As we navigate the complexities of the global economy in the 21st century, few international groups capture as much attention as BRICS—a coalition of emerging economies comprising Brazil, Russia, India, China, and South Africa. Historically considered a symbol of shifting power dynamics, BRICS nations have sought to redefine their role in global governance, finance, and development.
However, as China, the linchpin of the alliance faces a nosediving economy characterized by slowing growth rates, shrinking consumer markets, and declining investor confidence, questions are emerging about the future viability of BRICS as a cohesive and impactful unit.
China’s economic woes set a negative trigger for BRICS
China’s economic woes do not merely pose a domestic issue; they reverberate through the international landscape, affecting trade partners, global supply chains, and, most critically, the very essence of the BRICS alliance. Will the downturn of the world’s second-largest economy lead to the unraveling of BRICS? Or could this crisis act as a catalyst, compelling the member nations to reconstruct and strengthen their collaborative ventures?
The trajectory of BRICS amid the country’s faltering economic landscape is not only a study in international relations but also an examination of the resilience and adaptability of an alliance that, until now, has seemed invincible.
Chinese authorities are attempting to address financial imbalances, such as high local government debt while shifting to a consumption-led development model, which has increased the risk of policy mistakes.
China’s leader, Xi Jinping, informed the BRICS group at the end of August that the Chinese economy was resilient and that the fundamentals for its long-term development remained unchanged.
Xi, who was in South Africa for a BRICS summit, made the remarks in a prepared statement by Chinese Commerce Minister Wang Wentao at a business forum.
Due to a worsening property slump, sluggish consumer spending, and falling credit growth, the recovery in the world’s second-largest economy has lost momentum, adding to the case for authorities to release more policy stimulus.
However, Xi asserted that the People’s Republic possessed significant economic advantages, including a “super-sized market,” a fully developed industrial system, and an abundance of high-quality labor force. However, current economic numbers from the country do not indicate a thriving market environment.
China’s rising debt shifts the economy
The worsening economic outlook over the medium term is exerting additional pressure on China’s public finances, while reform momentum has faltered. Prior to the pandemic, the preceding decade witnessed a rise in debt levels. According to the IMF’s restricted definition, China’s general government debt rose from 34% of GDP in 2010 to 60% of GDP in 2019.
In response to the pandemic, the fiscal stimulus increased debt to 77% of GDP in 2022. Market analysts now anticipate that debt will surpass 100% of GDP by 2027.
According to the IMF’s broader definition, which includes local government financing vehicles (LGFVs) and other off-balance-sheet entities, debt is significantly higher, and the debt trajectory over the medium term is steeper.
According to the most recent IMF forecasts, this measure of public debt, which was 99% of GDP in 2020, will increase to 147% by 2027.
Trajectory shift: The changing forecasts for China’s public debt. Source – IMF forecasts, Scope Ratings
Considering China’s economic impact on BRICS, many are concerned that the collapse of the Chinese economy could impair the alliance and dominance of the BRICS nations. Nevertheless, we should not underestimate how China’s centralized economic model can facilitate effective structural reforms, given the government’s tight control over significant portions of the domestic economy, including the banking sector.
China’s exports have declined for the fourth consecutive month as the “world’s factory” struggles with feeble domestic and international demand.
According to official data, exports decreased 8.8% in August compared to the same month last year, while imports decreased 7.3%.
However, these declines were less severe than anticipated and better than the previous month. China faces a number of post-pandemic obstacles, including a property crisis and sluggish consumer spending.
As a result of the coronavirus and the ongoing trade dispute with the United States, the global demand for Chinese-made products has declined. It is having a significant impact on a critical source of economic growth.
What to expect from the Chinese markets as the weekend kicks in
As the markets approach the weekend, the focus will be on high-level discussions between Australia and China. On Thursday, the on-chain trade data from Australia and China were disappointing. However, improving relations would increase exports to China and sustain the AUD/USD exchange rate.
AUD/USD would benefit from further updates and progress towards removing extant restrictions on Australian exports.
China is Australia’s top trading partner. In 2022, trade-to-GDP was 45.75%, representing 20% of Australian employment. Improved trade relations would increase the economy and employment. Better labor markets would fuel consumption and inflation, according to the RBA.
Since Australia elected a Labour government in May 2022 and China lifted tariffs on its barley exports, diplomatic exchanges are on the rise. Australia is China’s eighth-largest trading partner, while China is Australia’s third-largest trading partner.
Australia continues to advocate for the removal of export restrictions on lobster and wine, as well as the release of two journalists detained in China on national security charges.
