What Ever Happened to the BRIC Economies?

Updated on October 2, 2019
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In this article, we will look at the BRIC countries and the social-political challenges they face in overtaking the G7 economies as predicted by Jim O’Neill of Goldman Sachs in his paper entitled “Building Better Global Economic BRICs."

“Most of our predictions are based on very linear thinking. That’s why they will most likely be wrong.”

— Vinod Khosla, in “GIGATRENDS,” Wired 04.01

What Are the BRIC Economies and G7 Countries?

The BRIC acronym refers to the countries of Brazil, Russia, India, and China, which in 2001 were deemed to be at an advanced stage as developing economies. This assertion was made by Jim O’Neill of Goldman Sachs in a paper entitled “Building Better Global Economic BRICs,” in which he anticipated a shift in global economic power away from the G7 countries and toward other developing economies.

In fact, some experts at the time suggested that the BRIC economies would in all likelihood overtake the G7 economies by 2027. But are these projections in line with today's realities?

In his book Breakout Nations: In Pursuit of the Next Economic Miracles, Ruchir Sharma argues it is hard to sustain rapid growth for more than a decade, questioning many of the assertions made about the BRICs. As a matter of fact, Goldman Sachs has since revised its prediction to state that 2050 is a more realistic time frame for these countries to replace any of the G7 economies in economic power.

Out of the BRIC countries, in spite of recent setbacks, China and India are the only economies holding their own. Unfortunately, the other two economies have been recently sputtering. Even India has severe problems in infrastructure, extreme poverty, substandard health care, costly pollution, corruption, protectionism, and messy governance. Russia and Brazil are facing problems with corruption and slow growth. China is beginning to face push back from the U.S. as well as other Western and Asian economies. We'll explore all of these factors in this article.

What About South Africa?

Before moving on, however, we need to clarify one detail. In 2010, South Africa was interested in being part of the BRIC forum and consequently was invited to join. The reasoning behind this was that South Africa represents an important part of the world’s emerging markets and it could play an important role to the other BRIC members as a gateway to the African continent.

In spite of the fact that South Africa is now officially and deservedly part of this group, this article will exclude information on this country. The reason is that the premise behind this post is that pundits don’t always get it right. Since South Africa was not originally included in Jim O’Neill’s paper which was meant to envisage those developing economies that would replace the G7 countries in economic power, comments on South Africa will be included in a later post.

Brazil's Economic and Demographic Data
Brazil's Economic and Demographic Data | Source

Brazil

Inward-Oriented/Protectionist

The Brazilian economy is an inward-oriented economy with markets that are to a great degree highly protected by the government. This is done by imposing an applied customs averaging tariff of 13.5% plus different types of non-tariff barriers that include import quotas, administrative requirements, and an internal taxing system that is preferential to locally manufactured products.

As a typical inward-oriented economy, Brazil attempts to attain economic independence or self-reliance by imposing comprehensive regulations on the private sector in order to impose its protectionist policy.

According to the European Commission’s latest report on Potentially Trade Restrictive Measures, Brazil is among the countries that have resorted to the highest number of trade barriers.

Brazil is an unusually closed economy from an export perspective as well. Most outwardly-oriented economies have a ratio of one exporting firm per 250 people. Brazil has an astonishing ratio of one exporting firm per 10,000 people.

Critics point to the fact that should Brazil be open to imports and exports the local economy would become more efficient in resource allocation and enable people to consume a highly diversified basket of goods, lowering prices to consumers.

Police officers in the favela of Rocinha. Brazil suffers from high crime and murder rates.
Police officers in the favela of Rocinha. Brazil suffers from high crime and murder rates. | Source

Crime

According to most sources, Brazil possesses high rates of violent crimes such as murders and robberies; depending on the source (UNDP or World Health Organization) the homicide rate can range between 30 and 40 deaths per 100,000 inhabitants, placing Brazil in the top 20 countries in murder rate.

Carjacking is common throughout Brazil, making most local citizens targets. Pick-pocketing and bag snatching are common in outdoor markets, hotels and on public transport. Express kidnappings, where individuals are abducted and forced to withdraw funds from ATMs to secure their release, are common.

