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Influence of BRIC Countries on The Global Economic Development with Special Emphasis on China

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Outline

  • Introduction
  • Overview of the BRIC countries
  • China as the key new player in the global economy
    • Brief overview of the Chinese economy
    • The contribution of the first-tier cities
    • The contribution of the second-tier cities and the rest
    • The role of government in the growth of the first and second tier cities
    • The role of the international market
    • The “stars” industries in China
  • Conclusion

Introduction

            The increasingly rapid globalization in the world economy led to the deepening integration of world economies as a result of investment, cross-border trade and production. With the current advanced economic development, the BRIC countries, including Brazil, Russia, India and China, currently account for more than 25% of the world’s land area and more than 40% of the world’s population. The debate exists about the role of BRIC and G7 countries within the global economy and how the redistribution of their power in the structure of international system should be organized to benefit all the involved parts (Held et al., 2005). The economic potential of BRIC countries is such that they could exceed the combined economies of the richest countries and become among the four most dominant countries in the world by 2050. The combined GDP of the BRIC countries of 18,486 trillion dollars make them the fastest growing emerging markets in the world (Murray, 2006). Among the BRIC countries China proved to be the most dominant and progressing, which is considered by others either as a threat or an opportunity. The current paper will briefly discuss the influence of BRIC countries on the global economic development with special emphasis on China as one of the largest and most promising markets (Rao, 1998).

Overview of the BRIC Countries

Influence of BRIC Countries on The Global Economic Development with Special Emphasis on China

            Despite the BRIC countries are not a political alliance as the European Union or formal trading association as ASEAN, their cooperation and combined actions are directed toward improving the political cooperation to confront the increasing influence of the United States in the major trade accords. It is expected that in the near future Brazil and Russia will become the dominant suppliers of raw materials for India and China that in their turn the dominant producers of finished products and services would become (Goodman, 2005). In such a way, these four countries shown below might form the ideal combination of suppliers and manufacturers to provide the rest of the world with necessary goods and services. Table 1 in the Appendix shows the comparison between BRIC countries and G7 countries in terms of GDP. While in 2015 BRIC countries will have much less combined GDP of 13,653 US$ billions than G7 countries (GDP of 33,414 US$ billions), then by 2050 BRIC countries will be twice more powerful in economic terms expecting 128,324 US$ billions in comparison to G7 GDP of 66,039 US$ billions.  By entering the world economy and introducing changes and innovations in such fields as education, foreign investments, domestic entrepreneurship and domestic consumption, the BRIC countries can create a powerful economic alliance to compete at the world market.

China as The Key New Player in The Global Economy

Brief Overview of the Chinese Economy

China’s phenomenal economic growth over the last two decades has allowed Chinese goods to become omnipresent in just about international sector (Clements-Hunt, 2009). The rapid growth in Chinese imports from the developed world has created a major demand for diversification of exports. At the same time, the neighbouring countries were worried that China’s rivalry in global commodities and capital markets could have an effect on their own growth prospects (Martell, 2010). Provided that any big and influential leader’s main aim is to increase its share of world influence and ultimately control the system, it can be claimed that China’s main goal is to dominate the Asian market in the same manner that the United States dominates Western markets.

China is constantly in the news since regulation changes and policy adjustments are quickly following each other. In the first quarter of 2011, growth continued to be industry-led, powered by external trade and investment. China experienced export growth to the European Union and the developing world surging, which led to continued trade surplus and soared foreign reserves (Hofman and Labar, 2009). Despite inflation influenced the international food prices, the stock markets of China continue to boom. Moreover, the Chinese economy is booming so quickly that recently the word “overheating” has been used frequently with foreign investments as its main reason. The current situation became so difficult mainly because over half of the demand comes from the investment so that it creates additional capacity. As a result, China has to generate enormous increase in demand just to absorb additional capacity it puts in. Thus, today China is faced with the danger of overheating and its main economic challenge is to rebalance the economy.

