The BRICS Studies: Theories and Issues 9780367492212

Citation preview

The BRICS Studies

Given their immense potential for development and representation of a new international political and economic order, the BRICS countries have become a strong nascent force on the global stage. However, as overall economic growth continues to slow down, and the geopolitical situation becomes more complex, the BRICS countries are facing a series of new challenges that require further development in the way they cooperate with one another. This volume offers a panoramic view of cooperation between the BRICS countries in the light of these new challenges. The editors reveal that policy coordination has been strengthened, bringing into play complementary advantages as viable ways for promoting robust, sustainable, and balanced growth in the world economy. They argue that the experience gained, and lessons learned in the development of and cooperation between the BRICS countries has offered a positive role model for cooperation between other countries as well as providing valuable lessons for research in international politics. Students and scholars in international relations and politics will benefit from this volume. Xu Xiujun, PhD in International Politics, is a Senior Fellow; Head of the Department of International Political Economy and Executive Director of the Center for the BRICS Studies, Institute of World Economics and Politics (IWEP), Chinese Academy of Social Sciences (CASS); professor at the University of Chinese Academy of Social Sciences; and Secretary-​General of the China Society of Emerging Economies. He was a post doctoral researcher in world economy at CASS from 2009 to 2011 and a visiting scholar at George Washington University in 2017. His research interests cover international political economy, Asian and Pacific cooperation, development and cooperation of emerging economies, and global economic governance.

China Perspectives

The China Perspectives series focuses on translating and publishing works by leading Chinese scholars, writing about both global topics and China-​related themes. The series covers Humanities and Social Sciences, Education, Media and Psychology, as well as many interdisciplinary themes. This is the first time any of these books have been published in English for international readers. The series aims to put forward a Chinese perspective, give insights into cutting-​edge academic thinking in China, and inspire researchers globally. Recent titles on politics: On East Asian Regional Cooperation II Ideality and Reality Zhang Yunling U.S.-​China Relations in Strategic Domains Travis N. Tanner, Wang Dong Global Studies: Volume 1 Globalization and Globality Tuo Cai, Zhenye Liu Global Studies: Volume 2 Global Process and Global Governance Tuo Cai, Zhenye Liu The BRICS Studies Theories and Issues Xu Xiujun For more information, please visit www.routledge.com/​series/​CPH

The BRICS Studies Theories and Issues Edited by Xu Xiujun

This book’s publication is subsidized by the project of China Classics International First published in English 2020 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 selection and editorial matter, Xu Xiujun; individual chapters, the contributors The right of Xu Xiujun to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-​in-​Publication Data A catalog record has been requested for this book ISBN: 978-​0-​367-​49220-​5  (hbk) ISBN: 978-​0-​367-​49221-​2  (ebk) Typeset in Times New Roman by Newgen Publishing UK

Contents

List of figures  List of tables  List of contributors  Preface by Zhang Yuyan  Acknowledgements 

vii viii ix xi xiv

1 The BRICS studies: academic approach and frontier issues  1 XU   XI U J U N

2 Non-​neutrality of international regimes and the BRICS cooperation 

20

XU   XI U J U N

3 Theoretical explanations for the origin of BRICS cooperation 

43

RE N L I N AN D Y I N  JI WU

4 BRICS cooperation in the game of countries 

68

Z H OU FAN G YI N

5 International structure and the BRICS cooperation 

86

J I AO C H UAN KA I

6 Practice theory and China’s participation in BRICS cooperation 

100

G AO S H AN G TAO

7 The BRICS countries and global economic governance  XU   XI U J U N

117

vi Contents

8 The BRICS countries and the global financial governance  130 WAN G   H AO

9 Construction of free trade zones in the BRICS countries  149 C AI C H U N LI N

10 The BRICS countries and new international direct investment rules 

163

H UAN G   H E

11 The BRICS countries and international energy cooperation  181 L I U WE N G E A N D WA N G  LEI

12 The BRICS countries and international cooperation on climate change 

196

K AN G   XI AO

13 The BRICS countries and global cyberspace governance  215 SH E N   YI

14 The BRICS countries and the construction of New Development Bank 

232

XU   XI U J U N

15 Cooperation among the BRICS countries for developing emerging industries 

246

L I N   YU E QI N

References  Index 

260 276

Figures

11.1 The revised game model of the BRICS countries on energy cooperation 13.1 Percentage of global Internet users from 2001 to 2013 13.2 Percentage of Internet users by region in 2013 13.3 Distribution of data generation in cyberspace in 2012 13.4 Rise of emerging markets

190 223 223 224 225

Tables

1.1 Changed economic aggregates of the BRICS 1.2 Main cooperation fruits of the BRICS summit meetings 3.1 Different types of variables used in studies on BRICS cooperation 3.2 Mechanisms of action for the origin of BRICS cooperation 3.3 IMF members’ quota and voting power 5.1 Comparison of elements of strength among BRICS countries 8.1 Categories and rankings of the cities of the BRICS and developed countries in the Global Financial Centres Index 10.1 Scale and share of direct investment among the BRICS countries in 2011 10.2 Four major cross-​border M&As by Chinese SOEs in 2014 10.3 Number of overseas acquisitions by Chinese companies by sector/​industry in 2005–​2012 10.4 Top 8 cross-​border M&A transactions in the oil and gas industries by multinational companies from developing and transition economies, 1987–​2005 10.5 Multinationals headquartered in the BRICS among the 200 largest non-​financial multinationals 10.6 Changes and adjustments of foreign investment policies and regulations in different countries from 2000 to 2011 11.1 Game payoff matrix for energy cooperation among the BRICS countries 14.1 Voting rights of the BRICS countries in regional multilateral development institutions 14.2 Aims and functions of the world’s major multilateral development institutions 15.1 Comparison among the BRICS countries in innovation indexes

2 4 48 49 54 89 138 165 166 167 169 170 173 188 238 242 251

Contributors

Cai Chunlin, PhD in Economics, Director and Professor of the Institute of Emerging Economies, Guangdong University of Technology, Deputy Secretary-​General of China Society of Emerging Economies, and President of Guangdong Provincial Society of Emerging Economies Gao Shangtao, PhD, Professor, and Director of the Middle East Studies Center, China Foreign Affairs University. Huang He, PhD in Economics, postdoc in Theoretical Economics, postdoc in Political Science, Professor of International Politics, School of International Relations and Public Affairs, Fudan University. Jiao Chuankai, PhD in International Relations, Associate Professor of the College of Humanities, Donghua University. Kang Xiao, PhD in International Relations, Associate Professor, School of International Relations and Diplomacy, Beijing Foreign Studies University, and supervisor of master students. Lin Yueqin, PhD in Economics, Director and Senior Fellow of the Second International Department of the Social Sciences in China Magazine, and Deputy Secretary-​General of China Society for Emerging Economies. Liu Wenge, PhD in Economics, Professor and Dean of School of International Studies, Liaoning University. Ren Lin, PhD in Political Science, Director and Senior Research Fellow of Department of Global Governance, the Institute of World Economics and Politics, Chinese Academy of Social Sciences. Shen Yi, PhD in International Politics, Director of the BRICS Research Center, and Fellow of the Department of International Politics, Fudan University. Wang Hao, PhD in Economics, postdoc in Public Management, Associate Fellow of Department of World Development Strategy Studies, Central Compilation and Translation Bureau.

x Contributors Wang Lei, PhD in Economics, Associate Professor, School of International Trade and Economics, Shandong University of Finance and Economics. Xu Xiujun, PhD in International Politics, postdoc in World Economy, Senior Fellow of the Institute of World Economics and Politics, Chinese Academy of Social Sciences. Yin Jiwu, PhD in International Politics, Professor of the School of International Relations, Renmin University of China. Zhang Yuyan, PhD in Economics, Member of the Chinese Academy of Social Sciences (CASS) and Senior Fellow and Director of the Institute of World Economics and Politics, CASS. Zhou Fangyin, PhD in International Relations, Dean and Professor of the School of International Relations, Guangdong University of Foreign Studies.

Preface

Understanding the international order and BRICS cooperation To determine whether the existing international order is different from the past may, first of all, require an examination over whether the basic variables affecting the international order have changed. As I  see it, there are three things that remain unchanged. First, a third world war is highly unlikely. As the world’s major nations all possess some sort of nuclear weapons, the possibility that they resort to war as a way to resolve disputes is diminishing. Second, countries are increasingly interdependent, and the price of seeking isolationism is just too high. Third, there is not a world government. There is a continuing trend of multipolarization in international politics and, meanwhile, the world nowadays needs public goods to be shared more than ever before. These three basic variables, or rather unchanged facts, determine that the main approach to game among nations is to safeguard and expand their own interests through the establishment of international rules or orders, while also taking into account the interests of others. Order is, in essence, a set of rules. The game between countries is played under specific international rules, and the outcome of the game largely depends on the strength of the players. This makes a fair amount of sense, but not enough, because the outcome could also hinge on the rules. For example, in the 100-​meter race, no one in the world runs faster than Usain Bolt from Jamaica; but if you modify the rules, for example, the runner must stop to solve two math problems at halfway before continuing, the result could be totally different. This may be an extreme example, but it demonstrates that, in some cases, it is the rules that determine the outcome of the game; in other words, the player’s strength may be greatly undermined if the rules go against him. An important feature of rules is that the vast majority of them are “non-​ neutral,” that is, to different countries the implications of the same set of rules may vary. This indicates that the future global order will be determined through games between countries, especially between the major powers or blocs. Everyone wants to shape the international rules to their own benefit, because as long as others accept rules that are more favorable to me, I would at least have an edge in the game, if that edge does not help me win the game.

xii Preface If we dig a little bit further, we come to the question: What are the key factors that determine a country’s influence in international rule-​making? One answer is: the material strength of a country, especially its total economic output and total trade volume, as well as its military strength, which is closely associated with its economic strength. The basic variables or facts that lead to changes in the global order lie in the gradual change of balance between the major powers. The United States and the European Union are the two most productive economies in the world today, which provides them with the material basis for their dominance in international rule-​making. In the past 30 years, major emerging economies, especially China, have caught up in terms of economic size, thanks to their economic growth rate and country size. Although there is still a gap between having economic strength and having the influence to make the rules, it is inevitable that the future world order will be adjusted, if not profoundly changed, due to the rapid growth of emerging economies. If it seems reasonable that changes in power contrast lead to those in the international order, the discussion over the future international order can be translated into that over the long-​term economic growth of major powers. There are roughly six factors that determine the long-​ term economic performance of a large country, that is, technological advance, quantity and quality of the population, resource endowment, market size, economic system, and currency-​circulation area. Technological advance includes the introduction, imitation, and digestion of advanced technologies in addition to independent innovation. A large population is one of the prerequisites for becoming a great power. The quality of population mainly refers to the state of human capital, especially the education level and working attitude of the people. The abundance of resources and energy is good news for long-​term economic growth but, in reality, it could also be a double-​edged sword. The use efficiency of resources and energy largely depends on the institutional infrastructure, which refers to the level of protection for property rights and the level of respect for covenants in the international institutional environment. Market size affects the degree of professionalism and division of labor, thus having a bearing on the improvement of labor productivity. The currency circulation area refers to the extent to which a country’s currency is used in global transactions, which mainly refers to the proportion of the currency used for valuation, settlement and reservation. The unprecedented global use of the US dollar has made the United States the largest beneficiary of the previous round of globalization. In light of the three basic facts mentioned above, the dominant force of today’s global order –​that is, the vested interests of the developed countries, led by the United States –​has only one way out in the face of continuously changing power contrast, that is, developing international rules in its own favor to gain a new competitive edge over emerging countries. In this regard, developed countries have established the Trans-​Pacific Partnership Agreement

Preface  xiii (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), as important parts of their re-​globalization efforts. The emerging countries represented by the acronym BRICS (Brazil, Russia, India, China and South Africa) have initiated an endeavor to change the non-​ neutral international system. A typical example is the reform in voting rights and quotas carried out in the IMF and the World Bank. The establishment of the New Development Bank by the BRICS countries can also be taken as an effort to challenge the international financial system dominated by the developed countries. However, any attempt to shatter vested interests has always been hardly assumed to be easy. The increasingly non-​neutrality of international rules also compel emerging countries to consider how to live with the current and future global order. For the BRICS countries, building an alternative system that is parallel to and competitive with the one built by the Western developed countries is definitely not an option, because an open international trading system is needed by all. China, in particular, may need it more than anyone else at the current stage of development. At a time when the global order is under transition, the BRICS countries also constitute one of the main variables that bring forth transformation. The economic and political size of the BRICS countries is huge and developing rapidly. It has already impacted the established international landscape and “threatened” vested interests led by the United States, thereby becoming a force America cautions against and exerts existing and potential constraints on. For this reason, the BRICS countries need to make good use of their cooperative mechanism to cope with and mitigate these pressures. In other words, the BRICS countries must deepen cooperation in all areas to enable the rise of emerging economies and developing countries as a whole. So far, the BRICS countries have been passively accepting the current international rules. But as their strength grows, the BRICS countries will naturally seek to make international rules more neutral. It is also worth noting that the change of the international system will not happen overnight. Revolutionary changes to the non-​neutral international order are neither realistic nor necessary. What the BRICS countries need and can do in the next ten years is to unite with other major emerging economies and seize opportunities to make partial improvements to the existing international rules in a gradual and orderly manner so that, over time, a real difference can be made. For emerging countries like the BRICS, it is not only a necessity but also a responsibility to assume greater international roles. The BRICS countries need to abide by three principles when assuming international responsibilities: one is that their responsibilities must be commensurate with their rights; another is that they must take into account their national conditions, capabilities and needs; the third is they must balance between short-​term and long-​ term benefits, as well as fractional and overall interests. Zhang Yuyan Member of the Chinese Academy of Social Sciences (CASS) and Senior Fellow and Director of the Institute of World Economics and Politics, CASS

Acknowledgements

As a nascent force in the global political and economic systems, the BRICS countries are all emerging with great development potential and vitality. On many major international and regional issues, the BRICS countries have similar, if not the same, standpoints and views. All committed to promoting world economic growth, improving global economic governance, and making international relations more democratic, these countries have been active in the establishment of new international political and economic orders. Since the inception of the BRICS leaders’ meeting mechanism in 2009, the BRICS countries have made remarkable achievements in practical cooperation in many fields. A shining example is the establishment of the New Development Bank and the BRICS Contingent Reserve Arrangement, which advanced the BRICS to a new stage of institutional cooperation. The complex geopolitical and economic situations nowadays have presented many new challenges to the BRICS cooperation. Within the cooperative mechanism, the overall economic growth of the BRICS countries continues to slow down and diverge, which has become a constraint for maintaining strong momentum of mutual cooperation. As time goes by, it will be increasingly difficult for the BRICS countries to make major breakthroughs in new areas of cooperation. This problem is also shared by many other international negotiation and cooperation mechanisms after the “early harvests” are achieved. Externally, unfavourable factors have emerged to hamper the development of and cooperation between the BRICS countries. The obstruction of some vested interests and blocs of countries makes it extremely difficult for the BRICS countries to play an effective role in global governance. Worse still, the new round of large-​scale exclusive economic and trade agreements dominated by advanced economies is having an increasingly obvious impact. As a result, voices about the collapse of the BRICS have emerged time and again to undermine the motivation and confidence of the BRICS countries. In the face of challenges, the BRICS countries choose not to retreat, but to respond actively through closer cooperation. It was these common challenges that enabled the BRICS countries to come together to communicate, collaborate, and support each other. And every major progress made through cooperation has been achieved in the process of dealing with various risks

Acknowledgements  xv and challenges and overcoming various obstacles. The BRICS countries have strengthened policy coordination and brought into play complementary advantages as a viable way to promote robust, sustainable, and balanced growth of the world economy. These efforts will lay a solid foundation and create new opportunities for the cooperation between the BRICS countries and will also exert positive influence on other countries. The experience and lessons learned in the development of and cooperation between the BRICS countries, as well the evolution of the BRICS cooperative mechanism, have provided excellent materials for research. As a platform for emerging economies to participate in global governance, the BRICS is a new entry in the study of international issues. Serious research is worthwhile in either the achievements it has made or the challenges it faces. Research on the BRICS will not only focus on a series of realistic policy issues, but also serve to expand the theoretical horizons, if not stimulating innovations in theories. As the subject matter is comprehensive and interdisciplinary, we have invited young and middle-​aged scholars from Chinese universities and research institutions who have done a fair amount of research on the BRICS countries to co-​author this book, so as to provide a panoramic view of the BRICS cooperation. This book is a result of the collective wisdom of every contributor. Zhang Yuyan, Director of the Institute of World Economics and Politics, the Chinese Academy of Social Sciences, and Director of BRICS Research Base, put forward many constructive suggestions for the writing of this book and composed an inspiring preface. The authors of each chapter have always been supportive and cooperative to ensure the publication of this book. These authors are: Xu Xiujun for Chapters 1, 2, 7, and 14; Ren Lin and Yin Jiwu for Chapter 3; Zhou Fangyin for Chapter 4; Jiao Chuankai for Chapter 5, Gao Shangtao for Chapter 6; Wang Hao for Chapter 8; Cai Chunlin for Chapter 9; Huang He for Chapter 10; Liu Wenge and Wang Lei for Chapter 11; Kang Xiao for Chapter 12; Shen Yi for Chapter 13; and Lin Yueqin for Chapter 15. The book was organized by Xu Xiujun. As the designer of the framework of this book and the coordinator of writing, I witnessed the dedication and sincere commitment of the scholars to promoting the cause of BRICS research. When book was written and reviewed, Chen Guoping, Ding Yifan, Fan Yongming, Feng Weijiang, Gao Haihong, He Liping, He Xinhua, Huang Wei, Jia Zhongzheng, Li Dongyan, Liu Chang, Lu Tong, Pu Xiaoyu, Ren Lin, Song Hong, Sun Jie, Tian Feng, Tian Ye, Wang Dexun, Wang Xin, Xi Yanju, Xiong Aizong, Xue Li, Yao Zhizhong, Yu Yongding, Yuan Zhengqing, Zhang Bin, Zhang Ming, Zhu Jiejin, Zou Zhibo, among others, provided the much-​needed guidance and help. The reviewers of international issue research at the Chinese Social Sciences Library offered many useful comments and suggestions for the revision of this book. Some of the periodic results of the findings have been published in World Economics and Politics, Journal of International Studies, Foreign Affairs Review, International Review, International Forum, International Economics and Trade Research, Comparative Economic & Social

newgenprepdf

xvi Acknowledgements Systems, Frontiers, Financial Regulation Research, Social Sciences in Hunan, Journal of Shenzhen University(Humanities & Social Sciences), among other academic journals. These journals have not only provided constructive suggestions directly for the first draft of this book, but also served as a platform for extensive solicitation of opinions for its revision and improvement. The book is funded by the Innovative Academic Publication Project launched by the Chinese Academy of Social Sciences. In addition, Dr.  Wang Yin from China Social Sciences Press contributed a great deal to the successful publication. The present English version is published by Routledge. Here, we would like to express our sincere thanks to all of them. Last but not least, it is worth mentioning that although many have contributed to the writing and publishing of this book, mistakes and omissions may still be inevitable. We look forward to receiving any of your criticism and suggestions for future revision and improvement.

1  The BRICS studies Academic approach and frontier issues Xu Xiujun

Since Jim O’Neill put forward the concept of “BRIC”1 in 2001, the term has invited extensive attention internationally, and more and more scholars have put the BRICS countries (Brazil, Russia, India, China and South Africa) together for BRICS studies. In 2009, the leaders of Brazil, Russia, India and China held their first meeting in Yekaterinburg, Russia, and since then cooperation among the four countries and their cooperation with the outside world has gradually been on top of BRIC agendas, and BRIC studies have become increasingly extensive and in-​depth. Currently, such studies involve a wide variety of areas with a particularly prominent discipline-​crossing characteristic, and this offers rich materials for academic exploration through BRICS studies. To clearly present a picture of academic studies over the past 15 years on the issues concerning the BRICS’s development and cooperation, and to promote further studies in the future, this book, based on the review of the development and cooperation of the BRICS countries  –​South Africa joined in 2010  –​explores academic approaches to BRICS studies. This book does so from the perspective of the evolution and expansion of study topics, study perspectives, study methods, study paths and study levels, and puts forward some hot research topics and frontier issues based on contentious academic viewpoints.

1.  New trend of BRICS’s development and cooperation In general terms, the BRICS countries came together to form a close grouping because of the shared interests of the five countries. Despite divergences in terms of their history, cultures and social systems, the BRICS countries boast a huge development potential as vigorous emerging-​market countries and constitute both a new force in the global economic system and as an active builder of the new international political and economic order. On numerous significant international and regional issues, the BRICS countries share the same or similar views and are all dedicated to pushing for world economic growth, improving global economic governance, promoting democratization of international relations and maintaining world peace. Since the founding of the BRICS cooperative mechanism, the five member countries have achieved a series of pragmatic cooperation fruits in the fields of trade, investment,

2  Xu Xiujun finance, economic development and people-​to-​people exchanges and have continuously pushed the cooperative mechanism towards a new stage. In the meantime, the development and cooperation of BRICS has also encountered some new problems and challenges. 1.1  A continuous rise in economic strength but with differentiated economic growth As a representative mechanism of global emerging economies, BRICS’s rise has drawn extensive attention from the international community. The term “rise” means the full elevation of comprehensive national strength, including economic, political, military, scientific and technological and cultural strength, but the rise of BRICS is particularly reflected in the rapid expansion of its economic scale and the continuous increase of its comprehensive economic strength. According to data from the International Monetary Fund (IMF), the GDP of the BRICS countries calculated according to market-​ based exchange rates was $2.72 trillion in 2000, and it rose to $16.48 trillion by 2015 –​6.1 times that of 2000 –​and the share of the BRICS countries correspondingly rose from 8.2 per cent to 22.5 per cent of global GDP aggregate. During the same period, the GDP of the BRICS based on the purchasing power parity (PPP) calculation increased from 18.7 per cent of global total to 30.8 per cent (see Table 1.1). Nevertheless, it should also be noted that the economic growth of the BRICS has generally slowed down, which will be a drag on the robust driving force of mutual cooperation among the BRICS countries. IMF data indicate that the GDP growth rate of the BRICS was approximately 5 per cent in 2014, much slower than the over 11 per cent in 2007.2 Alongside the general economic deceleration, the BRICS countries have also witnessed differentiated economic growth rates. According to the IMF data, India, China and South Africa registered economic growth of 7.3 per cent, 6.9 per cent and 1.3 per cent respectively in 2015, while the economic growth rate in Russia and Brazil was -​3.8 per cent and -​3.7 per cent.3 Russia’s considerable economic slide was Table 1.1 Changed economic aggregates of the BRICS Year

2000 2005 2010 2015

GDP calculated on market-​based exchange rates

GDP based on PPP

Scale ($100 million)

Percentage of global total (%)

Scale ($100 million)

Percentage of global total (%)

27229 50350 117676 164838

8.2 10.7 18.0 22.5

91709 145641 238925 349911

18.7 21.8 27.1 30.8

Sources: IMF, WEO, April 2016.

BRICS studies: academics and frontiers  3 to a large extent linked to the economic sanctions it suffered from the West, but its differentiated economic growth rate from other BRICS countries will undoubtedly aggravate the divergent policy targets of the BRICS as a whole, and add difficulties to economic policy coordination among the BRICS countries. Against this backdrop, some believe the “original colour” of the BRICS has faded, and the pessimistic outlook, such as comparing the BRICS to a combination of “gold” and “bricks”, has gradually become popular. 1.2  New breakthroughs achieved in pragmatic cooperation in spite of growing challenges As a group, the BRICS has developed into a multi-​layered cooperative mechanism that comprises summit meetings and other levels of meetings in various fields, with ever-​ deepening cooperation among member states. A  series of cooperation outcomes achieved at the summit meetings has facilitated more pragmatic cooperation among the BRICS countries (see Table  1.2). A  review of the main results of the BRICS summit meetings will find that the cooperation of the BRICS has increasingly attached importance to policies’ planning and their implementation. Since the fourth summit meeting in 2012, the five BRICS countries have begun formulating corresponding action plans while issuing joint declarations, which has not only pointed to the direction for next-​stage cooperation, but also offered bases for evaluation of cooperation effects. It should be noted that two years after the leaders of the BRICS countries decided in 2013 to set up the BRICS new development bank and emergency reserve mechanism, this bank was formally opened (in July 2015) and the emergency reserve arrangement was also formally put into effect, meaning the cooperation of the BRICS begins to march towards the stage of materialization. Undeniably, just like the slow progress that many international negotiating and cooperative mechanisms suffer in their late stages (although remarkable progress has been achieved in their early stages), the BRICS is expected to face increasing difficulties in its efforts to make major breakthroughs in some new areas, as time goes by and previous space for cooperation is already filled. The BRICS countries face a wide variety of cooperation areas, and in the areas where they share common interests and concerns and where consensuses could be easily reached, remarkable progress has been made. However, in those areas where only slow progress has been achieved, they usually face relatively large disputes or issues that are difficult to overcome. At the same time, some unfavourable factors in the external world are disturbing the process of the BRICS’s development and cooperation  –​including obstruction from some vested interest countries and groups of countries, which makes it difficult for the BRICS to play its due role in global governance. For instance, the failed implementation of the measures for IMF and World Bank reforms has to a large extent restricted the voice of the BRICS in international affairs. The exclusion of the BRICS countries from such large-​scale economic and

newgenrtpdf

Table 1.2 Main cooperation fruits of the BRICS summit meetings No.

Time

Venue

Main fruits

1st meeting 2nd meeting

June 2009 April 2010

Yekaterinburg Brasilia

3rd meeting

September 2011

Sanya

4th meeting

April 2012

New Delhi

5th meeting

March 2013

Durban

6th meeting

July 2014

Fortaleza

7th meeting

July 2015

Ufa

8th meeting

October 2016

Goa

9th meeting

September 2017

Xiamen

Issuing a joint statement and ratifying a joint statement on global food security. Issuing a joint statement on the second formal meeting of BRICS leaders, and holding an entrepreneurs’ forum, a forum of banks and cooperatives and a meeting of think tanks. Publishing the Sanya Declaration and signing a framework agreement on financial cooperation among the banks of the BRICS countries. Issuing the Delhi Declaration and its Action Plan, signing a general accord on multilateral local-​ currency credit authorization under the cooperative mechanism of the BRICS banks and an agreement on multilateral letter of credit protection and conversion services, and discussing the possibility of setting up a new development bank. Issuing the Durban Declaration and its Action Plan, publishing a cooperative framework on trade and investment of the BRICS countries, setting up a business council and a think tank council of BRICS countries, and deciding to set up the BRICS new development bank and an emergency reserve mechanism. Issuing the Fortaleza Declaration and its Action Plan, signing the agreements on the establishment of the BRICS new development bank and emergency reserve and signing an accord on bank cooperation among the BRICS countries, and a memorandum of understanding on technical cooperation among export credit and insurance agencies of the BRICS countries. Issuing the Ufa Declaration, formulating an economic partnership of the BRICS countries, passing an e-​commerce cooperation framework, signing an inter-​central bank accord on the BRICS emergency reserve arrangement, and holding the first council meeting of the newly established BRICS new development bank. Issuing the Goa Declaration, signing of the Regulations on Customs Cooperation Committee of the BRICS, signing of the MoU for Establishment of the BRICS Agricultural Research Platform, endorsing the Goa Action Plan Issuing the Xiamen Declaration, endorsing BRICS Action Agenda on Economic and Trade Cooperation, BRICS Action Plan for Innovation Cooperation (2017–​2020), Action Plan 2017–​ 2020 for Agricultural Cooperation of BRICS Countries, and Action Plan for the Implementation of the Agreement between the Governments of the BRICS States on Cooperation in the Field of Culture (2017–​2021)

Source: Based on the website of China’s Foreign Ministry.

BRICS studies: academics and frontiers  5 trade agreements as the Trans-​Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), dominated by developed economies represented by the United States, will bring negative impacts to the economic and trade development of the BRICS. A review of the development and cooperation conditions of the BRICS will find that the grouping faces both positive and unfavourable factors, thus resulting in differentiated perceptions and appraisals of the BRICS. Optimists still approve of the huge development and cooperation potentials of the BRICS and its positive role in international society, while pessimists usually excessively focus their sights on the differences and disputes among the BRICS countries as well as numerous problems and challenges BRICS’s development and cooperation have encountered. For researchers, what is inspiring is that ever-​growing disputes on this issue have attracted more and more scholars to join the studies on and discussions about the issues related to BRICS, thus giving rise to diverse topics and methods for BRICS studies and bringing new trends for such studies.

2.  Academic approaches to BRICS studies BRICS studies can be roughly divided into two stages, with the first meeting of the leaders of Brazil, Russia, India and China in Russia, in 2009, as the watershed. BRICS studies before this time mainly focused on discussing the development issues of BRIC as a representative of the emerging markets, in which the four countries, all possessing unique characteristics, were put together for the BRIC studies. In the second stage, studies have been expanded to discussions on cooperation of BRICS as a representative of emerging nations. In these studies, the BRICS countries are put together, since the five countries share common interests and concerns. The continuous scope expansion of BRICS studies has offered sufficient materials for academic discussions about such studies. Given that the BRICS studies have not formed a research discipline in the international academic circle, we would like in the following –​based on the development reality of domestic and foreign studies of BRICS –​to trace its development and evolution. Through the review of academic studies on the development and cooperation of BRICS over nearly 15 years, we will show that the evolution of these studies is mainly embodied in the evolution and expansion of study topics objects, study perspectives, study methods, study paths and study levels. 2.1  Study objects: from “country-​specific study”, to “trans-​regional cooperation” and “global governance” The BRICS studies started from country-​specific studies, which have so far remained important components of the studies in this area. Country-​specific studies on BRICS mainly concentrated on country-​ specific comparative studies, making comparisons between the BRICS countries and between

6  Xu Xiujun them and other economies to find out similarities and differences and explain BRICS’s long-​term outstanding economic performance. Since Jim O’Neill raised the concept of a set of four counties, more and more scholars have acknowledged the increasingly important role of BRICS in international economic and political domains, and country-​specific studies under the concept of BRICS have so far been one of the basic components of the studies on the BRICS-​related issues. Such studies involve not only economic growth and development topics of the BRICS but also the foreign economic exchanges of the five countries and their influences.4 Many of these studies centre on making comparisons within the BRICS and making comparisons between the BRICS countries with other countries in the economic and social fields.5 Since BRIC’s first foreign ministers’ meeting in 2006, there have been increasing numbers of studies on BRICS’s cooperation from the perspective of trans-​ regional matters. These studies involve both analyses of the basis, dynamics and prospects of that cooperation from a practical perspective and the scrutiny of and discussion on such a new-​type of cooperation model from a theoretical perspective.6 As increased attention is paid to issues concerning global governance after the 2008 international financial crisis, and with the establishment of the BRICS leaders’ meeting mechanism, more works have appeared that analyse, from a global perspective ,the influences of the BRICS cooperation on global governance and the world order. These works are among the hot topics of BRICS studies.7 2.2  Study perspectives: from “economics” to “international political economics” As emerging-​market economies, the BRICS first drew extensive attention from the economic circle, and the fruits of early-​stage BRICS studies were almost all from the experts and scholars in this domain. Aside from Jim O’Neill and the Goldman Sachs team, some domestic economists have also analysed the value and influence of the BRICS from an economic perspective and the challenges it faces.8 Since the founding of its leaders’ meeting mechanism, the BRICS has realized an essential transformation from an economics concept to a dialogue and cooperation platform. The creation of such a new-​typed cooperative model has given rise to some theoretical and practical issues difficult to elucidate in pure economics theories, thus broadening academic visions on the BRICS studies and causing researchers in international strategy, international politics, international relations and diplomacy to shift their attention to those studies and discuss the building of the BRICS cooperative mechanism and its strategic role.9 In recent years, the two strands of research personnel have increasingly converged with each other and integrated, and the BRICS studies under international political economics have been booming. Some made profound analyses of the influences of the BRICS on international relations, the transformation of the world order as well as the changed international political economics topics and paradigms.10

BRICS studies: academics and frontiers  7 2.3  Study fields: from investment to multi-​fields The concept of the BRIC originated from good-​looking economic growth performances of the four emerging-​market economies and their relatively huge economic growth potentials that were viewed as markets with a broad investment prospect.11 As a representative of the emerging markets and developing economies, the investment markets of the BRICS countries have received extensive attention on the grounds that the BRICS countries can offer tempting investment returns, and that the investment studies on the BRICS can offer an important enlightenment to other emerging markets.12 The tradition of viewing the BRICS as an investment concept gains its continuity from the scholars engrossed in investment studies and the economists engaged in investment analyses. With the deepening of such studies, the fields of study have continuously expanded. In the field of trade, study topics include the economic and trade cooperation mechanisms of the BRICS countries, trade facilitation, prospects of trade as well as feasibility analyses regarding the establishment of free trade zones and so forth.13 Concerning monetary and financial cooperation, study topics involve the financial development of the BRICS and its financial and monetary cooperation.14 In the field of energy, study topics cover the BRICS’s energy consumption and its cooperative mechanisms and policies.15 In the area of politics and security, study topics include geopolitics and military security as well as the influences of BRICS cooperation on the international security pattern.16 Besides, there have also emerged some new study areas, including innovative development, corruption, cyber governance and so forth.17

2.4  Study paths: from “policy studies” and “strategic analysis” to “approach discussions” Policy studies on the BRICS mainly comprise two aspects, namely studies on the decision-​making of the BRICS investment and operation on the corporate level and studies on the BRICS foreign policy studies at the government level. At the corporate level, relevant studies mainly focus on analyses of the development status quo of the BRICS, its business environment and operation, as well as its investment opportunities, to offer supports for enterprises’ decision-​making.18 On the government level, researchers mainly come from the government departments of the BRICS countries and the research institutes under their financial supports, and relevant studies focus on the analyses of the BRICS’s cooperation status quo, problems and potential, to put forward policy proposals on deepening and expanding the BRICS cooperation, based on study results. After the process of the BRICS cooperation was started, the topics of policy studies began to be elevated to the strategic level for discussions, and since then strategic analyses have become a

8  Xu Xiujun new focal point of attention. Studies in this aspect both include scholars from the BRICS countries  –​who mainly focus their studies on the development and cooperation of the BRICS from a strategic perspective  –​and scholars from the United States and European countries –​whose studies mainly centre on the analysis of the strategic influences of the BRICS on the regional and global level. In recent years, there has also emerged another branch of BRICS studies, one which seeks to make theoretical explanations on the development and cooperation issues of the BRICS to promote their theoretical advancement and innovation. These studies try to explain the motivation of the BRICS cooperation and the prospect of its mechanisms building from the perspectives of state power, common interests, identity consciousness, systematic non-​neutrality, and political games, and based on a corresponding theoretical framework.19 2.5  Study levels: From “physical level” to “institutional and idea levels” The evolution of the levels of the BRICS studies can be divided into three:  physical level, institutional level and idea level, if seen from the perspective of transverse section or a static state. From a historical or dynamic perspective, the academia paying attention to the themes of the BRICS studies have reflected the trend of such studies evolving from the physical level to institutional level and idea level. Currently, those studies still exist that focus on the changes of the investment value and economic strength of the BRICS countries, and they constitute a major team of the BRICS studies. However, as the BRICS countries actively participate in the making of international rules, there have emerged some new studies on the BRICS, such as those on the influence of the BRICS cooperation on the identity awareness of the BRICS countries, on international systems and rules, and on conceptual innovation of international cooperation. For example, such studies include not only analyses of the BRICS cooperative system and its role in the forging of international systems and rules, but also analyses of the influence of the BRICS on international cooperation, innovation of the global governance model and concepts as well as the forging of the international order.20 All in all, the studies on the development and cooperation of the BRICS has continuously evolved in the past ten-​plus year, gradually shifting from unitary-​dimensional studies to multilayered, diverse and systematic studies, and making the BRICS studies increasingly become a new, transdisciplinary study field.