Much of the violent crime is done by gangs which has become an important issue affecting the youth. Up until recently, murder has been the most common cause of death among youth in Brazil, with 40% of all victims aged between 15 and 25 years old.

Corruption

Corruption in Brazil is a pervasive social problem and has become an important part of Brazil’s politics. For years, embezzlement and corruption have been involved in Brazilian elections. Petty corruption is extensive. In tax administration, public procurement and in the natural resource sectors, it has been deemed insidious enough as to be a limitation to business. Collusion between government and business is also widespread.

The latest corruption scandal called "Operation Car Wash" has ensnared former presidents Fernando Collor de Mello, Michel Temer and Luiz Inácio Lula da Silva. All three presidents have been arrested and are either awaiting trial or serving prison sentences, as in the case Lula da Silva. Additionally, dozens of other politicians, have either been jailed or have been forced to resign from their government positions.

Dilma Rousseff, the first woman president of Brazil was impeached and removed from office in 2016, for fiscal irresponsibility, failure to act on the scandal involving the Brazilian petroleum company Petrobras and for failure to distance herself from the defendants in the Operation Car Wash trials.

Education

As per the Organization for Economic Co-operation and Development (OECD) Brazilian education is among 35 of the worst in global ranking. Only 33% of students entering college graduate, and teacher's pay is the lowest among OECD members. Enrolment of children under the age of three is only 23%, compared to an average of 36% worldwide.

Brazil has one of the lowest percentages of 25-64 year-olds whose highest education level is a master's degree or higher. Even graduates from vocational programs are among the lowest within OECD members.

The World Economic Forum has ranked the country as 88th out of a total 122 in the education scale.

Racial Inequality

Anybody traveling to Brazil will immediately notice the racial divide that permeates throughout the country. Racial inequality is deeply ingrained in Brazilian culture. Statistics show the following:

  • 63% of blacks earn less than minimum wage compared to 34% of whites.
  • Of the richest Brazilians, 11% are black and 85% are white.
  • 93% of respondents acknowledged that there is racial prejudice in Brazil
  • The richest 10% of the population accounts for 48% of the national income, and the poorest 50% account for 10% of the national income.
  • 2.7% of black Brazilians are employed in management positions.
  • 55% of blacks perform manual labor.
  • 2.5% of blacks have a university degree.
  • Black children born into poverty have a 93% chance of being impoverished for their entire life.

Wrap-Up

In spite of vast natural resources and possessing the second largest population in the American continent, it is doubtful Brazil can rise above developing nation status any time soon. Brazil has for many decades faced greatly devastating social, economic and political problems that will be difficult to overcome, especially considering that cultural and social changes typically occur in glacially slow time.

A good start would be for Brazil to take down import barriers and increase its export initiatives. Corruption needs to be tackled in a multi-party fashion, rather than as a single-party initiative as it has been done many times in the past.

Initiatives to improve education must be put in placed in order for the country to be globally competitive. Reduction in crime through improved education and lower unemployment is also necessary.

Unfortunately at this point in time, it is hard to see a day anytime soon, when these issues are solved.

Russia's Economic and Demographic Data
Russia's Economic and Demographic Data | Source

Russia

Economic System Still in Transition

In 1991 the Soviet economic system of centralized control came to an end with the collapse of the USSR and its communist form of government. A process of market transformation was initiated by Prime Minister Yegor Gaidar, second in command to President Boris Yeltsin. This was a difficult process of market transformation, often referred to as “shock therapy” which at least in the short-term was very costly in human terms.

Since 1991 the Russian economy has been greatly transformed. The large-scale privatization that took place ended to a great extend state ownership in industry and market oriented initiatives were established including the freeing up of prices.

However, Russia remains a predominantly statist economy with a high concentration of wealth held in the hands of a few. Currently the energy, transportation, banking, and defense-related sectors remain under government ownership and control. Most of the media remain in the hands of the government and overall the state continues to interfere in the free operation of the private sector.

