The Yekaterinburg BRICs and a closer look at their global reach

Today, Russia is hosting a summit of the BRICs, the emerging markets that seem to have only one thing in common, namely to have been lumped together by Goldman Sachs in 2001. The countries will discuss the global financial architecture and  their role in it. There’s lots of talk about them in the media. Let me pick up on two articles published in  Business New Europe today (subscription required), of which some abstracts below.

A first article reports on a map that was just developed of the actual global integration (investment, trade and migration) of the BRICs with the rest of the world:

“Consulting company Maplecroft has just produced the Emerging Powers Integration Index (EPII), which tries to go beyond the usual comparisons of GDP growth or trade and assesses just how dependant the rest of the world already is on the BRICs.

More Keynes in China rather than in the US?

On the historical day of Obama’s inauguration as the first African-American and most rhetorically talented US president, the United States braces itself for a one trillion US$ stimulus package and years of excessive government debt, in the name of a Keynesian policy approach to stimulate demand. In this context, the analysis of Finance Professor Michael Pettis comes in very handy. Pettis, who runs a brilliant blog on Chinese finance, is based in Beijing and has written extensively on the global imbalances that have now started destabilizing the world economy. Among others he analyzed the “chimeric” global macroeconomic imbalance based on an excessive current-account surplus supporting China’s export-oriented economy vs. an excessive deficit fuelling the US’s recent consumption and private borrowing binge. In an article in the Financial Times back in December, he warns:

Quo vadis the authoritarian BRICs in 2009?

It is often said that the governments of the big authoritarian states of the day, namely Russia and China, have struck an informal bargain with their population: economic growth and rising income levels delivered at the price of relinquishing political freedoms. As long as China was growing at double-digit levels and Russia surfing on an unprecedented oil boom, this bargain seems to have worked – when one discounts the rising numbers of riots in rural China in the last years. Now that the Credit Crunch is hitting these markets, the big question marks are not only on these countries’ growth rates next year, but more worryingly on their politics. Optimists would say this crisis is an opportunity for political change and democratization. Pessimists would argue that the regimes will cling to power, even if it is at the price of rolling back market-friendly reforms. How will popular discontent be vented? How will the authorities react? These are the big questions for 2009. Some developments are already in the making:

The end of “Chimerica”

The quantity of ink and html-text produced on the current financial crisis is too phenomenal to be mastered.

However, what one gathers, very roughly, is this: 

India – how gigantic is the new giant?

This book is the result of a fatherly injunction to “write a definite book on India”. Prof Arvind Panagariya’s “India, the Emerging Giant”, definitely is such a book. It will probably be an authoritative reference book for the next few years to come on India’s economy. The talk is of a giant, but India still only represents 1% of world merchandise trade, and 2.7% of its services trade. Yet the book is a very important contribution to the understanding of economic development and the policies that can lead to it – or not. The book traces India’s economic history since its independence and in particular links its growth performance with the policies undertaken by its successive governments. The author identifies four main phases:

Diplomatic “win-wins”

ECIPE will do a presentation at the Chinese Mission to the EU tomorrow. On browsing through various documents to prepare for it, two paragraphs of the Joint Statement released after the recent EU-Chinese Summit struck me in particular for their, well, very diplomatic content:

A fresh look at China

Back in 2004, Martin Wolf wrote, in a chapter dedicated to multinationals in his book on globalisation, :

“It is right to say that transnational companies exploit their Chinese workers in the hope of making profits. It is equally right to say that Chinese workers are exploiting transnationals in the almost universally fulfilled hope of attaining better pay, better training and more opportunities than would otherwise been available to them.”

A forthcoming paper (upload here: acer_messerlinwang_nv6final.pdf) by Patrick Messerlin and Jinghui Wang at Sciences Po gives us a new perspective on China. China is not a monolith. Parts of China will be like the EU in not too long a time. Some provinces have per capita income levels (in purchasing powerparity terms) that have reached those of several EU member countries. Shanghaians are richer than Greeks. The paper highlights 9 provinces, all on the country’s eastern coast that will soon enter the world’s high income bracket: that is roughly 400 000 million people – almost as much as the EU. Unnerved about job losses in low-skilled sectors of the economy? Well: think of all the good jobs a thirsty market almost equivalent in size to the EU will create for Europe! The Chinese story is not static. The country’s economy is progressively climbing up the ladder of more sophisticated production, and it is becoming a new hub for production chains reaching out into South East Asia. This means it is becoming more expensive to produce in China! Of course, at the other end, 13 Chinese provinces are at the level of the world’s most poor countries. Shanghai’s inhabitants are more than ten times richer then Chinese citizens from the country’s poorest province, Guizhou. Yet Luxemburgers are eight times richer than Bulgaria: so lots of work to do here as well….