3.  Main topics of current academic contentions In recent years, the BRICS countries have had differentiated economic performances, thus giving rise to divergent perceptions on their development prospects. Meanwhile, with the continuous expansion of the team of the BRICS studies and the deepening of such studies, the perceptions in the

BRICS studies: academics and frontiers  9 academic circle on the BRICS’s cooperation status quo and cooperation prospects have also gradually become diverse and even diametrically opposite on some issues. Concerning the future development of BRICS, current academic disputes are mainly reflected in five aspects, as described in the following sections: 3.1  Driving force of the BRICS: weakened or strengthened? In recent years, the emerging economies, including the BRICS countries, have generally witnessed economic slowdown, and the important factors that previously bolstered their economic growth have experienced cyclical changes. For example, the previous low interest rates-​based credit cycle, the cycle of high prices-​marked commodity prosperity, the large-​scale investment cycle, the cycle of reforms aimed at releasing economic potentials, and the multilateralism-​ featured global open-​up cycle are all undergoing adjustments.21 Because of a continuous declining and differentiated economic growth of the BRICS countries, along with the negative effects resulting from some geopolitical factors, pessimistic viewpoints on the BRICS, such as a “fading BRICS”, a “BRICS in recession” and “five fragile countries”, have increasingly run high. Such tones are over-​pessimistic, but objectively speaking, the existence of negative factors alongside positive ones will inevitably produce certain negative influences on the future development and cooperation of the BRICS. Regarding economic development, the long-​term factors that bolstered the economic growth of the BRICS have experienced cyclical changes, and the general economic slowdown of the BRICS countries is very likely to be a middle-​and long-​term trend, which will inevitably weaken the foundation and impetus of the BRICS cooperation. On the other hand, given that the five BRICS countries have all started a new round of reform plans, encompassing measures to advance structural adjustments and upgrading, to promote industrial growth and to improve the business environment, the “dividends” expected to be released by these reforms will help to continuously maintain the current sustainable middle-​and high-​speed economic growth. Generally, the BRICS countries will still maintain relatively high economic growth, and the demographic, resources and market advantages they enjoy will sustain their long-​term economic development. The ongoing economic slowdown has underscored the necessity and importance of deepened cooperation among the BRICS countries, especially in the fields of global governance and mutual pragmatic cooperation. Due to different national conditions and being relatively far apart geographically, along with their differentiated economic growth, the BRICS countries face varying interests and concerns and, thus, have divergent policy agendas and arrangements. Of the five countries, Russia views the Eurasian Economic Union and the BRICS as two prioritized targets of its foreign economic cooperation; India hopes to use the BRICS cooperative mechanism as a platform to help it play a big-​power role and enhance its importance in

10  Xu Xiujun developing ties with the United States. South Africa hopes to take advantage of the BRICS cooperative platform to boost its international clout and promote its economic development. However, due to domestic political factors, South Africa’s role in advancing BRICS cooperation would be limited. Brazil’s policy priority is to promote South American regional cooperation, so cooperation with other BRICS countries is not a prioritized target of its foreign economic cooperation. At the same time, the BRICS countries view a wide variety of areas for cooperation, and some significant progress has already been made in areas where consensuses can be easily reached. Meanwhile, in other areas where they have relatively large differences, they face more barriers to cooperation. Under these circumstances, how to dig out common interests, coordinate mutual disputes and tap new development potential pose as major challenges for the BRICS countries to further advance cooperation. 3.2  Orientation of the BRICS: economic partners or political allies? From a realistic perspective, there exist numerous contradictions and disputes among the BRICS countries in terms of political systems, religion, culture and military security. Due to this reality, some scholars hold that the BRICS countries should aim their cooperation at establishing partnerships  –​economic partnerships in particular  –​other than political cooperation on the deeper level, which they believe is neither realistic nor necessary.22 In reality, economic cooperation has always been a prioritized agenda of the BRICS on which most notable progress has been achieved. At the July 2015 Ufa summit meeting in Russia, the leaders of the BRICS countries approved a document on the establishment of economic partnership and comprehensively mapped out an interconnectivity development pattern such as integrated markets; multilayered circulation; interlinked sea, land and air transport; and broader cultural exchanges, further ramping up the BRICS economic partnership. Meanwhile, the leaders of the five BRICS countries are dedicated to forging an all-​round partnership. At the seventh BRICS summit meeting in 2015, Chinese president Xi Jinping elaborated on the connotations of the BRICS partnership and defined it in four aspects: a partnership aimed to maintain world peace, to promote common development, to carry forward multiple civilizations and to strengthen global economic governance.23 Since the Ukraine crisis, Russia has more valued the political and strategic role of the BRICS mechanism, hoping to take advantage of the BRICS platform to deal with the threats and pressures from the United States and the European countries; to ease its ongoing economic, political and security dilemmas; and to maintain its international status as an important polar of the world. To guarantee stability and sustainability of cooperation and play a bigger role in the international society, other BRICS countries also hope to set up a de facto economic bloc or alliance in which they can give each other mutual support.

BRICS studies: academics and frontiers  11 It is worth noting that in recent years correlation of global economic and political issues has become increasingly enhanced, and it is difficult to separate political considerations from economic issues. In this context, even if BRICS orientates its cooperation in the economic realm, but with the deepening of such kinds of cooperation, the spillover effects on the political field is unavoidable. It is exactly because of this that some scholars view the BRICS as an economic and political union.24 As important regional powers, the five BRICS countries are all aspired to maintain or become a political power aside from their endeavours to realize economic rise and seek a higher international status. It is relatively difficult to build a political alliance in traditional term at a time when peace is generally maintained among global powers and there still exists political competition among some BRICS countries, but it seems to be a trend of deepened cooperation to include political and security issues in the BRICS cooperative framework. 3.3  Mechanism of the BRICS: informal or formal? Some international institutions founded by the developed economies represented by the United States after World War II, such as the United Nations, the International Monetary Fund, the World Bank and the World Trade Organization, are all formal bodies that have regular headquarters and independently running mechanisms. Due to their explicit constitutions and rules that have a binding force on member states, such formal bodies usually exert greater influence. The very existence of these international bodies facilitate Western countries maintaining their hegemonic status and vested interests. Meanwhile, informal forum mechanisms have also emerged such as the Asia-​Pacific Economic Cooperation (APEC), G20 and the BRICS, the creation of which illustrates from another side the existence of numerous faults in established international economic and political mechanisms, and it is difficult for them to resolve the new problems facing international society. This also testifies that the prevailing international economic and political systems are still under adjustment, reform and transformation, and far from taking shape. At a time when comparison of international powers is under constant change, it is difficult for any single country to completely dominate the establishment of a new, formal global international organisation. There always exist two different views on the prospect of institutionalized development of the BRICS. One view is that the BRICS should keep its current form as an informal forum and become a loose, but not disintegrated economic cooperation mechanism or economic-​interest community. The reason, this view claims, is that the BRICS does not yet possess a foundation for becoming a formal mechanism, and its priority should be to seek areas where they can conduct pragmatic cooperation and achieve substantial progresses. Without essential cooperation as a prop, any rush to embark on institutionalized development may into a kind of restraint or barrier.

12  Xu Xiujun On the other hand, the present cooperative framework can satisfy the BRICS countries’ demands for dialogue and consultations at various levels. Furthermore, an informal forum is more flexible and can offer a broader space for the BRICS countries to make policy adjustments. The other view is that the BRICS countries should be devoted to establishing a formal organisation, because that informal forum is relatively loose and lacks a binding force, which will not only affect their efficiency of decision-​making, but will also undercut the implementation of any decisions. Currently, the BRICS countries have set up a new development bank and an emergency reserve, which will lay a foundation and accumulate experience for institutionalized cooperation of the BRICS. Therefore, this view insists, under the current BRICS cooperative framework  –​which comprises the leaders’ summit meeting as the core, the ministers’ and special senior officials’ meeting as the prop, and the annual meeting of think tanks as the supplement –​it is not difficult for the BRICS to set up the secretariat, which is believed to be particularly necessary to promoting mutual cooperation and expanding its international influences. For better cooperation, the five BRICS countries should weigh the pros and cons of the formal and informal mechanisms and make a prudent choice between the two. It is expected that, in the foreseeable future, debates will continue involving whether the BRICS should formulate its organizational constitution for its cooperative mechanism and set up a secretariat (if it does), when and how will it lay down corresponding rules. 3.4  Membership of the BRICS: open or exclusive? Since the establishment of its cooperative mechanism, the BRICS has always adhered to an “open and inclusive” approach to ties with other countries, which can be reflected by the following two milestone events. The first is the absorption of South Africa into its cooperative mechanism, which realized the BRIC’s expansion of member states for the first time since its establishment. At the G20 Seoul summit in November 2010, South Africa applied to join the BRIC. In December of the same year, the four BRIC countries accepted South Africa as a formal member, expanding the BRIC to the BRICS. The inclusion of South Africa makes the BRICS a cooperative mechanism that is more representative of the emerging markets and developing economies. From a geographic perspective, the BRICS countries range from Asia, Europe and Africa to South America, four of the five continents; from a demographic perspective, the population of the BRICS countries accounts for nearly 51 per cent of the total population of the developing countries; from the perspective of land area, the BRICS countries occupy approximately 40 per cent of the total land area of developing countries. When it comes to economic size, the BRICS countries account for over 60 per cent of the total GDP of the developing countries if calculated according to market exchange rates.

BRICS studies: academics and frontiers  13 The second is the creation and expansion of the “BRICS plus” reciprocal cooperation model. In recent years, the BRICS has held an “open and inclusive” approach, continuously expanding mutual beneficial cooperation with more countries and regions, and successfully exploring a “BRICS plus” cooperative model with the BRICS as the core. After their fifth meeting, the leaders of the BRICS countries held a dialogue in March 2013 with the leaders from 15 African countries, themed “releasing African potentials: cooperation between the BRICS and Africa in infrastructure”, discussing the path of open cooperation. In July 2014, the leaders of the BRICS and Latin American countries held a dialogue, themed “a sustainable solution program for inclusive growth”, establishing a platform to connect the BRICS to the Latin American market. In July 2015, the leaders of the BRICS countries and the Shanghai Cooperation Organization members and observer nations, the Eurasian Economic Union, and invited countries and international organizations held a dialogue, extending the BRICS’s reciprocal cooperation with the outside world to the Eurasian continent. Despite above-​mentioned moves, the openness of the BRICS is still under suspicion, such as suspicions over non-​transparent standards on the BRICS membership, and suspicion over the BRICS no longer accepting new members, which is interpreted as a plan to develop itself into an exclusive mechanism. Following South Africa’s inclusion, Mexico and Egypt also expressed a desire to join the BRICS. Concerning the issue of the BRICS’s membership expansion, one viewpoint holds that BRICS should keep its current membership scale unchanged, and not absorb new members within a certain period of time, and that those with a wish to join can be accepted as observers. The reason for this viewpoint is that new members may add difficulties to their mutual accommodation, and to mutual policy and interest coordination. Another viewpoint holds that BRICS should expand its membership at an appropriate time because, it argues, only after BRICS absorbs more members and brings in more developing countries can it have a larger voice on the international stage. Which viewpoint is more scientific and more applicable to BRICS is yet to be confirmed, but the formation of scientific standards and rules for accepting new members is not an easy task. 3.5  Functions of the BRICS: constructive or alternative? It has always been a contentious topic whether the BRICS is a builder of or a challenger to the established international economic and political order, and positions have become particularly heated since the establishment of the BRICS new development bank and emergency reserve arrangement. To meet funding demands from the BRICS countries themselves  –​and from other emerging markets and developing countries –​for infrastructure construction and sustainable development projects, the leaders of the BRICS countries signed an agreement in July 2014 on the establishment of a BRICS development bank, headquartered in Shanghai and with an authorized capital of

14  Xu Xiujun $100 billion. The new bank was formally opened in July 2015. At the same time, the leaders of the BRICS countries also inked an emergency reserve arrangement with an initial fund of $100 billion and smoothly completed domestic ratification procedures, officially making the agreement effective. For the BRICS countries, the establishment of the new development bank is aimed to make up for the fund gap in global infrastructure construction and sustainable development, while the emergency reserve arrangement is to offer liquidity through currency swaps to deal with the pressures resulting from actual and potential short-​term payment imbalances and to strengthen the global financial security network. In this sense, the bank and the reserve can both serve as supplements to global multilateral and regional financial institutions in the field of development, other than a challenge or an attempt to fundamentally change the extant international monetary and financial facilities. However, quite a few people hold that the BRICS countries do try to challenge the established international monetary and financial system and seek replacement of the current international establishments. In the broader scope of international economic and political institutional reforms, many scholars acknowledge that the BRICS has played a supplementary and constructive role in addressing the unfair and unreasonable aspects of the international system rather than seeking to confront the international system led by developed countries.25 Meanwhile, some other scholars argue that the BRICS countries are building, parallel to the established system, a regime that will fundamentally change the structure of the existing international system.26 In addition, some believe that the BRICS cooperation is only an expedient and thus is difficult to shape as a united entity to play an important role on the world stage.27 The rise of the BRICS will unavoidably change the global balance of power in various fields. The breaking of the established equilibrium, as the paramount anchor of the world order, will cause other world powers to take a series of countermeasures until a new balance is re-​established. Under such logic, the rise of the BRICS will be a road to starting the transformation or rebuilding of the world order. In the trade, investment, monetary and financial domains, either emerging markets and developing countries or developed economies are dedicated to building a new system of rules that can best reflect their interests and concerns. However, undeniably, developed economies will still play a major role in the building of the future’s world economic order. For the BRICS, still in the process of rising, this will be a precondition to, and also a restraint on, the re-​forging of the world economic order. Based on above analyses, the BRICS’s path to the re-​forging of the world economic order embodies two forms if reflected in institutional reforms. The first is ameliorative institutional reforms, such as advancing governance reforms of the IMF and the World Bank, and the second is constructive institutional supplementation, namely exerting its own role and influences through setting up new mechanisms and agencies. Therefore, from the perspective of the BRICS, the

BRICS studies: academics and frontiers  15 future world economic order will evolve in either of two directions –​setting up an upgraded version of the established world economic order or setting up a new order that runs parallel to the established world economic order. Nevertheless, whichever economic order results will be decided by the political game within the BRICS and between the BRICS and the dominant countries of the established world order. Under either of the two scenarios, the BRICS will have to face huge challenges from both within and outside itself.

4.  Conclusion As emerging forces of international society, the BRICS countries not only have a common foundation and numerous shared characteristics and concerns in their economic development and foreign cooperation, but also have numerous differences. It can be said that the BRICS is a community of “solidarity but not uniformity”. It is just because of this that the BRICS, as a new object of study, has undergone extensive academic controversies and disputes, especially under the new circumstances brought about by the development and cooperation of the BRICS. In a sense, it is exactly such hard-​ to-​bridge disputes that have exhibited the huge value and charisma of the BRICS studies and attracted scholars from different disciplines to join the team of the BRICS studies. The BRICS studies mainly involve three disciplines:  development economics, international/​world economics, and international relations. However, in terms of study objects, study perspectives, study methodology, study paths and study levels, the BRICS studies have always been in the process of continuous expansion and deepening and have achieved numerous significant and propulsive progress. As an important contribution, current BRICS studies have promoted mutual references and blending of these disciplines and formed a bond that connects national economic development, foreign economic behaviours and the vicissitudes of the international structure, which have constituted a general development artery of the BRICS studies. After 15 years of studies and accumulation, the academic circle has framed a relatively comprehensive system for the BRICS studies. For future’s BRICS studies, those hotspot issues of extensive concern are, as usual, issues full of controversies. Currently, the academic circle is still widely divided on such issues related to the BRICS studies as the impetus of the BRICS’s development and cooperation, its orientation, the nature of the BRICS cooperative mechanism, the openness of the BRICS, as well as the function of the BRICS cooperative mechanism. Undoubtedly, discussions and debates on these issues not only enable people to more thoroughly perceive and understand the reality and future of the BRICS, but also can make researchers from different disciplines and different fields review current theories and methods, thus offering new fodders for theoretical innovations of the BRICS studies and an area for new breakthroughs.

16  Xu Xiujun All in all, with the profound adjustments of the global economy and the BRICS economies, the economic strength comparison between the BRICS, including China and the developed economies (including the United States) will assume a new setting, and a new international economic and political environment will bring numerous new challenges and uncertainties to the development and cooperation of the BRICS. Meanwhile, the springing up of a number of new circumstances, new problems, new fields and new proposals has also offered space for studies on the challenges facing the BRICS cooperation and the methods for settlement of these challenges. However, further academic efforts are yet to be made to forge a theoretical framework that can explain the emergence and development of the BRICS cooperative mechanism.

Notes 1 Jim O’Neill, “Building Better Global Economic BRICs”, Global Economics Paper No. 66, New York: Goldman Sachs, 2001. 2 The GDP growth rate of the BRICS is based on the weighting calculation of the GDP aggregates of the five BRICS countries based on their PPP, and data from the International Monetary Fund-​World Economic Outlook (IMD-​WEO) database. 3 IMF, World Economic Outlook Update:  Slower Growth in Emerging Markets, a Gradual Pickup in Advanced Economies, July 2015. 4 Sang Baichu, Zheng Wei and Tan Hui, “Comparative Studies on the BRICS’s Service Trade Development”, Economist, No. 3, 2013; Ouyang Xiao, “The Big-​ Nation Effects of the Rise of the BRIC”, Economic Studies of Large Countries, Vol 2, 2010. 5 Chen Jiagui, “Comparative Studies on The Development Models of the BRIC”, Outlook Weekly, No. 3, March 2010; V.  Nadkarni and N.  C. Noonan, Emerging Powers in a Comparative Perspective: The Political and Economic Rise of the BRIC Countries, New York & London: Bloomsbury Academic, 2013; Uwe Becker (ed.), The BRICs and Emerging Economies in Comparative Perspective: Political Economy, Liberalisation and Institutional Change, London & New York: Routledge, 2014. 6 Lu Feng, Li Yuanfang and Yang Yewei, “Cooperation Backgrounds and Prospects of the BRICS”, International Politics Quarterly, No. 2, 2011; Yang Jiemian, “The Purposes, Spirits and Institutional Building of the BRICS Cooperation”, Contemporary World, No. 5, 2011; Wang Wei, “New Trends of Multilateral Economic Cooperation”, Asia-​Pacific Economic Review, No. 2, 2012. 7 For relevant studies, see Huang Renwei, “The Rise of the BRICS and the Global Governance System”, Contemporary World, No. 5, 2011; Huang Renwei, “The Reform of the Global Economic Governance System and the New Opportunities for the Rise of the BRICS”, Journal of International Relations, No. 1, 2013; Pang Zhongying and Wang Ruiping, “Strategic Perception of the Relationship Between the BRICS Cooperation and Improving Global Economic Governance”, Contemporary World, No. 4, 2013; Fan Yongming, “The BRICS Cooperation under the New Global Governance Pattern”, International Outlook, No. 4, 2014; Sijbren de Jong, et al., New Players, New Game?: The Impact of Emerging Economies on Global Governance, Amsterdam: Amsterdam University Press, 2012.

BRICS studies: academics and frontiers  17 8 Stefano Pelle, Understanding Emerging Markets  –​Building Business Bric by Brick, London: Sage Publications, 2007; Li Yang, “The BRIC and International Transformation”, Social Sciences Academic Press, 2011; Zhang Yansheng, “Responsibilities of the BRICS in Promoting Even Development of Global Economy”, Economic Monthly, No. 5, 2011; Li Xiangyang, “Common Opportunities and Challenges Facing the BRICS”, Qiushi, No. 8, 2011. 9 Yang Luhui, “The BRICS:  Mechanism, Character and Transformation”, Theoretical Horizon, No. 11, 2011; Smith, J.  A., “The BRIC becomes the BRICS: Emerging Regional Powers? Changes on the Geopolitical Chessboard”, Global Research, January 16, 2011; Zhao Kejin, “The BRICS Cooperation from the Perspective of China’s International Strategy”, International Review, No. 3, 2014. 10 See:  Dina Jaccob, Emerging Economies and Transformation of International Relations: Evidence from the BRICS Members, Berlin: LAP LAMBERT Academic Publishing, 2013; Vai lo Lo and Mary Hiscock, The Rise of the BRICS in the Global Political Economy: Changing Paradigms?, Cheltenham & Northampton: Edward Elgar Pub, 2014; Li, Xing (ed.), The BRICS and Beyond: The International Political Economy of the Emergence of a New World Order, London: Ashgate Publishing, 2014; Wang Zhengyi, “A Study of BRICS Cooperation from an IPE Perspective”, a speech delivered to an academic seminar sponsored by Fudan University titled “Western Sanctions on Russia and their Influences on BRICS Cooperation”, Jan 22, 2015. 11 Goldman Sachs (ed.), The BRICs and Beyond, London: Goldman Sachs, 2007. 12 Zhang Yong, “Comparative Studies on the Reform and Development Models of the BRIC –​Empirical Analysis from an Investment and Institutional Perspective”, Research on Economics and Management, No. 12, 2008; Lawrence Wegeman Jr., BRIC, an Investment Tool, Pittsburgh: Dorrance Publishing Co. Inc., 2009; Julian Marr and Cherry Reynard, Investing in Emerging Markets: The BRIC Economies and Beyond, Chichester and West Sussex:  John Wiley & Sons, 2010; Svetlana Borodina and Oleg Shvyrkov, Investing in the BRIC Countries:  Evaluating Risk and Governance in Brazil, Russia, India, and China, New  York:  McGraw-​Hill Education, 2010. 13 Cai Chunlin, A Study on the Economic and Trade Cooperative Mechanism of BRIC, China Financial and Economic Publishing House, 2009; Liu Junmei, “BRICS Studies Series –​Trade Facilitation: Consensuses on BRICs Cooperation”, Shanghai People’s Publishing House, 2014; Xue Rongjiu, “Characteristics of Goods Services of BRICS and Their Vision of Cooperative Development”, International Trade, No. 7, 2012; Liu Wenge and Wang Wenxiao, “Analyses of the Feasibility of the Establishment of FTA within BRICS and its Economic Effects”, International Economic and Trade Research, No. 6, 2014. 14 N. Mwase and Y.  Yang, “BRIC’s Philosophies for Development Financing and Their Implications for LICs”, IMF Working Paper, WP/​12/​74, Washington D.C.:  IMF, 2012; Chen Yulu, “Economic and Financial Development of BRICS:  A Comparative Review  –​Financial Development Characteristics and Trends of BRICS (First half)”, View Financial, No. 5, 2012; Chen Yulu, “Economic and Financial Development of BRICS:  A Comparative Review  –​ Financial Development Characteristics and Trends of BRICS (Second half)”, View Financial, No. 6, 2012; Sang Baichuan, Liuyang and Zheng Wei, “Financial Cooperation of BRICS:  Status Quo, Problems and Prospects”, International

18  Xu Xiujun Trade, No. 12, 2012; Huang Lingyun and Huang Xiujia, “A Study of the Influences of BRICS Financial Cooperation on Global Economy –​A Empirical Simulation Based on GTAP Model”, Economist, No. 4 2012; Liu Wenge and Lin Yueqin, “A Road to Currency Cooperation of BRICS”, Capital Markets, No. 1, 2013. 15 Li Zhiguo and Du Xiuer, “Empirical analyses of Clean Energy Utilization in BRICS and Its Energy Consumption Structure”, Asia-​Pacific Economic Review, No. 3, 2012; Cao Guangxi, “Carbon Emission, Energy Consumption and Economic Growth of BRIC”, Asia-​Pacific Economic Review, No. 6, 2011; Zhao Qinsi, “Problems and Path of Energy Cooperation of BRICS”, International Studies, No. 5, 2013; Liu Wenge and Wang Lei, “Analyses of Energy Cooperative Mechanism and Policy Paths of BRICS”, Comparative Economic & Social Systems, No. 1, 2013. 16 Kwang Ho Chun, The BRICs Superpower Challenge: Foreign and Security Policy Analysis, London: Ashgate Publishing, 2013. 17 J.E. Cassiolato and V. Vitorino, BRICS and Development Alternatives: Innovation Systems and Policies, London and New York: Anthem Press, 2009; Ning Youjun, “Puzzlement of High Corruption and High-​ Speed Economic Growth  –​An Empirical Analysis of BRIC”, China Market, No. 5, 2011; Shen Yi, “Global Cyberspace Governance and BRICS Cooperation”, International Review, No. 4, 2014. 18 Xinhua and Wikipedia, BRICS: A Guide to Doing Business in Brazil, Russia, India, China and South Africa, Intercultural Publishing, 2012; Renata La Rovere et al. (eds.), Entrepreneurship in BRICS: Policy and Research to Support Entrepreneurs, Springer International Publishing Switzerland, 2015. 19 Samuel Twum Kwakye, The BRICS States and the Responsibility to Protect Norm:  Dynamics of State Power and Self-​ Interest, Berlin:  LAP LAMBERT Academic Publishing, 2014; Fabiano Mielniczuk, “BRICS in the Contemporary World:  Changing Identities, Converging Interests”, Third World Quarterly, Vol. 34, No. 6, 2013, pp.  1075–​1090; Xu Xiujun, “Systematic Non-​Neutrality and BRICS Cooperation”, World Economics and Politics, No. 6, 2013; Gao Shangtao, “Practical Theory and Practical Model:  An Analysis of the Process of China’s Participation in BRICS Mechanisms”, Foreign Affairs Review, No. 1, 2015; Zhou Fangyin, “How Far Does BRICS’s Cooperative Mechanism Go? –​An Analysis of the Process of State-​to-​State Power Games and the Basis of Interests”, People’s Tribune, No. 22, 2014. 20 Wang Houshuang, Guan Hao and Huang Jinyu, “The Influences of the BRICS Cooperative Mechanism on the Innovation of Global Economic Governance System and Mechanism”, Asia-​ Pacific Economic Review, No. 3, 2015; Fan Yongming and He Ping, “Concept of ‘Inclusive Competition’ and BRICS Bank”, International Review, No. 2, 2015; Oliver Stuenkel, The BRICS and the Future of Global Order, Lexington: Lexington Books, 2015. 21 Anders Åslund, “Why Growth in Emerging Economies Is Likely to Fall”, Peterson Institute for International Economics Working Paper, No. 13–​10, November 2013. 22 Michael A. Glosny, “China and the BRICs: A Real (but Limited) Partnership in a Unipolar World”, Polity, Vol. 42, No. 1, 2010, pp. 100–​129. 23 Xi Jinping, “Jointly build a partnership and create a beautiful future –​A speech to the Seventh Leaders’ Meeting of BRICS Countries”, People’s Daily, July 10, 2015, p. 3.

BRICS studies: academics and frontiers  19 24 Rich Marino, The Future BRICS: A Synergistic Economic Alliance or Business as Usual?, Hampshire and New York: Palgrave Macmillan, 2014. 25 Zhu Jiejin, “Transformation of The BRICS Cooperative Mechanism”, International Review, No. 3, 2014; Zhang Haibing, “BRICS Cooperation under the Adjustments of the World Economy Pattern”, World Outlook, No. 5, 2014. 26 See: General L. Ivashov, “BRICS and the Mission of Reconfiguring the World: An Alternative World Order?” The 4th Media, June 17, 2011; Cedric de Coning et al. (eds.), The BRICS and Coexistence: An Alternative Vision of World Order, Oxon & New York: Routledge, 2014. 27 Beausang-​Hunter, F.A., Globalization and the BRICs: Why the BRICs Will Not Rule the World for Long, Hampshire & New York: Palgrave Macmillan, 2012.