In recent years the Russian government has begun to implement protectionist policies imposing 15.5% tariffs, plus NTB’s (non-tariff barriers) that include administrative barriers, import quotas, targeted bailouts and direct subsidies for local companies.

Oil and Gas Exports: Russia’s Main Source of Hard Currency

Russia’s main industries are: oil and gas, mining, processing precious stones and metals, aircraft building, aerospace production, weapons and military industry, electric engineering, pulp-and-paper production, automotive industry, transport, road and agriculture machinery production, foodstuffs industries.

However, its energy industry is one of the largest in the world possessing the largest reserves of natural gas, the second largest coal reserves and the eighth largest oil reserves. Russia is the largest exporter of oil in the world in absolute numbers, and it represents its main source of hard currency.

Russia's Exports - Two Thirds Hydrocarbons
Russia's Exports - Two Thirds Hydrocarbons | Source

Oil and gas contribute more than 30% of the country's gross domestic product (GDP) and 52% of federal budget revenues. This makes Russia highly vulnerable to fluctuations in oil prices. In fact the effect of the 2014 oil price collapse was extremely damaging to the Russian economy. Without other supporting industries, over-dependance on one resource, such as oil, opens a country like Russia to the risks of Dutch disease, in which the economy collapses due to the lack of other strong economic sectors.

Transition to a Dictatorship

In a December 2014 article for Bloomberg, Leonid Bershidsky wrote:

“Vladimir Putin’s regime is on the verge of transitioning from mild authoritarianism to outright dictatorship. The country’s newly amended military doctrine is an especially ominous sign. Judging by it, the Kremlin’s response to the ongoing economic crisis will be to crack down on all signs of popular discontent. The Kremlin seems determined to turn inward and complete its break with the Western world”.

Since Vladimir Putin originally took over as president of Russia from 2000–2008 and then again 2012 to present, Putin has been accused of:

  • A stream of assassinations of journalists
  • Suppression of the opposition
  • Assassinations of prominent opposition leaders
  • Election fraud
  • Inundation of the internet as well as the media with pro-Putin propaganda
  • Isolation of Russia from the West
  • Annexed Crimea
  • Sent troops to Ukraine
  • Has effectively remained in power from 2000 to present by holding the post of prime minister in order to circumvent constitutional limitations on consecutive presidential terms
  • Changed the constitution so that he can have a third term
  • Total control over the military
  • Reported to have pilfered and be worth close to $70 billion

Russia's Corruption is Much Worse Than India and China
Russia's Corruption is Much Worse Than India and China | Source

Corruption in Russia

Corruption in Russia is wide spread and considered a major problem. It affects all aspects of daily life including public administration, law enforcement, healthcare and education. Corruption in Russia can be considered as institutionalized and largely a result of weakness in the rule of law.

Its corruption has been getting worse since Vladimir Putin’s ascension to the presidency. It went from 90th place in the Corruption Perception Index in 2012 to 138th place in 2018. This represents a drop of 48 places in only six years. An equally pessimistic picture emerges from the estimates of the average size of bribes which has substantially increased over the last five years.

A World Bank report estimates that corruption in Russia amounts to 48% of GDP.

In a Newsweek article of June 24, 2019, reporter Ariel Cohen says:

"...Russia is sliding into a black hole of crime, corruption, and illegality—and that more and more Russians are taking note. This was nowhere more evident than in the protests that erupted in Moscow earlier this month after local police planted cocaine and other drugs in the apartment of investigative journalist Ivan Golunov, who exposed high level corruption in the Moscow burial business and among the relatives of a Moscow deputy mayor. Due to the protests, Golunov was acquitted and case closed, but the story does not end there. Corruption in law enforcement and in courts is choking Russia's economic growth."

"Vodka causes a shortage of men in Russia" by Shannon Buckley - Mercatonet
"Vodka causes a shortage of men in Russia" by Shannon Buckley - Mercatonet | Source

Alcoholism

Alcohol consumption in Russia is among the highest in the world. Although Russia has implemented anti-alcoholism initiatives such as banning sales of spirits and beer at night, raising taxes, and other measures, alcohol producers claim, falling legal drinks consumption is accompanied by growth of sales of illegally produced beverages.

