Hand in hand with China, the growing power of the BRICS implies a greater financial muscle against the G7

2023-08-27 02:19:22

Beijing maintains that the Global South is as powerful a player as the West, while proud that the BRICS Group, made up of Brazil, Russia, India, China and South Africa, has announced that its membership is more than doubling. In January 2024, Argentina, Egypt, Ethiopia, Iran, the United Arab Emirates and Saudi Arabia will join the bloc. It is a powerful rival to the democratic powers of the Group of Seven (G7), capable of reconfiguring geoeconomics and geopolitics on issues as diverse as Russia’s war in Ukraine or the status of the US dollar as the world’s reserve currency.

In a speech given at the start of the Johannesburg summit, Xi Jinping stated that his country does not want to participate in a competition between great powers or create a “bloc confrontation”. As for the growth of the BRICS, the Chinese leader took pride in stating that “this enlargement of the number of members is historic and shows the determination for unity and cooperation with developing countries in general.”

This expansion is the first of the bunch, but it doesn’t look like it will be the last, as 16 other nations have formally applied to join. The Chinese president called for the expansion of the group of emerging economies to build a fairer and more equitable international order, insisting that “hegemonism is not in China’s DNA.”

Thus, the expansion of the BRICS could be seen as a response to the shifting global balance of power. The pandemic, tensions between China and the United States, and the Russian invasion of Ukraine have put global economic growth to the test. The BRICS states have been hit hard, with the world’s second largest economy reeling from strict COVID-19 lockdowns and its real estate turmoil. For this reason, Beijing is committed to additional markets to improve its position and involve other States with large populations and natural resources.

Unlike the expansion of NATO, the EU and other Western organizations, this bloc is based not so much on common rules as on two overarching goals: accelerating the emergence of a multipolar world and expanding the space for mutually beneficial economic activity that away from dependence on Western markets.

On the other hand, with the strong support of China and Russia, the inclusion of Iran has strengthened the anti-American axis in the Group, which will likely make it more difficult for Washington and the West to deal with an organization that contains two internationally sanctioned members. A decision that reflects the dominance of “The Friends” that could be uncomfortable for moderate members such as India and Brazil.

Fifty years ago, the chief financial officers of the governments of the United Kingdom, West Germany, France, and the United States met informally in the Downstairs Library of the White House to discuss the current international monetary situation. Thus the G7 was born. It quickly expanded, adding Japan, Italy and Canada, to consolidate a bloc of the largest economies outside communism. As industrialized countries that were reaping the benefits of the postwar productivity boom, they represented economic giants, and their economic output has historically contributed around 40% of global GDP.

However, the BRICS have been forging their own structure. The “BRIC” acronym, developed by Goldman Sachs economist Jim O’Neill in 2001, was used to identify four fast-growing economies at similar stages of development. Its leaders did not meet until 2009, when they formalized their relationship, to invite South Africa to join in 2010. They originally banded together to seize investment opportunities, but in the past decade they have become an economic rival to the G7. Their initiatives include the creation of a world bank, a global framework that includes de-dollarization, and discussions around the establishment of a common currency to prevent the United States from militarizing its currency and the Swift financial messaging system.

Together, the BRICS countries now have 3.24 billion people—41% of the world’s population—and a combined gross domestic product (GDP) of $26 trillion, 60% of the combined GDP of the G7 countries. However, in purchasing power parity, the GDP of the BRICS countries represents 31.5% of the world economy, surpassing the 30.4% of the G7. Despite this, the BRICS have only 15% of the voting power in the International Monetary Fund, a source of discontent in developing countries over the governance of international financial institutions.

An important factor that has contributed to the rise of the BRICS is the economic growth of the Chinese and Indian economies. Following a period of rapid industrialization in the 1980s and 1990s, Chinese exports received a major boost after joining the World Trade Organization in 2001. This helped China become the world’s second largest economy in 2010.

However, India’s economic rise has not been as fast, but in 2022 the country was in third place, with a GDP of 12 trillion dollars. Both countries account for almost a quarter of the world economy. According to IMF forecasts, by 2023 the BRICS will constitute a larger part of the world economy (56 trillion dollars) than the G7 (52 trillion dollars).

In particular, China’s spectacular economic rise has reshaped global trade, investment, and supply chains. The country’s manufacturing prowess, huge consumer market and innovation-driven growth have catapulted it to the forefront of the global economy. Although India still lags a bit behind, its huge population and thriving tech industry put it in a good position to become the bloc’s second economic superpower. Meanwhile, Russia, Brazil and South Africa have fallen short of expectations, and their share of global GDP (in purchasing power parity) has declined over the past two decades, according to Statista.

According to Bloomberg calculations, China will be the main contributor to world growth in the next five years, with a share that will double that of the United States. China’s share of global GDP expansion is expected to account for 22.6% of total global growth in 2028, according to the publication. For its part, India will contribute 12.9% of world GDP.

“In total, 75% of global growth is expected to be concentrated in 20 countries and more than half in the top four: China, India, the United States and Indonesia. While the G7 countries will account for a smaller share, Germany, Japan, the UK and France are among the top 10 contributors.”