2  Non-​neutrality of international regimes and the BRICS cooperation Xu Xiujun

In June 2009, top leaders of Brazil, Russia, India and China held their first meeting in Yekaterinburg, Russia, where they agreed on establishing an annual meeting mechanism. This marked the shift of “BRIC”1 from an abstract economic concept to a concrete international dialogue and cooperation platform. Within two years, the BRIC cooperation expanded its membership for the first time to incorporate South Africa, the largest economy in Africa, thus making “BRIC” into “BRICS”. The addition of South Africa made BRICS a more representative cooperative mechanism for emerging economies. Geographically, the BRICS countries are located respectively in Asia, Europe, Africa and South America. The population of the five countries accounts for more than 50 per cent of that of all developing countries and the total territorial area accounts for 40 per cent. Economically, the five countries contribute about 60 per cent of the nominal GDP (measured by market exchange rates) of all developing countries.2 The rise of the BRICS countries reflects their growth in economic, political, cultural terms, among other aspects, and marks a gradual shift of the BRICS’ role in global affairs from peripheral to central. More importantly, the rise of the BRICS countries will catalyze changes to the unreasonable distribution of interests in the international community and to certain unreasonable international rules. In Historical Research, Arnold J.  Toynbee uses a simple yet explanatory model, that is, the concept of “Challenge and Response”, to explain how civilizations rise and fall.3 This model reveals that the development and progress of a civilization, a state, or an institution are accomplished in the process of continuously responding to external challenges. Likewise, the rise of the BRICS countries and the formation of the BRICS cooperative mechanism are precisely the results of their continuous response to the challenges in the international community. This glaring example serves as further corroboration of the model. As latecomers to the international system, emerging countries stand in a relatively disadvantageous position in many fields. Therefore, the existing global landscape constitutes an external challenge for their development and progress. However, it is precisely because of these persistent challenges that the BRICS countries put forward a shared strategy, that is,

Non-neutrality of international regimes   21 cooperation among the five countries, as an important means to address the common challenges. As they collectively respond to these challenges, the BRICS countries have risen as a group. The formation and development of the BRICS cooperative mechanism are undoubtedly of paramount significance for strengthening economic and trade cooperation and policy coordination among the five countries. However, the international community has varied understandings and evaluations of the BRICS cooperative mechanism and its future. Optimistic analysts believe that at the national level, the BRICS countries have great investment potential and broad prospects for economic development, which constitute the solid foundation for the BRICS cooperation.4 At the international level, the BRICS countries are breaking the long-​term monopoly of a few established powers in the global economy, a robust trend that truly reflects the development and progress of the international community.5 On the other side, pessimistic scholars are more tempted to emphasize that the differences of the five countries in the political system, size of the economy, economic structure and cultural legacy will undermine their potential to form a united whole.6 Among the pessimists, Joseph S. Nye, an esteemed American scholar, has produced several publications, in which he points out that the reason it is difficult for the five countries to form a close alliance is that there is no “glue” that can make the five countries stick together while mitigating their divergences and differences.7 One of the focuses of these debates is how to evaluate the multilateral cooperative mechanisms established during the rise of the BRICS countries and their far-​reaching impact on the world today. This issue not only entails an objective analysis of the status quo and future of the BRICS countries, but also triggers rational thinking about the changes to global-​ governance mechanisms in this new era. In some traditional power-​based theories, the global landscape takes shape based on the comparison of national strength and the ranking of countries thus determined in the international system.8 Moreover, as American hegemony has been established since the United States replaced the British Empire as a superpower after World War II, some scholars have constructed the “hegemonic stability theory” and the “hegemonic cooperation model” to serve as the theoretical support for the so-​called “Pax Americana”.9 Among them, Charles P. Kindleberger was the first to propose that the stable operation of the international economic system requires a hegemonic state to bear the “public costs”, based on the theory of public goods.10 According to this logic, for an open and free world economy it is necessary to have a dominant power as a supreme presence to ensure stability and development of the international economic system. In a certain historical period, these theories provided a concise explanation for the reality of the international community. However, since the 1970s, the American hegemony has been on a downward slide.11 Although the debate over the decline of American hegemony still lingers, the relative decline in its strength has become an indisputable fact. According to the IMF,

22  Xu Xiujun the share of GDP (measured by market exchange rates) contributed by the United States had dropped from 35 per cent in 1985 to around 22 per cent in 2012.12 Therefore, the hierarchy of global economic governance established by hegemonic powers is facing greater challenges: on the one hand, the rise of emerging economies is challenging the absolute superiority of hegemonic powers in terms of economic strength; on the other hand, the declining relative strength of the hegemonic powers has led to their weakening ability to control international regimes and the rising costs to maintain the existing system. These challenges have made the limitations of the traditional power theories increasingly prominent. Therefore, it is time to reconsider the future direction of the world and produce new theories to explain and evaluate the rise of cross-​regional global-​-​governance mechanisms among emerging countries such as the BRICS cooperation. In an increasingly institutionalized and interdependent world, international regimes are deeply embedded in the international community, and state behaviours are often constrained by these regimes. But in essence, the international regimes reflect the conflicting interests and demands of the international actors. If the global landscape is defined as the relatively stable or balanced rights and interests formed by a country or a group of countries in the world, then the status and role of a country or a group of countries is reflected by its rights and interests when dealing with other countries in the world and subject to change when these rights and interests change. Taking this as a logical starting point, this chapter attempts to examine the reality and future of the BRICS countries from the perspective of regimes and interests.

1.  Multilayered BRICS cooperative mechanism Today the global economic and political landscapes are witnessing accelerated adjustments and changes, especially after the global financial crisis in 2008. In the process, although the developed countries still dominate the current international order, there are obvious signs that the world’s political and economic centres are shifting towards emerging countries. As a new force in global governance, the BRICS cooperative mechanism has become an important platform for consultation and dialogue among the five countries for addressing global issues and therefore has a non-​negligible influence on the global-​ governance system. Since its inception a few years ago, the BRICS cooperative mechanism has continuously made new progress. 1.1  Bilateral and multilateral cooperative mechanisms At present, the BRICS countries are cooperating in a variety of ways, including cooperation in global international organizations and institutions, and through multilateral coordination mechanisms to complement one another and seek common interests. They also endeavour to strengthen

Non-neutrality of international regimes   23 political, economic and trade ties with one another through regional, cross-​ regional and bilateral cooperation, thus jointly building an effective network of institution-​based cooperation. First, the BRICS countries continue to expand bilateral cooperation channels for enhanced mutual partnerships. Preliminary statistics show that, from 1993 to 2013, eight pairs of partnerships were established among the BRICS countries, and the partnerships between some countries have been upgraded. For example the bilateral relationships between China and Russia, China and South Africa and Russia and South Africa have gradually developed from the original basic-​level partnerships into comprehensive strategic ones. Second, in the traditional global political and economic landscape, the BRICS countries have continuously enhanced their influence and voice in international political and economic affairs through mutual cooperation and support. In the past decades, the BRICS countries were actively supporting the United Nations as the core player in promoting international peace and cooperation and were committed to developing cooperation and exchanges within the framework of the UN system. As members of the United Nations and the World Trade Organization, the five BRICS countries are collaborating on relevant areas through the International Monetary Fund, the International Development Association, the International Bank for Reconstruction and Development (World Bank), the World Health Organization, the International Atomic Energy Agency and the World Trade Organization. In so doing, they are playing an important role in addressing and responding to global issues. Third, the BRICS countries have established and joined various forms of multilateral coordination and dialogue mechanisms based on their own realities. In addition to the BRICS coordination mechanism, the Group of 77 (G77), the Group of 20 (G20) and the Group of 5 (G5) are also important platforms for cooperation and coordination among the BRICS countries. In recent years, a number of issues-​oriented coordination mechanisms have also been established within the five countries. For example on the issue of climate change, Brazil, China, India and South Africa have formed the “BASIC”; on regional security and energy issues, China, India and Russia have established a tripartite summit mechanism; on issues such as trade and development, India, Brazil and South Africa have established the India-​ Brazil-​South Africa Dialogue Forum. These multilateral coordination and dialogue mechanisms serve as new platforms for strengthening BRICS cooperation and enhancing the status of developing countries in the global political and economic system. 1.2  The institutionalization of the BRICS cooperation The BRICS has gradually developed from a concept in the investment field to a multilateral cooperative mechanism of emerging economies that plays an

24  Xu Xiujun important role in the current international arena. In the process, the cooperation between the BRICS countries has been enhanced and the mechanism has been improved. At present, it has developed from a single-​layer foreign ministers’ meeting to a multilayered cooperative mechanism featuring summit meetings and covering varied fields. Step one:  The foreign ministers’ meeting mechanism was established. In September 2006, as proposed by Russia, the foreign ministers of Brazil, China, India and Russia held their first meeting during the UN General Assembly and decided to hold a meeting annually thereafter. In May 2008 in Russia, the four foreign ministers held their first meeting on the sidelines of the UN General Assembly, where they issued a joint communiqué. In September 2011, the foreign ministers of the expanded BRICS gathered in New York for the first time to exchange their views on the hottest issues in the international community, such as the Libyan civil war, the Syrian civil war, the Palestinian–​Israeli conflict, the reform of the international financial system, climate change, sustainable development and counterterrorism. The establishment of the BRIC foreign ministers’ meeting mechanism in 2008 strengthened the pragmatic cooperation and international coordination between the member countries. More importantly, it foretold and facilitated the formation of the BRIC leaders’ meeting mechanism. Step two: The BRICS leaders’ meeting mechanism was established. In June 2009 in Yekaterinburg, Russia,, leaders of Brazil, China, India and Russia held their first meeting to exchange views on the international situation, the G20 Summit, international financial institution reform, food security, energy security, climate change and future development direction of BRICS dialogue and cooperation. As a result, the Joint Statement of the BRIC Countries’ Leaders was issued. The successful convening of the first meeting of the five BRIC leaders marked the formation of the BRIC cooperative mechanism. By 2013, the BRICS leaders had met for five consecutive years. At these meetings, the leaders proposed a series of specific measures to strengthen their cooperation and coordination and promote pragmatic cooperation among the five countries and developed plans for the positioning and future cooperation of the five countries. These efforts served to promote the maturity of the dialogue and cooperative mechanism of the BRICS countries. Step three:  Multilayered consultation and exchange mechanisms were established. In addition to foreign ministers’ meetings, the BRICS countries have established multilayered cooperative mechanisms such as regular meetings of senior security representatives, meetings of ministers from specific fields, meetings of facilitators and irregular communication between resident multilateral agencies, under the overall framework of the leaders’ meetings. During the leaders’ meetings, relevant departments and organizations of the BRICS countries also hold various forms of supporting activities such as entrepreneur forums, banking associations, cooperative forums, think -​tank meetings, financial forums, business forums and economic and

Non-neutrality of international regimes   25 trade ministerial meetings. These activities provide effective platforms for strengthening cooperation and exchanges in various fields. Step four:  The BRIC cooperation expanded to incorporate another member. Since the inception of the BRIC cooperative mechanism, its huge development potential has aroused the attention of the international community, especially emerging countries. In November 2010, during the G20 Summit in Seoul, South Korea, South Africa filed a formal request to join the cooperation. In December 2010, Brazil, China, India and Russia unanimously decided to incorporate South Africa as a full member of the BRICS. This marked the first expansion of the cooperative mechanism since its establishment. The expansion demonstrates not only the attraction and vitality of the mechanism, but also that the BRICS cooperation is becoming deeper and wider.13 In short, the BRICS cooperative mechanism has step by step developed an informal multilayer cooperative structure that allows flexible decision-​ making and stresses practicality. Nevertheless, the development and improvement of the cooperative mechanism might still be affected, if not interfered with, by both internal and external factors, and these factors could increase the difficulty and complexity of establishing an even-​closer and more-​efficient cooperative mechanism among the BRICS countries. But overall, there are more positive factors than negative ones. The BRICS cooperative mechanism still has great potential for further development in the next few years. The BRICS countries stick to the principles of “openness, solidarity and mutual assistance” in their joint effort to advance inclusive and non-​confrontational cooperation in a gradual and practical manner. These principles and attitudes show strong attraction and vitality in creating positive factors for the development of the cooperative mechanism and will ensure that the BRICS has a greater role to play in global governance.

2.  Non-​neutrality of international regimes and BRICS’s demand for interests In terms of global governance, the current international rules of the Charter of the United Nations and the economic and financial rules of the Bretton Woods system were all formulated under the leadership of developed countries that have been taking firm control of major international institutions. Due to the non-​neutrality of international regimes, these rules and institutions have become important means and tools for developed countries to reap benefits for themselves. The advance of the BRICS mechanism and the rising role and status of the BRICS countries will inevitably facilitate changes to the unfair and unreasonable distribution of interests in the world today and mitigate the adverse effects of non-​neutral global governance. Traditional hegemonic power groups consisting of one or more major powers will find it more difficult to accommodate the world’s ever-​changing political and economic system.

26  Xu Xiujun The global landscape will witness a major shift from a traditional one featuring dominance-​obedience relationships to a democratic one characterized by equal participation, mutual benefits and win-​win results. 2.1  Non-​neutrality of global governance due to the non-​neutrality of international regimes Douglass C. North defines regimes as “the rules of the game in a society”, and “they are the humanly devised constraints that shape human interaction”.14 It includes both formal rules such as a constitution and law, property rights systems and contracts, and informal rules, such as norms, codes of conduct and custom. In the most basic sense, regimes refer to a set of rules. The non-​ neutrality of regimes refers to a situation in which the same regime treats people differently. In other words, what individuals gain from the regime varies. Those who have already benefited from the established regimes or may benefit from future regimes will undoubtedly endeavour to maintain or fight for them.15 In other words, these regimes reflect the uneven distribution of rights and interests. This can be understood in two ways: on the one hand, for the whole society, the potential benefits or losses brought by a particular regime vary by individual or group. Some groups or individuals benefit from the regime, while others may suffer loss. On the other hand, for those who benefit or suffer loss from a regime, the benefits or losses can be different. Moreover, the non-​neutrality of regimes is ubiquitous in human society, not only for a social group or a country, but also for the international community. Although the establishment of most international regimes has been recognized by participating countries that are said to be able to enjoy equal rights, the rules, the decisions, and the actions taken accordingly usually mean different benefits and losses for different participants. In the era of economic globalization, the international structure is different from that in the period when nation-​states depended less on one another. It cannot be reflected simply by the sum of the absolute strengths of all countries or a mechanical distribution of relative strengths, but rather by an extremely complex international social network, which is materialized in international regimes of various forms and functions. Stephen D.  Krasner has given a more comprehensive definition of international regimes. He believes that “international regimes can be defined as sets of implicit or explicit principles, norms, rules and decision-​making procedures around which actors’ expectations converge in a given area of international relations”.16 Principles are beliefs of fact, causation and rectitude. Norms are standards of behaviour defined in terms of rights and obligations. Rules are specific prescriptions or prescriptions for action. Decision-​ making procedures are prevailing practices for making and

Non-neutrality of international regimes   27 implementing collective choice. These principles, norms, rules and decision-​ making procedures may all lead to the transfer of national sovereignty, infringement of state autonomy and restrictions on state behaviours, thus posing varied challenges to the interests of nation-​states. The advance of globalization will pose even more global challenges for human society. These challenges go beyond the boundaries between countries and cannot be properly addressed by any country alone. Therefore, it is necessary for all countries in the world to join hands in facing these challenges. It was in this context that global governance came into being. Global governance is a movement towards political consultation and cooperation among governments, international organizations and citizens of different countries to maximize their common interests. The key to global governance should be improving and developing a new international political and economic order dedicated to safeguarding security, peace, development, welfare, equality and human rights. That order includes global rules and regimes that deal with international political and economic issues.17 Therefore, international regimes have an inseparable connection with global governance. Despite the many legitimacy-​ related flaws, international regimes have developed into an important carrier of global governance in the process of globalization.18 Representing the coordination and cooperation based on a commonly recognized international institutional framework, global governance relies primarily on institutional networks of formal and informal rules. In this sense, global governance is a collective action under an international-​ relations structure consisting of various international standards, norms and mechanisms. However, due to the non-​neutrality of regimes, mechanisms followed by global-​governance actions bring varied benefits or loss to different countries or groups. That is essentially why global governance is branded as “non-​neutral”. 2.2  Vested-​interest groups in global governance In China, an interest group refers to “a minority group in the society who have shared interests”.19 The goal of these groups is to create favourable conditions for themselves by influencing national legislation or government decisions. It is also possible for them to reap benefits by organizing governments or monopolizing legislative bodies. A vested-​interest group is a special-​interest group formed by illegal means or unreasonable institutional design. In other words, it is formulated by people who enjoy vested interests in order to safeguard those interests. A vested-​interest group only represents the rights and interests of a limited group of people in the society and usually runs counter to the public interest. In the international community, there are also vested-​interest groups that establish or monopolize international regimes to safeguard and realize the interests of the group’s members by formulating international rules and norms favourable to themselves. The existence of these groups mainly stems

28  Xu Xiujun from three reasons. First, the international community has been an anarchic society without a central authority. For a long time, the competition between countries has followed the “jungle rule”, where the superpowers are able to leverage their comprehensive strengths to build an international political and economic order at their own will. Second, the international community does not have effective monitoring and restraint mechanisms in place. The substantial imbalance of the distribution of rights among participants in the international regimes undermines their effectiveness. On the one hand, weak and powerless participants are forced to accept the established regimes; on the other hand, the strong and powerful have the privilege to transcend these regimes.20 Due to the lack of effective supervision and restraints on the established powers, it is difficult for latecomers to challenge the authority of vested-​interest groups and rectify the unfair and unreasonable distribution of interests. Third, the public resources in the international community are unreasonably distributed. For historical reasons, vested-​interest groups have controlled most of the public resources in the international community, including the pricing power of material resources and the right to formulate international rules. The unreasonable or illegitimate, yet objective, existence of these vested-​ interest groups have three characteristics:  First, they are inadequately representative of all countries. These groups represent only the interests of a small number of countries, mostly developed countries and fall short of representing the common interests of all countries in the world, or the public interests of human society. Second, they are illegitimate. The vested-​ interest groups reap their benefits, that is, wealth and power, through absolute strength and monopoly, rather than through equal, fair and reasonable means. Third, these groups are ineffective in the distribution of benefits. The vested-​interest groups’ protection and pursuit of their own rights and interests have aggravated the unequal distribution of international social welfare, resulting in the irrational allocation and waste of social resources and net losses of social welfare. Therefore, the vested-​interest groups constitute the greatest obstacle to the establishment of a new international political and economic order. The reason is twofold: On the one hand, in order to maximize the interests of the group as a whole or of a particular member, vested-​ interest groups often ignore or disregard the global interests or those of other countries; on the other hand, these groups have essentially dominated the international community and enjoyed the absolute right to make decisions, thus becoming the source of unfairness and instability in the international community. The most important and influential global-​ governance mechanisms are established under the leadership of developed countries. In fact, in the existing global-​ governance system, advanced economies are vested interests that enjoy the lion’s share of the benefits generated from global governance. In monetary and financial terms, the foreign exchange reserves of all countries are mainly using the currencies of developed countries such

Non-neutrality of international regimes   29 as the Euro, Yen and Pound in addition to the US dollar. The developing countries remain vulnerable under the current monetary system because the international community often exerts much more stringent financial regulations on them than on developed countries. In terms of trade, as developed countries have already established a sound industrial system after a long-​term industrialization process, they enjoy an absolute competitive advantage in the foreign trade of most commodities. On the other side, as most developing countries have just started their industrialization process, the influx of foreign products will undoubtedly have a huge impact on their industries still in the development stage. Furthermore, certain international rules such as textile quotas and agricultural subsidies are all favourable to the developed countries. In terms of climate change, some developed countries leverage their advantages in capital and technology to connect climate change with trade policies and intellectual property rights in the formulation of new international rules that are difficult for developing countries to abide by –​doing so in an effort to consolidate and develop their own vested interests. Since the 2008 global financial crisis, the voice calling for reform in the global-​ governance mechanism has been rising, and certain reforms and adjustments are moving towards a direction that is favourable to the emerging markets and developing economies. But, overall, the international monetary, financial and political security framework formed after World War II has not yet seen any fundamental changes. Thanks to its stout comprehensive strengths, the vested-​interest group composed of a few developed Western countries establishes and leverages the international rules to protect and expand its vested interests. Within this group, the United States is the most influential and aggressive power. The way in which international rules are established and implemented is obviously region-​specific and not subject to a predefined standard. The vast majority of developing countries are forced to accept the unfair international rules, as well as the production means and lifestyles preset by developed countries.21 In short, the process of establishing a global-​governance mechanism and implementing governance rules is bound to generate groups with varied interests in the international community. At present, as the major beneficiaries of the current mechanism, developed countries have formed a vested-​interest group that monopolizes the distribution of international rights and interests. Although the non-​neutrality of regimes is not necessarily inappropriate, the inability of these non-​neutral institutions in coordinating and addressing the inequality and unfairness reflected in the distribution of interests may cast a shadow over the legitimacy of these regimes, thereby causing changes to them. 2.3  The BRICS’s interest appeals in global governance In the early 1990s, in the aftermath of the Cold War, the world gradually merged into a huge unified market. In the following decade, due to the

30  Xu Xiujun reluctance of the BRICS countries to participate in global governance, some scholars and analysts believed that those countries, as a cross-​ regional emerging economy group, had difficulty in achieving consensus in global governance through coordination, and that the contradictions and divergences among the five countries trump the consensuses. Although it exaggerated the divergences of interests among the BRICS countries, this view was not irrelevant. For a long time, whether the BRICS countries can form a community of interests has been widely questioned due to several reasons. First, the trade ties among the BRICS countries were not close enough. Mutual investments were maintained at a low level. Financial cooperation was in its infancy. Cooperation in investment needed to be improved. Second, the BRICS countries varied greatly in terms of the political system and values. The BRICS countries were different in their social systems, forms of government, religious beliefs and values, as well as national character and consciousness. Third, the BRICS countries were subject to external environmental constraints. In many areas, BRICS countries were subject to the direct or indirect influence of developed countries. As developed Western countries had long dominated the international economic order, they feared their leadership in the global economy might be challenged as the BRICS countries rose. Therefore, they did not want the BRICS countries to form a community of common interests and concerted actions. Despite the above influence and interference, the BRICS countries had already created the basic conditions for participating in global governance thanks to the continuous improvement of their own strengths and the external environment. They increasingly made their own voices heard in the international community. Consensus among them started to exceed their divergences, and common interests were established. Therefore, they began to seek changes to their long-​standing disadvantageous position in global governance, which had increasingly highlighted the sensitivity and vulnerability of their interests and constrained the further development of the BRICS economy. The BRICS countries often stood at a disadvantageous position in the global efforts to stabilize commodity prices, prevent financial regulation from failing, establish a reasonable exchange-​rate mechanism, break investment and trade barriers, and promote trade balance. Even worse, they were considered as having a submissive role in the international community. More importantly, due to the non-​neutrality of global governance and the control of the vested-​interest group over global governance, the position and role of the BRICS countries in the international community had become incommensurate with their strengths. In recent years, with the improvement of their strengths and the continuous expansion of their demand for interests in the international community, the BRICS countries have begun to leverage global-​ governance platforms to put forward their plans and ideas. Voicing their own demands and safeguarding their common interests have become necessities if

Non-neutrality of international regimes   31 they seek further economic development and improvement of strength. There are several reasons for this. First, the BRICS countries aspire to continue enhancing their economic strengths. In recent years, they have made substantial progress in economic development. The BRICS economy has been increasing its contribution to the world economy. Certain BRICS countries have achieved leap-​frog development to occupy pivotal positions in the global economy. However, the per-​ capita income of the BRICS countries still falls far behind that of developed countries. According to the 2012 data of the World Bank database, the nominal GDP per capita of the G7 countries in 2011 was above US$36,000. That of Canada and the United States reached US$50,300 and US$48,100 respectively. In comparison, among the BRICS countries, Russia had the highest nominal GDP per capita (US$13,000) and India the lowest (US$1,509).22 In addition, the BRICS countries still pale in comparison with developed countries in terms of overall socioeconomic development. After the international financial crisis in 2008, the BRICS countries were faced with the deterioration of the external economic environment, shrinking export trade and the slowdown of economic growth, among other challenges. Therefore, they had the shared aspiration to stabilize the external environment, promote global economic recovery and maintain rapid economic growth. Second, the BRICS countries have shared interests in addressing the challenges encountered in the economic globalization process. The advance in economic globalization has accelerated the transnational flow and allocation of goods, services, capital, technology and information and closely linked the economic activities of countries around the world. At the meantime, however, economic globalization has brought risks and challenges to many countries and triggered a series of global issues. For example it is possible for economic problems within one country to trigger a global financial and economic crisis that causes huge losses to other economies. As the BRICS countries are still in the growth stage, with fragile domestic economic systems and underdeveloped economic policies and institutions, they are more vulnerable to the influence and impact of other economies. Especially at a time when some developed countries are faced with serious latent risks in their national economy, they may be tempted to pass on their domestic problems or crises to the less-​ experienced emerging economies in order to alleviate their domestic economic pressures and achieve domestic economic goals. In this context, the cooperation among the BRICS countries can serve to effectively break through the limitations of individual countries and form a synergy to handle global issues, thus better safeguarding their own interests. Third, the BRICS countries have a common desire to continue enhancing their international status and advance global governance along a more equitable and rational track. In the current international political and economic system, the vested-​interest group led by the United States is the major beneficiary, while the overwhelming majority of emerging and developing countries

32  Xu Xiujun are not entitled to fair treatment and opportunity to exert influence commensurate with their own strengths. This is mainly manifested in the following two aspects: One is that the emerging and developing countries represented by the BRICS countries still stand at a submissive position in the international monetary finance and trading systems; and the other is that these countries are subjected to the substantial imbalance of rights and obligations in global governance. The BRICS countries have assumed more responsibilities in resolving the problems faced by all countries than the rights they are able to enjoy and the voice they are allowed to have. In the 2008 international financial crisis, the BRICS countries took on the huge economic disaster and made great contributions to the global economic recovery. But, still, they could not gain the approval of international organizations to exert due supervision and restrictions on the economic operation and the financial and monetary policies of developed countries represented by the United States. In this context, the BRICS countries have formed consensuses on the necessity to reform the global-​governance system.

3.  Inclusive interests and the BRICS cooperation What the BRICS countries have established is a new type of partnership in keeping with the modern era, rather than an anti-​Western political alliance.23 At the Third BRICS Summit held in April 2011, the leaders of the five countries explicitly stated that BRICS cooperation is “inclusive and non-​confrontational” and that the BRICS countries are willing to strengthen cooperation with other countries, especially with emerging and developing countries, and relevant international and regional organizations.24 This shows that the pursuit of inclusive interests is a consensus formed by the BRICS leaders in the process of brewing and advancing the BRICS cooperative mechanism. 3.1  Non-​zero-​sum game and inclusive interests in the global economy A game can be understood as a “strategy” or a “rule”. It can be divided into a zero-​sum game and a non-​zero-​sum game according to the gain or loss of utility. In a zero-​sum game, the players are in opposition to each other, and one player’s gain means the other player’s loss. In a non-​zero-​sum game, regardless of whether the return is a non-​zero constant or subject to change with the strategy mix of the players, each player will gain their profits in a win-​win situation for all players. In the international community, as “players” in many areas of the global economy, the participating countries are no longer playing a zero-​sum game whereby one’s gain is another’s loss, but rather a non-​zero-​ sum game that leads to all-​win or all-​loss situations. The main reasons are as follows. First, global economic interdependence is strengthening. The development of capitalism has facilitated the formation of a world market, where production and consumption activities are conducted across national borders. Especially

Non-neutrality of international regimes   33 since the mid-​twentieth century, economic globalization has swept across all developed capitalist countries and spread further to the developing countries. The accelerated development of globalization has tightened the economic ties between countries, making it difficult for a country to unilaterally control its own economy. The production of commodities in one country requires import of raw materials from other countries. The expansion of investment in one country needs the inflow of capital from other countries. Even the development of economic policies in one country may require the cooperation of other countries. Globalization has become an irreversible trend in the world economy, where international economic exchanges have been expanding, with international economic management organizations and economic entities constantly emerging. Regional economic integration has shown a good momentum of development and has promoted transnational communication, collision and integration of different cultures, lifestyles, values and ideologies. The irreversible trend of globalization has made different countries’ economies increasingly interdependent and even changed world politics. In other words, we have ushered in an era of interdependence.25 In the late twentieth century, economic globalization experienced a flourish on a truly global scale. Whether it was raw materials, capital, labour, or information, management and organization, a level of internationalization had been achieved. The free flow of production factors across national borders became an important phenomenon in the development of the global economic landscape. In today’s world, the rapid development of high technologies such as information technology has narrowed the gaps between countries. The economies of different countries and regions become increasingly intertwined and mutually influential on their way to becoming an integrated whole. Second, the complementarity of the global industrial structure is strengthening. Since the 1990s, due to technological progress and international division of labour, a new round of global industrial transfer has been in the process, thereby further enhancing the complementarity of the global economy. The global industrial transfer is progressing faster and at a scale larger than ever. As of 2011, the nominal global trade volume of goods reached US$18.2 trillion, more than 360 times that in 1948, or a 4.2-​fold and a 1.9-​fold increase compared with 1991 and 2001. Global foreign direct investment (FDI) flows (inflows) reached US$2.0 trillion in 2007 just before the global financial crisis, 9.1 times that of 1990; and stocks (inflows) reached US$17.9 trillion, 7.6 times that of 1990.26 Although global trade and investment cooperation was weakened due to the global financial crisis in 2008, it had basically returned to pre-​crisis levels by 2010. Furthermore, regional industrial transfers go hand in hand with cross-​regional industrial transfers on the basis of a global division of labour, greatly enhancing the complementarity of intra-​and inter-​regional industrial structures. On the one hand, regional economic integration has developed rapidly, and intra-​regional resource allocation and factor flows have accelerated. Regions such as the European Union, North America and East Asia have shown the strongest momentum of global industrial transfer

34  Xu Xiujun and continued to promote the advance of global industrial structure. On the other hand, cross-​regional economic ties have strengthened, facilitating the global distribution of industrial chains and high-​degree specialization of the international division of labour. This is mainly reflected in the structural complementarity in the vertical division of labour among developed and emerging markets and in the complementarity among developed countries thanks to the division of labour within particular industries. Third, global issues are posing greater challenges. The advancement of science and technology and the development of industry have enabled mankind to better transform nature and have allowed the creation of increasingly developed material and ideological civilizations. However, they have also generated many negative effects on human society. More than a century ago, Engels warned: “Let us not, however, flatter ourselves overmuch on account of our human victories over nature. For each such victory, nature takes its revenge on us”.27 In recent decades, nature has punished human beings more frequently, posing some serious global challenges to human society. These universal challenges have a bearing on human survival and development and can only be solved by the joint efforts of all countries in the world. Today global issues appear more prominent than ever, for example population explosions, food shortages, inadequate energy supplies, environmental damage, depletion of resources and outbreaks of massive economic crises. These problems endanger the common interests of all mankind and require the cooperation of all countries in the world to address. In this sense, the emergence of global issues has enhanced the global consciousness to seek common ground while shelving differences and pursuing peaceful coexistence. Hence, the confrontational mindset in the political and economic realms changes to one that values cooperation, compromise and concessions. In addressing global issues, the development of each country has become increasingly related to the progress of the whole world, making all countries indivisible stakeholders in a joint endeavour. The interdependence and complementarity of the global economy determine that the foreign policy for each country in the world should pursue cooperation rather than competition. “Competition can be constructive or destructive. Even when it is constructive, competition is no better than cooperation”.28 This remark of Alfred Marshall more than half a century ago cannot be more relevant for the world today. The countries of the world not only have common interests to be jointly maintained, but also inclusive interests because they are an indivisible whole. Inclusive interest means that a participant of the game does not seek their own benefits at the expense of others, or they may even facilitate the realization of other participants’ interests. In this case, each participant’s interests are essentially in alignment with another’s. The inclusive benefit is both a non-​exclusive benefit and a shared one. For a particular group of countries, inclusive benefit is a broader concept than common interest. On the one hand, members and non-​members of a group are not contradictory

Non-neutrality of international regimes   35 or competitive. Members of a group should not pursue common interests at the expense of non-​members. On the other hand, members and non-​ members of a group can form a win-​win relationship. The pursuit of common interests by members of the group can create conditions for non-​members, thereby ultimately producing win-​win results. Therefore, the inclusive interest not only focuses on the common interests of a given group, but also takes into consideration the interests of non-​members. In other words, inclusive interest is a broader concept of interest relationship. For emerging countries, it is more important to seek inclusive interests. Studies show that if the plans of emerging countries to seek leadership in global governance can accommodate the interests and ideas of other countries, they will be better accepted, supported and followed.29 Therefore, for the cooperative mechanism between emerging countries to success, the pursuit of inclusive interests is both an inevitable requirement and a practical option. 3.2  BRICS cooperation for inclusive interests Unlike traditional alliances in the international community, the BRICS cooperation is not an effort to oppose any other country or to seek exclusive benefits. It will not worsen the already imbalanced distribution of interests in the international community. Quite the contrary, the BRICS cooperation is aimed to promote more extensive cooperation and exchanges in the developing world and to facilitate the rational transformation of the global-​ governance structure by making up for the flaws of international regimes, thereby fundamentally eliminating the roots of conflicts between different blocs or groups in the international community. This fully demonstrates the distinctive inclusiveness of the BRICS cooperation. To be specific, such inclusiveness is primarily reflected in the following seven aspects. First, the BRICS members are diversified. The current five members of the BRICS cooperation are respectively from Asia, Europe, Africa and South America. All of them are big countries with major influence in their respective regions, meaning that they can best represent the interests of other countries in their regions. The diversity is more profoundly reflected in the domestic realities and characteristics of the BRICS countries. In political terms, the five countries have different national, political and judicial systems. In economic terms, they are different in the development model, economic structure, overall strength and per-​capita income. In cultural terms, they have distinct cultural traditions, customs and religious beliefs. The inclusiveness of BRICS membership demonstrates the openness and non-​discrimination of the five governments in foreign policy. Therefore, BRICS is not an exclusive group dedicated to pursuing its own interests, but rather a cross-​regional community of diversified interests. Second, the cooperation is open-​ended. As a coordination platform for emerging economies, the BRICS cooperative mechanism has always been

36  Xu Xiujun open to developing countries. Since its inception, BRIC cooperation has drawn the attention of other emerging economies, some of which have expressed their willingness to join. When the BRICs expanded for the first time to incorporate South Africa as a full member, it showed that the BRICS cooperation would be an open-​ended mechanism with the flexibility to absorb other developing countries that meet certain criteria in terms of economic strength, population size and regional and global influence. The introduction of the “BRICS+N”30 cooperation model provides a shining example for the BRICS cooperation to further enhance its representativeness and global influence, and better promote cooperation among emerging economies. Third, the cooperation is dedicated to pursuing win-​win results. This is a basic consensus reached by the BRICS leaders. In this regard, Hu Jintao, former Chinese president, explicitly stated that the purpose of the BRICS cooperation is to achieve “mutual benefits and common development”.31 President Xi Jinping further explained that the common wishes and responsibilities of the cooperation are “to pursue peace, development, cooperation, and win-​win results”.32 Based on these consensuses, the BRICS countries will continue to firmly safeguard their common interests and strengthen coordination in fields such as economics, finance and development as part of an effort to enhance the status and roles of developing countries in global governance, and to promote the establishment of a new international political and economic order of fairness, equity, inclusiveness, and coherence. Fourth, this cooperation covers a wide spectrum of fields. Strengthening pragmatic cooperation in all fields has been a BRICS fundamental principle. In terms of trade and investment, the BRICS countries have jointly promoted global trade liberalization and investment facilitation and opposed protectionism and unreasonable investment barriers. In financial and monetary terms, the five countries have jointly promoted effective regulation of global finance and diversification of reserve currencies and fought against financial egoism and monetary hegemony. In science and technology and climate change, among other fields, they have continued to strengthen cooperation for in-​depth development. At the 2013 BRICS Summit in Durban, the leaders of the BRICS countries signed off on an action plan for political, economic, cultural, scientific and technological cooperation in almost all fields that have a bearing on the socioeconomic development of the five countries. Nine potential areas for cooperation were also proposed, including the establishment of a public diplomacy forum, anti-​corruption efforts and cooperation among state-​owned enterprises.33 Fifth, the cooperation is multilayered. The BRICS countries have established a multilayered cooperation framework, covering leaders’ meetings, ministerial meetings, experts’ meetings and grassroots forums. Ministerial meetings include the meetings of the BRICS high representatives for security

Non-neutrality of international regimes   37 issues, the foreign ministers’ meetings, the meetings of the BRICS finance ministers and central bank governors, the BRICS trade ministers’ meetings, the BRICS health ministers’ meetings and the meetings of the BRICS ministers of agriculture and agrarian development. The experts’ meetings cover a wide range of topics, including agriculture, scientific and technological innovation and financial cooperation between development banks. Grassroots forums are aimed to strengthen cooperation and exchanges in industry and commerce, urban cooperation, sports and culture. The multilayered cooperation framework provides effective channels for communication among governments, the academia, business community and private sectors, which thereby is conducive to strengthening the relations between the five countries. Sixth, cooperation is a constructive effort. The BRICS countries are an important emerging force that can drive the development of the existing international political and economic system. The BRICS cooperation is conducive to the establishment of a fairer and more rational international system. In Western history, rising powers often sought the redistribution of global interests through wars and expansion as part of an effort to change the world order and establish their own global hegemony. In contrast, the BRICS countries do not attempt to discard and subvert the existing international system, but rather to work together with developed countries to reform and improve the international financial and monetary systems and to promote comprehensive reform of the UN as a central role in addressing global challenges and threats, while accepting and adapting to the current international order. In other words, the BRICS cooperation is an effort of the five countries to reform and construct the international system. Seventh, the cooperation is non-​confrontational. An important feature of the BRICS cooperation is that it establishes a new type of development partnership and adopts a non-​confrontational cooperation strategy. Therefore, the formation of the BRICS cooperative mechanism is in line with the common interests of the international community. The BRICS is not a political or military alliance, but rather the members are partners seeking common development. What the five countries consider and discuss are mainly the development areas that are of general concern to both developed and developing countries. The aim is to address challenges and seek development through cooperation among the BRICS countries, among developing countries and between developing and developed countries. The interests pursued by the BRICS countries are not exclusive, but rather broadly inclusive. Be it on regional, inter-​regional or global levels, the BRICS countries are not challengers of the existing international system, but active participants and builders of the global-​ governance system. They provide a driving force for South–​South cooperation and new opportunities for strengthened North–​South dialogue, coordination and cooperation.