High volumes of alcohol consumption have serious negative effects on Russia’s social fabric and it has political, economic and public health ramifications. A study of Russian alcohol’s consumption effects, determined that 52% of deaths of people between the ages of 15 and 54 were the result of alcohol abuse.

Wrap-Up

While Russia has some clear competitive advantages such as a large reserve of raw materials, low internal energy prices and a relatively well-educated work force, it has other negative factors that will limit its growth in the next twenty years. Some of these negative factors are:

  • Dependence on energy production
  • Low global oil prices that are expected to stay low for some time
  • Expectation that global oil consumption will drop in the future
  • No large manufacturing industry
  • Protectionist policies
  • Aggressive geopolitical approach pitting it against the West.
  • Western sanctions
  • Corruption
  • Severe social problems
  • Decreasing population
  • Nascent dictaroship

Russia is certainly a great power. Since the fall of the Soviet Union, Russia has grown economically by a factor of three. The question is whether this type of growth will continue considering the issues Russia is facing. With Putin firmly in control and the possibility of him staying at the center of power in Russia until 2024 or even beyond, it is doubtful Russia will experience sustainable growth in the foreseeable future.

India's Economic and Demographic Data
India's Economic and Demographic Data | Source

India

India Is the Most Populous Democracy

India, with a population of over 1.3 billion people is the most populous democracy in the world. Its origins date back to 2500 BC. Currently the Indian economy is the sixth largest in the world based on nominal GDP figures and the third largest based on Purchasing Power Parity (PPP).

India’s modern day growth goes back to the market focused economic reforms of 1991, which turned it into the fastest growing major economies globally as of 2014, replacing China. Additionally it is currently considered a newly industrialized country. In spite of this tremendous growth, it still continues to suffer from poverty, malnutrition, corruption, decaying infrastructure and inadequate health care.

Currently, India is the sixth largest economy in the world, however based on its current growth and increasing population, it is expected to become the third largest within the next ten years. In fact according to the IMF, the Indian economy was the “bright spot” in the global landscape as it is expected to grow by 8% from 2016 to 2017. Today, however, the economy has slowed to 6% annually.

India’s major industries are:

  • Textile Industry
  • Food Processing Industry
  • Chemical Industry
  • Cement Industry
  • Steel Industry
  • Software Industry
  • Mining Industry
  • Petroleum Industry

Additionally, India has one of the fastest growing service sectors in the world with annual growth rate of above 9% since 2001 contributing to 57% of GDP in 2012–13. India has become a major exporter of IT services, BPO (business process outsourcing) services, and software services with $167.0 billion worth of service exports in 2013–14. It is also the fastest-growing part of the economy. The IT industry continues to be the largest private sector employer. India is also a large start-up hub with 1,200 technology start-ups in 2018.

India’s exports are as follows:

India is the Most Populous Democracy
India is the Most Populous Democracy | Source

India has been recording sustained trade deficits since 1980 mainly due to the high growth of imports, particularly of crude oil, gold and silver. For 2019 India’s trade deficit was recorded at $103 billion. In recent years, the biggest trade deficits were recorded with China, Saudi Arab, Iraq, Switzerland and Kuwait. India records trade surpluses with US, Singapore, Germany, Netherlands and United Kingdom.

Protectionism

In spite of India’s economic reforms that have taken place in the last two decades, it has lagged behind its neighbors in lowering commercial barriers. Trade negotiations with the U.S. and with the European Union have made very little progress as market access and intellectual property rights have been difficult issues to resolve. During negotiations at the World Trade Organization, it tried to torpedo a deal that simplifies global customs procedures unless it received concessions on its massive farm subsidies.

India maintains significant tariff and non-tariff barriers that limit its trade with the world. It imposes an average applied tariff of 12.4%, which is among the highest in the world. Its non-tariff barriers are among the most complex in the world. The World Bank has ranked India in its ease to do business at 134 out of 189. That ranking basically means that it is virtually impossible to export to India.

