The Sanya Summit

On Thursday in the coastal city of Sanya on China's Hainan island, Brazil, Russia, India, China and now joined by South Africa for the first time - the BRICS group of global emergent economies - met in their third annual summit. These economies represent 40 percent of the world's population and 20 percent of the global Gross Domestic Product (GDP). More importantly, these economies are growing over six percent per annum compared to negligible growth in the world's most advanced industrial economies.

At their first meeting in Brazil two years ago, the BRIC economies accounted for just over 15 percent of global GDP. By 2016, the International Monetary Fund predicts the GDP of the four largest - Brazil, Russia, India, China - will total $2.1 trillion collectively out-stripping the US economy. The BRICS group also hold 40 percent of the world's currency reserves, the majority of which is still in US dollars.

While summit dealt with a whole range of issues from Libya to climate change, the primary focus was to forge ever closer financial and trade ties. To that end, the BRICS  each represented by their head of governments - Indian Prime Minister Manmohan Singh, China's Hu Jintao, Brazil's Dilma Rousseff, Russia's Dmitry Medvedev and South Africa's Jacob Zuma - signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other. Full text of the Sanya Declaration is available from China's Xinhua Net news service.

"Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services," Manmohan Singh told reporters at a news conference with other BRICS leaders.

While the agreement is confined to credit and not trade, it is only a matter of time before trade is settled in non-dollar denominated currencies. Take Sino-Brazilian trade. Brazil’s imports from China have gone from $1.2 billion in 2000, to $5.3 billion in 2005, to $25.5 billion in 2010 - mostly Chinese manufactured good such as cell phones and televisions. Brazilian exports to China have gone from $1 billion in 2000, to $6.8 billion in 2005, to $30.7 billion in 2010. Over 80 percent of Brazilian exports to China are one of three things: iron, soy, or oil.

While Indian Prime Minister Singh, Russian President Medvedev and South African President Jacob Zuma all headed home or went on to other destinations, Brazilian President Dilma Rousseff is spending five more days in China this week to concentrate on trade talks. As Al Jazeera notes there is concern in Brazil if exporting iron and soy (which is major cause of Amazon deforestation) to China while importing billions of dollars in low-cost Chinese manufactured goods (that would be putting Brazilians out of work) is really the kind of healthy trade relationship Brazil wants with China.

From the Brazilian point of view, there is an increasing worry that Brazil is being pigeonholed as just another commodity supplier to China. The proportion of raw materials within Brazilian exports has grown from 29 percent in 2002 to 41 percent in 2009. Furthermore, Brazil’s manufacturing sector is suffering from Chinese competition. While Brazil does run an overall trade surplus, the country which had been used to running a deficit in manufacturing goods of several hundred million dollars a year has now seen that gap grow to $23.5 billion dollars in 2010. Brazilian imports of Chinese manufacturing goods reportedly lost 70,000 Brazilian jobs in 2010, and a slower GDP growth is forecast in 2011 partly due to Chinese manufactured goods replacing Brazilian domestic goods. In sum, more than 80 percent of Brazilian manufactured exports are being adversely affected. Coupled with China’s undervaluing of the yuan, occurring alongside the sharp appreciation of Brazil’s real, has put Brazilian goods at a massive disadvantage in terms of price.

The Economist Intelligence Unit reports:

Accompanied by a large contingent of Brazilian businessmen and officials, President Rousseff was clear in her message to her Chinese hosts: she wants a “qualitative jump” in what Brazil sells to the Asian powerhouse, with a major increase in value-added and processed goods. The government also wants Chinese investment in Brazil to be more diversified, to include not just extractive industries but also high-tech manufacturing.

There is a major caveat that must be noted, there is reason for concern that the Chinese economy may be in danger of overheating. Numerous economists are already warning of Chinese bubble in real estate and infrastructure. Should China's economy catch cold, much of the emerging market economies that are commodity exporters to China will simply buckle under.

The Sanya Summit

On Thursday in the coastal city of Sanya on China's Hainan island, Brazil, Russia, India, China and now joined by South Africa for the first time - the BRICS group of global emergent economies - met in their third annual summit. These economies represent 40 percent of the world's population and 20 percent of the global Gross Domestic Product (GDP). More importantly, these economies are growing over six percent per annum compared to negligible growth in the world's most advanced industrial economies.

At their first meeting in Brazil two years ago, the BRIC economies accounted for just over 15 percent of global GDP. By 2016, the International Monetary Fund predicts the GDP of the four largest - Brazil, Russia, India, China - will total $2.1 trillion collectively out-stripping the US economy. The BRICS group also hold 40 percent of the world's currency reserves, the majority of which is still in US dollars.

While summit dealt with a whole range of issues from Libya to climate change, the primary focus was to forge ever closer financial and trade ties. To that end, the BRICS  each represented by their head of governments - Indian Prime Minister Manmohan Singh, China's Hu Jintao, Brazil's Dilma Rousseff, Russia's Dmitry Medvedev and South Africa's Jacob Zuma - signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other. Full text of the Sanya Declaration is available from China's Xinhua Net news service.

"Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services," Manmohan Singh told reporters at a news conference with other BRICS leaders.

While the agreement is confined to credit and not trade, it is only a matter of time before trade is settled in non-dollar denominated currencies. Take Sino-Brazilian trade. Brazil’s imports from China have gone from $1.2 billion in 2000, to $5.3 billion in 2005, to $25.5 billion in 2010 - mostly Chinese manufactured good such as cell phones and televisions. Brazilian exports to China have gone from $1 billion in 2000, to $6.8 billion in 2005, to $30.7 billion in 2010. Over 80 percent of Brazilian exports to China are one of three things: iron, soy, or oil.

While Indian Prime Minister Singh, Russian President Medvedev and South African President Jacob Zuma all headed home or went on to other destinations, Brazilian President Dilma Rousseff is spending five more days in China this week to concentrate on trade talks. As Al Jazeera notes there is concern in Brazil if exporting iron and soy (which is major cause of Amazon deforestation) to China while importing billions of dollars in low-cost Chinese manufactured goods (that would be putting Brazilians out of work) is really the kind of healthy trade relationship Brazil wants with China.

From the Brazilian point of view, there is an increasing worry that Brazil is being pigeonholed as just another commodity supplier to China. The proportion of raw materials within Brazilian exports has grown from 29 percent in 2002 to 41 percent in 2009. Furthermore, Brazil’s manufacturing sector is suffering from Chinese competition. While Brazil does run an overall trade surplus, the country which had been used to running a deficit in manufacturing goods of several hundred million dollars a year has now seen that gap grow to $23.5 billion dollars in 2010. Brazilian imports of Chinese manufacturing goods reportedly lost 70,000 Brazilian jobs in 2010, and a slower GDP growth is forecast in 2011 partly due to Chinese manufactured goods replacing Brazilian domestic goods. In sum, more than 80 percent of Brazilian manufactured exports are being adversely affected. Coupled with China’s undervaluing of the yuan, occurring alongside the sharp appreciation of Brazil’s real, has put Brazilian goods at a massive disadvantage in terms of price.

The Economist Intelligence Unit reports:

Accompanied by a large contingent of Brazilian businessmen and officials, President Rousseff was clear in her message to her Chinese hosts: she wants a “qualitative jump” in what Brazil sells to the Asian powerhouse, with a major increase in value-added and processed goods. The government also wants Chinese investment in Brazil to be more diversified, to include not just extractive industries but also high-tech manufacturing.

There is a major caveat that must be noted, there is reason for concern that the Chinese economy may be in danger of overheating. Numerous economists are already warning of Chinese bubble in real estate and infrastructure. Should China's economy catch cold, much of the emerging market economies that are commodity exporters to China will simply buckle under.

Clinton's Quiet Diplomacy Envisions An "Architecture of Global Cooperation"

Secretary of State Clinton delivered what had been billed as a major foreign policy address (transcript) on Wednesday at the DC offices of the Council of Foreign Relations. I'm not sure if the speech has a title but if not it will likely go down in the annals of US diplomatic history as the "architecture of global cooperation" speech. The whole speech is worth a read for it lays out quite succinctly the new approach representing a clean break with the unilateralism of the Bush Administration.

The main thesis is:

Our approach to foreign policy must reflect the world as it is, not as it used to be. It does not make sense to adapt a 19th century concert of powers, or a 20th century balance of power strategy. We cannot go back to Cold War containment or to unilateralism.

Today, we must acknowledge two inescapable facts that define our world: First, no nation can meet the world's challenges alone. The issues are too complex. Too many players are competing for influence, from rising powers to corporations to criminal cartels; from NGOs to al-Qaida; from state-controlled media to individuals using Twitter.

Second, most nations worry about the same global threats, from non-proliferation to fighting disease to counter-terrorism, but also face very real obstacles - for reasons of history, geography, ideology, and inertia. They face these obstacles and they stand in the way of turning commonality of interest into common action.

So these two facts demand a different global architecture - one in which states have clear incentives to cooperate and live up to their responsibilities, as well as strong disincentives to sit on the sidelines or sow discord and division.

So we will exercise American leadership to overcome what foreign policy experts at places like the Council call "collective action problems" and what I call obstacles to cooperation. For just as no nation can meet these challenges alone, no challenge can be met without America.

And here's how we'll do it: We'll work through existing institutions and reform them. But we'll go further. We'll use our power to convene, our ability to connect countries around the world, and sound foreign policy strategies to create partnerships aimed at solving problems. We'll go beyond states to create opportunities for non-state actors and individuals to contribute to solutions.

In short, the goal is build working coalitions to address regional and global problems by engaging states, non-state actors and even individuals in certain cases to focus on cooperation rather than confrontation. The aim is to advance US interests by uniting diverse partners around common concerns and to move the world from a multi-polar orientation to a multi-partner one.

There's more...

Diaries

Advertise Blogads