Brazil, Russia, India and China as the Key New Players in the Global Economy - Coursework Example

The BRIC countries as the key new players in the global economy: Brazil, Russia, India and China May 16, Outline: Introduction………………………………………………………………………….….… 3 Overview of the BRIC countries……..………………………………………………….... 3 China as the key new player in the global economy……………………………………… 4 Brief overview of the Chinese economy………………………………………….. 4 The contribution of the first-tier cities……………………………………………. 7 The contribution of the second-tier cities and the rest……………………………. 7 The role of government in the growth of the first and second tier cities…….…… 8 The role of the international market………………………………………….…… 8 The “stars” industries in China……………………………………………….…… 8 Conclusion………………………………………………………………………………… 9 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 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 will become the dominant suppliers of manufactured goods and services (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 The remarkable economic development of China during the past two decades helped Chinese products to become omnipresent in merely every foreign market (Clements-Hunt, 2009). The dramatic increase of China’s imports from the developing world has provided a new market for export diversification. At the same time, the neighboring countries became concerned that China’s competition in the global goods and capital markets may affect the prospects of their own growth (Martell, 2010). Since the main goal of every great and powerful leader is to maximize its share of the world power and eventually dominate the system, it is possible to say that the main goal of China is to dominate at the Asian market the same way as the United States dominates at the 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 the far-reaching trade liberalization agreement, China agreed to lower tariffs and to abolish market impediments. For instance, Chinese and foreign businessmen gained the right to import and export on their own and to sell their products without going through a government middleman. 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). There are nevertheless companies withdrawing from the mainland Chinese market. Warner Bros., for instance, withdraw its cinema business in mainland China as a result of the regulatory restrictions that ban foreign investors from controlling joint ventures. The regulation requires that Chinese mainland investors must own at least 51 percent of the business or play a leading role in their joint ventures with foreign investors. The smaller public sector is dominated by about 200 large state enterprises concentrated mostly in utilities, heavy industries and energy resources. 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 to consider the macroeconomic perspective, the real economy does not appear overheated since overall demand and supply are growing broadly 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 Chinas 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 also the fifth largest market in the world for cosmetics and seventh for retail 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 existing system of authoritarianism China still lacks such elements of democracy to further progress as independent civil society organizations, opposition parties, free press and independent judiciary. Such authoritarianism usually leads to corruption, which prevents the country from fully profiting from the information revolution (Zhen-Wei, 2009). Nevertheless, China is planning to continue tightening monetary conditions to cool down the economy and the stock markets through a combination of rate hikes, upped reserve requirements, Yuan appreciation and more administrative actions (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 Table 4: Future predictions of Gross Domestic Product from 2015 till 2050 Rank 2050 Country 2050 2045 2040 2035 2030 2025 2020 2015 1 China 70,710 57,310 45,022 34,348 25,610 18,437 12,630 8,133 2 United States 38,514 33,904 29,823 26,097 22,817 20,087 17,978 16,194 3 India 37,668 25,278 16,510 10,514 6,683 4,316 2,848 1,900 4 Brazil 11,366 8,740 6,631 4,963 3,720 2,831 2,194 1,720 5 Mexico 9,340 7,204 5,471 4,102 3,068 2,303 1,742 1,327 6 Russia 8,580 7,420 6,320 5,265 4,265 3,341 2,554 1,900 7 Indonesia 7,010 4,846 3,286 2,192 1,479 1,033 752 562 8 Japan 6,677 6,300 6,042 5,886 5,814 5,570 5,224 4,861 9 United Kingdom 5,133 4,744 4,344 3,937 3,595 3,333 3,101 2,835 10 Germany 5,024 4,714 4,388 4,048 3,761 3,631 3,519 3,326 11 Nigeria 4,640 2,870 1,765 1,083 680 445 306 218 12 France 4,592 4,227 3,892 3,567 3,306 3,055 2,815 2,577 13 South Korea 4,083 3,562 3,089 2,644 2,241 1,861 1,508 1,305 14 Turkey 3,943 3,033 2,300 1,716 1,279 965 740 572 15 Vietnam 3,607 2,569 1,768 1,169 745 458 273 157 16 Canada 3,149 2,849 2,569 2,302 2,061 1,856 1,700 1,549 17 Philippines 3,010 2,040 1,353 882 582 400 289 215 18 Italy 2,950 2,737 2,559 2,444 2,391 2,326 2,444 2,072 19 Iran 2,663 2,133 1,673 1,273 953 716 544 415 20 Egypt 2,602 1,728 1,124 718 467 318 229 171 21 Pakistan 2,085 1,472 1,026 709 497 359 268 206 22 Bangladesh 1,466 1,001 676 451 304 210 150 110 References: Clements-Hunt, A. 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