In the long run such mercantilist approach could limit India’s export efforts and New Delhi’s hope of raising India’s share of world trade to 3.5% by 2020 from 2% presently. Meeting its target of $900 billion in yearly exports by 2020 would require India to sell twice as much to the rest of the world as it does today. This will be a very difficult task unless agreements on trade are reached with the United States, the European Union and other trade partners.

India's pollution control policies unlikely to improve air quality: Study Sunday, 31 March 2019 | PTI | London
India's pollution control policies unlikely to improve air quality: Study Sunday, 31 March 2019 | PTI | London | Source

Pollution in India

According to Global Burden of Disease Study, air pollution has killed over a million people in India in 2017 alone. However, the government continues to claim there is no connection between air pollution and these deaths. In the meantime, 15 of the 20 most polluted cities in the world are in India. (Al Jazeera News - Counting the Cost. 31 Aug 2019)

Pollution comes at an economic cost in loss of work and productivity, as well as in human lives. As per the World Bank, India lost 8.5% of it GDP in 2013 due to pollution-related costs.

Professor E Somanathan, of the Indian Statistical Institute, said:

"If we could cut air pollution to zero, every Indian would be willing to pay about $300 per year to cut that risk. The total benefit would be about $300bn or $400bn per year."

Prarthana Borah, India director of Clean Air Asia, further said:

"China puts air pollution not as part of an environment agenda, it is part of the national planning process. We definitely need to integrate air within development policy."

Corruption in India
Corruption in India | Source

Corruption

India’s ranking in Transparency International’s Corruption Perception Index for 2015 is 76th out of 176. This ranking places India at the same ranking level as Brazil, but just above China, Sri Lanka and Colombia, all three ranked at 83rd. In recent years there have been several high-profile scandals that have underscored the extent of the problem. Some of these high-profile scandals are the Army Bribery scandal, Wikileaks Cash for votes, a scam involving homes for war widows, financial irregularities involving the Delhi Common Wealth games, and many more.

Facts About Corruption in India

  • A study conducted by Transparency International found that more than 62% of people in India had paid bribes or peddled influence to get a job in a public office.
  • Transparency International estimates that truckers pay annually of more than US$3.3 billion in bribes.
  • Dev Kar of Global Financial Integrity concluded that about 1.5% of India’s GDP on average per annum basis gets deposited into Swiss bank accounts in the form of “black money”. This money includes corruption, bribery and kickbacks, criminal activities, trade mispricing and efforts to shelter wealth by Indians from India’s tax authorities.

The Indian media is mainly owned by corrupt politicians and industrialists who also play a major role in most corruption scams. Typically these outlets attempt to mislead the public with wrong information and using media for mudslinging against their political and business opponents.

Various studies and reports have noted several causes that encourage corruption in India. These reports suggest high taxes and excessive regulation from bureaucracy as major causes. India has high marginal tax rates and numerous regulatory bodies with the power to stop any citizen or business from going about their daily affairs.

While India has many laws dealing with different types of corrupt practices, the level of institutionalized corruption will continue to be a major factor in slower economic growth. Foreign companies looking to establish businesses in India will find it difficult to achieve the level of success they would normally attain under less corrupt and complex regulatory environments.

Infrastructure Needs

Years of under-investment have left India with poor infrastructure that endangers its economic growth. The government under Prime Minister Narendra Modi has identified eight infrastructure sectors that must be brought up to world standards. These are: civil aviation, ports and inland waterways, roads, railways, telecom, power, coal, and new and renewable energy.

It is estimated that India will need a minimum of $1 trillion in infrastructure expenditures in order to close the gap needed to continue its economic expansion. Part of this enormous funding must be raised through foreign direct investments (FDI), however, due to India’s protectionist tendencies, FDIs remain politically divisive.

