Emergence of BRICS and its role in global economic activities
Discuss About The Balance Sheet Expansion And Economic Growth?
BRICS consists of five major economies, viz. Brazil, Russia, India, China and South Africa. At present, with developing economic conditions, each country is playing a vital role in the era of advanced economics. Those countries, with their new and advanced methodologies, have earned enough potential to dominant the global economy by the year 2050. With 25% land coverage and 40% population of the world, BRICS is going to be the largest entity in every stage of global economic activities (Carey & Li, 2016). For instance, Brazil, Russia, India and China have already captured a significant portion in the world market with their largest and fastest-growing market strategies. Hence, to understand the impact of BRICS in the world economy, especially on the United States, it is beneficial to analyze briefly the economical, political and social activities of those countries at first (Rasoulinezhad & Jabalameli, 2018). By doing so, this report can focus on various opportunities and threats, based on international business environment, which can be influenced by those multi dimensional factors. In this context, the report is going to focus on the relationships between China and Brazil and their impacts in the global market.
The economic conditions of various western countries have decreased since 2010, while four major countries are capturing the topmost positions worldwide. According to some economists, the United States is going to be the second largest economy in the world after China in upcoming years (Armijo & Roberts, 2014). By considering the emerging trend of China’s GDP, they forecast that the country can achieve the equivalent level with the U.S.A by 2027 and after that, the GDP of China is going be increased more steadily. Moreover, considering the prediction of the World Bank, it can be stated that the U.S dollar (USD) is losing its international dominance by 2025 because of the Renminbi of China (Stuenkel, 2014). Hence, in the future, the world market can be dominated by a multi-currency system as the value of the Renminbi is going to be equal with the dollar and the euro.
It can be stated from the above diagram that the GDP of China is increasing sharply and by 2050, the country can earn the highest GDP, all over the world. In India, Russia and Brazil, these trends are also increasing significantly. On the other side, The U.S, the U.K and management western countries are facing a slow trend of GDP. Hence, by 2010, China has already become the second largest economy in the world by surpassing Japan. By 2025, China can equate its GDP with the U.S while, the rest of the country of BRIC can equate their GDP with other major western countries in the world. In 2010, the U.S has experienced a current account deficit worth $470 billion, while, at the same time, China has gained a surplus worth 5 billion (Doyle, 2014). This sharply indicates that, China is facing an advantage regarding its current account balance, which can help the country to develop further. In addition to this, it is crucial to discuss that, average rate of consumption of the U.S over the past decade, is greater compared to that of China. In other words, China is accumulated savings by a large amount compare to that of the U.S, for the last decade (Berardi, 2017). As a consequence, China has contributed a huge portion of its surplus amount into the sovereign wealth funds and has purchased American treasuries as the U.S has piled up huge amount of public debt. Hence, by its major political and economical power, China has helped the U.S to overcome from its recession period.
Future trends in the world market
Irrespective of China, other countries of BRICS have also influenced the U.S and other western economies by their socio-political and economical aspects. India and Russia, through their innovative technology and foreign trade policy, have influenced the economic conditions of the U.S. Thus, by capturing the international market through export and import and huge consumption power, BRICS is going to control the economic conditions of almost all major countries.
To understand the impact of the growing powers of BRICS in the international market and their control on world trade, it is beneficial to analyze the interrelationship among those countries. By explaining the relationship between China and Brazil, it can be understood that whether emerging power of those countries are challenging for the U.S from global perspective or not and their receptiveness to liberal international norms.
China, after becoming the largest trading partner with Brazil, has possessed an emerging political and economical relationship with that country since 2009 (Andreff, 2016). Through the bilateral trade, both countries have earned huge amount of revenue. Brazil has exported agricultural products and raw materials to China and imported manufactured items from that country. Moreover, by investing large amounts of money on various fields like mining, energy, oil and steel industries, China has helped Brazil to take various strategic approaches. This, in turn, helps China to expand their business on Brazil and enhance interdependency between them. Due the sharp increase in GDP, the demand for commodity in China has also increased rapidly, which in turn, has helped the international price level to increase. As Brazil exports primary products to China and all other countries, this increasing price level has positively affected the country by obtaining surplus through trade-balance. However, during the economical crisis in 2008, the economy of China has faced various imbalances, for which, the GDP growth of Brazil has decreased (Yuan, Rao & Shi, S2017). Due to this economical slowdown of China, various major sectors of Brazil has affected adversely. However, Brazil has faced two opposite consequences during the export of iron ore and soybean (Oliveira & Schneider, 2016). On the one hand, China has decreased their imports of iron ore from Brazil and on the other side, they have increased their imports of soybean form that country.
This relationship between China and Brazil is vital because of their different political and economical conditions. China is possessed a planned economy while that of Brazil is democratic. Hence, by analyzing the partnership of this opposite economies and their impacts in the world market, the concept of a strategic business plan can be described (Wilkinson, Wesz Jr, Lopane & Muniz, 2015). China has shown that their economic condition is strong enough to influence the international price level, which in turn, can influence international trade activities of other countries. However, at the same time, by making a good trade relation with Brazil, China also has proved that their enhancing economy is not negatively influence a country.