38  Xu Xiujun 3.3  New role of the BRICS mechanism in global governance Since the inception of the BRICS cooperative mechanism, there have always been controversies around its nature and positioning in the international community. But one of the consensuses is that in dealing with global issues, the BRICS countries have at least three roles for global governance. First, a cooperative mechanism among emerging economies. For a long time, developed economies have been not only dominating international rules, but also collaborating by forming blocs and other alliances to safeguard the vested interests they have acquired. In contrast, developing countries have little say over global issues. Even worse, there are not effective mechanisms or platforms for them to voice their own interests and to coordinate policy actions. As emerging markets, the BRICS countries are an important force in driving reforms in global governance and represent the interests of developing countries. The BRICS cooperative mechanism provides not only a platform for economic and trade cooperation and exchanges between emerging markets, but also a stage for developing countries to “speak with the same voice” and to improve their say in global governance. The formation of the BRICS cooperative mechanism signifies that emerging countries are no longer “bystanders” in global governance but have become active participants in it and builders of new international rules. BRICS strives for more voice and decision-​making power for the developing countries in this critical period of global political and economic transformation and reform. Second, a negotiation platform for cross-​regional economic governance. As the BRICS member countries span the continents of Asia, Europe, Africa and to South America, an optimal connection has been built between these regions through cooperation. It is also worth noting that among the BRICS countries, Brazil is the largest economy in South America; Russia is the largest among the former Soviet Union members; India is the largest in South Asia; China is the largest in East Asia, and South Africa is the largest in Africa. They not only have substantial influence in their respective regions, but also represent the interests of other countries in these regions. The cooperation among the BRICS countries has greatly enhanced the political, economic, trade and cultural ties between these regions, thus becoming one of the most important cross-​regional consultation and cooperation platforms in the international community. As the BRICS cooperative mechanism continues to develop, and thanks to their leading role in regional economic governance, the BRICS countries will play an increasingly important part in cross-​regional cooperation and exchanges. Third, a bridge between developing and developed countries. As the backbone of the developing countries, the BRICS countries represent the interests of all developing countries and serve as a bridge that links developing and developed countries. This role is particularly evident in

Non-neutrality of international regimes   39 the G20 cooperation framework consisting of nine developed economies and eleven emerging economies.34 As a high-​profile platform for global economic governance, the G20 plays an important coordinator’s role in addressing major issues such as the global economic crisis, unbalanced distribution of global interests, global financial regulation and reform of the international monetary system. However, the vast majority of developing countries are excluded from the G20 framework. Even if certain G20 topics cover the interests of them, these developing countries do not have the opportunity to conduct direct dialogues with developed countries. The BRICS countries are all members of the G20. As representatives of developing countries, the BRICS countries can provide new opportunities for strengthening North–​South dialogue and facilitating coordination and cooperation between developing and developed countries. These three roles of the BRICS cooperation in global governance not only bind the five BRICS countries together, but also create connections among different countries and regions. This fully demonstrates that the BRICS cooperation is an inclusive and open-​ended benefit-​sharing mechanism that serves as a bridge in the international community.

4.  Conclusion The non-​neutrality of international regimes has led to the uneven distribution of interests in the international community and spawned advantaged and disadvantaged groups of countries. The overall status of the BRICS countries in the existing global-​governance network is not commensurate with their strengths. To change the status quo, there are basically two ways: One is to change the existing unreasonable international regimes, and the other is to establish new regimes that are favourable to them. Due to the existence of the vested-​interest group, the BRICS, as an emerging force, may find it difficult to fundamentally change the existing system of global governance in the foreseeable future. Cooperating with one another to establish new non-​neutral regimes that serve to balance the existing global non-​neutral framework –​and to promote the development of international regimes in a direction that is favourable to emerging economies –​might be the most realistic and effective option. In this sense, the BRICS cooperation is a helpful supplement to the existing international regimes. The formation and development of the BRICS cooperative mechanism serve not only to promote dialogue and cooperation between the BRICS countries, but also to provide a platform for promoting consultation and dialogue between different developing countries and between developing countries and developed countries. Developed countries, developing countries and other emerging markets can all benefit from the furtherance of the BRICS cooperation. Nevertheless, due to the non-​neutrality of the BRICS cooperation, the absolute and relative returns for the BRICS countries and

40  Xu Xiujun for other countries might vary, or even lead to conflicts of interests between the two. To address this problem, the BRICS cooperation should not only work to achieve the interests of the member countries, but also adhere to the principles of openness and inclusiveness by accommodating the interests of other countries. Only in this way can it facilitate the gradual changes to the system of international regimes and, in the meantime, mitigate the impact of dramatic changes to the global landscape. At present, the BRICS countries still face many challenges. But as the economic strength of the BRICS countries continues to improve, the cooperative mechanism continues to evolve, more cooperation issues are addressed through planning and implementation, and new models such as “BRICS+N” are invented, the BRICS countries will be sure to play a more important role in global governance and facilitate the creation of a new world featuring a fair and rational new international political and economic order, lasting peace and universal prosperity.

Notes 1 Jim O’Neill, “Building Better Global Economic BRICs”, Global Economics Paper, No.66, New York: Goldman Sachs, 2001 2 Calculated in accordance with the 2011 World Bank database, http://​data. worldbank.org.cn. 3 Arnold Toynbee, Historical Research, translated by Cao Weifeng, Shanghai People’s Publishing House, 1966, pp. 74–​98. 4 Goldman Sachs, ed., BRICs and Beyond, London:  Goldman Sachs, 2007; Leslie Elliott Armijo, “The BRICs Countries (Brazil, Russia, India, and China) as Analytical Category: Mirage or Insight?” Asian Perspective, Vol. 31, No. 4, 2007, pp. 7–​42. 5 Jack A.  Smith, “BRIC Becomes BRICS:  Emerging Regional Powers? Changes on the Geopolitical Chessboard”, Global Research, January 16, 2011; General L. Ivashov, “BRICS and the Mission of Reconfiguring the World: An Alternative World Order?” The 4th Media, June 17, 2011. 6 Theodor Tudoroiu, “Conceptualizing BRICS: OPEC as a Mirror”, Asian Journal of Political Science, Vol. 20, No. 1, 2012, pp.  23–​45; Ruchir Sharma, “Broken BRICs: Why the Rest Stopped Rising”, Foreign Affairs, Vol. 91, No. 6, 2012, pp. 2–​7. 7 Joseph S.  Nye, “What’s in a BRIC?” Project Syndicate, May 10, 2010; Joseph S. Nye, “BRICS without Mortar”, Project Syndicate, April 3, 2013. 8 Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, New  York:  Knopf, 1949; Kenneth N.  Waltz, Theory of International Politics, Reading: Addison Wesley, 1979. 9 Robert O.  Keohane, “The theory of hegemonic stability and changes in international economic regimes, 1967–​1977”, In Robert O.  Keohane, International Institutions and State Power:  Essays in International Relations Theory, Boulder: Westview Press, 1989, pp. 74–​100. 10 Charles P. Kindleberger, The World in Depression, 1929–​1939, Berkeley: University of California Press, 1973.

Non-neutrality of international regimes   41 11 Immanuel Wallerstein, The Decline of American Power:  The U.S.  in a Chaotic World, New York, London: The New Press, 2003. 12 IMF, WEO database, CD version, May 2013. 13 Padraig Carmody, “Another BRIC in the wall? South Africa’s developmental impact and contradictory rise in Africa and Beyond”, The European Journal of Development Research, Vol. 24, No. 2, 2012, pp.  223–​241; Jack A.  Smith, “BRIC Becomes BRICS:  Changes on the Geopolitical Chessboard”, Foreign Policy Journal, January 21, 2011, www.foreignpolicyjournal.com/​2011/​01/​21/​ bric-​becomes-​brics-​changes-​on-​the-​geopolitical-​chessboard/​ 14 Douglas C. North, Institutions, Institutional Changes, and Economic Performance, translated by Liu Shouying, Shanghai Hong Kong Joint Publishing, 1994, p. 3. 15 Zhang Yuyan, “Interest Groups and Non-​Neutrality of Regimes”, Reform, No. 2, 1994, p. 98. 16 Stephen D. Krasner, “Structural Causes and Regime Consequences: Regimes as Intervening Variables”, in Stephen D. Krasner, ed., International Regimes, Ithaca, NY: Cornell University Press, 1983, p. 2. 17 Yu Keping, “Introduction to Global Governance”, reprinted in Pang Zhongying, World Politics  —​Views from China:  Global Governance, New World Press, 2007, p. 24. 18 Ye Jiang, Global Governance and China’s Strategy in Dealing with Great Powers, Current Affairs Press, 2010, p. 90. 19 Zhang Yuyan, “Interest Groups and Non-​Neutrality of Regimes”, Reform, No. 2, 1994, p. 98. 20 Oran R.  Young, “The Effectiveness of International Institutions:  Hard Cases and Critical Variables”, reprinted in James N.  Rosenau, Governance without Government: Order and Change in World Politics, translated by Zhang Shengjun, Liu Xiaolin, et al., Jiangxi People’s Publishing House, 2001, pp. 208–​209. 21 Zhang Yuyan, “Thoughts on the Characteristics and Trends of the Global Landscape”, International Economic Review, No. 3, 2004, pp. 14–​15. 22 Calculated in accordance with the 2011 World Bank database, http://​data. worldbank.org.cn. 23 Zaki Laidi, “BRICS:  Sovereignty Power and Weakness”, International Politics, Vol. 49, No. 5, 2012, p. 615. 24 Third BRICS Leaders’ Meeting:  Sanya Declaration, People’s Daily, April 15, 2011, p. 3. 25 Robert O.  Keohane and Joseph S.  Nye, Jr., Power and Interdependence. World Politics in Transition, Bejing: Peking University Press, 2011, p. 3. 26 Extracted from the UNCTAD database (UNCTADstat), December 2012. 27 Marx and Engels: Selected Works, Vol. 4, People’s Publishing House, 1995, p. 383. 28 Alfred Marshall, Principles of Economics, Vol. 1, translated by Zhu Zhitai, The Commercial Press, 1964, pp. 26–​27. 29 Stefan A.  Schirm, “Leaders in Need of Followers:  Emerging Powers in Global Governance”, European Journal of International Relations, Vol. 16, No. 2, 2010, pp. 197–​221. 30 This expression originates from the “BRICS plus” proposal at the First BRICS Think Tank Roundtable held in Beijing in April 2013, which was attended by Renato Coelho Baumann, Director of the Brazilian Institute of Applied Economics, Svetlana P. Glinkina, Deputy Director of the Institute of Economics

42  Xu Xiujun of Russian Academy of Sciences, Biswajit Dhar, Director General of the Research and Information System for Developing Countries (RIS), India, Zhang Yuyan, Director-​ General of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, and Ana Cristina D.  Alves, Researcher at South African Institute of International Affairs (SAIIA). 31 Hu Jintao, “A Future of Shared Prosperity: Speech at the Third BRICS Leaders’ Meeting”, People’s Daily, April 15, 2011, p. 2. 32 Xi Jinping, “Work Together for Common Development: Keynote Speech at the Fifth BRICS Leaders’ Meeting”, People’s Daily, March 28, 2013, p. 2. 33 Fifth BRICS Leaders’ Meeting: Durban Declaration, People’s Daily, March 28, 2013, p. 3. 34 For the definition of “emerging economies”, see Zhang Yuyan and Tian Feng, “The Definition of Emerging Economies and Their Status in the Global Economic Landscape”, International Economic Review, No. 4, 2010, pp. 7–​26.

3  Theoretical explanations for the origin of BRICS cooperation Ren Lin and Yin Jiwu

The formation of BRICS cooperation has both exogenous and endogenous causes. Exogenous causes can be divided into functional factors, including the external environment, the power structure of the international system, and the international institutional environment, and normative factors, including the payoff culture for repeated cooperation, and the desire to develop fairer international norms. Endogenous causes can also be divided into functional factors, including the number of actors, complementarity and domestic politics, and normative factors, including cognition of homogeneity and endogenous consensuses. The BRICS’s judgement on whether to maintain the payoff structure and their understanding of the structure’s future impacts are two sets of mechanisms that link all the above factors. BRICS cooperation originated from the national initiatives and practices of the member countries under the exogenous environment. In other words, in the context of a non-​neutral international system and the rise of the BRICS countries in both political and economic realms, the political and economic interdependence among the BRICS countries gradually increased. Their consensus on pursuing higher international status and interests transcended the homogeneous differences between themselves. This consensus led, in turn, to more trust among the four countries and promoted the establishment of relevant institutions and mechanisms. The BRICS cooperative mechanism represents a new form of international cooperation. On the one hand, it differs from traditional homogenous cooperation in that it adopts unique institutional forms and allows a certain degree of heterogeneity and competition among the member countries. This is also one of the reasons for scepticism about the mechanism. On the other hand, BRICS cooperation was a result of multi-​dimensional motives that aroused our interest in exploring its origin. There are a lot of discussions in academia about the evolvement, characteristics, attributes of BRICS cooperation, and the implications of BRICS cooperation for global governance. However, there has not been any systematic effort to explain the origin of the cooperation, or any mature research to abstract and summarize the special case of BRICS cooperation.1 Then, what are its new features? Why can the BRICS countries transcend each other’s differences and form a cooperative governance

44  Ren Lin and Yin Jiwu mechanism with its own characteristics? What theoretical implications and revelations does the origin of BRICS cooperation have? These constitute the theoretical questions we attempt to answer in this chapter. This chapter follows the narrative logic of general to specific by first of all reviewing traditional theories on the origin of cooperation and evaluating the many variables leading to cooperation and their corresponding mechanisms of action, and then analysing the specialness of BRICS cooperation, and finally summarizing the dialectical inspirations of BRICS cooperation for general research on cooperation.

1.  Origin of BRICS cooperation: theories, variables, and explanations This section attempts to identify the basic theoretical elements regarding the origin of cooperation by reviewing and outlining cooperation theories in the disciplines of biology/​anthropology, economics, sociology, psychology and international relations, and on this basis, to summarize the basic variables and mechanisms of action with regard to the origin of cooperation, thus providing a basic theoretical analysis framework for the case study on BRICS cooperation in the next section. 1.1  Theories on the origin of cooperation First, biological studies on cooperation. Biological explanations for the origin of cooperation include altruism (based on kinship, racial identity or reciprocal exchanges) and egoism (as represented by mutualism). The altruism explanation believes that common identity, compassion, and successful culture, rules and regimes will help shape cooperation in the process of interactions and evolution, while the egoism explanation opposes the logic that cooperation originates from compassion and group culture. From the perspective of mutualism, cooperation is a favourable “self-​interested strategy”, and egoism is very much about the idea of ​​“all for one, one for all”. Therefore, the decision to play a cooperative game is driven by self-​interest in the eyes of egoists. The biologist Richard Dawkins tried to bridge the divide between these two theoretical pathways by attributing altruism and cooperation to selfishness, “a predominant quality to be expected in a successful gene is ruthless selfishness. This gene selfishness will usually give rise to selfishness in individual behavior … Let us try to teach generosity and altruism, because we are born selfish.”2 In addition, biological explanations also borrow from classical theories from other disciplines like repeated games and communication theory for the idea that people who initiate altruistic cooperation tend to gain a “high payoff ” advantage and thus evolve more successfully.3 However, some inhibitors (e.g., fear) to cooperation also make evolutionary sense. So even if altruistic cooperation is possible, how to eliminate negative emotions and other uncertainties is also a key topic for discussion on the origin of cooperation.4

Origin of BRICS cooperation  45 Second, economic studies on cooperation make a clear distinction between the “rational” and “emotional” schools. The rational choice model has always been the core economic theory for explaining the drivers of cooperation. Actors make the rational choice to cooperate based on the “complementarity” between them. Essentially, it is the complementarity that gives rise to group cooperative behaviours. In the absence of better alternatives, actors tend to choose complementary partners. In this sense, human behaviour can all be traced back to the primary motive of utility maximization. The emotional school criticizes an absolute economic focus on utility cost and sets out to reflect and expand on the connotation and denotation of rationality. “Human rationality has never been cold reason without emotions … The shorter the psychological distance between people, the greater the probability of cooperation.”5 Just as Dawkins believes that altruism can fulfil a selfish end, cooperation is not necessarily preconditioned by complementary benefits. Just looking at the rational part to the extent of neglecting and denying any emotional interpretations may steer economic analysis away from the truth. In fact, Smith’s works have also emphasized that cooperation is driven by compassion rather than by pure self-​interest.6 Third, psychological and sociological studies on cooperation, which emphasize the importance of emotional factors for cooperation, including trust, common identity, and the sense of belonging to a group cognitively and psychologically.7 Specifically, researchers on the psychological and sociological path view a psychological basis for cooperation as a prerequisite for the origin and establishment of cooperation. While Robert Axelrod believes that cooperation is not necessarily built on trust but on the expectation of a sustained and stable relationship,8 the establishment of trust is still necessary for cooperation in particular because it can determine the durability and stability of cooperation. Only temporary, strategic and other types of short-​term cooperation can do without trust.9 Among the many variables that determine the establishment of trust for cooperation at the micro level, homogeneity, density of interaction, and joint response to external pressure play pivotal roles. For example, the higher the degree of homogeneity between relevant actors, the more likely it is to generate trust; the greater the density of interaction between actors, the more likely it is to increase the transparency of their respective strategic intentions, boost the interdependence of interests and cut transaction costs; and an aligned understanding of common external tasks and pressure is a key exogenous condition for mutual trust between actors. Last, international relations studies on international cooperation, which can be broadly divided into two stages. The first stage is mainly based on the systemic pressure of anarchy and emphasizes the payoff structure, future impact, and the vital influence of the number of actors on cooperation, which gives rise to the theory of decentralized cooperation.10 In contrast to this theory of cooperation, which overemphasizes the characteristics of an anarchic system, studies on international cooperation has re-​emphasized the role of regimes since the end of the Cold War trying to “recover the regimes”,

46  Ren Lin and Yin Jiwu and discussed the independence and autonomy of international regimes such as from the perspective of international law, the rational design of international regimes, and the implementation of regimes from authorization, compliance to agency.11 Existing theories of international cooperation mainly go down the path of game analysis of the effect of rationalism on cooperation, which focuses on analysing the effect and cost of cooperation and overcoming the cost of betrayal. The emphasis on the importance of regimes highlights the significance of institutional forms for cooperation. In addition, while altruistic cooperation has always been there, existing studies have been mostly focused on antagonistic cooperation. Nevertheless, international cooperation as represented by BRICS cooperation is more function-​and development-​based, which is a reflection of the developments in international governance organizations in the era of globalization. This involves joint efforts to find solutions, from the provision of global public goods to global economic, environmental, and terrorism governance.12 The conditions for maintaining development-​based cooperation are different from traditional antagonistic cooperation. Traditional theories tend to discuss conflict-​and risk-​aversion cooperation, aimed at forming a military or political alliance, to the neglect of cooperation based on improved benefits. As a result, only the one-​time payoff structure is taken into account, without considering the sustainability of cooperation. Cooperation that does take the sustainability of cooperation into consideration includes development-​based cooperation and emergency cooperation to form alliances, groups, and partnerships, and so forth. Once an institution with order and stability is achieved and recognized by all partners and yields steady benefits, development-​based cooperation is self-​enforcing. However, emergency and strategic alliances may collapse once the cooperation task at hand is completed and the basis for continuous cooperation no longer exists. For example, G20 needs to think about how to maintain its vitality after the financial crisis.13 In short, development-​based cooperation focuses on the sustainability and repeatability of cooperation and views cooperation from the perspective of “future impact”, bringing new theoretical elements to studies on the origin of cooperation. 1.2  Different variables for explaining the origin of BRICS cooperation The above discussion shows that the variables for explaining the origin of cooperation intertwine with each other and vary in how they influence the origin of cooperation under different situations and conditions. The variables can be divided along the lines of functionalism and normativism.14 According to such functional/​normative classification, functional variables are based on historical practices and help identify both sides’ strategic intentions and create consensus in aligned interests and the repeatability of cooperation through gradual partnerships and a series of practices in international relations (communication, negotiation, games and strategic interactions, economic exchanges, etc.).

Origin of BRICS cooperation  47 In contrast to functionalism, the normative dimension focuses on actors and their internal trust, consensus and concepts regarding cooperation. The normative variables are more sustainable and stable, with an emphasis on the sustainability and expectations of cooperation. Functional variables do not reject the expectation that multiple positive cooperation practices may provide further positive feedback on the cooperation itself, which will help to form an internal norm that fosters self-​enforcing cooperation.15 According to evolutionary psychology, altruism and reciprocity can also be found in non-​ blood-​related individuals and groups (with very weak homogeneity) for which cooperation is still possible.16 This kind of internal cooperative norms is an affirmation of the value of cooperation and its mechanisms, methods, and approaches. The second approach to classification discusses the endogenous and exogenous variables that influence the formation of cooperation.17 A review of these two types of variables shows that cooperation is not only the result of political, economic, and social interactions between actors, but also that of the actors’ initiative to shape and build consensus among themselves. Traditionally, exogenous variables are regarded as independent of international cooperation and its influence. Therefore, we tend to analyse the positive effect of such variables on cooperation from the perspective of functionalism, while regarding endogenous variables as factors or variables inherent in cooperation. In this sense, endogenous factors represent the norms and value of cooperation. Under the explanatory framework of exogenous factors, the main variables are international regimes and environments or systemic pressure. The establishment and improvement of regimes is an effective way to reduce transaction costs, sustain long-​term future impacts, and enhance the payoff structure. The international power environment and structure exert certain external pressure on the establishment of international cooperation. These exogenous variables play a functional role in promoting international cooperation. In a certain sense, the exogenous theory interpretation mode of functionalism is in line with the stepwise reciprocal cooperation model. The exogenous variables of normativism emphasize that the international environments and regimes are shaped into internationally accepted norms of behaviours, like whether there is a payoff culture for repeated cooperation and whether fair international norms are put in place. The endogenous explanation emphasizes the attractiveness of cooperation for actors:  in other words, their expectations for international cooperation driven by their internal needs and consensus in what is mainly a bottom-​up cooperation model. Generally speaking, the greater the number of actors, the more difficult it is to establish and sustain cooperation, due to increased transaction costs and difficulty in identifying interests, which also increases the possibility of betrayal and reduces the chance of sanctions.18 In addition, the prerequisite for cooperation is political consensus and trust between actors. Trust often hinges on homogeneity, while political consensus is built on a

48  Ren Lin and Yin Jiwu Table 3.1 Different types of variables used in studies on BRICS cooperation Functional

Normative

Exogenous

The external environment, the power The payoff culture for repeated structure of the international cooperation, and desire to system, and the international improve international norms institutional environment Endogenous The number and complementarity The cognition of homogeneity, of actors and their domestic and endogenous consensuses politics (on status, identity, and interests) Source: Courtesy of the author.

consistent understanding of the status, identity, and interests of actors.19 The BRICS countries have the desire to strengthen the status of developing countries in the existing global governance structure, and their participation and voice in the system. They also have the need to cope with global financial crises, maintain common interests and seek coexistence. Cooperation variables are classified as follows (see Table 3.1) based on the exogenous/​endogenous and functional/​normative dimensions. According to orthodox theories on cooperation, exogenous functional variables and endogenous normative variables matter most. Equally noteworthy are other types of variables that are less common, such as exogenous normative and endogenous functional variables. Exogenous normative variables mostly refer to cooperative norms and culture at the system level, while endogenous functional variables mostly refer to cooperation strategies of, or between, actors.20 1.3  Mechanisms of action for the origin of BRICS cooperation All variables are linked by two mechanisms of action.21 Specifically, the payoff structure emphasizes the alignment of interests –​that is, actors can benefit from cooperation generally in economic, security, or political terms, depending on the nature and area of cooperation. Future impact is very important for cooperation between self-​interested actors, because one-​off cooperation will greatly increase the risk of betrayal, while the expectation for repeated cooperation enhances the possibility of continued cooperation. In summary, the two main mechanisms of action are the judgement on whether to maintain the payoff structure,22 which emphasizes that external and internal realities give rise to cooperation, and the prediction of future impacts (see Table 3.2), which insists that cooperation is shaped by the existing cognitive structure. First, objective judgement on whether to maintain the payoff structure. The payoff structure means that actors expect the payoffs they receive from future cooperation to be closely related to current behaviours. A  payoff structure

Origin of BRICS cooperation  49 Table 3.2 Mechanisms of action for the origin of BRICS cooperation Functional

Normative

Exogenous

The systematic payoff structure The exogenous future impacts (common interests) (existence of repeated cooperation) Endogenous The individual payoff structure The endogenous future impacts (common interests) (existence of identification and consensus) Source: Courtesy of the author.

that rewards cooperation can promote cooperation between actors whose actions can be broadly divided into cooperative and non-​cooperative ones.23 A  cooperative game pays more attention to the collective behaviour process and a non-​cooperative game focuses on the characteristics of individual behaviours. A non-​cooperative game emphasizes individual rationality, while a cooperative game strives for the realization of common, collective interests (collective rationality). Both rationalities are in line with the logical reasoning of the payoff structure, but they intermingle as an inseparable whole in real situations. In the event of multiple games and perfect competition, the two gradually blend into each other. Collective rationality does not necessarily contradict individual rationality. Game players seek personal gain, and the game process is to find the best way to do that. If a cooperative game is more beneficial than a single-​handed game, then it becomes a better choice in line with individual rationality. In this sense, collective rationality (including altruistic thinking, cooperative culture, etc.) is not contradictory to individual rationality. Both exogenous functional and endogenous functional variables are subordinate to the mechanism of judgement on whether to maintain the payoff structure. Second, a basic understanding of the future impacts of cooperation, which mainly accounts for the betrayal or negative impact of a one-​off game or cooperation –​that is, whether the cooperation can be repeated or is sustainable. When anarchy reigns, cooperation that cannot be repeated in the future can easily lead to betrayal or is unfeasible in the first place due to the self-​ interested and selfish nature of actors. Indicators of future impact include long-​time horizons; regularity of stakes; reliability of information about the others’ actions; and quick feedback about changes in the others’ actions.24 The most important factors or indicators are the time horizons of cooperation and the regularity of stakes. Similar to the payoff structure, future impacts are also very important for the promotion of cooperation and the expectations of actors. Establishing an institutionalized and standardized international regime is an effective way to strengthen such expectations and helps link the past with the present. Actors internalize norms in the process of learning and socialization to reshape their identity and consensus individually, which will also affect their prediction of the future impacts of cooperation. Both

50  Ren Lin and Yin Jiwu exogenous normative and endogenous normative variables are subordinate to the future impact mechanism. Last, a transition from a cooperative mechanism driven by “the payoff structure” to one driven by “the prediction of future impacts” so that cooperation becomes the norm. Cooperation will no longer be about obsessing over the payoff structure in each game, but about predictable, transferable, proactive, habitual, and repeated cooperative games –​that is, the “future impact mechanism” is given full play as a major potential driver. In this way, the origin of cooperation transitions from functional judgement on payoffs to common normative cooperation, which lays the foundation for long-​term, stable cooperation. However, no cooperation is static. Actors in cooperative games are also constantly making bargains and concessions. The transition from one mechanism to the other is an important way to increase the stability of cooperation, but it cannot solve the problems once and for all. Exogenous functional variables reveal that the primary determinant of the payoff structure is systemic –​that is, the interest structure is shaped by the environment. The greater the clash of objective interests between actors, the less likely they are to cooperate. Even if a cooperative mechanism is established, it is susceptible to betrayal and failure. In this context, it is particularly important that actors are able to identify the corresponding cooperative payoff structure and aligned interests on the one hand, and the capability and intention of possible betrayals on the other.25 For international cooperation, the payoff structure is also related to the area of cooperation. For example, an economically complementary structure enables actors to expect benefits from cooperation. The alignment of such interests can be also found in politics, security, or other areas, as a lot of cooperation leans towards political or security aspects. Exogenous normative variables emphasize the impact of the collective judgement on cooperation. The exogenous normative analytics come in handy because the payoff structure and functional needs are not the only drivers of cooperation. As Robert Jervis argues, despite “the importance of the system’s structure, which here includes the pattern of interests and alignment possibilities as well as the distribution of capabilities”, this “does not mean that the less subjective factors discussed earlier play no role”, because “beliefs often needs to be considered”.26 Beliefs affect what actors expect of the future impact, and thus determine whether cooperation is achievable. Beliefs can be endogenous or the result of interactions between actors and become known as cooperation norms and culture.27 Although exogenous normative variables represent actors’ cooperative beliefs or culture, a collective belief or culture, that is, the expectation of stable, repeated cooperation, is actually a payoff culture and includes beliefs in exogenous systems and norms. Endogenous functional variables emphasize the immediate impact of individual payoff structure. Actors assess the benefits from cooperation based on objective factors such as the number of actors, complementarity, and domestic politics. After making the assessment, the actors have the willingness

Origin of BRICS cooperation  51 to actively design and try to improve the payoff structure so that the impact spills over to the exogenous functional level.28 In this sense, BRICS cooperation is a manifestation of active design. While BRICS is an active cooperative design based on the concept proposed by four or five Western countries, China has played a vital role in BRICS cooperation. Endogenous normative variables emphasize the influence of actors’ cognition of cooperation. Actors make future expectations based on their beliefs and work together based on consensus. In the event of well-​ established political consensus and political trust, actors proactively and rationally work towards cooperation. Therefore, contrary to the aforementioned exogenous interpretation, such expectations emphasize the initiative of relevant countries to shape cooperation and choose the institutional arrangements of cooperation based on consensuses on status, identity, and interests. In this context, the international system is also more of rational design, and homogeneity is a more fundamental endogenous variable that can promote the establishment of trust and consensus on cooperation between actors to a certain extent. The endogenous explanation analyses the bottom-​up pathways of social learning and functional spillover to the origin of cooperation and focuses on the formation of trust and consensus on cooperation between actors before promoting concrete cooperation practices.