From Article: These photos of India's overcrowded railways will make you grateful for your commute
From Article: These photos of India's overcrowded railways will make you grateful for your commute | Source

Poverty in India

Poverty in India is widespread and a historical reality. Rapid economic growth since 1991, has led to sharp reductions in extreme poverty in India. However, those above the poverty line live a fragile economic life. Lack of basic essentials of life such as safe drinking water, sanitation, housing, health infrastructure as well as malnutrition impact the lives of hundreds of millions.

According to the World Bank living at or below $1.90 per day represents poverty. It is estimated the world has 872.3 million people below the poverty line, of which 179.6 million people live in India. In other words, India with 17.5% of total world’s population had 20.6% share of world’s poorest in 2014. It is also estimated that 58% of the total population in India was living on less than $3.10 per day during that same year.

Wrap-Up

There is no doubt that India has several advantages over some of the other BRIC members. First of all, although it is a messy democracy, it is non-the-less a democracy. It's economic rise might not be viewed by the West as threatening as that of China. India can represent a newly-arrived world power that can easily integrate with old established democracies.

However, its relationship with Pakistan is complex and sometimes violent. While some steps have been taken to improve relations between both countries, frictions continue to surface over Kashmir and other political disagreements. The risks of two nuclear-able antagonist states living in close vicinity, represents a regional as well as a global danger.

Additionally, India seems to be looking toward China as a potential adversary, creating another area of risk. In fact, those observing India point to the “China factor” as reasons for driving India’s attempt to modernize its navy. The need to protect India’s 4,600 mile long coastline and exclusive economic zone that exceeds a million square-miles is another of the reasons for its naval build up.

Certainly, India must look for ways to diminish corruption; fight back pollution; heavily invest in infrastructure; address poverty; and open its markets to investment, before they can show sustainable growth.

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China

Billions of words have been written about China and billions more are yet be written. China is both enigmatic and paradoxical with a history that dates back to at least 2070 BC. This post is merely a minute snapshot of China today. It is meant to allow the reader to get a peek at this great country and determine whether China can catch up and even replace the West not just economically, but as a superpower.

In fact, China (if you believe the figures the Chinese government has provided) has already overtaken the U.S. in GDP PPP valuation. (US$19.5 trillion vs. US$18.9 trillion) The calculus for nominal GDP is much more in favor of the U.S. (US$17.9 trillion vs. US$11.4 trillion). But irrespective of how you view these numbers China is a force to be reckoned with.

Government officials claim that China wishes to rise peacefully, that it has never invaded another country, but yet it continues to build its military at an alarming rate. It has embarked on an ambitious and unprecedented construction project in the South China Sea that entails the building of airfield and ports on a series of small islands and atolls. It has also built new islands where there were none before by reclaiming large sea areas with dredged sand.

When China was dealing with its internal problems and not able to project its power beyond its borders, many of China’s neighbors felt at ease and even benefited. Now that China sends gunboats into disputed waters, it makes those same neighbors feel an impending sense of domination from a foreign power. They see China as a menacing warmongering resource-hungry expansionist.

However, China has massive problems of its own. These problems are sure to limit any of its expansionist ideas and ultimately limit its growth.

Negative Demographics

China’s one child policy has caused a demographic imbalance of massive proportion. Its population is aging more rapidly than its growth in GDP. In other words, China’s population is aging more rapidly than it is accumulating wealth.

This very fact will have profound ramifications for China’s future growth outlook. This means that there are not enough young workers to support retirees at a time the elderly population is rising dramatically. The government estimates that the number of elderly will rise from 194 million in 2012 to 300 million by 2025.

In 2012 alone 13,600 primary schools nationwide closed due to a falling population of primary and secondary school children.

Source

An aging population will put a strain on existing health care programs that have already been weakened by the elimination of the universal health care system that was in place before the transition from a centrally planned to a more market oriented economy. The Chinese health care system also will have to respond to a disease burden that is shifting toward the aging population, which will account for two-thirds of the total by 2030 .

An aging population will also limit military infrastructure expansion, due to lack of funding from taxes to the working class as well as limitations on able-bodied young recruits.