Starting from 2010 the economy of China became the second largest in the world after the United States if measured by nominal GDP, which largely improved after joining the World Trade Organization (WTO). As part of a far-reaching trade liberalisation pact, China decided to lower tariffs and scrap market barriers. For eg, Chinese and international merchants won the freedom to import and export themselves and to market their goods without a government intermediary. The major imports of China are high-tech equipment, their components, energy products, electrical machinery, mineral fuel, medical equipments, optics, etc (Hofman and Labar, 2009). However, businesses are withdrawing from the Chinese mainland market. For example, Warner Bros. is removing its cinema company in mainland China as a consequence of regulatory prohibitions banning foreign investors from owning joint ventures. The law allows Chinese mainland investors to hold at least 51% of the company or to assume a leading role in their joint projects with international investors. The smaller public sector is controlled by some 200 major state-owned companies, mainly concentrated in infrastructure, heavy industry and energy supplies. In 2011 Chinese economy continues to boom very quickly and develop in a very unbalanced way resulting in 12% GDP, which seems to be unbelievable for economic growth. If we look at the macro-economic viewpoint, the global economy may not seem overheated, provided that total demand and supply are rising largely in line with each other.Widening trade surplus remains the main macro issue in the real economy. In addition, macro policies implemented to tighten overall demand are not obvious, though it is still necessary to drain excess liquidity from the banking system. Thus, in order to rebalance the economy the Chinese government should reconsider the policies to decrease the trade surplus.

There are several key drivers of the Chinese economy, including foreign investments, rapid growth of industry sector, increase in export activities, rapid monetary expansion, and booming stock markets. Table 2 in the Appendix shows the statistics of the BRIC countries with numbers based on various categories. It is clearly seen that in comparison with other three countries China holds the first place in many categories, including population, labor force, exports, current account balance, foreign exchange reserves, electricity consumption, number of mobile phones and Internet users, production of motor vehicles, and active troops. Among other three countries only Russia holds the first place in area category. In such a way, China became the global center of manufacturing and the major export platform of the cross-national production network (Jones, 2010). Table 3 displays future predictions for the main ten countries, where will be the second after US in 2020 and the leading country starting from 2030. Finally, table 4 shows the future predictions of Gross Domestic Product from 2015 till 2050. Again, China will be at the first leading position starting from 2030.

The Contribution of The First-Tier Cities

A consumer revolution in first-tier cities such as Shanghai, Guangzhou, Beijing and Shenzhen fueled the turnaround in the China fortunes for such companies as Wal-Mart (WMT) and General Electric (GE). According to Nichols (2010), the disposable income of the 15 million people in the middle classes has reached over $4,000 a year, thus, their consumer capability increased a lot, which in its turn supported the rapid growth of Chinese economy. There are 300,000 millionaires in China and most of them are living in those urban centers of first-tier cities. Certainly, they increasingly buy luxury goods from well-known foreign producers like PPR, Louis Vuitton and others. However, recently many foreign investors are no longer investing in the first-tier cities, but better moving their funds into the second-tier cities, such as Wuhan, Nanjing and others (Nichols, 2010). 

The Contribution of The Second-Tier Cities and The Rest

China’s twenty four second-tier cities account for 12% of the Chinese population, which generated 23% of national GDP in 2007, including such cities as Hangzhou, Tianjin, Changchun, Chengdu, Dalian, Xiamen, Nanjing and others (Thompson, 2007). The large advantage of the second-tier cities is that they started promoting themselves by focusing on the developing modern industrial zones by building five-star hotels, new infrastructure projects and providing sufficient energy and telecommunication networks to the area. According to Thompson (2007), the second-tier cities try to ease the shipment procedures while the low labor costs allow earning more profit for the majority of employees there.  

The Role of Government in The Growth of The First and Second Tier Cities

The role of the Chinese government in the development of the first-tier cities is that it invested a lot of money and made lots of efforts to make Shanghai as the main business centre of the Yangtze River Delta, Shenzhen and Guangzhou with well-established infrastructure and high economic development. In its turn, Beijing became a home for the Chinese government and the largest universities and research institutes in China (Thompson, 2007). On the contrary, the second-tier cities lack qualified and experienced employees, foreign schools for children of foreign managers or those local coming from the first-tier cities. Thus, in order to bring stability and further development to the area, the central government is doing their best to eliminate those disadvantages in the near future. Moreover, Chinese government invests a lot of money into the western part of the country in addition to providing and pushing business licenses for the key industries of foreign enterprises (Vaughan, 2010).