2.  Theoretical explanations for the origin of BRICS cooperation When reviewing the formation and development of BRICS cooperation, we find that it has transcended the constraints of regionality and homogeneity. The choice of institutional forms was also unique, providing us with an opportunity to explore a new theory on the origin of BRICS cooperation. This section summarizes the main analytical variables used in research on (international) cooperation and divides these variables according to two dimensions of classification in an effort to evaluate how effectively the different mixes of analytical variables, and their corresponding mechanisms of action could explain the origin of BRICS cooperation. 2.1  Theoretical explanation 1 2.1.1  Exogenous functional factors and the systematic payoff structure First, the external environment, including the external risks arisen from globalization. Global economic governance entails the addressing of global systemic risks. As the global economy is closely interconnected, any issues with one country’s economy may spread quickly to other countries and regions through the global network. The 2008 global financial crisis that began in the United States had a huge impact on emerging markets,29 including financial shocks, that is, volatility in

52  Ren Lin and Yin Jiwu the capital market and severely shrinking market capitalization; the decline in foreign investment inflows and the increase in foreign capital outflows; and the depreciation of the currency and the shrinking of foreign exchange reserves. Demand in emerging countries was also impacted, as reflected by the decline in demand and prices of commodities and processed products. Furthermore, the financial crisis dampened the confidence of emerging countries, causing increased unemployment, unstable income expectations, and reduced investor and consumer confidence. Although emerging countries suffered similar losses from the financial crisis, the fields impacted and the extent of the impact varied due to the differences in each country’s initial conditions, economy size, economic flexibility and structure, dependence on other countries, and government capability in utilizing resources. Emerging countries introduced corresponding policies to mitigate the financial crisis, including fiscal, monetary, industrial, and social policies. In the meantime, emerging countries also realized that strengthening international cooperation, especially that among themselves, can help improve the effectiveness of these policies. In this sense, the BRICS cooperative mechanism can be categorized as a type of transnational cooperation aimed at participating in global economic governance. What it attempts to address are external risks that exist objectively in the international system. Second, the power structure of the international system. The existing global governance system lags severely behind the changes in the international power structure, making it inadequately representative and effective.30 Therefore, emerging and developing countries are calling for reform of the global governance system to make it more legitimate. GDP, trade volume, and investment, among others, are all indicating that the world’s economic centre is tilting toward emerging economies. This became even more pronounced after the global financial crisis broke out. According to the IMF, 30 years ago the GDP of emerging economies accounted for 28 per cent of the world’s total. But as of 2014, the number had increased to 50 per cent. Their share in global trade had also risen from 21 per cent to 50 per cent, and their proportion of investment had grown from 26 per cent to 65 per cent of the world’s total.31 Emerging markets now account for 50 per cent of the world’s GDP, 40 per cent of trade volume, and 70 per cent of foreign exchange reserves. Even under the pressure of economic slowdown, emerging and developing countries maintain their high contribution to world economic growth. According to the IMF’s data in April 2014, developed countries will maintain a growth rate of around 2.5 per cent. That number for emerging countries is 5.5 per cent, and for Asia is around 7 per cent.32 Thanks to their improved economic strength, emerging countries produced a huge amount of public goods during the global economic crisis and made important contributions to global economic recovery. However, until now, the quota reforms in the IMF and World Bank have been stagnating, leading to imparity of authority and responsibility in economic governance.

Origin of BRICS cooperation  53 Third, the international institutional system. The asymmetry of institutional arrangements in global economic governance33 can be attributed to the “non-​ neutrality of regimes”.34 The existing global economic governance system is based on the economic order established and dominated by developed countries after World War II. Since the very beginning, Western countries have had the power to set agendas. In other words, they have had an important say in global affairs for a long time. In comparison, developing countries have not been able to participate in agenda setting due to historical reasons, and therefore do not have an equal say to protect their legitimate rights and interests. As their economic strength grows, emerging economies have begun to call for greater power and voice, and a more reasonable payoff structure because they are making major contributions to global economic growth and providing an increasing number of public goods for managing global economic risks. Only through effective reform can we help the economic governance system shake off extreme non-​ neutrality and develop towards a rational, fair, and effective direction.35 Under the existing framework of global economic governance, the institutional powers of the emerging economies represented by the BRICS countries are seriously asymmetrical with their economic strength and actual contributions. For example, the BRICS countries account for 43 per cent of the world’s total population. Their total foreign exchange reserves account for 40 per cent of the world’s total. Their total economic aggregate accounts for 21 per cent of the world’s total. But their voice in global economic governance organizations is extremely low, with their voting power severely incommensurate with their economic strength.36 For example, in the World Bank, the five BRICS countries account for only 11.03 per cent of the total voting power, as opposed to the United States’ 16.76 per cent. Similarly, in the IMF, the quota assigned to the five BRICS countries accounts for 11.51 per cent of the total, as opposed to the United States’ 17.69 per cent, a 6-​percentage-​ point difference (see Table  3.3).37 With the rise of emerging economies, the imparity of authority and responsibility in the global economic governance system becomes even more prominent, thereby putting the representativeness and effectiveness of the international system in question38 and undermining the effectiveness39 of global governance to some extent. There are many cases in which low legitimacy erodes the effectiveness of governance. For example, the decline of the IMF’s legitimacy leads to its shrinking ability to act.40 When an older governance platform fails to effectively complete the tasks of global economic governance, new ones will be ready to emerge.41 Based on the analysis of the above exogenous functional factors, we believe that one of the reasons for the formation of the BRICS cooperation is that the five countries have shared interests in the international system. Therefore, the following propositions can be derived. Proposition 1:  As their overall strength grew, the BRICS countries were faced with common global economic risks and impacts from the external environment. Under the non-​neutral pressure of the international mainstream

54  Ren Lin and Yin Jiwu Table 3.3 IMF members’ quota and voting power (Unit: %) Country

Quota

Voting Power

United States Brazil Russia India China South Africa

17.69 1.79 2.50 2.44 4.00 0.78

16.75 1.72 2.39 2.34 3.81 0.77

system, the five countries formed a consensus on collective interests and increased their expectations for payoffs from a cooperative game. 2.1.2  Endogenous functional factors and their individual payoff structure First, the number of actors, which has an important impact on collective actions. The more members, the more ambiguous is the individual payoff structure, and the more difficult it is to conduct collective actions.42 In the case of BRICS cooperation, the discussion about the number of actors actually involves the size of the BRICS countries. The formation of BRICS cooperation reflects that the member countries with similar international status can avoid the collective-​action problem generated from an excessive number of members and are better able to identify the intention, costs, and betrayal of cooperation. There were debates both inside and outside43 BRICS cooperation over whether to continue absorbing new members. Jim O’Neill, who coined the term “BRIC”, argued in an interview that the BRIC should not further expand. He stressed that among the emerging economies, only the BRIC and MINT (Mexico, Indonesia, Nigeria, and Turkey) countries had considerable development potentials. More participants would almost inevitably lead to the collective action problem because the governance efforts of member states may be plagued by endless discussions and buck-​passing of the responsibility to provide public goods, making it difficult to achieve the desired governance efficiency. The existing BRIC platform is an important part of global economic governance, and its governance effectiveness does not necessarily have to be realized through expansion. However, the BRIC may stay open to cooperation with other countries, regions, or governance organizations. By pooling the strength of its member countries, the BRIC may promote cooperation with East Asia, South Asia, Africa, and Latin America, among other regions, as well as international organizations.44 In addition, the appropriate number of actors is also associated with the representativeness of the cooperative mechanism. It was widely questioned whether the inclusion of South Africa would affect the representativeness and efficiency of the cooperation. O’Neill also held the view that South

Origin of BRICS cooperation  55 Africa’s economic aggregate and comprehensive strength were no match for other member states, and its inclusion would inevitably arouse controversy.45 When the global financial crisis broke out, the BRIC countries teamed up to meet the challenges. Their success attracted widespread attention, including from South Africa, who expressed its intention to join. As the most important economy in the southern part of Africa, South Africa also brought many opportunities to the BRIC cooperative mechanism. The addition of South Africa further enhanced the cooperative mechanism’s influence at both regional and global levels by linking the major regions of the world closer together, including Asia, Latin America, Europe, and Africa. It also served to promote South–​South and North–​South cooperation and showed that the BRICS was an open and inclusive mechanism dedicated to pursuing win-​win results. Second, the functional complementarity among members. The expectations of the BRICS countries for organizational complementarity also vary. Some members look forward to achieving economic efficiency through the BRICS mechanism, while others expect higher strategic effectiveness or enhanced international status.46 In its early days, BRIC cooperation focused on “principle cooperation” and was primarily driven by the need for tackling the financial crisis and complementary cooperation in politics and status (voice and rights to set rules in the economic governance system). After 2013, the BRICS countries put equal focus on political and economic cooperation and initiated the New Development Bank, among other projects. The complementary needs of the five countries in the economic field began to affect the further expansion of cooperation. The complementarity of BRICS cooperation is also affected by exogenous shocks. The financial crisis that broke out in the Western world in 2007 was such an exogenous shock. It facilitated the alliance of emerging countries to establish better global governance mechanisms, to enhance their voice and rights to set rules, and to seek further economic cooperation among themselves in fields of complementary potentials. The “fading BRICS theory”47 claims that inadequate complementarity of economic structure among the BRICS countries –​the differences in values, and the overlap in the stage of development and position in the global value chain –​all will contribute to the dim prospects for BRICS cooperation. The BRICS cooperative mechanism will not reach the same stage as the European Union as a highly coordinated political and economic alliance, nor is it likely to have the same agenda as economic alliances in certain regions. Given the difficulty for the BRICS countries to reach agreements on international issues, they will not be able to work together towards a common goal. There are also competitions among the BRICS countries in terms of trade. For example, there are significant overlaps for Pakistan, India, China, and South Africa in terms of trade structure, industrial mix, and position in the global value chain. Therefore, trade competition among these countries is almost unavoidable. In the future, efforts to stabilize BRICS cooperation should include exploring and fostering complementarity and seeking cooperation in all

56  Ren Lin and Yin Jiwu potential areas. As mentioned above, complementarity among the BRICS countries is insufficient in the field of trade, but in finance, trade, and technological innovation, there is potential for cooperation thanks to a desirable degree of complementarity. Especially in the context of instability in the global economy and a short-​to medium-​term downward trend due to the “negative externalities” of economic policies of developed countries in Europe and America, it is necessary for emerging and developing countries to work together to find complementary areas for cooperation and leverage the advantage of working together. In light of the downturn of the global economy, all countries are actively reflecting on this and exploring new engines for global economic growth. The contribution of investments, especially those in infrastructure, along with trade and finance, to economic growth, has attracted more and more attention. In this regard, the establishment of the New Development Bank was designed to fund future infrastructure construction projects in the BRICS member states and other developing countries. Thanks to the bank, the areas for cooperation among the BRICS member states are no longer limited to the industrial sectors that are functionally complementary. The establishment of the New Development Bank will inject an indispensable vitality into the effort to promote infrastructure investment as a new engine for global economic growth. In addition, when dealing with international affairs, the BRICS member states can achieve complementarity in security and autonomy by seeking more policy coordination, finding common ground, and realizing common interests. These measures will help stabilize the cooperative mechanism. Based on the analysis of the above two endogenous functional factors, we believe that the number of the BRICS member states and the possibility of transcending the complementarity at both national and system levels increased the expectations of the five countries on the individual payoff structure. Hence, we come to the next proposition. Proposition 2:  The BRICS has a limited number of members. As the expectations for collective interests and payoffs heighten, and with the expansion of potential complementary areas for cooperation among themselves, the BRICS countries are expecting greater individual payoffs. 2.2  Theoretical explanation II 2.2.1  Exogenous normative factors and their future impacts First, the expectation and evolution of the payoff culture. As “latecomers” to the existing international system, the BRICS countries have the common desire to make the system better conform to their own norms and cultures. But this cannot be achieved through the effort of any individual actor  –​ needless to say, the existing system is not adequately receptive of the emerging countries.48 Since the outbreak of the financial crisis, neither the international institutional environment nor the limited proportion of economic power the

Origin of BRICS cooperation  57 BRICS enjoys in the international community has improved a bit, but has rather become exacerbated. Even though the G20 mechanism has continuously developed and improved, the developing countries represented by the BRICS countries are still underrepresented in global governance. Therefore, from the perspective of the global governance system and power structure, the formation of BRICS cooperation and its continued existence is a result of a relatively stable expectation for payoffs. Second, the choice and evolution of the BRICS cooperative mechanism reflect the impact of the expectation for a payoff culture on cooperation. There are two ways of cooperation between countries:  either hard (institutionalized) or soft (non-​ institutionalized).49 At present, BRICS cooperation adopts an informal soft mechanism that includes both regular and non-​scheduled meetings at multiple levels, such as foreign ministers’ meetings, finance ministers’ meetings, and leaders’ meetings. Therefore, it resembles a loosely organized forum that is far from establishing a secretariat. BRICS cooperation is primarily based on soft and informal mechanisms. This is partly because the strategic intentions of the five countries are relatively transparent, and the exchanged information can be discerned and controlled. Besides, the formation of such mechanisms is also a result of realistic considerations, such as the difficulty of establishing hard mechanisms. The low level of institutionalization for BRICS cooperation also objectively reflects that the high expectations for a payoff culture have not taken shape in the formation and development of the cooperation. This brings uncertainty to the governance efficiency, cooperative efficacy, and further development. The expansion of areas and functions of cooperation mirrors the changes in the BRICS’ expectation for payoffs. The 2013 BRICS Summit in Durban divided the development of BRICS cooperation into two stages. The first stage featured forums of theoretic dialogues on economic governance. The five countries had different expectations on the cooperation. Russia placed its focus on cooperation in political security, while China, India, Brazil, and South Africa emphasized the importance of economic governance and cooperation, including the role of the BRICS countries in global economic governance and economic cooperation among the five countries.50 The 2013 summit generated a new consensus in the cooperation areas, levels and mechanisms. The BRICS thus turned into a comprehensive mechanism for daily and long-​term coordination on major issues in the global economic and political arenas. At the Durban summit, the leaders of the five countries decided to set up the BRICS Development Bank and the foreign exchange reserve pool, a pragmatic move that indicated deepened cooperation in the economic field. At the 2014 Summit in Fortaleza, the BRICS countries reached a basic consensus on establishing the development bank. The expansion of shared interests and areas for cooperation among the BRICS countries also served to promote the construction and improvement of the cooperative mechanism. The theme of BRICS cooperation is flexible

58  Ren Lin and Yin Jiwu and subject to change with the most imminent problems faced by emerging countries. The cooperation is sustainable, thanks to basic expectations for payoffs, such as reshaped global economic governance and an enhanced voice for developing countries. Moreover, the implementation and in-​depth development of the BRICS economic cooperation mechanism is closely associated with the rise of the five countries’ political status, reflecting that BRICS cooperation serves to link different topics. Thanks to the richness and balance of the connotation of the payoff culture, and the furtherance of cooperation both in political and economic realms, the expectation for payoffs from cooperation stabilized, and that for repeated successes and benefits increased. Second, the desire to improve international norms. From the perspective of cultural goals, the formation of BRICS cooperation was a result of the dissatisfaction of member countries with the existing international system, and their desire to reshape the norms to their benefit.51 As mentioned above, the emerging and developing countries are dissatisfied with the imparity of authority and responsibility and the non-​neutral international norms. Therefore, they have the common desire to reform and improve the international system of governance norms. The BRICS’ common response to the external world manifests their desire to build fairer international norms. The endogenous consensuses of the BRICS members converge into a collective consensus, according to which they give collective responses to the external norms system. This collective consensus directly affects how BRICS members recognize and determine the impact of cooperation, thus having a bearing on how sustainable the cooperation can be. The non-​neutrality of existing governance platforms such as the World Bank and the IMF remains a serious problem. In this context, emerging economies are in desperate need of a governance platform of their own. As they participate more in global economic governance and provide global public goods, the emerging economies call for changes to the non-​neutral governance structure so that their vital interests are adequately attended to. By far, the BRICS consensus has produced a number of outcomes, though still facing many challenges. In their effort to seek participation in global economic governance, in 2014 the BRICS member states managed to establish the BRICS Development Bank. Based on the above analysis, it can be seen that the BRICS countries have built a normative culture of repeated cooperation. This culture has enhanced the BRICS’ belief in future sustainable development and foretold the prospects of BRICS cooperation. Hence, we come to the next proposition. Proposition 3: The formation of common desire to reform the international normative and cultural systems, as well as the BRICS’ gradual successes in implementation, enhanced the expectation for sustainable cooperation. Thus, the cooperative game becomes a rational choice for the BRICS member countries.

Origin of BRICS cooperation  59 2.2.2  Endogenous consensus factors and their future impacts First, the cognition of homogeneity between member states. The differences between the BRICS countries will raise concerns about the stability of the cooperative mechanism. These differences cover the stage of development, economic structure, national realities, and geopolitical conditions. The BRICS countries conducted effective communication on substantive issues such as the New Development Bank’s preliminary capital investment, responsible persons, organizational structure, shareholders’ rights and responsibilities, and location of the headquarters.52 According to the principle of parity of authority and responsibility, China, as the country with the soundest economic strength, the greatest international influence, and the highest share of capital contribution, should have enjoyed the corresponding voting power. However, for the benefit of BRICS cooperation as a whole, China has made sacrifices and concessions in the institutional design and arrangements, doing so in an effort to change the unfair global economic governance order, drive reform of the international financial governance order, and improve the voice of emerging and developing countries. Adhering to the principle of seeking common ground while shelving differences, China makes significant contributions to the long-​term stability of the BRICS cooperative mechanism.53 In the end, the BRICS members mitigated divergences and differences in their joint effort to establish the BRICS Development Bank. The bank, which is based in Shanghai, has a president from India, and top management members from Russia, Brazil, and India. The lead-​up to the establishment of the New Development Bank in 2014, reflects that the BRICS countries seek homogeneous cooperation in their effort to address problems through consultation. In terms of homogeneity, the BRICS countries have significant differences in their political systems, ideologies, and cultures. Their economic development models also vary substantially. However, the cognition of these homogeneous differences is overtaken by the common identity of major countries in emerging regions and the corresponding pursuit for status, and the consensus on interests protection. Second, endogenous consensuses. (1)  Consensus on status. Emerging countries refer to large countries or rising countries in different regions. The cooperation among the BRICS countries, as a group of emerging countries with similar status, serves to consolidate the influence of the five countries in their respective regions and demonstrate their regional and international status.54 As latecomers to the international system, emerging countries rise rapidly in terms of economic strength, thereby reshaping the previous structure of international economic power. However, their economic status is not commensurate with their political status. Therefore, the BRICS members are dissatisfied with the impartiality and representativeness of the existing international system. For a better international and regional status, including the ability to exert regional influence and to reshape international norms,

60  Ren Lin and Yin Jiwu emerging countries are more willing to work together. The BRICS cooperative mechanism can pool more consensuses and represent the emerging economies in the international arena to vigorously call for reform of the non-​neutral international rules. The BRICS is “committed to promoting the reform of international financial institutions to reflect changes in the global economic landscape. The voice and representation of emerging markets and developing countries in international financial institutions should be enhanced.”55 (2) Consensus on identity. The group identity formed through the cooperative mechanism, that is, the group of emerging countries, has important implications for the BRICS countries. It can also help the five countries handle pressures arising from the voice of, and norms dominated by, the developed countries. From the perspective of the economic development stage, the BRICS’ consensus on identity can be summed up as a group of emerging countries that are serving a pivotal role in the face of common challenges of domestic, regional, and global economic growth. This consensus has been clearly demonstrated through the agenda of the previous BRICS leaders’ meetings and the joint declarations signed at these meetings. The countries dominating the international system generally have two attitudes towards emerging countries: acceptance and rejection. The attitudes are actually the results of intricate considerations about self-​interest. For example, the existing international system hopes that emerging countries will take more responsibilities while enjoying less exclusive power to establish norms and voice their interests.56 These considerations also include whether the emerging countries are strong competitors economically and strategically, and whether they are homogenous countries. Given the difficulties in ranking the existing international system, the BRICS countries are more willing to strengthen cooperation in the fields of energy, civil services, education, and science and technology. They are committed to promoting multilateral diplomacy and supporting the central role of the United Nations in responding to global threats. They also support the establishment of a more democratic and just multipolar world based on the international rule of law, equal cooperation, mutual respect, coordinated action of all countries, and collective decision-​making.57 In certain situations, such as when the global financial crisis broke out, emerging major countries with similar international status had the consensus to strengthen cooperation in response to the financial crisis.58 Major emerging countries have made significant contributions to the development of the global economy and suffered great losses from global financial risk. However, in the existing global governance system, they are not entitled to reciprocal rights to propose or enforce international norms and regimes. This context becomes an objective external condition for the establishment of the group identity of the major emerging countries. In other words, for these countries, the Western-​led international regimes and norms have become “the Other”. Moreover, the collective identity of the BRIC countries is reflected in the following facts:  China and other BRIC countries collectively promoted the achievement of consensus at the 2009 G20 Pittsburgh Summit, where G20

Origin of BRICS cooperation  61 leaders agreed to increase the share of emerging and developing countries in the IMF. China, India, Brazil, South Africa, together with other developing countries, voiced their collective requirements on the developed countries to complete the emissions-​reduction goals in the second phase of the Kyoto Protocol. The BRIC countries also requested the establishing of a new development bank and contingency reserves as the foundation for investments in infrastructure construction.59 (3) Consensus on interests. The consensus of emerging countries on interests is mainly manifested in two aspects. One is that, due to the inequality of the existing international system and regimes, these countries often cannot effectively protect their national interests in international transactions.60 The other is that the emerging countries need to put forward more norms and regimes to protect the exchanges among themselves, thereby promoting the growth of their own interests. “The BRIC dialogue and cooperation is not only in line with the common interests of emerging markets and developing countries, but also conducive to building a harmonious world of lasting peace and shared prosperity.”61 Based on the analysis of the above two endogenous normative factors, we believe that the BRICS countries’ understanding of their own nature  –​ and the formation of their consensus on identity, status, and interests –​have sustained implications for the formation and development of BRICS cooperation. Hence, we come to the following proposition. Proposition 4:  With the gradual increase in the consensus among the BRICS countries on their status, identity, and interests, they were able to transcend the homogeneity among themselves, thanks to the pressures from the existing global system and the common desire to reform the norms of that system. This enhanced the expectation for sustainable cooperation among the BRICS countries.

3.  Conclusion BRICS cooperation has a number of distinctive features. For example, it is not institutionalized, and it features differences that transcend national homogeneity. BRICS is also one of the international organizations that China actively participated in creating and playing an important normative role.62 This chapter does not pursue the theoretical explanation based on any single factor. Given the relatively little research on the origin of BRICS cooperation and the fact that single-​factor theories tend to be biased, we explored the systematic classification of explanatory variables and the corresponding mechanisms of action and discussed how explanatory variables of different dimensions, levels, and attributes exert their influence. Under this framework of theoretical explanation, the expectation for a payoff structure at the system and individual levels, as well as the understanding of the impact of exogenous and endogenous factors emerge as the two core mechanisms of action that facilitated the formation of BRICS.

62  Ren Lin and Yin Jiwu This chapter systematically expounds on the theories on the origin of cooperation. On that basis, we answer the question of how different factors affect the formation of cooperation through different mechanisms by examining different combinations of explanatory factors and mechanisms of action. The theoretical implications are manifested in the following aspects. First, this chapter focuses on the explanation of the BRICS as functional and developmental, rather than antagonistic cooperation,63 and explains the origin of collective rationality and interests in a cooperative game. This constitutes not only a further elaboration on the nature of the BRICS mechanism, but also an advance in the understanding of previous cooperation models and their premises. Second, the BRICS countries are substantially different. Their representativeness is questioned. In this sense, BRICS cooperation is an exception to the Western mainstream assumption about international regimes, namely, any cooperation has to be among homogeneous states. Be it “democratic peace”, “democratic trust”, organizational theories such as the rational creation of the international system, or the practice of foreign democratic transformation of the Western countries headed by the United States, they have a common argument, that is, democracy is the basis for cooperation (especially effective cooperation). The theory of homogenous cooperation makes some degree of sense theoretically, but it also creates the closedness and exclusivity of cooperation by neglecting the possibility for inclusive and pluralistic cooperation. The BRICS mechanism has transcended that theory and provided a glaring example of pluralistic and inclusive cooperation.64 Third, the important role of member states’ subjective initiative in the formation and development of BRICS cooperation. Other than the explanations for the origin of cooperation with emphasis on the structural pressures, there are also theories approaching it from national strategic choices and cognition, such as the development and regulation of complementarity among countries, judgement and shaping of consensus on interests among countries, and the expectation to shape benign international norms. The perception of homogeneity and the enhancement of consensus on identity, status, and interests, both facilitated the formation of BRICS cooperation.65 In fact, the formation of BRICS cooperation is a reflection of the member countries’ subjective initiative. Fourth, traditional theoretical explanations for the origin of cooperation are mostly factor-​based, in which various rational and bounded rational factors were examined on how they exerted influence on the common desire and tacit agreement for cooperation. This chapter synthesizes the factor-​and mechanism-​based explanatory frameworks and further analyses the causal variables and their mechanisms of action in four dimensions. In sum, this is a dynamic causal explanatory theory emphasizing the combined function of factors and processes.

Origin of BRICS cooperation  63

Notes 1 Chen Jin (ed.), Report on the Development of BRICS Economic and Trade Cooperation, UIBE Publishing House, 2013; Gu Yunshen (ed.), BRICS Research, Shanghai People’s Publishing House, 2013; Lin Yueqin (ed.), BRICS Development Report (2011/​2012), Social Sciences Academic Press, 2012/​2013; Li Yang (ed.), BRICs and the Global Transformation, Social Sciences Academic Press, 2011; Huang Renwei, “The Rise of the BRICS Countries and Global Governance System”, The Contemporary World, No. 5, 2011, pp.  24–​27; Lu Feng, et  al., “Background and Prospects of the BRICS Cooperation”, International Political Studies Review, No. 2, 2011, pp. 1–​21; Zhu Jiejin, “Transformation of the BRICS Cooperative Mechanism”, International Review, No. 3, 2014, pp. 59–​73. 2 Richard Dawkins, The Selfish Gene, 2nd ed., Oxford: Oxford University Press, 1989, p.4. 3 R.D. Alexander, Biology and Human Affairs, Seattle: University of Washington Press, 1979; R.D. Alexander, The Biology of Moral Systems, Hawthorne, N.Y.: deGruyter, 1987. 4 Shiping Tang, “The Social Evolutionary Psychology of Fear (and Trust): Or Why Is International Cooperation Difficult?” Manuscript, 2011. 5 Wang Dingding, “The Origin and Evolution of Human Cooperation”, Social Science Front, No. 4, 2005, pp. 39–​47. 6 Adam Smith, The Theory of Moral Sentiment, translated by Jiang Ziqiang, The Commercial Press, 1997. 7 Yin Jiwu, Formation of Social Cognition and Alliance Trust, Shanghai People’s Publishing House, 2009, pp. 101–​131. 8 Robert Axelrod, The Evolution of Cooperation, translated by Wu Jianzhong, Shanghai People’s Publishing House, 2007. 9 Zheng Yefu (ed.), Trust: Making and Breaking Cooperative Relations, China City Press, 2003. 10 Kenneth Oye (ed.), Cooperation Under Anarchy, translated by Tian Ye and Xin Ping, Shanghai People’s Publishing House, 2010. 11 Lisa L.  Martin and Beth A.  Simmons (ed.), International Institutions:  An International Organization Reader, translated by Huang Renwei, Shanghai Century Publishing (Group) Co., Ltd., 2006. 12 Joseph S.  Nye and John D.  Donahue (ed.), Governance in a Globalizing World, translated by Wang Yong and Men Honghua, World Affairs Press, 2003, p. 17. 13 Ren Lin, “What should G20 do after the financial crisis?”, World Affairs, No. 24, 2014, pp. 46–​47. 14 For the classification criteria and corresponding theoretical discussions, see Qin Yaqing (ed.), Rationality and International Cooperation:  Liberalism in World Politics, World Affairs Press, 2008. 15 Tian Ye, Institutional Choice in International Relations:  From the Perspective of Transaction Cost, Shanghai People’s Publishing House, 2006, pp. 138–​149. 16 Alexander J. Field, Altruistically Inclined? The Behavioral Sciences, Evolutionary Theory, and the Origins of Reciprocity, translated by Zhao Pei, et al., Changchun Publishing House, 2006. 17 Originated from economics, the distinction between endogenous and exogenous variables lies in whether a given variable was independent of explanatory variables. In this book, we categorize endogenous and exogenous variables from the

64  Ren Lin and Yin Jiwu perspective of the BRICS cooperative system. In other words, the variables outside the BRICS system are exogenous variables, and those inside are endogenous variables. In this sense, such a distinction is relative. 18 Kenneth Oye, “Explaining Cooperation Under Anarchy:  Hypotheses and Strategies”, reprinted in Kenneth Oye, Cooperation Under Anarchy, Shanghai People’s Publishing House, 2010, pp. 16–​18. 19 Yin Jiwu, Formation of Social Cognition and Alliance Trust, Shanghai People’s Publishing House, 2009. 20 Kate O’Neill, Jorg Balsiger and Stacy D. VanDeveer, “Actors, Norms, and Impact: Recent International Cooperation Theory and the Influence of the Agent-​ Structure Debate”, Annual Review of Political Science, Vol. 7, 2004, pp. 149–​175 21 Kenneth Oye, “Explaining Cooperation under Anarchy:  Hypotheses and Strategies”, reprinted in Kenneth Oye, Cooperation Under Anarchy, translated by Tian Ye and Xin Ping, Shanghai People’s Publishing House, 2010, pp. 5–​16. The explanations for the mechanism of action in this chapter mainly draw upon the theory of decentralized cooperation in international cooperation research, that is, the cognition of the payoff structure and the prediction of future impacts of international cooperation under an anarchy system. 22 This mainly refers to the payoff structure of emerging and developing countries as a group in the global system. 23 The origin of cooperation we attempt to explain in this chapter is essentially about tracking the source of group rationality. Drawing on research on cooperative game theory, we further clarify and enrich the theoretical framework of the origin of cooperation. In the general sense, the motivation of a game, including a cooperative game, is individual economic rationality. However, in reality, the cooperative rationality often has more rich connotations, including group rationality. 24 Robert Axelrod and Robert Keohane, “Achieving Cooperation Under Anarchy:  Strategies and Institutions”, reprinted in Kenneth Oye, Cooperation Under Anarchy, translated by Tian Ye and Xin Ping, Shanghai People’s Publishing House, 2010, pp. 238. 25 Common external pressures and the cognition thereof, as well as and common tasks/​missions and the cognition thereof, are important structural reasons for the formation of cooperation. See Yin Jiwu, Formation of Social Cognition Alliance Trust, Shanghai People’s Publishing House, 2009, pp. 127–​130; Stephen Walt, The Origins of Alliances, translated by Zhou Yiqi, Peking University Press, 2007. 26 Robert Jervis, System Effects: Complexity in Political and Social Life, translated by Li Shaojun, Shanghai People’s Publishing House, 2008, p. 231. 27 Here, we emphasize the positive feedback generated from a positive cooperative game, which further strengthens the cooperative culture and norms and leads to continuous expectation for long-​term cooperation and benefits. This is consistent with the logic of the “one repayment for one payment” strategy and the “stepwise repayment” strategy. See Robert Axelrod, The Evolution of Cooperation, Shanghai People’s Publishing House, 2007. 28 For the impact of the actor’s subjective initiative on cooperation and its structure, see Zhou Fangyin, “International Structure and Strategic Interactions”, Journal of World Economics and Politics, No. 10, 2007, pp. 6–​17. 29 For the impact of the financial crisis on emerging economies and corresponding anti-​crisis policies, see Lin Yueqin, “The Impact of the Global Financial Crisis on the BRICS Countries”, Red Flag Manuscript, No. 12, 2009, pp. 30–​33.

