China, then China is No. 2. More importantly, India’s imports are heavily dependent on the Chinese. Some $59 billion worth of Chinese imports moved into India in 2015, more than the No. 2 Sweden and No. 3 U.S. combined. Bilateral trade volume between China and India also rose by 21.5% year-on-year to $47.52 billion between January and July 2017, Indian customs data show.

South Africa needs China investment and Chinese buyers for its raw materials. China is its biggest export market, accounting for around $12 billion. That beats South Africa’s No. 2 partner, the U.S., with around $7 billion in exports, both based on 2015 figures.

China is a total beast. South Africa, Russia and Brazil are particularly at its mercy.

See: China-Like Wages Now Part Of U.S. Jobs Boom — Forbes

Rio de Janeiro Is A Complete Mess — Forbes

Trump Already Beat India On H1-B Visa Issue — Forbes

Guess Who Is Growing Sick Of Anti-Russia Sanctions? — Forbes

Indian Prime Minister Narendra Modi and Xi Jinping at the BRICS summit in Goa, India last year. India and China have agreed to pull back their troops from a face-off in the high Himalayas where China, India and Bhutan meet, signaling a thaw in the months long standoff. It’s a relationship where China has more Aces up its sleeve than India. (AP Photo/Manish Swarup, File)

Although all five of these countries stand to gain from closer commercial ties, China is the one that will gain the most. China has just about enough money sitting in international reserves to equal the economic output of Brazil ($1.7 trillion)Russia ($1.3 trillion) and South Africa ($295 billion). It’s state owned enterprises have the funding to buy strategic assets abroad, like water and oil and gas infrastructure. And its new billionaires like Jack Ma, founder of the e-commerce giant Alibaba, has his eyes set on being the Jeff Bezos of emerging markets. He basically already is.

The upcoming BRICS Summit will end on Sept. 5 with the usual rhetorical messaging and memorandums of understanding about how they will all accelerate trade, investment and technological know-how. China’s Commerce Ministry spokesman Gao Feng said on Friday that China wants to deepen international cooperation in improving industrial capacity. In convincing their emerging market partners that they need to get more productive, China can sell them their new robotic technologies. All those Chinese workers replaced by automation, can work building the screws and attaching the wires and packaging up new robots to ship to Brazil instead.

A few BRIC country companies have big business in China, too. It is not entirely a one way street. Brazil’s Embraer jet manufacturer has a facility in southern China, and builds planes with their Chinese joint venture partner.

Russian investment bank, VTB Capital, set up shop in Shanghai in 2015.

India’s Tata Group family of companies is in China. IT firm Tata Consultancy Services is there, with the usual tie-up with a Chinese firm.  Tata Steel has two steel mills in China. Tata’s Jaguar Land Rover unit has a JV with Chery Automobile to build the luxury cars in Changshu.

South Africa’s Old Mutual financial services firm used to have a foothold there but are now looking to dump their insurance unit, at least.

Meanwhile, here’s a quick snapshot of what China has accomplished, as outlined on Friday by China Daily:

  • Gezhouba Group announced March 30 that it will spend up to $200 million to acquire 100%  stake of Sistema Produtor Sao Lourenco, a water supply company in Brazil, China Daily first reported.
  • China Investment Corp partnered with Brookfield Asset Management in April to take a 90% percent stake in Nova Transportadora do Sudeste, a natural gas pipeline company owned by Petrobras.
  • Xiaomi enters the Russian smart phone market.
  • Shanghai-listed China Railway Group is building a $2.5 billion high-speed railway in Russia. The deal was announced in June.
  • Alibaba’s Ant Financial Unit opens up Alipay in cahoots with Russia’s VTB Group last month.
  • China Petroleum Engineering & Construction Corp. inked a deal with Russia’s Gazprom in April to build an estimated $15 billion natural gas pipeline into China.
  • Alibaba Cloud, the cloud computing arm of Alibaba, plans to build a data center in Mumbai by the end of next March, the company said on June 9.
  • Oil refiner Sinopec signed an agreement to buy 75% of Chevron South Africa’s assets for $900 million in March.

It is clear who is the big buyer and who is staking claim to turf long term. Brazil is selling; China is buying. South Africa is a seller, too. So when Putin and other leaders meet in China on Sunday, they will all know on many levels, that in terms of global finance and trade, they are no longer equals.

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