The Role of The International Market

Despite there is a risk of further increase for international food prices, the international environment remains largely favorable. China is pushing up prices in the world energy and commodities. At the international market China is the most effective in sales of low-cost Chinese goods, dyestuff, cotton import products of US$47.4 billion and cut-flower export in Asia. At the same time, China is the least effective in steel wires, sheets and plates because of high export tariffs; primary commodities such as steel billets, steel ingots and pig iron; and coal export with its fall of 20.9 percent (Garcia, 2011).

The “Stars” Industries in China

China is considered as the third largest market for Rolls Royce after the top two markets of the United States and Great Britain. It is now the fifth largest market in the world for cosmetics and the seventh largest market for online sales. Manufacturing and export sectors continue to grow in addition to high increase in the banking system. The Chinese property market continues to face the problem of rapid increase in prices. Although China ranks ninth worldwide in output of services, high power and telecom density ensure this sector remains on high-growth trajectory in the long-term (Vaughan, 2010). China is still considered to be the largest dyestuff production country with its export volume being 20% in the world trade volume. Domestic pump industry in China is up in 2011 with expected even larger growth rate of 11%-12% in the next 3-5 years. Chinese pump enterprises have high chances to succeed in the rampant domestic and international markets if they constantly apply innovations in the product technology, management mechanism, manufacturing process and marketing ideas (Ritzer, 2010).

Conclusion

Because of the new structure of authoritarianism, China also lacks political characteristics such as autonomous civil society groups, minority parties, free press and independent judiciary. Such authoritarianism typically contributes to corruption, which prohibits the government from taking full advantage of the information revolution (Zhen-Wei, 2009). However, China aims to continue to strengthen monetary conditions to cool the economy and the financial markets by a mix of rate rises, expanded reserve thresholds, yuan appreciation, and further regulatory behaviour. (Stiglitz, 2006). The country has good prospects for further growth both locally and globally within the next 5-15 years until it becomes the main leading progressing country as the forecasts suggest.

Appendix:

Table 1: Comparison about future GDP of BRIC and G7

Groups Flags 2050 2045 2040 2035 2030 2025 2020 2015
BRIC Brazil, Russia, India, China 128,324 98,757 74,483 55,090 40,278 28,925 20,226 13,653
G7 Canada, France, Germany, Italy, Japan, United Kingdom, USA 66,039 59,475 53,617 48,281 43,745 39,858 36,781 33,414

Table 2: The BRIC countries by numbers

Categories Brazil Russia India China
Area 5th 1st 7th 3rd
Population 5th 9th 2nd 1st
Population growth rate 107th 221st 90th 156th
Labor force 5th 7th 2nd 1st
GDP (nominal) 8th 10th 11th 2nd
GDP (PPP) 7th 6th 4th 2nd
GDP (nominal) per capita 55th 54th 137th 95th
GDP (PPP) per capita 71st 51st 127th 93rd
GDP (real) growth rate 15th 88th 7th 5th
Human Development Index 73rd 65th 119th 89th
Exports 18th 11th 16th 1st
Imports 20th 17th 11th 2nd
Current account balance 47th 5th 169th 1st
Received FDI 11th 12th 29th 5th
Foreign exchange reserves 7th 3rd 6th 1st
External debt 28th 24th 26th 23rd
Public debt 47th 122nd 29th 98th
Electricity consumption 9th 4th 5th 1st
Number of mobile phones 5th 4th 2nd 1st
Number of internet users 5th 7th 4th 1st
Motor vehicle production 6th 19th 7th 1st
Military expenditures 12th 5th 10th 2nd
Active troops 14th 5th 3rd 1st
Rail network 10th 2nd 4th 3rd
Road network 4th 8th 3rd 2nd

Table 3: Future predictions for the main 10 countries

Influence of BRIC Countries on The Global Economic Development with Special Emphasis on China

Table 4: Future predictions of Gross Domestic Product from 2015 till 2050

Influence of BRIC Countries on The Global Economic Development with Special Emphasis on China

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