Origin of BRICS cooperation  65 30 Wei Zongyou, “The Rise of Emerging Major Countries as a Group and Global Governance Reform”, International Forum, No. 2, 2011, pp. 8–​14. 31 IMF data, www.imf.org/​external/​pubs/​ft/​weo/​2014/​02/​index.htm, September 11, 2014. 32 World Economic Outlook, www.imf.org/​external/​pubs/​ft/​weo/​2014/​01/​, 2014-​ 12-​20. 33 Tian Ye, “Institutional Supply in Global Governance: An Analysis of Transaction Costs”, World Economics and Politics, No. 10, 2002, pp. 17–​22; Qin Yaqing, “Global Governance Failure and Reconstruction of the Conception of International Order”, Journal of World Economy and Politics, No. 4, 2013, pp. 4–​18. 34 Zhang Yuyan, “Interest Groups and Non-​Neutrality of Regimes”, Reform, No. 2, 1994, pp. 97–​105. 35 Xu Xiujun, “Emerging Economies and Transformation of Global Economic Governance Structure”, Journal of World Economics and Politics, No. 10, 2012, pp.  49–​ 79; Huang Renwei, “The Rise of the BRICS Countries and Global Governance System”, The Contemporary World, No. 5, 2011, pp.  24–​27; Wei Zongyou, “The Rise of Emerging Major Countries as a Group and Global Governance Reform”, International Forum, No. 2, 2011, pp. 8–​14; Wu Zhicheng and Yang Na, “Global Governance: From the Perspective of East Asia”, Foreign Theoretical Trends, No. 10, 2012, pp. 17–​23. 36 IMF Members’ Quota Calculation Formula, www.imf.org/​external/​np/​exr/​facts/​ chi/​quotasc.pdf, January 10, 2015. 37 IMF Members’ Quotas and Voting Power, and IMF Board of Governors, http://​ www.imf.org/​external/​np/​sec/​memdir/​members.aspx, January 10, 2015. 38 Wei Zongyou, “The Rise of Emerging Major Countries as a Group and Global Governance Reform”, International Forum, No. 2, 2011. 39 Wang Mingguo, “New Progress in the Study of International Institutions:  A Comprehensive Review of Institutional Effectiveness”, Teaching and Research, Vol. 12, 2010, pp. 41–​49; David Helder and Kevin Young, “Principles of Effective Global Governance”, translated by Zhu Xu, Nankai Journal (Humanities and Social Science Edition), No. 5, 2012, pp. 1–​11. 40 Cui Zhinan and Xing Yue, “From the G7 Era to the G20 Era”, Journal of World Economics and Politics, No. 1, 2011, pp. 134–​154. 41 Ren Lin, “BRICS Cooperation Promotes the Shaping of a Neutral International System”, Oriental Morning Post, July 22, 2014. 42 Mansell Olsen, The Logic of Collective Action:  Public Goods and the Theory of Groups, translated by Chen Yu, Shanghai People’s Publishing House, 2011, pp.  1–​2; Robert Axelrod and Robert Keohane, “Achieving Cooperation under Anarchy:  Strategies and Institutions”, reprinted in Kenneth Oye, Cooperation Under Anarchy, translated by Tian Ye and Xin Ping, Shanghai People’s Publishing House, 2010, pp. 240–​243. 43 “YICAI’s Interview with Jim O’Neill: The BRIC Should Not Have Expanded”, www.yicai.com, Nov. 28, 2014. The BRICS countries are all emerging powers in their respective regions, but there are controversies around their representativeness and whether they should incorporate new members. 44 Xu Xiujun, Shen Minghui, and Ren Lin, Global Economic Governance:  Old Order vs. New Rules, World Affairs, 2014, No. 17, pp. 14–​26. 45 “YICAI’s Interview with Jim O’Neill: The BRIC Should Not Have Expanded”, http://​www.yicai.com, Nov. 28, 2014.

66  Ren Lin and Yin Jiwu 46 For example, India’s participation in the BRICS is a decision after multiple trade-​ offs, according to Li Guanjie, between the following considerations:  attracting foreign investments from other member countries; seeking a solution to trade deficits; drawing development experience from other member countries; fostering an atmosphere conducive to its incorporation into the permanent members of the UN; creating an environment for addressing security issues; and strategically shaping a landscape of rising powers. The latter three considerations are more subtle than the former three. See Li Guanjie, “Analysis of India’s Strategy in BRICS Cooperation”, South Asian Studies, No. 1, 2014, pp. 119–​142. 47 This pessimistic argument has found its pieces of evidence from the recent economic slowdown of emerging countries. It claims that the “golden decade” of rapid growth for the BRICS economies has passed, and low-​and medium-​speed growth will remain in a long period to go. For example, the Brazilian Real, the Russian Ruble, and the Indian Rupee have seen substantial declines. For the voices questioning the BRICS cooperation, see Joseph Nye, “BRICS Without Mortar”, Lianhe Zaobao, April 10, 2013; Jiang Shixue, “How to Make the BRICS Cooperation More Mature”, World Affairs, No. 15, 2014, pp. 34–​36. 48 The theory of social identity actually plays an important role here. See Wang Pei and Liu Feng, “Social Identity Threats:  From the Perspective of the Social Identity Theory”, Advances in Psychological Science, No. 5, 2007, pp.  822–​827; Michael Hogg and Dominic Abrams, Social Identifications: A Social Psychology of Intergroup Relations and Group Processes, translated by Gao Minghua, China Renmin University Press, 2011. 49 Donald Puchala and Raymond Hopkins, “International Regimes: Lessons from Inductive Analysis”, in Stephen Krasner (ed.), International Regimes, Peking University Press, 2005, p. 65; M.Virally, ”Definition and Classification of International Organizations: A Legal Approach”, International Social Science Journal, Vol.29, 1977, pp. 58–​72. 50 Zhu Jiejin, “Transformation of the BRICS Cooperative Mechanism”, International Review, No. 4, 2014, pp. 59–​62. 51 In the Joint Statement of the BRIC Countries’ Leaders in Yekaterinburg, which marked the formation of BRIC cooperation, the four countries called upon the G20 to implement the consensus and pledged to promote the reform of international financial institutions and to improve the voice and representation of emerging and developing countries in international financial institutions. “Joint Statement of the BRIC Countries’ Leaders, Yekaterinburg” (June 16, 2009), People’s Daily, June 17, 2009, p. 3. 52 Sixth BRICS Leaders’ Meeting:  Fortaleza Declaration, People’s Daily, July 17, 2014, p. 2. 53 Lin Yueqin, “New Development Bank: Reconstructing the International Financial Order”, Guangming Daily, October 15, 2014, p. 15. 54 Adriana Erthal Abdenur, “Emerging Powers as Normative Agents: Brazil and China within the UN Development System”, Third World Quarterly, Vol. 35, No. 10, pp.  1876–​1893; Pu Xiaoyu, “Socialization as a Two-​Way Process: Emerging Powers and the Diffusion of International Norms”, The Chinese Journal of International Politics, Vol. 5, No. 4, 2012, pp. 341–​367. 55 Joint Statement of the BRIC Countries’ Leaders, Yekaterinburg, June 16, 2009. 56 Su Changhe, China and Global Governance:  Process, Action, Structure, and Knowledge, International Political Studies Review, No. 1, 2011, pp. 35–​45.

Origin of BRICS cooperation  67 57 Joint Statement of the BRIC Countries’ Leaders, Yekaterinburg, June 16, 2009. 58 Ramesh Thakur, “How Representative are BRICs”, Third World Quarterly, Vol. 35, No. 10, 2014. 59 Gao Shangtao, “Theory and Model of Practice: An Analysis of the Process of China’s Participation in the BRICS Mechanism”, Diplomatic Review, No. 1, 2015, pp. 55–​68. 60 Most of the existing international systems are the products of hegemony. Men Honghua, Wing of Hegemony:  U.S. Institutional Strategy, Beijing University Press, 2005. Robert Keohane, After Hegemony:  Cooperation and Discord in the World Political Economy, translated by Su Changhe, Shanghai People’s Publishing House, 2012. 61 Joint Statement of the BRIC Countries’ Leaders, Yekaterinburg, June 16, 2009. 62 China’s overall attitude is to actively participate in international institutions and organizations. For an overview of such attitude, see Wang Yizhou (ed.), Construction within Contradiction:  Multiple Perspectives on the Relationship between China and International Organizations, China Development Press, 2003. 63 Antagonistic cooperation includes alliance and other types of international cooperation. For the different forms of international regimes, see Tian Ye, Institutional Choice in International Relations: From the Perspective of Transaction Cost, Shanghai People’s Publishing House, 2006, pp.  120–​166. In fact, modern functional international organizations and regional integration are both manifestations of experience in functional cooperation. But we believe the BRICS is unlike others in that it is a conglomerate of emerging countries that transcend regions, ideologies, cultures and economic development models. 64 Su Changhe, “China and the International System: Seeking Inclusive Partnership”, Diplomatic Review, No. 1, 2011, pp. 9–​18. 65 This is different from the theory of decentralized cooperation under an anarchic system and the theory that emphasizes the importance of regimes. Kenneth Oye (ed.), Cooperation Under Anarchy, translated by Tian Ye and Xin Ping, Shanghai People’s Publishing House, 2010.

4  BRICS cooperation in the game of countries Zhou Fangyin

Although the Western media has been questioning the prospect of the BRICS cooperation since the first BRICS summit in 2009, the BRICS cooperation is steadily gaining momentum. The three main reasons that affect this cooperation are as follows:  the impact of the current global landscape and the increasing power of the BRICS countries on the global landscape, Western countries’ strategies on the BRICS cooperation, and the BRICS countries’ own interests and other interactions in the BRICS cooperation. The BRICS cooperation itself is the result of the game of the related countries. Despite the differences in many aspects among the BRICS members, their cooperation is fundamentally in line with mutual long-​term strategic interests and has an important role that cannot be replaced by other platforms in achieving related interests. As time goes by, the BRICS cooperation will leverage a more important role in international economy and global governance. A series of fruitful achievements of the BRICS cooperation indicates that it is able to handle difficult situations effectively and seek consensus against such a background. The BRICS cooperation has undoubtedly displayed strong vitality in the past few years. What is the root of the BRICS cooperation? What is the basis of the sustainability of the BRICS cooperation? Will this basis be altered due to the change of international situations or eroded due to the continual divergence of the economic power of the BRICS countries? These are absolutely the unavoidable questions when people get to learn about the BRICS cooperation. It was over ten years ago that the concept of BRIC was first put forward. As to the concept per se, its name derived from an acronym used by Goldman Sachs to promote its financial by-​products, and which is easy to vanish owing to the change of international economic situations and the evolution of the financial market. Superficially, the BRICS lacks a powerful adhesive to unite its member states effectively. During the development of the BRICS cooperation, it is not entirely unreasonable for the international media, including many Western scholars, to question its prospects. There do exist some inherited obstacles and flaws in the BRICS cooperation. In reality, however, the concept of BRICS is not transient; instead, it displays an increasing vitality as time goes by. The BRICS annual summit attracts much attention in the world,

BRICS cooperation in the game of countries  69 and the BRICS cooperation has achieved much more than expected, which is due to its realistic foundation. Therefore, we must have a deeper and more comprehensive understanding of the main factors that affect the BRICS cooperation, including from the perspective of the interactions between the member countries, which will help us to better forecast and plan the future of the BRICS. In general, the factors that influence the BRICS cooperation are mainly as follows: the global landscape, Western countries’ strategies regarding the BRICS cooperation, and the BRICS countries’ consideration for the cooperation and their interaction.

1.  Global landscape How many achievements can be made by the BRICS cooperation is largely constrained by the background of the global landscape. The factors of the global landscape are mainly reflected in the following aspects. On the one hand, the global landscape is affected by the power structure of the major power centres, especially the power of emerging countries as represented by the BRICS in global politics, economy, military, and security. To a large degree, it determines how much international influence the BRICS countries themselves and the international organization they formed can leverage under the best conditions. The international system has been generally unipolar since the end of the Cold War, or put another way, it has only one superpower, the United States. A key feature of this system is that there is no single economy able to counterbalance the United States. Under the unipolar system, the United States is safer than any other big economy and exerts a larger influence on international affairs. Meanwhile, unipolarity reduces the systemic constraints on the United States and gives it more freedom to act.1 In contrast, a multipolar system means that no major country unequivocally occupies the first position. Under the unipolar system, the relatively large gap in power increases the cost for other countries to counterbalance the United States and reduces the possibility for other countries to successfully counterbalance the United States, as a result of which other major economies in the system become hesitant to attempt to counterbalance it. The difficulty of collective actions further increases the possibility for other major countries to jointly counterbalance the United States. The special power structure under the unipolar system creates an unfavoured external climate for other countries and those international organizations that do not have the United States as a member to exercise influence at the global level. Under the unipolar system, the lack of sufficient external constraints has granted the dominant country more freedom to move at will, which may lead to its excessive expansion or its tendency to inappropriately extend its influence. And it will be intolerant of those international organizations or groups that are reluctant to be dominated by the superpower or even potentially challenge or erode its influence. The greater

70  Zhou Fangyin power the United States has, the less tolerance it will have in this regard. In addition, the United States has a relatively strong motive to squeeze out the action space of other sub-​major countries and further increase its systemic benefits by adjusting international rules.2 China has witnessed rapid economic growth over a relatively long period of time, which to a certain degree has promoted changes in the strength of the international system. This change, however, is limited and not enough to promote the transformation of the international system from a unipolar structure to a bipolar or multipolar structure. At least in the next five to ten years, it will still be difficult to truly transform the unipolar international system to a bipolar or multipolar one. Such a system of the international structure determines that the international systems dominated by the United States and the Western institutions, such as the World Bank, the International Monetary Fund, and the World Trade Organization, will still be at the core of international economy and global governance. Even if the BRICS cooperation can make smooth progress, the BRICS countries cannot replace these organizations in the core areas. The BRICS countries will absolutely be faced with strong collective opposition and sanction by the Western countries if they attempt to replace those institutions. In this sense, it is a natural result of the current international system that Western countries are not optimistic about the BRICS cooperation and often pour cold water on it; and it is also natural that there are always some obstacles to the process of the BRICS cooperation in the current system, making it difficult to achieve the best outcomes. The basic principle of “openness, inclusiveness, cooperation and win-​win results” advocated by the BRICS countries is not only their genuine hope but also an unavoidable choice due to the relatively weaker position to the United States and the European countries in general. On the other hand, the BRICS cooperation itself is an important factor in promoting the change of the international system. Under the unipolar system, as the strength of the BRICS countries increases individually or collectively and they have more substantial cooperation, that cooperation will be more structurally meaningful. At present, the BRICS countries account for 30 per cent of the world’s total land area and their population is 42 per cent of the world’s population. In 2014, their total GDP was about 22 per cent of the world’s total GDP. If the BRICS countries continue to maintain an average growth rate higher than that of the Western economies in the long run, and if the BRICS cooperation can attract more and more support from other countries, including other emerging economies, then the BRICS will have an impact on the basic structure of the international system in terms of the power structure of major countries, the international trade order, the international financial order, and the global governance system, and will change many unreasonable elements in the existing order and arrangements. From the perspective of the power structure, especially that in the international economy, the development of the BRICS cooperation will be deeply influenced by the following trends in the future. (1) Compared with Western

BRICS cooperation in the game of countries  71 countries, whether the BRICS countries, as a whole, can maintain a stable momentum of rapid economic growth and how long the momentum can last –​ 3–​5 years, 10–​20 years or longer –​will deliver different results. (2) Looking into the next 30–​50 years, the understanding and estimation of to what magnitude the overall economic scale of the BRICS countries will grow –​to reach the same level as the economic aggregates of several major Western countries eventually or still have a large gap in total volume and quality –​will directly affect the policies and attitudes towards the BRICS cooperation by the BRICS countries themselves, Western countries and many other countries. (3) When the overall strength of the BRICS countries is increasing, whether the individual growth of each country shows obvious divergence and whether the development between the BRICS countries reflects a solidified stratification or a balanced growth overall will have an impact on the psychology of the member states and also provide various opportunities and possibilities for the potential differentiation of BRICS cooperation for Western countries. The international trend determines the overall external climate faced by the BRICS cooperation. Although it cannot fully determine the BRICS countries’ strategies and policies in terms of mutual cooperation, the external climate does provide different space and opportunities for these countries and in reality restricts the behaviour of relevant countries as well. The constraints are sometimes powerful and hard to be broken and affect the BRICS countries’ positioning in the international system, including the position of strength and the position of influence, their respective understanding of development opportunities and strategic space, and the judgment of strategies that should be taken to expand their strategic space and so on. In general, the BRICS is not in a strong position in the current international system; instead, it is an emerging force that is rising but still relatively weak overall. Since the Western countries have a dominant advantage in institutional arrangements and rules-​making in international trade, investment, finance, and global governance, not a single BRICS country has the ability to raise a serious challenge on its own, and such an attempt is doomed to lose and will impose high costs and expenses. However, the BRICS, as a whole, can greatly improve its status in the international economic environment and have a bigger say in the international economy and global governance by strengthening cooperation, enhancing mutual assistance, and attracting broader support in the international community. Although the concept of BRIC was originally proposed for international investment, the BRIC countries themselves began as a relatively powerful political force dispersed in the international system. It is such an objective situation that bestows a strong inner vitality on the BRICS cooperation.

2.  Western countries’ strategic options for the BRICS cooperation Under the same power structure, the different strategies adopted by Western countries for the BRICS cooperation will exert various impacts on the progress

72  Zhou Fangyin of the BRICS cooperation. Western countries generally have the following major strategic options for the BRICS cooperation. The first strategy is to vigorously suppress the BRICS cooperation and strive to maintain the dominant position of Western countries in the international economy and global governance. This strategy will openly oppose the erosion of the influence of the BRICS cooperation on the West on the international level and take countermeasures on the policy level, directly putting various pressure on countries that actively promote the BRICS cooperation and forcing them to shatter any hope to have a bigger say in international affairs by promoting the BRICS cooperation. Such a strategy is probably what Western countries want, but it will cause them to lose their moral high ground in international economic cooperation and global governance, and will arouse a greater response from within the system. Even if it can produce a certain effect in a short period of time, it will cause further resentment among the BRICS countries in the long run and may increase the long-​term cohesiveness of the BRICS countries. After all, external pressure is often a positive factor in enhancing internal solidarity. With the gradual increase of the strength and international influence of the BRICS countries, this strategy is less likely to yield substantial results. The second strategy is to support the BRICS cooperation on the surface, giving the BRICS countries some hope and making certain concessions to them in secondary fields while creating delays and refusing to compromise in international finance, international trade, international investment, and the formulation of the core systems and rules in global governance. To put it another way, this strategy is to support the BRICS cooperation superficially while trying to dissolve its internal motivation. For example, the BRICS countries have been seeking to increase their voting rights and share in the World Bank and the International Monetary Fund. According to the reform plans of the two organizations in 2010, the BRICS’ voting rights in the World Bank would be significantly increased to 13.1 per cent and its share in the International Monetary Fund would reach 14.81 per cent. However, this reform plan was not fulfilled for a long time due to the resistance from the United States, although in fact the overall power of the BRICS countries has far exceeded the share that the two institutions could grant them. The objective effect of such a situation is that the patience of the BRICS countries has been gradually exhausted, and they are forced to find a way out through unity and cooperation. During this period, the Asian Infrastructure Investment Bank initiated by China was established in 2015, clearly showing the international community that other countries can cooperate to establish a new regional multilateral development bank and play an active role in global economic governance without support from hegemonic countries. This also helps many countries realize that the control of global and regional multilateral development banks by Western countries is not an unshakable law.3 Similarly, if the concessions made by Western countries are far from the expectations of the

BRICS cooperation in the game of countries  73 BRICS countries, those countries will make independent efforts to enhance their institutional voice, thereby promoting reform of the global governance structure and the international financial system. The establishment of the new development bank and the BRICS Contingent Reserve Arrangement show that Western countries have failed to achieve great success in coping with the BRICS cooperation by causing delays and offering false appeasement. The third strategy is to adopt a wait-​and-​see attitude to the BRICS cooperation  –​neither encourage nor publicly oppose it. This strategy counts on the cooperation to be always in slow progress and will fail to influence the international arena due to the conflicts among the BRICS countries and the internal problems of their cooperation. Such an attitude gives no excuse to the BRICS countries and avoids the possibility that the member states unite to progress as a result of the opposition policy. The problem, however, is that if nothing is done to the BRICS cooperation, as the power of those countries increase and the interaction among them becomes more frequent, Western countries will inevitably face the fact that the BRICS countries will have more influence in the international community. It is undoubtedly difficult for Western countries that dominate the system and have a bigger say in the international system to adopt such a passive and laissez-​faire policy. The fourth strategy is to dismantle the BRICS cooperation by absorbing individual BRICS countries, reduce their internal cohesiveness and make them work towards different results or even be jealous and suspicious of each other. Therefore, the BRICS cooperation would be effectively cooled down and its impact on the existing international economic order and global governance system would be alleviated. If one or two BRICS countries change their attitude and policy due to persuasion from the West, this strategy will produce effects quickly. However, it is difficult for Western countries to give certain benefits to an individual BRCIS country while making no concessions to others. The practice of giving certain benefits to an individual country may make the West think that the reason why the concession is being made is because of the pressure imposed by the BRICS countries. Such recognition would make it unwilling to give up the platform of the BRICS cooperation. In addition, if Western countries make concessions to a member state that has the greatest power, the cost would be enormous, which to them is definitely an undesirable result. If they make concessions to the country that has relatively little power, the problem cannot be fundamentally solved in the long term. Therefore, such a way has its limitations if put into practice. It is worthwhile in tactics while doubtful in strategy. The fifth strategy is to directly face the fact that the BRICS cooperation is more and more important and producing results day by day, and explore the fields where the BRICS cooperation and the international economic order and global governance system can be connected and complement each other on this basis. The strategy will better leverage the constructive roles of the existing mechanism and the BRICS cooperation, encourage them to evolve together amid competition and cooperation, and moderately

74  Zhou Fangyin improve the existing governance mechanism and the ruling system at the same time. In the long run, such a method will definitely increase the international influence of the BRICS countries to some degree. According to the basic logic of international politics, however, as the power of the BRICS countries is constantly increased and cooperation is steadily enhanced, it is irreversible that the BRICS countries would have more influence in the system. Adopting this strategy would to a certain degree affect the direction, progress, and speed of the BRICS cooperation and avoid the scenario that the existing mechanism is fundamentally replaced by the BRICS cooperation or two arrangements compete with each other, causing a huge loss to both sides. In general, the last strategy is the most practical one, which will lead to the smallest negative effects in the long run. But it is also the last strategy to which Western countries in the dominant position would resort. In reality, the strategy adopted by the West will probably be a combination of the five mentioned above. That is to say, they will adopt various methods, including oppressing or discouraging the cooperation, associating with or targeting individual member countries and making compromises in minor areas or doing nothing unwillingly. Based on different opportunities and conditions, different methods will bring about different combinations.

3.  BRICS countries’ consideration for cooperation and their interaction A third factor that determines the direction of BRICS cooperation is the member countries’ understanding of the relationship and value of the cooperation, and the major policy choice to achieve their own interests. In essence, the BRICS cooperation is the cooperation among the powerful and ambitious sovereign states. Such cooperation cannot be realized if one country compels others to accept its wish, and it is even less likely to be established under compulsion by external countries. Meanwhile, the BRICS countries are not likely to be dominated or voluntarily led by one country. To any member state, the benefits of the cooperation must be bigger than the perception of the costs, or it can choose to withdraw during the process of the cooperation. Therefore, the BRICS cooperation must highly respect the will of all member nations and be in line with their interests. Whether that cooperation can make steady progress and a fruitful future depends on how the BRICS countries treat each other and how they effectively manage the relationship against a volatile global landscape and the international system transformation. There are both competition and cooperation among the BRICS countries, and they have mutual interests and different individual interests as well. The five countries have the same considerations as to cooperation, and each country may have unique interests and views. Below is a brief analysis of the interests and basic considerations of the five countries.

BRICS cooperation in the game of countries  75 3.1  China China is in a special position in the BRICS cooperation. On the one hand, after over 30  years’ constant rapid growth, the total volume of China’s economy has reached an astonishing scale. On the global level, China is the world’s second-​largest economy and largest trading country. In terms of the economic aggregate, the difference between BRICS countries in 2014–​2015 became bigger. In 2015, China’s economic aggregate was about US$10.8 trillion while the total GDP of Russia, India, Brazil, and South Africa was around US$5.5 trillion. The total economic volume of China was almost twice that of the other four countries together, while in 2013, it was only 1.4 times the volume. This was obviously related to the major economic difficulties and even the economic contraction faced by Russia and Brazil in the past two years. In terms of bilateral trade, China is the largest partner of Russia, India, Brazil, and South Africa. China is the largest export market of Brazil and South Africa and also their largest import market. In comparison, among Russia, India, Brazil, and South Africa, none of them is among the top three trading partners of each other (as time goes by, trade among the BRICS countries will no doubt gradually increase). In terms of trade, China plays a pivotal role in connecting the BRICS countries. China’s outstanding advantages in economy is beneficial to the BRICS cooperation but also restricts that cooperation. That China’s economic position is far higher than other four countries is commonly the reason why the public think that the BRICS is likely to be dismantled.4 The key of the cooperation for the BRICS countries is the pursuit of influence and voice in international affairs instead of competition in the economic area. Therefore, as long as China does not impose its own will on other BRICS countries due to its economic advantages, but respects others’ choices and will and avoids letting any member state feel marginalized in the cooperation, its economic power will not harm the cohesiveness of the BRICS countries; rather, it will provide a solid material foundation for the BRICS cooperation to achieve more substantial results. It is the fundamental goal of China’s diplomacy to improve the overall national climate, increase its influence in the international system, and ultimately realize the rejuvenation of the Chinese nation in a peaceful way without giving up the non-​alignment policy. A major restriction faced by China during the process is that it does not have enough institutional voice in the international economy and global governance system and, as a result some of its requirements cannot be effectively expressed and met under the existing order. If various multilateral mechanisms cannot play their roles, China cannot have more institutional voice even if its economic power is greatly increased. The BRICS cooperation can play a positive role in helping China to exert its influence in the international community, including challenging the existing arrangement in international economy and global governance, and win voice

76  Zhou Fangyin and influence for emerging countries. The deeper the BRICS cooperation becomes, the bigger role it will play. The BRICS cooperation will improve China’s strategic position in international economy and global governance and create more activity space for China, which would be conducive for China to grow into a major global power in a peaceful manner. Specifically, the BRICS cooperation will help China to expand cooperation with emerging countries in politics, economy, and security and deal with the US Asia–​Pacific rebalancing strategy, face the challenges towards China’s international trade environment such as the Trans-​Pacific Partnership Agreement (TPP)5, and Transatlantic Trade and Investment Partnership (TTIP), and promote the internationalization of RMB. The value of the BRICS cooperation is undeniable for China, both on strategic and practical levels in the future. Therefore, instead of reluctance to make any sacrifice, China will be tolerant even if other BRICS countries will be free riders of the Chinese fast train of development to some degree in the process of the BRICS cooperation. And it will take a relatively long time to show the strategic value of the BRICS cooperation under the prerequisite that it maintain stable momentum overall. 3.2  Russia Among the BRICS countries, Russia is relatively special. Unlike other member states, Russia is not an emerging country in a serious sense; rather, it used to be a superpower and now hopes to maintain its position and international influence as a major power. Compared with the other four countries, Russia has obvious advantages and disadvantages. It has strong military power and regional security influence; it is as powerful as the United States in terms of strategic weapons; it is a permanent member of the UN Security Council; it boasts abundant energy and natural resources; it has rich experience in the political battles with major economies; it has important geo-​political benefits in its Commonwealth of Independent States and the Middle East; it has a strong voice in many international affairs. In general, Russia boasts some advantages and features that other BRICS countries do not have. However, Russia is economically disadvantaged. In terms of the long-​term trend of the world power development, China has an obvious trend to grow into a world power centre; India is regarded to have huge potential due to is large population; Russia has a large territory, yet it has a small population, so its economy has structural flaws. Some Western scholars think Russia cannot keep up with the development speed of the BRICS countries after the financial crisis.6 Due to the Ukraine problem, Russia has suffered serious economic sanctions from the West, which puts pressure on its political security and forms economic challenges, enhancing the political and economic value of the BRICS cooperation to Russia to a large degree. In general, however, the political function of the BRICS cooperation is larger than its economic function to Russia. It is not Russia’s priority to deal with the economic sanctions and strategic pressure from the West, expand its influence in international

BRICS cooperation in the game of countries  77 affairs, maintain its influence in the Commonwealth of Independent States, the Middle East and Central Asia, or improve its voice in the international economy. Russia places political strategy over economic strategy in the BRICS cooperation, which determines that it will try to lead rather than follow any other member state. Different from the G20 and the G7, the BRICS mechanism is one of the few multilateral cooperation mechanisms that are not intervened by Western countries or even dominated by the United States. Under this mechanism, Russia has a relatively large activity space instead of bearing much pressure from other countries, and the BRICS can serve as a significant platform where Russia can push the world to develop towards multi-​polarization and alleviate strategic pressure. The BRICS cooperative mechanism is an important tool for Russia as it can enhance its status in the global governance system, which cannot be realized by Russia’s cooperation with the West at present.7 Russia was suspended from the G8 after the Ukraine crisis; it is ordinary and even isolated in the G20, an important platform to discuss international economy and global governance, which further indicates the importance of the BRICS mechanism to Russia. Against the backdrop, Russia tends to consider more about politics in the BRICS cooperation. It supports China as to the choice of the location of the New Development Bank (NDB) and agrees that Shanghai is an ideal city. The more negative the policies to Russia taken by the United States and its Western alliance and the more strategic pressure they impose, the more active Russia will be to promote the BRICS cooperation. In terms of the strategic space and the alternative option during crisis, the existence of the BRICS itself is important for Russia. The BRICS mechanism also provides a significant platform for Russia to leverage its functions and experience as a major power, and therefore takes up an important position in Russia’s diplomacy. 3.3  India India has special advantages among the BRICS countries. One of its important edges is that India’s economy has huge development potential due to its large population and natural resources. The perception and estimation of India’s potential has earned it great significance and attention from the international community. In addition, India’s current economic power is not very solid. Its GDP in 2015 was US$2.06 trillion, about one fifth of that of China. The huge potential plus the relatively small aggregate at present have caused various results. On the one hand, it has stimulated the country’s ambition and expectation; on the other hand, it makes India become a subject with whom other major powers are eager to associate and take advantage of, and the country has not caused precaution among other major powers. As a result, India is relatively popular and welcomed among major powers. Although India has its advantages in the relationships with major countries, it is in a peripheral

78  Zhou Fangyin position, which is difficult to change in international economy and global governance. Some major countries attempt to control China via India, but controlling China is not what India really wants. Since India does not possess enough power right now, it is still very difficult for India to realize the dream of a big country that it has hoped for several decades. India hopes to realize the following major goals through BRICS cooperation. (1)  Promote continual domestic economic growth and lay a solid material foundation to exert influence in the international arena. Among the BRICS countries, China boasts strong industrial manufacturing ability and abundant capital and technological ability; Russia and Brazil possess rich natural resources and are major countries of energy and minerals; South Africa represents the huge market of the African Continent. Cooperation with these countries has meaningful value for India’s development.8 (2)  Improve India’s status and role in the multilateral cooperative mechanisms and spread its influence to more areas around the world. After the Cold War, India has been active in various multilateral international organizations, such as the Asia Europe Meeting, South Asian Association for Regional Cooperation, the G20 and the East Asia Summit. Among them, the BRICS cooperation has an important role that cannot be replaced by any other platform. As an emerging economy, India, like China, has experienced or will experience increasing pressure from the West in international economy and global governance, including global climate governance. India will better handle the pressure and impact from Western countries in these fields by strengthening its cooperation with other emerging economies. The BRICS cooperation will help India regain its position and influence among developing countries and transform its increasing economic power into political influence in the international community. In particular, India can exert much more influence in the BRICS mechanism than in the G20. (3) Try to become a permanent member of the UN Security Council. India has always regarded the position of a permanent member of the UN Security Council as an important gauge of a major country. However, its plan to create a “G4” with Germany, Japan, and Brazil to become a permanent member is not smooth. India still values the cooperation with the “G4” to become a permanent member. However, it also hopes to gain support from other BRICS countries, especially China and Russia, the two permanent members of the UN Security Council, and have more initiative to realize its goal. (4) Build a financing channel for its long-​ term development and quicken domestic infrastructure construction, creating a more stable international financial environment for the long-​term development. Amid the constantly volatile international financial market, the BRICS Contingent Reserve Arrangement will enhance the stability of the exchange rate of Indian rupee against sudden external pressure. Although India values the BRICS mechanism, it does not hope that China plays a leading role in the cooperation. India tried to compete with China as to the location of the New Development Bank headquarters and the presidency of the NDB. The final decision was that the location would be in Shanghai

BRICS cooperation in the game of countries  79 while the first president would be an Indian. In addition, India is unwilling to leave an impression that the BRICS mechanism is to challenge Western dominance in the international community. To India, the United States and Europe have top positions in its strategic priorities and it will not offend the West due to its participation in the BRICS mechanism.9 As a result, India is relatively contradictory towards BRICS cooperation –​it tries to have more say in international economy and global governance through the BRICS cooperation while it does not want to displease the West. This contradiction also restricts India’s activity in the BRICS mechanism and determines its general attitude of “invest less yet benefit more” towards the BRICS cooperation. Such an attitude plus the insurmountable territorial dispute with China make India an important target for the United States, Europe, and other Western countries to win over among the BRICS countries. To some degree, India is a weak element in the BRICS cooperation. But the cooperation has provided an unprecedented platform and opportunity for India to become a major world power from a regional major power, which has irreplaceable value in the long run. In general, India will participate in the BRICS cooperation while trying to gain advantages from both sides and try to prevent any other country from leading the BRICS cooperation. 3.4  Brazil With a land area of about 8.51 million square kilometers, Brazil ranks fifth in the world and is the largest country in Latin America, accounting for half of the total area of South America. By the end of 2013, its population was about 0.2 billion, ranking fifth in the world after China, India, the United States, and Indonesia. From the perspective of land area and population, Brazil is a large-​ scale country. It also witnessed great economic growth over the past decade, with its GDP rocketing to US$ 2.35 trillion in 2014 from US$663.7 billion in 2004, an increase of over 2.5 times. Although Brazil experienced certain economic contraction in 2015, it is still among the top ten economies in the world. Brazil’s large national scale, rich resources, and growing power no doubt increase its desire for the status of a big country. But its ambition to exert important international influence has long been restricted due to the lack of a suitable platform. As an emerging economy, Brazil attempted to increase its international status by holding various large-​scale events. Not long after the closing of the 2014 World Cup in Brazil, it held the 2016 Olympics, which made Brazil the first country in South America to hold the Olympics. Obviously, holding sport events is not enough to facilitate Brazil’s development into a major power in the international arena. It hopes to achieve its diplomatic ambition through the BRICS mechanism  –​to make its regional leadership internationally recognized, transform into a world power from a regional power and secure a seat in the UN Security Council. Brazil proactively held the second BRICS Summit after the first was held in Russia, which indirectly reflects Brazil’s positive attitude towards the BRICS cooperation.

