BRICS Still Relevant

By+Han+Liqun

Following the recent economic contraction in some countries of the BRICS - Brazil， Russia， India， China and South Africa， the argument that the association of large emerging economies is faltering is prevailing again.

In the current climate of global economic fragility， the BRICS has encountered many difficulties in development. But the rhetoric that the BRICS is declining has overlooked the favorable factors for the long-term growth of these countries and tried to play down its role in global affairs on the mere basis of its economic slowdown.

Economic growth is not the only foundation for cooperation between BRICS countries. In an ever-evolving world， the rise of emerging economies is a historical trend that will remain significant. Developed nations also need the vast market of emerging economies， though they may， at the same time， want to prevent a rival political group coming into being from the latter.

Potential remains

Currently， BRICS countries have many challenges to development. However， these challenges can be addressed and some of the resolutions may， in turn， enhance cooperation within the group.

It is undeniable that BRICS countries are losing some comparative advantages in terms of economic growth. At present， many emerging economies， BRICS countries included， are encountering challenges such as the rising costs of labor， land， resources and capital， while the return on investment is declining remarkably.

For instance， labor costs in China were merely 33 percent of Mexicos in 1996， but the ratio soared to 115 percent in 2015. From 2012 to 2015， Morgan Stanley Capital Internationals BRIC index， which measures the combined equity market performance in Brazil， Russia， India， and China， was negative. The annual return on investment in BRICS countries also declined sharply. There are a variety of causes for the slumping demand for investment. On the one hand， this indicates a return to the normal level after investors have reevaluated the previously exaggerated investment potential of the BRICS. On the other hand， problems including financing difficulties and excess production capacity that worsened following the 2008 financial crisis have curbed investors enthusiasm.

External competition has also grown increasingly fierce for BRICS countries. Developed countries are attempting to regain dominance of the world economy through reindustrialization， which may reshape the globalization process. Take the United States as an example. The contracted growth in average real wages and widespread automation has boosted productivity in the country and reduced its production costs， pushing the return of manufacturing jobs. Additionally， large U.S. multinational corporations are constantly innovating their competition strategies and entering emerging industries to maintain their global leadership.

Furthermore， other emerging economies have grown rapidly in recent years. Mexico， for instance， is rising to become the worlds new factory， taking advantage of its large working-age population， favorable location next to the huge U.S. market， as well as its membership in the North American Free Trade Agreement.

To cope with the global financial crisis， BRICS countries have without exception adopted powerful stimulus measures， helping them to survive the toughest time. However， these measures have， to some extent， stifled enterprises operation， harming long-term economic development. For example， Brazil lowered its benchmark lending rate 16 months in a row， which dealt a heavy blow to Petrobras， a semi-public petroleum company accounting for 10 percent of the countrys economy.

Before the global financial crisis， the national security spending of BRICS countries was comparably low since the situation in their vicinity was relatively stable. However， the post-crisis security environment around the world has worsened remarkably due to intertwined traditional and non-traditional threats as well as the combined influence of state and non-state actors （such as Al Qaeda and the “Islamic State” extremist group） on global affairs. The escalation of strategic competition between major powers has not only complicated some hotspot issues but also threatened the stability of the existing international security system. If this situation remains unchanged， the global economic recovery will become more difficult. For example， Russia has been involved in wars in Ukraine and Syria since the end of 2013， ballooning its military expenditure to $66.4 billion in 2015， its highest in the past decade.

Despite all that， the future growth potential of BRICS countries is still strong. There have been efforts to adjust their economic structures to create new drivers of growth. All of them are seeking to forge new competitive edges in highly value-added fields through increasing research and development.

More than half of Chinese enterprises reportedly have made innovation their top priority， compared to less than 30 percent of U.S. companies. Chinese telecommunications equipment makers have already gained ground over their Western counterparts， while Indiamade generic medicines have cornered a large share of the global market. Brazil has become a dominant world player in protein products and Russian businessesoverseas investment is rising. These new advantages in competition as well as the improved caliber of the labor force will help the BRICS rebound from the crisis.

Many international organizations and research institutions are optimistic about the growth prospects of the BRICS. While the International Monetary Fund （IMF） lowered its outlook for global economic growth by 0.1 percentage point in the April edition of the World Economic Outlook report， it raised its China growth forecast by 0.1 percentage point， underlining its approval of the Chinese Governments recent pro-growth policies. The IMF also predicted that Russia and Brazil may return to growth in the next few years and that the Indian economy can maintain a relatively rapid expansion over a long period.

Balancing power

The international order has undergone a profound evolution since the outbreak of the global financial crisis. The economic status and strength of emerging economies， including the BRICS， has risen rapidly. Emerging economies have become an important force in improving the international governance system and promoting a fairer and more just world order. Whether the BRICS can maintain high-speed growth will not be a decisive factor in their participation in international governance.

Since the establishment of the BRICS mechanism， the five countries have set up a comprehensive system for cooperation on the basis of equal consultation. Their cooperation encompasses both political and economic arenas. Together， they have set up the New Develop- ment Bank （NDB） and the BRICS Contingent Reserve Arrangement. They have also coordinated positions and actions on major international affairs. The NDB has begun to fund projects in BRICS countries， meaning that cooperation within the group has become institutionalized. The comprehensive cooperation among the BRICS members has helped consolidate mutual understanding and support among the people of the five countries and promoted integration.

The challenges currently facing the BRICS are really the two sides of the same coin. The obstacles to economic development may turn out to be driving forces for political cooperation. For instance， as the international security environment worsens and encumbers global economic recovery， emerging economies， including the BRICS， share a common interest in reversing this unfavorable trend.

BRICS countries vary in terms of development levels. The global economic downturn further amplifies these differences and simultaneously provides new cooperation potential. For instance， the status quo of development in India is similar to that in China in the late 1990s. Many Indian officials and scholars advocate using Chinas development experience as a learning opportunity.

There have always been naysayers critical of the BRICS and China， even before the global financial crisis. However， the influence of the BRICS is continually growing. In the past several years， the five countries have contributed more than 50 percent of global growth. Currently， they combine to account for more than 20 percent of global GDP， and the proportion is expected to rise to about 25 percent by 2020. The upcoming BRICS Summit， to be held in India in October， is likely to deliver more fruitful benefits for the future development of this important mechanism of cooperation.