Russia and China gear up for bigger BRICS summit in push for new order

ATHENS — Russia is set to host the first BRICS summit since the group expanded its membership, as Moscow aims to dispel the notion that it is internationally isolated and seeks to reshape the world order together with its partner China.

In the Russian city of Kazan, approximately 800 kilometers east of Moscow, leaders will gather from Tuesday to Thursday to discuss ways to improve international cooperation on security, the economy and finance. Another key item on the agenda is the further enlargement of BRICS itself.

At the beginning of this year, core members Brazil, Russia, India, China and South Africa welcomed Egypt, Ethiopia, Iran and the United Arab Emirates to the group. Saudi Arabia, which was also invited to join, will be attending the upcoming summit as well. As of mid-October, 24 heads of state were due to take part in the talks along with high-ranking representatives of another eight countries, according to the Russian organizers.

Chinese President Xi Jinping will attend, Beijing’s Ministry of Foreign Affairs announced on Friday.

There is no consensus among members about additional expansion, but Russia is promoting a new “partner country” model as a precursor to full membership. China appears to share Russia’s vision of a larger, invigorated BRICS.

“For China, BRICS+ has an overarching importance,” David Lubin, the Michael Klein Senior Research Fellow in the Global Economy and Finance Programme at Chatham House in London, wrote recently. “Beijing’s bid to establish itself as an alternative pillar of global order relies heavily on its ability to rally developing countries around it. BRICS+ creates a mechanism for this. And it is tempting to see the pattern of BRICS+ expansion as suiting China’s interests above all.”

Thirty-four countries have now applied to join BRICS either as full members or partners, including Southeast Asian states such as Thailand and war-torn Myanmar. Yury Ushakov, an aide to Russian President Vladimir Putin, told reporters that the Russian government is particularly interested in promoting the entry of applicants from the Commonwealth of Independent States like Azerbaijan and Kazakhstan, along with Indonesia.

Russia and China see an expanded structure as being capable of representing over 6 billion people of the non-Group of Seven world and defending them “against what both Moscow and Beijing see as the self-interests of the G7,” said Christopher Weafer, CEO of Macro-Advisory, Uzbekistan.

“Both see a greatly expanded BRICS in the coming years evolving beyond what has been a lazy investment theme anacronym into a powerful political and trade group which will finally break the dominance of the U.S. and [European Union],” he said.

Weafer predicted that the growth of BRICS “will result in the death” of the Group of 20, which Russia and China now consider dominated by the West. “Moscow and Beijing are now saying that the world will be divided — politically, economically and in terms of trade — into two parts: the G7, representing the rich developed nations, and the BRICS+ group, representing all others.”

But at least one founding BRICS member, India, looks far less keen on admitting more newcomers.

Swarup Gupta, industry manager and lead analyst for financial services at the Economist Intelligence Unit in Gurgaon, said New Delhi “will strongly insist on a gap of three to five years before more new members are added to BRICS.”

Gupta said New Delhi feels that adding members will simply raise the influence of China, with which it is locked in a lingering border dispute. He said India would need the help of Brazil, the third-largest BRICS economy, to successfully push back, and that “Brazil is likely to support India in this regard since it is also weary of China’s growing clout as the number of BRICS members increases.”

Whether in its current or enlarged form, there is scope for deepening intra-BRICS economic cooperation. Building new financial infrastructure is a high priority for a Russian government that has been heavily sanctioned by Western allies over the war in Ukraine.

The summit in Kazan will gather around the table Russia’s top five trading partners: China, India, Turkey, Kazakhstan and Brazil. This offers the host a unique opportunity to steer the conversation toward its own agenda. President Putin is also due to conduct at least 20 bilateral meetings on the sidelines.

China and India are already Russia’s largest trade partners, respectively receiving 32% and 16% of Russia’s exports last year, according to mirror data from the International Trade Centre. Russia has also ramped up exports to Brazil, which were 76% higher last year compared with levels before the Ukraine war.

But “because of the accumulation of sanctions, Russia is struggling with cross-border trade settlement problems and from being cut off from Western equipment and technology,” Weafer said. “Moscow wants BRICS to move more quickly in creating a new cross-border settlement system and to agree to accelerate common investment programs.”

Moscow appears to be making progress in unifying BRICS members against sanctions and tariff wars. The joint communique from a BRICS trade ministers’ meeting on July 26 stated that the members agreed “to take joint actions with the aim to oppose unilateral protectionist measures that are inconsistent” with World Trade Organization provisions. What this means in practice remains to be seen.

Banners for the BRICS summit hang next to the Kul Sharif Mosque in Kazan, Russia, Oct. 17.   © Reuters

Russia’s central bank and finance ministry along with international consulting company Yakov and Partners have prepared a report on ways to safeguard and streamline intra-BRICS cross-border payments and investment flows. The recommendations will be presented to leaders during the summit.

Russian Finance Minister Anton Siluanov has acknowledged that agreeing on payment and settlement solutions is likely to take at least a year, while reaching a consensus on other solutions such as insurance and credit ratings could take at least five years.

Even so, Weafer said Moscow will urge BRICS+ leaders “to agree to push ahead with a new settlement system, provisionally [called] Bridge by the Russians. … This system will use a basket of digital currencies to settle bilateral trade between BRICS+ nations.”

If it gets off the ground, this would help Russia side-step the SWIFT financial messaging system and avoid the dollar and other G7 currencies, blunting the impact of sanctions.

India could end up playing a crucial role. “India will want to avoid China, and, perhaps, some other countries when it comes to using a BRICS-centric payments system,” EIU’s Gupta said.

Yet he said that New Delhi may see value in such a system, as a substantial amount of Russian funds is stuck in “vostro” accounts in India. “Currently, Russia is using its vostro funds to purchase microchips, machine tools and other kinds of restricted technology from India. If India chooses to participate in the BRICS mechanism, and its currency becomes interchangeable with other BRICS partners, it would allow Russia, in theory, to use its vostro funds to purchase goods from other bloc members.”

Moscow’s pitch is likely to include warnings that other countries could someday find themselves sanctioned. “The Kremlin is saying, ‘Look at what the West is doing to us,'” Weafer said. “‘Tomorrow, it could be you.'”

source : asia.nikkei