80  Zhou Fangyin Among the BRICS countries, Brazil’s economic aggregate ranks third, and it is the largest economy and the only representative in Latin America. With the help of the BRICS cooperation, the trade between Brazil and other member states has become closer and more frequent. Brazil is China’s largest trading partner in Latin America and since 2009 China has been Brazil’s largest trading partner. An important problem faced by Brazil is that it lacks a solid long-​term foundation for economic growth. In trading relations with other BRICS countries, Brazil has always been positioned as the supplier of raw materials and primary products, which is far from the dream of a “strong industrial country” chased by Brazil. This fact also made Brazil sceptical about whether to enhance its trading relation with China. In addition, the growth rate of Brazil dropped to 2.7 per cent in 2011 and 0.9 per cent in 2012 from 7.5 per cent in 2010, and it endured a relatively serious economic contraction, casting doubt on Brazil’s role in the BRICS among the international community. Brazil needs to make the most of economic cooperation with other BRICS countries, improve domestic infrastructure, adjust industrial structure, and promote sustainable economic development. The BRICS cooperation has helped Brazil to acquire more international influence. China and Brazil are the largest beneficiaries of the voting rights and share reform of the World Bank and the International Monetary Fund in 2010. With the collective efforts of the BRICS countries, Roberto Azevêdo from Brazil was appointed as director-​general of the World Trade Organization. The relations between Brazil and the African continent have been upgraded overall, and both sides have spared no effort in improving the overall relations, including political and military. And the support from other BRICS countries is also of great significance for Brazil to become a permanent member of the UN Security Council. With the increasing international influence of Brazil, the United States and Europe are paying much more attention to Brazil. A  report by the Council on Foreign Relations in 2011 suggested that the US decision-​ makers should seriously treat Brazil as a global major power, strengthen overall cooperation, and support Brazil to become a permanent member of the UN Security Council.10 In February 2014, the European Union and Brazil held the seventh summit in which the two sides discussed various topics, such as global economic recovery, Internet security, and international security, including Ukraine, the Middle East, and Africa, and reiterated the importance of strengthening the strategic cooperation partnership in all aspects. The United States is also building a more equitable partnership with Brazil, and the two countries have established the presidents’ dialogue mechanism on the four topics, including economy and finance, strategic energy, global partnership and defence cooperation. Obviously, Brazil is favoured by the United States and the European Council to some degree, which also indicates that Brazil will not sacrifice its relations with the West, especially with the United States, when participating in the BRICS cooperation.

BRICS cooperation in the game of countries  81 Among China, Russia, India, and Brazil , which possess relatively strong national power, Brazil has the advantage of not being involved in any big international conflicts. But, in turn, it means that Brazil does not have much need to cooperate with other BRICS countries in international politics and geographic strategies. Domestically, there is even criticism against the Brazilian government that it “sacrifices the principle of democracy” and “tacitly consents to and tolerates Russian’s invasion” in terms of the Ukraine problem.11 On the one hand, the BRICS gives the most voice and highest status to Brazil among all the multilateral organizations with international influence in which Brazil participates. On the other hand, Brazil does not seek any leadership in any sense in the BRICS cooperation and does not reject China’s leadership, though it hopes all topics and subjects under the BRICS mechanism can be solved under equal consultation with every member state. In general, Brazil is willing to develop its relations with Western countries and emerging economies in a balanced way. It attempts to further solidify its regional leadership in South America and avoid being marginalized in international mechanism arrangements. From this perspective, the BRICS cooperation is a multilateral arrangement that is completely in line with Brazil’s interests and needs and, thus, Brazil will have a stable and supportive attitude towards BRICS cooperation. 3.5  South Africa At present, among the BRICS countries, China’s GDP is around US$10 trillion, the GDP of Russia, India and Brazil is around US$2 trillion respectively, while South Africa’s GDP is only over US$300 billion. In terms of economic power and performance in recent years, South Africa is hardly a qualified member of the BRICS. In particular, the growth rate of South Africa in recent years is lower than the average growth rate of the African countries to the south of the Sahara. In addition, South Africa’s land area and population are much smaller than other BRICS countries’. In the meanwhile, South Africa is of unique importance. It has been the largest economy in Africa for a long time,12 and the most developed country in Africa, with a GDP representing about 20 per cent of the total GDP of Africa. Compared with other African countries, the economy of South Africa is steady in general. South African companies occupy an important position in finance, electricity, telecommunications and transportation in Africa. For example, the Johannesburg Stock Exchange is the largest exchange in Africa; Durban is the largest container port, and Richard Bay is the largest bulk port; South Africa has the largest telecommunications network in Africa, and so forth. Different from China, India, Russia, and Brazil, who mainly represent themselves only, South Africa represents African countries in the BRICS cooperation to a large degree. South Africa’s geopolitical and economic influence in Africa is conducive to expanding the representativeness of the BRICS

82  Zhou Fangyin mechanism around the world. In fact, South Africa is the only African country in not only the BRICS but also the G20. South Africa thinks it has the mission to represent Africa and promote the cooperation between the BRICS and Africa. It regards itself as an ideal portal leading the BRICS countries to Africa, especially Southern Africa. Joining the BRICS is a significant diplomatic achievement for South Africa, enabling it to become a major regional power in the world. South Africa thinks becoming a member of the BRICS has a positive effect on its economic growth and improvement of its international status, and it is actively making efforts for it. In 2010, Jacob Zuma, then president of South Africa, visited Brazil, India, Russia, and China in April, June, early August and late August respectively, which reflected South Africa’s eagerness to join the BRICS. Since South Africa became a member state of the BRICS, its relationships with China, Russia, India, and Brazil have developed steadily, and the economic ties with the four countries have been strengthened. South Africa has established a strategic partnership with China, Russia, India, and Brazil in recent years. South Africa was the last to join BRICS and its economic power is the weakest. From the perspective of its own interests, South Africa hopes to deepen the internal cooperation among the BRICS countries while objecting to absorbing more countries as members, because any new member will obviously lower South Africa’s status and influence in the BRICS cooperation. Since South Africa is the weakest member in the BRICS, it does not show obvious interest in the leadership of the BRICS cooperation; it cares about the efficiency of the cooperation instead. South Africa attaches great importance to China’s position and role in the BRICS mechanism, agreeing that China is in the leading position in the cooperation. It fully recognizes the overall power and action efficiency of China, and believes it is not a bad thing that China leads the NDB and the Contingent Reserve Arrangement. Since South Africa has the fewest reserves among the BRICS countries, it is most likely to apply for aid from the Contingent Reserve Arrangement. Since South Africa is experiencing certain economic difficulty, it hopes to attract investment from the member states and create more job opportunities. It also hopes that the BRICS can invest in its infrastructure construction, such as electricity, telecommunications, and transportation, promoting economic growth in the long term. Joining the BRICS directly enhances South Africa’s international status. It enables South Africa to be a beneficiary of other member states’ development and facilitates South Africa speaking for Africa in international economics and global governance via the BRICS, and improving its international influence. It will bring enormous practical and strategic benefits for South Africa to take part in the BRICS cooperation. In addition, South Africa maintains good relationships with all Western countries, and it can play a positive role in coordinating the relationship between the BRICS and the West.

BRICS cooperation in the game of countries  83

4.  Conclusion Different from the G7 and the cooperation between European countries, the BRICS cooperation is conducted among emerging economies that have distinct differences. They share no common features in history, geography, civilization, culture, and religion, and have different political systems and economic models. Even in the economic field, where they have strong complementarity, there is a certain competition among some BRICS countries and a huge gap in their development. In addition, the BRICS cooperation has important value for each member state and serves as an irreplaceable platform for them to exert influence in the international arena. In general, as the rising emerging power, the BRICS countries all hope to improve their regional influence, realize the dream of becoming a major country and facilitate the transformation of the international system in a peaceful manner, and reduce the risks and costs incurred in the process. They are unwilling to lag behind other emerging countries in realizing international ambitions or being left alone to fight on their own. It will be very difficult for every single country to substantially raise its status in international economics and global governance without the BRICS cooperation and the substantial impact on the existing international economy and global governance via collective efforts. The BRICS cooperation provides a powerful tool to flexibly reform and improve the international governance system with small risks and costs in a controllable way, which will also buffer the impacts and fluctuations during the transformation of the system. In this sense, the irreplaceable value of the BRICS cooperation is more reflected in politics and strategies, in particular international systems and rules, instead of in economic benefits for the BRICS countries. If the BRICS hopes that the cooperation will effectively leverage the platform and influence the existing international economy and global governance, one of the prerequisites is that the BRICS cooperation should achieve important substantial results, which requires member states to strengthen unification and cooperation. Just as Putin said, only when the BRICS countries conduct substantial cooperation in all aspects will they have substantial influence in international politics and economy.13 As long as the BRICS countries themselves are willing to deepen the cooperation, Western countries will have no way to stop emerging economies from expressing their voice in the international system. Simple oppression will not be enough to restrict the increase of the influence of the BRICS cooperation and making concessions to the BRICS countries is no other than facilitating them gaining international influence more quickly. In general, it is inevitable for the BRICS mechanism to have more international influence; the difference is more about the speed, degree, and obstacles. There are some realistic problems in the BRICS cooperation, such as the unbalanced economic power of the BRICS countries and the unstable

84

Zhou Fangyin

growth speed of some member states, which may lead to bigger divergence in development. They do have some distinct differences and various political requirements. For example, they have different views as to whether to challenge Western countries; some have certain inherited and realistic problems; while cooperating there are also disputes about how to allocate rights, responsibilities, and duties reasonably, which voice to adopt when speaking in one voice, how to address the “free-rider” problem, and even the internal leadership; in addition, some Western countries hold out an olive branch to, differentiate, speak ill of or overpraise individual BRICS countries. Faced with so many complex elements altogether, the general process of the BRICS cooperation will not be so easy and smooth. Meanwhile, we have to admit despite so many disadvantageous factors in the BRICS cooperation, none of them is fatal or structural; instead, they are all technical factors and different in specific cases. What the BRICS countries face during cooperation are the negotiable problems, which can be compromised through communication instead of the insurmountable confrontational contradictions with a zero-sum result. Therefore, although some voices in the international community are not optimistic about the BRICS cooperation, it can be smoothly advanced in reality. As an important cooperative platform excluding Western countries that have global importance and much room for improvement in the future, the BRICS cooperation is the result of voluntariness and the result of game (competitions) by these ambitious and confident sovereign states. Each result it achieves is a balance of interests realized by the relative countries. It will take a long time to transform the international system, and the BRICS countries are highly consistent in the macro political and strategic interests during the process, which determine that the BRICS cooperation has important value for the member countries in the long term and make people have stable and reliable confidence in its prospect. As time goes by, the BRICS cooperation will play a more important role in the international economy and global governance.

Notes 1 Robert A.  Pape, “Soft Balancing against the United States”, International Security, Vol. 30, No.1, 2005, p.11. John Ikenberry, Michael Mastanduno, and William C.Wohlforth, “Introduction: Unipolarity, State Behavior, and Systemic Consequences”, World Politics, Vol. 61, No. 1, 2009, pp. 1–27. 2 Liu Feng, “Adjustment of International Interest Landscape and Transformation of International Order”, Foreign Affairs Review, No. 5, 2015, pp. 46–62. 3 Zhou Fangyin, “The Mechanism of International Order Change and the Strategy of Striving for Achievements”, Quarterly Journal of International Politics, No. 1, 2016, pp. 36–62. 4 Pang Xun, “BRICS: A Word of the Past”, China Investment, No. 5, 2014, pp. 24–25. 5 The agreement was renamed as Comprehensive Progressive Trans-Pacific Partnership (CPTPP) after United States withdrawal. 6 Stefan Hedlund, “Russia after Financial Crisis”, Russian Studies, No. 6, 2010, pp. 71–87.

BRICS cooperation in the game of countries

85

7 Liu Chunjie, “A Summary on Russian Policy and Research on the BRICS Mechanism”, Academic Journal of Russian Studies, No. 6, 2015, pp. 84–89. 8 Xin Renjie & Sun Xianpu, “BRICS Cooperative Mechanism and Sino-India Relation”, South Asian Studies, No. 3, 2011, pp. 87–99. 9 Jagannath P.  Panda, “India’s Call on BRICS: Aligning with China without a Deal”, Institute for Security and Development Policy, Working Papers, No.91, March 9, 2012. 10 Council on Foreign Relations, Global Brazil and U.S. Brazil Relations, Independent Task Force Report, No.66, July 2011. 11 Fábio Zanini, “Foreign Policy in Brazil: A Neglected Debate”, Harvard International Review, http://hir.harvard.edu/foreignpolicyinbrazil/. 12 However, according to the National Bureau of Statistics of Nigeria in April 2014, the GDP of Nigeria surpassed that of South Africa, becoming the largest economy in Africa. China News:  “Nigeria Surpasses South Africa in GDP and Becomes Largest Economy in South Africa”, http://news.xinhuanet.com/2014-04/ 07/c_126362683.htm. 13 Xiao Huizhong, “Tentative Analysis on Several Questions of Russian Diplomacy with BRICS Countries”, Russian Studies, No. 4, 2012, p. 41.

5  International structure and the BRICS cooperation Jiao Chuankai

The collective rise of emerging economies is the most prominent phenomenon in the contemporary international economy and politics. The rise of emerging economies will undoubtedly have a profound impact on the evolution of the world pattern when the bipolar pattern ended with the Cold War while the new world pattern has not yet been completely formed. Emerging economies, however, have some uncertainties. If they cooperate with each other and create a joint force, they will become an important force that cannot be neglected in the settlement of any international issue. Otherwise, their role in the international community will be severely constrained. Therefore, emerging economies have become one of the hot issues in academic research. As the world’s largest emerging economy and an important member of the BRICS mechanism, China has a deep understanding of the potential and constraints of cooperation among emerging economies, which is the necessary foundation to correctly formulate foreign policy. This chapter intends to take BRICS as an example, analyse the complex situation of cooperation and competition among emerging economies from the perspective of structural realism, and summarize the potential and constraints of cooperation between China and other emerging economies.

1.  Structural realism and BRICS mechanism 1.1  Theory of structural realism The theory of realism including structural one is the basic paradigm for understanding international politics, and is regarded as the “enduring mainstream paradigm”.1 Structural realism is one of the most important genres in the contemporary realism paradigm. Although it is not a theory of foreign policy, as a system theory, it can be adopted to analyse the behaviour of state and foreign policy. According to Waltz, the representative figure in Structural Realism, the result of major events in the international system, or the result of actor interaction, cannot be explained merely from the actor or the interaction between actors. Instead, attention should be paid to the influence of the system environment that restricts the actor and the interaction.

International structure, BRICS cooperation  87 Waltz also determines the characteristics of the international system from three aspects: (1) the arrangement principle of the units of the international system; (2) unit functions; (3) unit strength. Waltz believes that, first of all, the basic unit of the contemporary international system is the national state. All countries enjoy the highest internal and independent sovereignty, and there is no common authority among them. Countries do not belong to each other or have jurisdiction over each other. Each country decides its own foreign policy and behaviour independently. Therefore, the international community is in anarchy. Second, regardless of the national strength, and how different are its political systems, values and cultural traditions, every country, without exception, pursues its own interests, safeguards national security and enhances national strength. In other words, as the actors of the international system, countries have highly consistent functions. Finally, although countries do not belong to each other, and they have sovereignty, and they function in the same way, the varied strength of different countries is like a tradeoff. That is, states are units surrounded by a hard shell, or “billiard balls” of various sizes. The interaction between states implies the collision of these “billiard balls”, depending on their respective forces and velocities rather than their internal structures.2 The anarchy of the international community is the external restriction on the sovereign states, namely the living environment of the state. But the consistency of function is the basic attribute of states, which is the intrinsic restriction. Unlike the domestic political systems, these two features of the international system remain constant. It is the strength of the country that changes. The change in national strength determines the number of major countries, which then determines the nature of the structure of the international system. Different countries have different positions in the structure of the international system due to their different strengths. The structure sets a series of restrictions on actors through the process of socialization and competition to “encourage certain acts of state and punish those acts that do not respond to incentives”.3 Therefore, according to the theory of structural realism, the following arguments can be inferred:  The most important variable determining a country’s foreign policy and the act of state is the country’s strength or its status in the international structure. This chapter argues that the emerging economies, represented by the BRICS countries, basically have the same status in the current international structure, or are at least highly similar and comparable. Thus, this chapter restates the theory of structural realism. 1.2  The BRICS countries and the BRICS cooperation mechanism In 2001, Jim O’Neil, the chief economist of Goldman Sachs in the United States, pointed out that emerging economies, such as Brazil, Russia, India and China, have great economic potential and significant investment opportunities, and named them as “BRIC”, using the first letter of each country. BRIC

88  Jiao Chuankai has gradually become a synonym for emerging economies and an important investment field attracting international attention. Driven by such an atmosphere of public opinion and common interests, the dialogue and cooperation among the BRIC countries have been constantly strengthened. In September 2006, the foreign ministers of the four countries met for the first time at the United Nations General Assembly. In July 2008, BRIC state leaders also met at the G8 Summit and the Dialogue Meeting of Leaders of Developing Countries in Japan. But there was no formal mechanism for cooperation among the BRIC countries. When the financial crisis broke out in 2008, the economies of all emerging economies were greatly impacted without exception. In order to survive the crisis, the BRIC countries held a summit in Russia in June 2009 and issued a joint statement, which marked the official birth of the BRIC cooperation mechanism. Since then, BRIC leaders have met many times, and the cooperation mechanism has been improved. In the international community, the influence of the BRIC mechanism has also been gradually increasing, and more developing countries are expected to join or become observers. In December 2010, South Africa officially joined the mechanism, and BRIC became BRICS. BRICS cooperation has formed a series of mechanisms, including regular formal and informal meetings between leaders, ministerial talks, business forums, and think-​tank forums. The cooperation has expanded from investment and trade to other areas, and the contents of cooperation are increasingly diversified. In March 2013, the five leaders decided to establish the BRICS development bank and the financial reserve pool. In July 2014, the leaders held their sixth meeting, in Brazil. There the five countries issued the Fortaleza Declaration, announcing the establishment of the BRICS development bank and the of the BRICS contingency reserve arrangement. The achievements and the role of the BRICS mechanism can be seen from the “three tasks” proposed by Xi Jinping, the president of China, in September 2013. First, jointly respond to the new international financial situation. In response to the financial crisis in 2008, developed countries implemented the quantitative easing monetary policy. The implementation or withdrawal of this policy would have an impact on the international financial situation. Second, oppose the trade protectionism imposed by developed countries. The financial crisis in 2018 led to the rise of new trade protectionism, mainly in developed countries. Third, enhance the status of emerging economies in global economic governance and break the developed countries’ monopoly on the international financial organization. We should work together to enhance the representation and voice of emerging market countries in global economic governance, implement the quota reform decision of the IMF, formulate a new quota formula that reflects the weight of each country’s economic aggregate in the world economy, and reform the special drawing rights currency basket.4

International structure, BRICS cooperation  89 Some of the targets have been met, such as establishing a new development bank and raising the share of emerging economies in the IMF. In 2015, the Ufa, Russia, summit passed the Strategy for BRICS Economic Partnership, putting forward the goal of BRICS’s future economic and trade cooperation towards the “integration of big market, multi-​level circulation, land, sea and air connectivity, and cultural exchanges”. It can be seen that “BRICS” is the label that Western countries now attach to emerging economies. It was originally an academic concept. The emergence and development of the BRICS cooperation mechanism is not only the need for emerging economies to cope with global common problems, but also the result of their confrontation with the Western developed countries. In 2014, President Xi Jinping put forward that the BRICS should attach importance to economic cooperation, as well as political coordination, “being the anchor that helps stabilize the global economy and the shield that protect the peace of the international community”,5 but so far, the BRICS cooperation mechanism has made achievements mainly in areas such as economy and finance, and has tried to coordinate positions on major international issues. For foreign policy in other areas, especially national affairs, the mechanism remains to be further strengthened. BRICS countries have some common characteristics. Apart from the rapid economic development of all countries in recent years, BRICS members are highly comparable in terms of national territory area, population, economic aggregate and international status (See Table 5.1). Although BRICS countries have different histories, cultures and traditions, customs, ideologies and social systems, they are all in the same or similar position in the international structure. The theory of structural realism asserts that the factors that influence the foreign policies of different countries are not internal differences, but different positions of countries in the international structure. Therefore, BRICS countries should have the same or similar demands and propositions, and thereby formulate the same or similar foreign

Table 5.1 Comparison of elements of strength among BRICS countries Item

GDP (US$ trillion)

International Status

Country

National Territory Population Area (100 million) (10,000 square kilometres)

Brazil Russia India China

8514.9 17075.4 3201.5 9596.9

2.01 1.44 12.10 13.54

2.24 2.02 1.86 8.23

1221.0

0.45

0.38

Regional power Global power Regional power Global/​Regional power Regional power

South Africa

Source: Made by the author based on network data, such as the World Bank.

90  Jiao Chuankai policies, implying the coexistence of cooperation and competition between emerging economies. On the one hand, they will unite and support each other for the common goal and form the international coordination mechanism for emerging economies. On the other hand, behind their cooperation, competition will occasionally emerge due to their homogenous demands, which will be difficult to avoid and resolve.

2.  Current situation and potential of BRICS cooperation According to the theory of structural realism, the BRICS countries have the same or similar demands and propositions in the international community, which also means that the BRICS members have a good foundation and broad areas for cooperation. From the current world situation, this cooperation is mainly reflected in the following areas: first, fields such as international finance and economy, as well as the demand for reform of global economic governance structure; second, the field of global development, mainly in the post-​2015 UN global development agenda. It also includes position coordination on major international issues such as climate change, preventing proliferation of nuclear weapons and combating terrorism. First, the BRICS cooperation in global economic governance advances smoothly and has had great achievements. In November 2014, the BRICS leaders met informally in Brisbane, Australia. President Xi Jinping pointed out that the BRICS should actively participate in international multilateral cooperation, enhance their voice in global economic governance, including strengthening the construction of coordination and cooperation, promoting an open world economy, implementing International Monetary Fund reform, and facilitating solutions to global development problems at the G20 summit.6 Since 2010, the BRICS countries have made efforts to reduce their reliance on the US dollar, to promote the diversification of the international monetary system and conduct a series of collective and coordinated actions, including taking the initiative to diversify the international monetary system, strengthening regional monetary cooperation, promoting currency swaps and local currency trade settlement, promoting the status of Special Drawing Rights, and proposing the joint program for establishing a development bank. At the G20 summit in 2012, the BRICS countries jointly proposed to increase the IMF’s capital, including the increase of US$43 billion from China, as well as the capital increase of US$10 billion from Russia, India and Brazil, respectively, and the increase of US$2 billion from South Africa. Emerging economies have rallied to strengthen their quotas and voting rights at the IMF. At the fifth BRICS summit in 2013, the member countries determined to set up the BRICS development bank and the pool of foreign exchange reserves. In July 2014, the new development bank was formally established. The monopoly of the West on the international financial organization was thereby broken, and the voice

International structure, BRICS cooperation  91 of emerging economies was enhanced, which effectively promoted world financial stability. It is worth noting that the rise of emerging economies has a remarkable feature in that it takes place within the framework of today’s international political and economic systems. In other words, the contemporary international political order and international economic order provide institutional space for the rise of emerging market countries. Therefore, stable and reasonable international economic rules are very important for emerging economies. The contradiction between the emerging countries and the established powers is no longer the struggle for international hegemony in history but focuses on the reform of international rules. In 2008, the global financial crisis promoted the questioning and discussion of existing international economic rules among countries and gave birth to the “BRICS cooperation mechanism”. The BRICS countries believe that the world economic pattern has changed fundamentally along with the emergence of emerging economies, which is not reflected in the current international economic governance system. Therefore, the international economic governance structure needs to be reformed, and the representation and voice of emerging economies should be enhanced. Second, the BRICS cooperation is remarkable in the field of international development. The United Nations Millennium Development Goals (MDGS) expired in 2015. Many countries have issued position papers on the post-​ 2015 development agenda (the UN 2030 agenda for sustainable development, which came into force in 2016). On the whole, the BRICS countries share the same or similar policy propositions, which can be proved as follows by the position papers issued by China and India in 2013. First, in terms of the relationship between the post-​2015 global development agenda and the MDGS, both China and India hold the opinion that the post-​2015 global development agenda should be the inheritance and continuation of the MDGS instead of a new start. China states the future development agenda should “adhere to the principle of coherence” and be based on MDGS, and that some unachieved MDGS should continue to be involved in the post-​2015 development goals.7 India believes that although encouraging achievements have been made by the MDGS, the various targets are still of great significance for the developing countries after 2015. The development priorities set out in the MDGS should still be reflected in the post-​2015 development agenda.8 Second, China and India have basically agreed on key areas and priorities for future development. China proposes that the priority for future development is to “eliminate poverty and hunger”, comprehensively promote social progress, and improve people’s livelihood. Other areas include aging, education, the basic medical care system, protection of the rights and interests of women and children, social security mechanisms, “promoting inclusive economic growth”, promoting employment, as well as trade and investment liberalization and facilitation. India also believes that the core goal of development is to eradicate poverty and promote economic growth. Both China and

92  Jiao Chuankai India disapprove of taking democracy, human rights, governance, security or conflict as goals of the post-​2015 development agenda. These statements are reflected in the reports of other international organizations. For instance, the open working group on sustainable development goals (OWG) argues that human rights, rights-​based approaches, governance, the rule of law, and broader participation in decision-​making may be difficult to be listed as goals in the post-​2015 development agenda.9 Third, China and India are also highly consistent in their policies and propositions on other major issues of principle. Both countries oppose any arrangement or proposition that could undermine national autonomy through the development agenda. In addition, both countries have made proposals to uphold the multilateral trading system and oppose trade protectionism, and both emphasize the principle of “common but differentiated responsibilities” in the field of development. In terms of the construction of global partnership, both countries emphasize the North–​South assistance supplemented by South–​South cooperation. In other words, it is emphasized that developed countries should provide financial, technological and capacity-​ building assistance, and Western developed countries should provide stronger guarantees in terms of aid funds. Finally, the BRICS countries also share broad common interests in other areas, including climate change, non-​proliferation of nuclear weapons and combating terrorism. In particular, cooperation in the climate field reflects the common interests of emerging economies and the strength of solidarity. In 2009, under the initiative and promotion of China, a negotiating group of four major developing countries, Brazil, South Africa, India and China, was formed under the United Nations Framework Convention on Climate Change. The BASIC mechanism is formed by taking the initial letter of the four countries. The unified voice of the four countries in the name of the BASIC countries during the previous coordination meetings of the international climate change negotiations and the conference of the parties has had a significant impact on the negotiation process and become an important and representative force. The BRICS cooperation has huge potential that can be mainly reflected in the following areas. The first area is the economic sector. Emerging economies share a common identity in the international community because of their economic achievements and are now committed to economic development without exception. On the one hand, the BRICS countries can promote all-​ round economic cooperation and build a unified, large market; on the other hand, experience and lessons drawn from internal economic development and reform can be shared. The second is the field of cultural exchanges. It is not long since the BRICS mechanism was established, thus the internal ties among BRICS countries need to be further strengthened. Promoting cultural exchanges can help deepen mutual trust and enhance the soft power of the BRICS countries. President Xi Jinping raised the goal of “Greater Cultural Exchanges” at the 2013 Durban summit. The third area is global economic

International structure, BRICS cooperation  93 governance. Although great achievements have been made, cooperation in this field is of great importance and thereby requires long-​term efforts, as it concerns the external development environment of emerging economies and is inevitably hindered by the Western developed countries. The fourth is the area of global development. As the post-​2015 development agenda of the United Nations is being formulated and the differences between developed and developing countries are becoming increasingly distinct, the BRICS countries should put forth joint efforts on this issue to ensure that the final version of the agenda is in line with the interests of both emerging economies and developing countries in general. At last, the BRICS countries should strengthen coordination in other major international affairs, jointly propose solutions, seek justice, practice equality, cooperate to uphold international justice, and promote the establishment of a global partnership for development.10

3.  Structural competition among the BRICS countries Structural realism predicts competition among the BRICS countries because of their homogeneity, which is determined by the international political structure and is therefore inevitable. In general, competition among the BRICS countries exists in multiple fields, including politics, economics, energy, market, and so forth. First of all, the BRICS countries are all big powers with a strategic intentions to guard against and contain each other. From a political perspective, all the BRICS countries, without exception, show a strong great-​power complex. Historically, the BRICS countries have become regional or world powers by various advantages, such as dimensionality, population, resources, and so forth. Currently, the rapid economic development makes their pursuit of great-​power status more urgent. China has put forward the “Chinese dream” of national rejuvenation, while other countries have their own great-​power strategies. For example, since the collapse of the Soviet Union, Russia has regarded the revival and revitalization of its great power status as the cornerstone of its diplomatic strategy. Vladimir Putin has strengthened Russia’s nuclear deterrent capability, stressing that Russia is “strong enough” to defend sovereignty, security and national interests, and to establish its great power status and dignity with robust military strength.11 According to Putin, the president of Russia, great-​power status is not optional, but inevitable, and necessary for survival. Only by being a great power can Russia continue to exist within its present borders. Putin’s conservative nationalist ideology is supported by much of Russian society. It was reported that Putin won the first “Defending Russia’s Great Power Status” award from the Russian People’s Congress in 2013.12 Putin annexed Ukraine’s Crimean Peninsula in March 2014, triggering Western economic sanctions against Russia. With the collapse of oil prices and the devaluation of the ruble, the economic sanctions led to the deterioration of the Russian

94  Jiao Chuankai economy. However, instead of being pushed out of office, as Western public opinion had predicted, President Putin gained a higher approval rating among the Russian public, reflecting the population’s in-​depth sense of being a great power. As another example, in recent years both political leaders and other famous figures in India have made grand remarks on India becoming a world power, and Vajpayee, the former prime minister, also regarded the twenty-​first century as the “century of India”.13 Among the domestic discussions on the positioning of India, the most representative statement is that the country is “one of the six power centers in the world”. Therefore, “joining the management of the international community” or “sitting in the VIP seat of the international community” is the specific goal of India, to become a great power. In 2004, India, along with Germany, Japan and Brazil, formed the G4, intending to become a permanent member of the Security Council. After 2013, India actively participated in the formulation of the UN’s post-​2015 global development agenda to enhance its reputation in the international community. In recent years India has been putting forth constant efforts in the quest for great-​power status.14 Brazil also has its own great-​power strategy. As early as the 1990s, Auden Reuter, the director of Latin American studies at Johns Hopkins University, pointed out:  “Brazil, being stronger and more confident, will not yield to any country, domestically or internationally. Meanwhile, Brazil has suddenly found itself in a position to seek a more important place in international affairs due to its special economic position.15 Luis Felipe Lamprea, the former foreign minister of Brazil, once said, “The Brazilian government feels it deserves international recognition and leadership. We have won the world’s recognition and respect for Brazil’s international status and mission and we will definitely draw more attention from the globe.” In the twenty-​first century, Brazil has gradually realized its “dream of becoming a strong country” through promoting domestic reform, actively participating in globalization and carrying out diversified diplomacy. The application for permanent membership of the UN Security Council is the most distinctive example of Brazil’s realization of its “dream of becoming a strong country”. The meaning of a “great power” Brazil comes from the judgment of its natural and geographical conditions, economic scale, military strength, diplomatic strategy and scientific and technological levels.16 China shares long border lines with India and Russia. Wars were once fought between China and India and China and Russia over border issues that have not been completely resolved even now. Due to geopolitical concerns, the competition between China and these two countries needs to be treated with caution. India is ambivalent about China’s Belt and Road Initiative. Moreover, India has secretly resisted the China–​Pakistan Economic Corridor, a partnership between those countries. In addition, India cooperates with other countries like Japan and Vietnam to contain China on the South China Sea issue. There are similar rivalries between China and Russia.