Please see this table:

Very quick tour d’horizon – trade, migration, China

I’ve been a bit short and bluntly political lately in my blog.  No time to write longer, more reflective piece these days. Gearing up in a new job swallows lots of energy! But let me try and share what I’ve been trying to keep up with.

Migration and Immigration. A lot is going on here in Europe. France is introducing a restrictive bill on immigration. It will be imposing DNA tests for family members of immigrants who want to join their relatives in France. This is creating a national uproar. There’s enough on this blog about this topic (see this, and this a bit too long post in French)For my French friends: do have a look at Liberation. Alexandre Delaigue has a good post on one of Libe’s blogs too).

At EU level a lot is happeing on migration these days as well (an excellent FT article gives an overview): EU trends on integration are being assessed by the Migration Integration Policy Index. Do have a look! The country that scores best on everything from non-discrimination to access to nationality of immigrants is Sweden. While the Nordics tend to score well in general, when browsing the maps on the website, Denmark clearly stands out as the black sheep. Eastern European countries will need to make some efforts. I was surprised to learn that Germany makes access to its nationality easier than France. The index is managed by the Migration Policy Group in Brussels. In terms of relatively constrictive approaches to immigration, there have been moves this summer by Spain to allow for legal but managed immigration of workers from Africa. The EU Commission is set to launch a “blue card” for skilled migrants next week, so the FT. More background here and here. A very far way off what others propose: see Dolado and Legrain.

International trade. The US is growing more protectionist (see this post). Ben Muse posted Hillary Clinton’s proposals on trade policy as candidate for the US presidency. Trade Diversion has something on how much trade protection has actually cost the US. The EU is going to be sued because its recent decision to raise tariffs on energy efficient lightbulbs from China (how deliciously ironic!). The WTO ruled against the US’s cotton subsidies: efforts on reducing them are insufficient. Oxfam is campaigning in the US against agricultural subsidies (courtesy of the Econoclastes and Trade Diversion).

China. The annual Communist Party Congress usually leads to a flurry of media coverage on already extremely media-covered China. Two pieces I recommend: the recent Analysis by Richard McGregor in the FT, A piece in Die Zeit. China is growing richer and climbing up the value-added ladder. It is now starting to tackle its huge challenges: growing inequality and the environment.

A www.cpc.(gov.)cn website?

 

No, no, there is none.

Richard McGregor has a fascinating piece on how China’s ruling party is currently tightening its grip over the country. Among many other interesting things, I learned The Party has indeed no website!

Certainly, the party makes no pretence of transparency. In a country that has embraced the internet and mobile telephony (China had 162m estimated internet users by the end of June and about 450m mobile phone accounts), the party does not even have a website.

[A teacher in a] party school – in Yan’an, an old revolutionary base – dismisses an internet presence as redundant. “All the important media are owned by the party, so we have no need to set up a website,” he says.

The Asian Century – no longer an elusive reality

This week, Japan’s Prime Minister is visiting India, after a short stop in Indonesia to deepen ties with the South-East Asian democracy. In this context, let’s start with a quote from the FT in an article published yesterday:

“Japan has until recently been the missing link in India’s post-1991 engagement with the world. Now, however, relations that plunged into a deep freeze after New Delhi’s 1998 nuclear weapons test are being revived by a shared concern at the implications of a rising China.

To judge by the number of times Mr Abe’s speeches mention India, the world’s biggest democracy looms larger than ever in Tokyo’s strategic thinking. A frequent visitor to India, Mr Abe likes to talk about the countries’ “shared values” of democracy and respect for human rights as the basis for a “new Asian order” that pointedly sidelines China”.

Three questions come to mind:

1) When will Asia’s new economic might concretely translate into more political-military power generally (If one assumes that there is an automatic spill-over from one to the other – which is not obvious)

2) Will China be the trigger?

3) Should China emerge as a military power with major capabilities, what is the future for the current liberal world order based on the spread of democracy and the market economy?