Inept and Totalitarian Government

When China began its transformation from communism to state capitalism most observers felt that greater freedom for its markets and its citizens would eventually come. However this has not been the case. Instead Chinese leader Xi Jinping has clamped down on the flow of information in the internet and the media. Free expression is being completely strangled. The Great Firewall is alive and well and getting stronger.

Secret and illegal abductions of Chinese citizens that dare voice their opinions about the government are common place. Case in point; the recent open letter to Chinese leader Xi Jinping asking him to resign which was published on a state-controlled website has led to the disappearance of at least 20 Chinese citizens. In general dissidents and their families are typically subject to investigation, harassment, threats, imprisonment and worse.

State capitalism is also being viewed as an invalid model for growth. It is based on endless debt issuance, mercantilist trade policies, top-down industrial direction from Beijing and a forced 40% savings rate. Government owned businesses cause severe damage to private industry as they swallow up loans from state owned banks. Basically, the economy is being strangled by the government.

The debt created by the government is also a sign of ineptness. Debt-fueled over-investment and excessive capacity building in order to inflate GDP figures has been a modus operandi of the government. The creation of unnecessary factories, the building of ‘ghost towns’ with empty buildings have provided lots of jobs but have turned manufacturing and real estate into major liabilities.

China’s illegal shadow banking system has approximately $3 trillion of municipal debt using real estate as collateral. When all of this real estate loose value due to slowing economy or too many empty building, the borrowers will need to provide many billions of dollars’ worth of additional collateral. That will soak cash out of the economy and make any slowdown even worse.

Currently, China faces political descent in Hong Kong. Its further deterioration could cause disruptions inside of the mainland. Additional issues with the estimated one million Uyghurs in re-education camps further exposes China to civil upheaval. Complicating matters, is also China's ongoing dispute with Taiwan over its sovereignty. Should this situation deteriorate to the point of war, bringing about a U.S. involvement, the cost to China could be substantial.

Pollution

Pollution in China creates a health hazard of massive proportion. The pollution seen in China is manifested in various forms.

  • Soil contamination — Threatens the environment, food and water safety, sustainable agriculture
  • Waste — Insufficient recycling systems, 300 million tons of waste annually.
  • Electronic waste — 2.3 million tons of electronic waste annually.
  • Industrial pollution — Hundreds of thousands of premature deaths annually attributed to industrial pollution, waterways are affected, environmental degradation that goes beyond China’s borders, cancer leading cause of death in China, 500 million people without safe drinking water, only 1% of city dwellers breath air considered safe, lead poisoning, marine life affected.
  • Water pollution — Water shortages and severe water pollution.
  • Air pollution — It has become a major issue, in China, can cause asthma, bronchitis, acute chronic respiratory problems, premature death, becoming China’s biggest health threat.
  • Particles — Particle matter is of great concern in all major cities, smog often causes airports to shut down.
  • Lead — Lead poisoning is a major pediatric problem, one third of Chinese children suffer from elevated serum lead levels.
  • Persistent organic pollutants — Perfluorinated compounds are associated with altered thyroid function, illegal pesticides.

Government efforts to curve pollution have been for all intents and purpose futile. Pollution continues to be a major problem in China.

Beijing air on a 2005-day after rain (left) and a smoggy day (right)
Beijing air on a 2005-day after rain (left) and a smoggy day (right) | Source

Corruption in China

Corruption in China is widespread and starts at the very top echelons of power, working its way down to the lowliest bureaucrat.

When Xi Jinping began his campaign to stamp out corruption, expert China watchers saw right through his real motives. They immediately knew that his anti-corruption initiatives were more about getting rid of political competitors and enemies than about cleaning up corruption.

The Panama papers scandal that recently hit the news showing money stacked away in off-shore banks points to many world leaders, athletes and rich businessmen. One of these world leaders is Xi Jinping proving the theory that Xi’s anti-corruption efforts are nothing more than hypocritical and disingenuous acts of self-promotion.

As soon as the news on the Panama papers was reported in the media and internet, the Chinese government immediately moved to squash the news. China has blocked news and social sites that are revealing information about political leaders involved in the Panama papers scandal. Words and phrases such as Panama, off-shore, Panama banks, and many others are immediately erased by the Chinese censors.