BIRCS do not make any economic bloc or trading association like other western countries. However, there are some factors that can influence four major countries of BRICS, viz, Brazil, Russia, India and China to form a political alliance.
China and Brazil’s relationship and its impact on the international market
China is defined as the leader among all countries of BRICS and therefore, it enjoys the effective votting power for taking any initiatives regarding BRICS. Thus, by possessing a large share in international markets, China has obscured the rest of the country of BIRCS through socioeconomic and political aspects (Shahrokhi et al., 2017). Moreover, China’s official foreign reserve holdings, through exports, are double compare to combined reserves of other countries of BRICS.
The supremacy of India and China as major producing country with unutilized potential has been recognized significantly. However, according to some , large-scale disregard of China and Russia, for democracy and human rights, can increase problem in the future (Sergunin, 2015). On the other side, population growth of Russia, China and Brazil have decreased significantly, which in turn, has decreased the labor force on those countries. Brazil has also shown their economic potential in recent years and consequently, the country has built a framework of economical, political and social policies. Those policies have helped the county to develop consistency.
On the other hand, India has been facing some politically disturbance situation due to its neighboring countries. India and China has a huge number of populations compare to other countries, worldwide. However, most of the population in those countries belongs to the low income category (Lima, Zuppani & Maclennan, 2017). This economical obstacle has adversely affected those countries to achieve significant growth through limited policies of the government, unstable social and political conditions and limited demands in domestic markets. Hence, the only instrument by which BRICS can dominant the world economy in the future, is their emerging international market.
Emerging power of BRICS has built up various challenges for the U.S, who has remained the leader in the world economy. By sharing various relevant attributes, Brazil, Russia, India and China have gathered power through economical, military and political means that can influence their domestic markets as well as international markets (Bekiros, 2014). For decades, the dollar has remained the world currency. However, according to the new agenda of BRICS, those countries are forming the New Development Bank to finance on various sustainable projects of the development and financial infrastructure. This bank is going to be the major competitor of the International Monetary Fund (IMF). The chief goal of this bank is to eliminate the dollar as the dominating currency in this world. For this, the U.S dollar can loss its value in the future and this can inversely affect the economic condition of the U.S. from being the world’s largest economy. Moreover, the U.S has provided military security and has provided support to various countries in international economic affairs. The country has also enjoyed some benefits in international trade for the USD, as most of the international transactions have done through this currency. Hence, all countries have kept foreign reserves of this for currency in their domestic economy. However, this leading power of American currency can be changed due to the development of the financial institution of BRICS and this can adversely affect the position of the U.S in international markets. The IMF can control this situation by maintaining its strong position as the chief financial institutions in the world.
Conclusion:
At the end of this report, it can be concluded that Brazil, Russia, India, China and South Africa are potentially emerging their market in the world economy and this growing trend can influence the economic condition of the U.S, adversely. China is playing the leading role among all countries of BRICS by its enhancing trend of gross domestic product (GDP) and a large share in international markets. Its strong position in the international market can influence the political and economical decisions of other countries, as well. For instance, the economic condition of Brazil has increased positively after making a bilateral trade relationship with China. The rest of the country of BRICS is also gathering power to influence the world economy, especially the world’s largest economy, that is, the U.S, with their leading business strategies.
References:
Andreff, W. (2016). Outward foreign direct investment from BRIC countries: Comparing strategies of Brazilian, Russian, Indian and Chinese multinational companies. The European Journal of Comparative Economics, 12(2), 79-131.
Armijo, L. E., & Roberts, C. (2014). The emerging powers and global governance: why the BRICS matter. Handbook of emerging economies, 503-520.
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Berardi, U. (2017). A cross-country comparison of the building energy consumptions and their trends. Resources, Conservation and Recycling, 123, 230-241.
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Lima, L. C., Zuppani, T. D. S., & Maclennan, M. L. F. (2017). Human Resource Management in the BRICS countries: a comparative study. Interações (Campo Grande), 18(3), 69-82.
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Sergunin, A. (2015). Understanding Russia’s policies towards BRICS: theory and practice. In Singapore: ISA Global South Caucus Conference.
Shahrokhi, M., Cheng, H., Dandapani, K., Figueiredo, A., Parhizgari, A. M., & Shachmurove, Y. (2017). The evolution and future of the BRICS: Unbundling politics from economics. Global Finance Journal, 32, 1-15.
Stuenkel, O. (2014). The BRICS and the Future of R2P. Global Responsibility to Protect, 6(1), 3-28.
Wilkinson, J., Wesz Jr, V. J., Lopane, A., & Muniz, L. (2015). Brazil, the Southern Cone, and China: the agribusiness connection. BRICS Initiative for Critical Agrarian Studies (BICAS), Working Paper, (16).
Yuan, Z., Rao, C., & Shi, S. (2017). Balance sheet expansion and economic growth in China: Crowd in or crowd out?. China Economic Review.
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