China and India: Struggling Emerging Economies

In the wake of rapid changes in the global economy, Brazil, Russia, India and China (BRIC), which have been considered as powerful emerging markets, now face different fates.

Brazil and Russia, major exporters of natural resources and agricultural products, have seen their economies steadily grow thanks to surging prices of international oil and necessities. On the other hand, U.S. economic slowdown has negatively affected the economic growth of India and China.

The four nations also face different political and diplomatic conditions. Russia recently confronted the United States’ attempt to expand its influence and Brazil has been leading diplomatic relations in South America. In contrast, China has been blamed for its countermeasures against Tibetan demonstrators and for human rights issues and India has suffered from political uncertainties.

Foreign investment doubled in Brazil

U.S. daily Christian Science Monitor recently reported that oil price hikes and the surging price of agricultural products have driven Brazil’s rapid economic growth. Foreign investment has doubled there from a year ago.

Brazil’s foreign exchange reserves have also jumped as prices of its major export items including natural resources and farm produce surge in the global market.

In Brazil, around 20 million people newly joined the middle-income bracket and the annualized inflation rate stays at around 5 percent, thus generating more consumption and investment. The daily described Brazil as the power plant of the South American economy, citing a UN report which said South America’s economy has shown the strongest performance in four decades.

Robust economic growth has helped Brazil strengthen its political and diplomatic influence. Brazil’s President Luiz Inacio Lula da Silva has bolstered the nation’s relations with neighboring nations and tried to keep Venezuela led by Hugo Chavez in check. At the same time, he has constructed a nuclear submarine to fortify the nation’s military capacity.

Russian economy expected to grow 8 percent

According to the Washington Post, the GDP of Russia, the world’s second biggest oil exporter, will grow more than 8 percent this year due to surging international oil price. With domestic demand increasing, Russians’ expenditure jumped a good 13 percent from a year ago and the number of cars sold in Russia increased 41 percent from the previous year, in the first half of 2008.

Also, Russia is investing its oil money in buying global corporations and assets.

The Wall Street Journal reported that Russian companies have spent 21.6 billion dollars on global M&As, from the beginning of this year. Out of the amount, 4.2 billion dollars has been spent on acquisitions of U.S. corporations.

As Russia has emerged as one of the world’s economic powerhouses, major credit rating agency Moody’s recently upgraded Russia’s credit rating from Baa2 to Baa1.

China and India suffering from surging prices

In contrast with Brazil and Russia, China and India have seen their economic growth slow down due to surging oil price, soaring consumer price, and the U.S. economic slump.

After growing for seven straight years since 2001, China’s economic growth has begun to fall. According to China’s National Bureau of Statistics, the nation’s GDP grew 10.4 percent in the first half of 2008, down from 12.2 percent in the first half of 2007.

In the wake of U.S. economic slowdown, China’s export has decreased and its trade surplus has fallen 11.8 percent from a year ago. According to Reuters, experts also worry that China’s manufacturing industry will slow down due to surging international oil price and inflation.

Worse, China has been blamed for its countermeasures against Tibetan demonstrators and for human rights issues. Sentiment against “Made in China” has also spread in advanced nations such as the United States, Japan and European nations.

The Indian economy is not in any better shape. Major credit rating agencies such as Standard and Poor’s and Fitch recently expressed their worries that India’s two-digit inflation will negatively affect the economy.

According to Reuters, experts forecast that the Indian economy will show the weakest growth in four years.

India’s follow-up measures, under its Nuclear Agreement with the United States, have been delayed for a year due to strong resistance from the nation’s leftist parties. Political uncertainties have also become an obstacle to India’s momentum to become one of the world’s powerhouses.

surreal@donga.com