Innovation Gap

China’s innovation gap threatens the country’s long-term economic competitiveness. Currently, China ranks number 29th in the Global Innovation Index behind countries such as Japan with a ranking of 19th, the U.S.A. ranked 5th, the U.K. ranked 2nd and Switzerland as the number one ranked.

China’s education system has been blamed to a great extent for stifling creativity and innovation. Chinese universities typically provide students with a good basic education, yet graduates show very little creative and critical thinking skills.

The practice of copying and reverse engineering intellectual property developed by others in order to drive its industry, especially as it relates to high-tech products, continues. This practice, however, stifles Chinese development of any meaningful intellectual property as local companies forego R & D efforts and instead depend on theft of others' ideas and product developments.

All experts agree that a country that cannot innovate and can only depend on someone else’s ideas will not be able to grow in today’s global environment. The best that China can expect is to continue to be the manufacturer for companies like Apple which are the ones making the lion’s share of the profits for the products they have created.

Chinese factories currently make less than 10% of the money each iPhone generates. The rest of the revenues generated by each iPhone go to Apple and the retailers selling the phones to consumers. For China to catch up with the West it needs global brands. Without innovation, global brands will not happen.

Source

China’s GDP Numbers are Fabricated

It might come as a shock to many, but several sources have reported in the last years that China’s GDP figures are not reliable. In fact most economic figures coming out of the Chinese government are bogus.

A CNN Money report dated July 15, 2015 makes the following claim:

“In 2007, Li Keqiang, a Chinese provincial official, let the American ambassador in on a little secret: China’s GDP figures are “man-made” and therefore unreliable. He told the ambassador that most of the country’s economic data, and especially its GDP, should be used for “reference only,” according to a diplomatic cable published by Wikileaks.”

CNN continues:

"On Wednesday, the debate over the accuracy of China’s GDP figures was revived after officials announced that the economy grew by 7% in the second quarter — a level that few economists thought probable. First quarter GDP also came in at 7%, and Beijing’s official growth target for 2015 is … you guessed it: 7%."

China does not have an independent statistics bureau, said Andy Xie, an independent economist. "It depends on local government reporting the numbers from the bottom up, and local governments do have an incentive to distort numbers.” Xie said the country’s current GDP growth is probably closer to 4% or 5%.

CNN is not the only news outlet to report this. Newsweek reported the same story by saying “The People’s Republic of China is awash in gaudy numbers”. Bloomberg, as well as dozens of other news outlets, have come out with a similar story.

The World Bank calculates that China’s true GDP for 2015 is US$10 trillion rather than the US$19.5 trillion it has reported. This revelation puts into total doubt the claims that China is now the world’s number one or even number two economy. It also puts into doubt all the hoopla that has been made of China’s growth and eventual economic domination.

China's GDP Has Been Overstated by 12% Since 2008, New Report Reveals
China's GDP Has Been Overstated by 12% Since 2008, New Report Reveals | Source

Wrap-Up

It will take many decades before China can catch up with the West, especially the U.S. Americans and Europeans are far richer than Chinese. Democracy, open markets, better education, relative lack of corruption, governments that for the most part have citizens well being in mind, greater innovation, to name a few will keep the West well ahead of China.

China’s severe problems will prevent it from growing in the near future. Perhaps fifty years from now a different story can be told, but for now unless there are major changes in government, market fundamentals, reduction in pollution, reduction in corruption, perhaps even a shift in culture, the type of growth economists originally predicted China would experience will not be here just yet.

Conclusion

Will the predictions on the BRIC economies become a reality in ten, twenty or thirty years from now? Only time will tell. The reality is that the world changes constantly. Countries are in a constant state of flux. One thing is for certain; making predictions is difficult. Many pundits think in very straight forward terms. They look at economic indicators while neglecting social, cultural, legal and historical implications.

Let's see how things go in the next ten years, and for those that are still around, let's revisit the BRICs and see how well they are doing.

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