International structure, BRICS cooperation  95 Second, there is a growing trend of competition between the BRICS economies. Since the formation of the 1940s Yalta system, the overall trend of the international economic pattern is countries in the world gradually being integrated into the capitalist global economic system led by the United States. Russia’s accession to the World Trade Organization in 2012, after nearly two decades of efforts, became a landmark event in this trend. The current US-​led negotiations on new global economic rules, such as the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-​Pacific Partnership Agreement (TPP), show the continuation of this trend. One of the features of the international economic landscape is still the passive adaptation and adjustment of emerging economies to the international economic system. In terms of the stage of development and industrial policies, China and other BRICS countries, which are undergoing rapid growth, pay special attention to trade exports and foreign investment, have strong homogeneity in exports, and face fiercer competition with each other –​with “collisions” particularly appearing in light industry like clothing, textiles, shoes and hats. Due to the impact of the international financial crisis, trade protectionism was emerging in more and more countries. Countries, including Brazil, India and South Africa have frequently launched anti-​dumping investigations against China’s trade, and Russia has also repeatedly conducted investigations on China’s export on the grounds of rectifying their domestic market order. In Brazil, for example, the tariffs on 14 kinds of Chinese toys increased from 20 per cent to 35 per cent in 2010. In 2011, five of the seven products for which Brazil raised tariffs were imported from China, including tiles (from 15 per cent to 35 per cent), bicycles (from 20 per cent to 35 per cent) and split air conditioners (from 18 per cent to 35 per cent). Brazil reckons that nearly half of its manufacturing firms face competition from China, whose products dominate the domestic consumer market, and Brazilian manufacturers require the government to protect their industries.17 Among the WTO members, Brazil is one of the countries that have the most anti-​ dumping complaints against China. China’s exports to Brazil have repeatedly been subject to anti-​dumping investigations, which peaked in 2009. In 2011, Brazil launched five anti-​dumping investigations against Chinese imports, all of which are manufactured products –​in steel, chemicals, light industry and other industries. Since the first anti-​dumping investigation against Chinese products launched in December 1989, Brazil had initiated 54 anti-​dumping investigations against Chinese imports by the end of 2011, involving electromechanical, hardware, chemical, light industrial, textile and food products.18 The BRICS countries also face competition for resources. The current economic development model worldwide is still resource-​driven, and economic development is inseparable from the consumption of resources, especially for the BRICS countries with relatively underdeveloped science and technology. In the current situation, the economic growth of the BRICS countries is characterized by low efficiency and high energy consumption. The BRICS

96  Jiao Chuankai countries are complementary in respect to resources. For example, Russia is an important energy provider for China, while Brazil and South Africa are important raw materials providers for China. But if the BRICS countries still maintain the rapid economic growth as in the past, the energy consumption will be striking. The competition between the BRICS countries for energy and other resources will be inevitable. In addition, the BRICS countries have obvious homogeneous needs and competition in attracting funds and advanced science and technology from the developed Western countries. For example, most of the policies adopted by the BRICS countries include tax incentives, special economic zone policies and regional preferential policies. Take Russia as an example: in 2010, it established Skolkovo Innovation Centre under the leadership of Dmitry Medvedev, the president of Russia. The centre attracted Nokia of Finland, Siemens of Germany, Bouygues of France and Cisco of the United States through government loans and tax incentives. Although Russia’s relationship with the West has been fluctuating, it has been actively courting and attracting more funds, technology and talent. There is also competition among the BRICS countries in terms of outbound investment. Other BRICS countries have implemented strategies similar to China’s “Going Out” strategy. Indian Oil and Natural Gas Company, for example, has won exploration rights in Vietnam, Cuba and Nigeria. The Tata Group has set up Tata Africa holdings in Johannesburg, South Africa. The biggest competitor of China in Africa is India. Russian energy companies are also making efforts to explore overseas markets and expand their international influence.19 There are potential conflicts of interest among the BRICS countries due to the overlapping industries and regions of international investment.

4.  Conclusion Both emerging economies and the BRICS mechanism are new phenomena in the contemporary international community. Structural realism enables us to better understand the relationship between emerging economies from a powerful analytical perspective. The conclusion is as follows. First, the BRICS cooperation mechanism is still in its infancy. Since its official launch in Ekaterinburg, Russia, in June 2009, six summits on the BRICS cooperation mechanism have been held, and outstanding results in international financial governance have been achieved. The institutional setting of the BRICS mechanism demonstrates the trend of multifaceted ties among the official, non-​governmental and think-​tank sectors, indicating that the member states set high expectations for the future of the BRICS mechanism. But on the whole, the significance of BRICS cooperation needs to be further proved, and domestic cooperation in economy, trade, science, technology and culture needs to be further enhanced. The BRICS countries still account for a small proportion of total trade and investment, and there is

International structure, BRICS cooperation  97 still great divergence in terms of absorbing new members into the BRICS mechanism. At present, there is no general coordinating body such as the secretariat. Given the differences between emerging economies, improving the cooperation mechanism will be a very slow and cautious process. Second, there is great potential for cooperation between China and other emerging economies in the areas of economy and trade, investment, climate, carbon emissions, clean energy, global development and global partnership. These are low political fields, where there are fewer barriers against cooperation, and where the benefits of win-​win cooperation far outweigh the benefits of competition. At the international level, emerging countries can unite to strive for fairer market rules and trading terms, and developed countries can be expected to shoulder more responsibilities, including development assistance, financial support and technology transfer. At the domestic level, countries should make full use of economic complementarity, promote the breadth and depth of industrial cooperation between emerging economies and strengthen economic and trade and investment relationships with each other, open markets and provide more favourable terms of trade to better take advantage of the economies of different resources endowment and promote common development. Faced with the gap in science and technology between emerging economies and developed countries caused by the new industrial revolution, emerging economies can further deepen their cooperation in research and development. Third, China’s cooperation with other emerging economies in the political, military and other higher political fields needs to be cautious. According to Ernst Haas’s “spillover” theory, cooperation in one area promotes cooperation in others and ultimately enhances the basis of political cooperation. Successful cooperation among emerging economies in areas with low political sensitivity, such as economy, trade and science and technology, will undoubtedly lead to a demand for cooperation in geopolitical, military and other higher political fields. But the BRICS concept, which first emerged in Western academia and investment circles, needs to be carefully assessed when being introduced into political fields in terms of the prerequisites, costs and possible consequences. Emerging economies differ greatly in their cultural traditions and values, especially in their political systems and concepts formed in the course of modernization. The non-​governmental foundation for cooperation needs to be further strengthened. Moreover, there are not only realistic geopolitical influences between China and India and between China and Russia, but also historical conflicts and realistic boundary disputes, which all affect the deepening of political mutual trust. Finally, cooperation between China and other emerging economies should focus on coordination with Western countries or the existing international system. Although emerging economies have made remarkable achievements, they all, except for Russia, have positioned themselves as developing countries. Cooperation among emerging economies still reflects the nature of South–​South cooperation among developing countries, which has inherent

98  Jiao Chuankai requirements for opposing hegemony and changing the old international economic order. However, China should pay attention to the coordination with Western countries or the existing international system. On the one hand, the rise of emerging economies has not fundamentally changed the basic international political and economic order, and the Western developed countries are still the dominant players in the international community. On the other hand, the international system provides some institutional space for the development of emerging countries. China is a beneficiary of globalization, and at the current stage it is still in China’s fundamental interests to abide by, rather than oppose, the international system. What is more, based on the prediction of the theory of structural realism and the reality of international politics, all emerging economies regard the cooperation mechanism as the tool to realize their own strategies. China must put its interests at the centre to promote cooperation among the BRICS countries.

Notes 1 Hong Yousheng, “The Realistic Theory of International Relations: An Enduring Mainstream Paradigm”, History Teaching and Research, No. 4, 2004. 2 Fábio Zanini, “Foreign Policy in Brazil: A Neglected Debate”, Harvard International Review, http://​hir.harvard.edu/​foreignpolicyinbrazil/​. 3 Waltz, Kenneth. Theory of International Politics. Shanghai People’s Publishing House, 2008, p. 126. 4 “Jointly Maintain and Develop an Open World Economy”, People’s Daily, September 7, 2013, p. 3. 5 Xi Jinping, “New starting point, new vision, and new dynamism: a speech at the sixth BRICS summit”, People’s Daily, July 17, 2014, p. 2. 6 Du Shanze & Bao Jie, “Enhancing the Voice of the BRICS Countries in Global Economic Governance”, People’s Daily (overseas edition), November 17, 2014. 7 Ministry of Foreign Affairs of the People’s Republic of China, China’s Position Paper on the Post-​2015 Development Agenda, March 14, 2016. 8 Government of India’s Inputs on the Post-​ 2015 Development Agenda, from “National Consultation Report, Post-​2015 Development Framework: INDIA”, United Nations Resident Coordinator’s Office, May 2013 www.in.undp.org/​ content/​ d am/​ i ndia/​ d ocs/​ p overty/​ n ational-​ c onsultation-​ r eport-​ p ost-​ 2 015-​ development-​agenda.pdf. 9 A letter dated 19 July 2013 from the co-​chairmen of the open working group on sustainable development goals of the general assembly to the president of the general assembly:  The Progress Report of the Open Working Group on Sustainable Development Goals of the General Assembly, July 23, 2013. 10 Dong Fangxiao, The Contribution of Chinese Wisdom to the “BRICS Dream”. 11 Xing Guangcheng, “New Concept of Russian Diplomacy”, People’s Daily, April 6, 2000, p. 7. 12 Zhou Xu, “The World Russian People’s Congress Awarded Putin the Prize of Defending the Great Power Status”, March 14, 2016. 13 Zhang Minqiu, Ed. Crossing the Himalayan Barrier: China’s Quest to Understand India. Chongqing Press, 2006, p. 253.

International structure, BRICS cooperation  99 14 Jiao Chuankai, “The Dilemma of the Road to Great India”, Journal of Nantong University (social science edition), No. 3, 2014. 15 Riordan Roett, Brazil, Politics in a Patrimonial Society (Fourth Edition), New York: Westport, 1992, p. 190. 16 Zhou Zhiwei, “An Analysis of the Internal Factors of Brazil’s ‘Great-​power Status’ ”, Latin American Studies, Vol. 27, No. 4, 2005. 17 Ma Luping, “An Analysis of Trade Friction between China and Brazil from the Perspective of Mercantilism”, North Economics, No. 2, 2012. 18 Wang Fei & Wu Jinjia, “The Current Situation, Opportunities and Challenges of Economic and Trade Relations between China and Brazil”, International Forum, No. 4, 2014. 19 Liu Feng & Zhu Xianping. “The Development Strategy of “Going Out” of Russian Energy Enterprises and China-​ Russia Cooperation”, Northeast Asia Forum, No. 5, 2013.

6  Practice theory and China’s participation in BRICS cooperation Gao Shangtao

Western scholars studying international relations systematically included the practice issue into an international relations study in 2000 and put forward the practice theory of the international relations study. According to the practice theory, international relations are a process of practice, and the methodology adopted is abductive reasoning. The key to its research includes the study on the agent and structural relations and the practical thoughts on social factor generation and system transfer.1 Some Chinese scholars echoed this view and put forward the framework of the practice theory with Chinese characteristics on the basis of Chinese politics and culture.2 Based on the observation and generalization of the basic human practical activities, the theoretical framework has put forward the causal relationship between practice, its conditions, its modes and identity. Will the framework of practice theory effectively explain China’s participation in the BRICS mechanism? What inspirations can China’s practice provide for the practice theory? In this chapter, we will try to answer these questions by the analysis of the process of practice.

1.  Participation practice, consensus reaching and new identity establishment Participation practice and identity recognition are two core concepts in the practice theory. According to the practice theory, a causal relationship can be established between a country’s participation practice and identity recognition through its practice in the international regimes with the logic of practice as its medium; or to put it another way, “participation practice” brings about “identity recognition”. The specific mechanism is as follows: the practical activities of a country’s participation in the international regimes will constantly create and unite international consensus, which will define the new identity of the country after being confirmed by the international rules and systems. A  country’s participation in new practical activities with the new identity will have influence on the development of the international regimes and promote structural change.3 The analytical framework divides participation practice into the following five categories according to different phases when a country enters the

China’s participation in BRICS cooperation  101 international regimes: discourse practice, alliance practice, learning practice, compliance practice and innovation practice.4 Discourse practice is a process during which a country defines a practical activity. It guides the specific action by bestowing specific meanings on the subject of practice and constructing an appropriate framework of perception.5 Alliance practice refers to a country’s mobilization and persuasion on the target group in order to realize specific tasks. It is an activity where the agent aims to persuade the subject into accepting, adjusting or abandoning some perceptions, attitudes, habits and behaviours.6 Learning practice is the action of imitating and learning when a country participates in the international regimes. The participant duplicates the norms of the group in order to respond to a strange or uncertain environment.7 Compliance practice means that a country rectifies its behaviour, adjusts its relations with the international regimes and reshapes mutual expectations after it participates in the international regimes. Innovation practice refers to a country’s reform or innovation of the operation mode of the international regimes, international rules, agendas and aims. According to the practice theory, practice is conducted at a certain time and in a certain space, which is reflected by the international regimes and the domestic resources when a country participates in practical activities. The international regimes mainly refer to the international systems, most of which are created by Western countries and are in general normative, Western-​ dominant and permeable to latecomers. The normativeness of the international systems means that a country’s participation is a process of practice dominated by compliance with the international norms. Western dominance determines that a country’s participation in the international systems is both a process of learning and a process of adjustment, and a country’s innovation practice must be carried out on the basis of the adjustment and acceptance of the existing systems. Penetrability indicates that a country can participate in the international systems and adjust their norms. The international systems set different constraints and provide different chances of penetration for the countries inside and outside the system, leading to the different environment of practice for different countries. Domestic resources mainly include three aspects:  domestic systems, domestic interests and domestic norms.8 Domestic structure is the core driving force for a country’s participation practice and also an influential factor for the international institutions and norms to enter a country to gain support and exert influence. The systems of each country differ a lot according to the government and social relations it defines, which will affect the opportunity for the international systems and norms to enter a country and are widely applied. The consideration for domestic interests and the matching degree of norms will influence a country’s choice for participation practice. The more a country thinks that accepting a certain international norm is conducive to gaining material interests, the better this norm will be spread in this country. The matching degree between the domestic norm and the international norm determines the pressure of the adaptation and adjustment of the domestic

102  Gao Shangtao norm and the obstacles of the publicity of the international systems and norms and their influence. In short, the three factors –​systems, interests and norms of the domestic resources –​lead to the different degrees of political acceptance (degree of sensitivity) of a country’s participation practice, which is reflected in four results: complete acceptance, partial acceptance, acceptance with conditions and political exclusion. According to the analytical framework, a country’s participation practice constantly creates new social consensus, which can be confirmed by the international systems on various levels and define the new identity of a country. Therefore, the identity recognition of a country in the international system can be divided into recognition of form, recognition of distribution and recognition of value. Recognition of form refers to the recognition on the level of representative right, and it is a limited recognition. On the one hand, the senior members of the international systems collectively acknowledge the new country’s entry into the system; on the other hand, they do not necessarily acknowledge that the latter has the same rights and dignity as they do. Recognition of distribution is a substantive recognition on the material level. It mainly refers to the recognition of the voting rights and the status in the system, reflecting how many interests a country can acquire in the system. Recognition of value is a substantive recognition on the spiritual level, a recognition based on dignity, equality and respect in the interaction of countries.9 A country will become a senior member state with a complete identity when its member state identity is recognized on three levels after its entry into the international system. Analysis of the practice theory has provided a new dynamic perspective for us to observe international relations. However, can we use this analytical framework to better analyse China’s participation in the development of the BRIC mechanism? It is widely acknowledged that the BRIC mechanism is an institutionalized international organization established eight years ago and it was a product of Goldman Sachs’s observation and analysis of the emerging economies of Brazil, Russia, India and China.10 The concept of the BRIC has been popular throughout the world due to the research report of Goldman Sachs, and the cooperation between the four countries within the BRIC framework was extended and deepened, as a result of which South Africa joined, so there are now five participating countries and a new acronym, BRICS.11 Does the process of development correspond to the typical model of practice theory?

2.  China’s participation practice and consensus-​reaching in the early stage of the BRICS mechanism Until now the development of the BRICS mechanism can be divided into two important phases. The first key phase was the initial phase when the BRIC mechanism was prepared, and the second key phase included the six summits that witnessed the development of the BRICS mechanism, among which

China’s participation in BRICS cooperation  103 three were the most important. We will first look at the initial phase when the BRIC mechanism was prepared and discuss what resources China had, what practical activities China participated in, what important consensus was reached, and whether these aspects are in line with the descriptions of the practice theory. 2.1  Practical resources for China’s participation in the BRICS mechanism According to the practice theory, the practical resources mainly refer to two factors during China’s participation in the international system:  the international climate and the domestic resources. Did those two factors directly influence China’s choice of action when it participated in the BRICS mechanism? First, from the perspective of the international climate, China has had more connections with the outside world and more opportunities of development since the reform and opening up. China had to join the existing mature international institutions in order to fully leverage those institutions and rules under the international system to develop itself. However, the international institutions at that time tended to be dominated by Western countries, especially the United States. If China wanted to join these international institutions, it had to persuade others to accept it and undergo a process of constantly learning, adjusting and abiding by the norms of international institutions. In addition, after China joined these international institutions, it could nominally adjust and innovate part of the norms via the penetrability of the international regimes. However, the West has left not much room for China to manoeuvre. The Western dominance of the international regimes determines the fact that China could not play a “too big” role. For example in terms of innovation practice, China had little say over the formulation and amendment of the rules and the distribution of rights and duties in the organizations. Such a situation not only was incommensurate with its rising status, but also it hugely limited the further development of China. Therefore, China had to find another brick in the wall, at an appropriate time establishing an international organization dominated by itself. Based on this, China turned to the concept of the BRIC and hoped to convert the concept into a practical cooperative mechanism dominated by the developing countries via a series of innovation practices. This meant that the international regime was an important factor for China to promote the BRIC mechanism. Second, China’s domestic resources were beneficial to building the BRIC mechanism. In terms of the domestic system, China is famous for concentrating resources and doing big things and is able to gather the related domestic forces to unite the BRIC countries. Meanwhile, China’s effort to promote the establishment of the BRIC mechanism is conducive to implementing the strategy of peaceful development, enhancing collaboration among the BRIC countries and increasing China’s international influence, which is totally in line with its interests. Therefore, China’s participation in the BRIC

104  Gao Shangtao mechanism is likely to be recognized by China’s people domestically and there is no domestic obstacle to acceptance. In addition, China’s participation in the establishment of the BRIC mechanism means that it can fully consider the compatibility of the norms of the mechanism, which is helpful for the mechanism to gain popularity or even be integrated across the country. Therefore, China had abundant domestic resources and enough driving forces to participate in the establishment of the BRIC mechanism. 2.2  Types of Chinese participation practice at the beginning of the BRICS mechanism According to the practice theory, there are five basic types when a country participates in the practical activities in the international regimes. At the beginning of China’s participation in the BRIC mechanism, we can clearly distinguish three types, namely, discourse practice, innovation practice and alliance practice. The beginning of the discourse practice of China’s participation in the BRIC mechanism centred around the concept of the BRIC countries, bestowing the specific meaning that reflected China’s new pursuit of an international organization:  to redefine the concept of the BRIC, which only occurred in the Goldman Sachs’ report: position it as the first non–​Western-​dominated international organization with China  –​an emerging major power  –​as its founding country and core member, and guide China’s practical activities based on it. China firmly believed that such an international organization would increase China’s social power in international relations and put the strategy of “smart network of relations” into practice, peacefully pursuing the status of a major power via the horizontal relationship network among countries rather than the competition for hierarchy and power.12 To this end, China included the BRICS mechanism into the Report to the 18th National Congress of the Communist Party of China, regarding it as one of the four platforms for “active participation in multilateral affairs”.13 However, the new concept of the BRICS mechanism defined by China’s discourse practice at that time was merely an individual recognition and an individual concept of China. It could only unilaterally define the possible outline of the BRICS mechanism and the individual identity of China as a founding country from China’s perspective. And the individual identity would form a collective identity after the collective consensus reached through China’s alliance practice received collective confirmation. China’s innovation practice at the beginning of the BRIC mechanism was of paramount importance as it determined whether the BRIC mechanism could be accepted by the countries concerned and whether it could be shifted from concept to reality. China had to draw a blueprint for the imaginary BRIC mechanism in advance to attract other relevant countries. To this end, China rationally planned the BRIC framework and its development roadmap and proposed reasonable internal consultation principles.

China’s participation in BRICS cooperation  105 According to China’s assumptions, the BRIC cooperative mechanism would mainly include meetings on various levels, such as the summits, the meetings of foreign ministers, the meetings of high-​level representatives of national security affairs, and the meetings of finance ministers, to comprehensively deepen and specify the coordination and cooperation among countries. The development roadmap mainly strived to complete a series of key steps concerning the success of the BRIC mechanism cooperation through the summits. The preliminary period included at least the following three aspects: first, to determine the development direction of the institutionalized cooperation and global governance appeals; second, to propose and approve an action plan to consolidate the institutionalized cooperation of the BRIC countries and to clarify the basic position of global governance; third, to plan the establishment of the New Development Bank and the Contingent Reserve Arrangement, providing a physical pillar for the BRICS mechanism.14 In addition, China actively advocated the principle of “deliberative democracy” as the basic principle for dialogue and discussion within the BRICS and set an example by doing so. These active and effective innovative activities laid a solid foundation for the development of the BRICS mechanism. Based on the above efforts, China proactively persuaded the member states to accept China’s new understanding of the BRIC mechanism, recognize the cooperation framework and deliberative democratic principles of the BRICS mechanism, accept the development direction of the BRIC mechanism and the specific steps advocated by China, and agree to work with China to promote the establishment of the BRIC mechanism. In order to fully mobilize other BRIC countries and avoid the negative impression that China would have a strong influence on the BRIC cooperation, China formulated a unique practical strategy –​fully leveraging China’s deliberative democracy, negotiating with other countries, and encouraging them to make proposals for cooperation that were acceptable to every member country. In addition, China sought the common interests of the BRIC countries and strived to increase other countries’ initiative to accept its proposals for cooperation. It has proved that these practices achieved remarkable results and Russia, India and Brazil agreed to jointly establish the BRIC mechanism with China. 2.3  Consensus-​reaching at the beginning of the BRICS mechanism According to the practice theory, participation practice will facilitate and unite the collective consensus, which was clearly reflected in China’s participation in the practical activities, especially the alliance practice, at the beginning of the establishment of the BRIC mechanism. The newly achieved consensus mainly includes the following three aspects. First, Russia, Brazil, and India recognized China’s creative proposal of institutionalizing the BRIC concept. As with China, Russia and Brazil are

106  Gao Shangtao both emerging countries and have good relations with China. In the context of the global economic crisis in 2008, China’s economy was still thriving while other countries were suffering. Both countries hoped to work with China to develop themselves, get rid of the Western economic crisis, increase their influence and build a fair, democratic and multipolar world order.15 Therefore, the two countries had almost the same idea as China to ​​establish the BRIC mechanism. India had historical issues with China such as border disputes, but it was also very actively responsive to China’s proposal to build a BRIC mechanism. India believed that the BRIC mechanism would become a formal multilateral cooperation platform for emerging countries where the voice of emerging countries would be raised, and the relationship between developing countries would be developed. India also believed that the BRIC mechanism would enable it to play a greater role in the United Nations and further enhance its international status. Therefore, the Indian National Congress and the Bharatiya Janata Party, which were always at odds with each other, had an active attitude toward participating in the BRIC cooperation, and the Indian people also generally welcomed the BRIC summit.16 Second, the three countries agreed to establish the BRIC mechanism with China as founding countries and recognized the institutionalized steps advocated by Beijing. After coordination and promotion by China, Russia agreed to take the lead in organizing a meeting of foreign ministers of the BRIC countries during the United Nations General Assembly in September 2006 to discuss the BRIC cooperation. China positively responded and fully cooperated, and India and Brazil were also pleased to take part. The success of the first meeting of foreign ministers was followed by the four countries’ decision to hold a meeting of foreign ministers every year to discuss coordination and cooperation within the BRIC framework and prepare for the BRIC summit. As a result, the BRIC cooperative mechanism was officially launched. Third, all the member states agreed to regard the principle of deliberative democracy proposed by China as the basic code of conduct for the BRIC. Since the establishment of the BRIC mechanism, China and other member countries have adhered to the norms of equality and democratic consultations, which was later adhered to and gradually clarified. At the first BRIC Summit, then Chinese President Hu Jintao proposed to establish the BRIC mechanism as an international paradigm of mutual respect and equal consultation through dialogue and communication. At the fourth BRICS Summit, President Hu clearly stated the principle of “sticking to equal consultation”. Widely welcomed and unanimously recognized by the BRICS countries, this principle has become the basic model for all BRICS meetings and talks at all levels. It has also become the basis of the principle of openness and transparency, solidarity and mutual assistance, deepened cooperation and common development, and of the BRICS spirit of “openness, inclusiveness, cooperation and win-​win results”.17

China’s participation in BRICS cooperation  107

3.  Important practices by China in the development of the BRICS mechanism The second key stage of China’s participation in the development of the BRICS mechanism –​also the three meaningful development nodes –​are the first, third and sixth BRICS summits. During these three summits, China made more efforts in its participation practice and a new collective consensus emerged. 3.1  Innovation practice, alliance practice and institutionalized consensus for collaboration during the first summit On June 16, 2009, the first meeting of the leaders of the BRIC countries was held in Yekaterinburg, Russia. During this meeting, China carefully conceived the agenda and the objectives of the First BRIC Summit, namely, “getting a good start and making great progress”, hoping to institutionalize the BRIC cooperation.18 China closely consulted with other member states, especially host country, Russia, and reached consensus. In addition, China repeatedly negotiated with other BRIC countries and jointly determined the theme of the conference –​prevent the spread of the international financial crisis, promote the reform of the international financial system, focus on non-​traditional security,19 and establish a mechanism-​based cooperative relationship between the BRIC countries for mutual cooperation and common development.20 As to the outcome of the talks, China hoped that the four countries would work hand in hand, strengthen the equal dialogue, exchange and cooperation, safeguard the common interests of developing countries and promote the recovery and growth of the world economy on the principle of openness and transparency.21 After friendly consultation, the first summit not only reached an important consensus that the BRIC countries would conduct institutionalized cooperation and pinned down the functional appeal of global governance, but also reached important consensus on cooperation. For example the BRIC countries would unanimously support the G20 Summit, commit to promoting the reform of the international financial institutions, and carry out international cooperation in the field of energy, and so forth.22 3.2  Innovation practice, alliance practice and consensus on action during the third summit On April 14, 2011, the Third BRICS summit was held in Sanya, China. At this summit, China actively and innovatively designed the agenda and determined the theme of the meeting. China designed various forms of meetings and talks, such as small-​scale discussions, large-​scale discussions, the press conference attended by leaders and the welcome banquet hosted by the Chinese president. In addition, bilateral meetings and talks were frequently held before the summit in order to make friendly contact, coordinate positions

108  Gao Shangtao and build consensus. The theme of the summit was positioned by China as “Broad Vision, Shared Prosperity”, and the agenda items included the international situation, global economy and international finance, development and BRICS cooperation, highlighting the Chinese approach of “leading the mechanism construction by problem discussions, solving problems and improving the mechanism”.23 While preparing for the summit, China proactively innovated the concept in order to invite South Africa into the BRIC mechanism. China believed that the South Africa’s participation in the BRIC mechanism would enrich the African agenda of the summit, make the mechanism more inclusive, representative and open, strengthen the gross GDP of the BRIC mechanism and raise its international influence and international voice, which was totally in line with China’s expectations for the BRIC countries and the development direction of the mechanism. China closely discussed this new understanding with other member states and tentatively reached a consensus. Meanwhile, it communicated with South Africa, and the two sides agreed on granting South Africa membership in the BRIC mechanism. In December 2010, China, Russia, India and Brazil agreed to grant South Africa the membership of the BRIC mechanism.24 The Sanya Summit designed a clear plan for the future BRICS cooperation, determined a new starting point for the BRICS cooperation, reached a series of important consensus, such as the reform of the international monetary and financial system, cooperation in economy and trade, and global climate change, and stated the main direction for future cooperation. The Sanya Summit also specially formulated an action plan for the above consensus, making great effort to put the BRICS mechanism into practice.25 3.3  Innovation practice, alliance practice and substantialized consensus during the sixth summit On July 15, 2014, the Sixth BRICS Summit was held in Fortaleza, Brazil. At the summit, China not only offered suggestions for major issues, but also proposed a feasible plan for the establishment of the New Development Bank and the construction of Contingent Reserve Arrangement. The summit was positioned as a new starting point, a new vision and new driving force for the BRICS cooperation, and China hoped to draw a new cooperation blueprint and develop a closer, more solid and more comprehensive partnership via good coordination, allowing the BRICS countries to raise their voice and make contributions in major international and regional issues.26 And the cooperation blueprint for a more solid BRICS mechanism was to establish the New Development Bank and the Contingent Reserve Arrangement. To this end, China put forward a solution accepted by all sides after repeated negotiations and consideration and after taking into account other countries’ suggestions.

China’s participation in BRICS cooperation  109 China fully leveraged deliberative democracy and facilitated consensus-​ reaching, as indicated in the following two aspects: first, China’s vision and design of the summit was implemented through consultation and persuasion; second, the solution of the establishment of the New Development Bank and the Contingency Reserve Arrangement was finalized after consulting with other BRICS members. There was little disagreement among the BRICS countries as to China’s vision and design. As suggested by China, the host country, Brazil, fully considered China’s proposal and incorporated it into the agenda of the meeting. However, it was difficult to persuade the BRICS countries to agree on the establishment of the New Development Bank and the Contingency Reserve Arrangement. In the end, after considering the proposals from all parties, China facilitated the communication and exchange on multilateral and multilateral issues and in the new field of cooperation. The member states finally reached consensus after seven rounds of negotiations. The Fortaleza Summit established the New Development Bank and the Contingency Reserve Arrangement inside the mechanism. The Bank was to have an initial authorized capital of US$100 billion. The initial subscribed capital US$50 billion, equally shared among founding members. The first chair of the Board of Governors was from Russia. The first chair of the Board of Directors was from Brazil. The first president of the Bank was from India. The headquarters of the Bank in Shanghai and the New Development Bank Africa Regional Centre was established in South Africa. The initial size of the Contingency Reserve Arrangement was US$100 billion, and the maximum amount states can request from the Reserve was as follows:  US$41 billion for China, US$18 billion respectively for Brazil, India and Russia, and US$5 billion for South Africa.27

4.  Identity shift of China’s participation and international influence The concept of the BRICS mechanism was put into practice with the joint effort of China and the other BRICS countries. During the development, China’s practice has constantly promoted collective consensus, which has confirming the new identity of China and bestowed new momentum on China. 4.1  BRICS mechanism confirms China’s new collective identity Since the emergence of the concept of the BRICS, China has observed the situation and seized the opportunity, instilled meaning into the concept and forming a unique understanding: the BRICS mechanism is a platform conducive to the peaceful development of China and its pursuit of becoming a major power; it is necessary for China to accelerate putting the concept into an international institution in reality. Such understanding gives China an individual identity –​proactively serving as a founding country of the BRICS mechanism. Driven by the individual understanding and the individual identity, China actively communicated with Russia, India and Brazil and reached

110  Gao Shangtao consensus with them on establishing the BRIC mechanism, and also reached the collective consensus on shifting the value of the platform and the necessity of establishment of the BRICS mechanism into a substantive BRICS institution. Such a collective consensus not only directly promoted the convening of the BRICS summit and the establishment of the BRICS mechanism, but also indicated China’s successful shift from the individual identity of a founding country of the BRICS mechanism to the collective identity of a founding country. However, this confirmation of China’s new identity at the beginning was only the recognition of form. After the first summit in 2009, the principle of deliberative democracy with “equal negotiation” as its core advocated by China was accepted by the BRIC countries and became a basic principle and norm of the BRIC mechanism. This collective norm directly determined China’s equal rights and reciprocal obligations to participate in the BRIC mechanism. To put it another way, China, as a founding country and promoter of the BRIC mechanism, enjoys equal rights within the BRIC mechanism and shoulders reciprocal obligations for the formation and development of the BRIC mechanism as do all the member countries. To be specific, equal rights include the right to equally propose and make the agenda of meetings, determine the theme of talks, lead or participate in major decisions, and so forth. This meant that China’s identity in the BRIC mechanism was further substantively recognized, including both the distribution recognition reflecting rights and interests and the value recognition reflecting identity equality and social justice. The Third BRICS Summit, in 2011, further strengthened the BRICS cooperative mechanism and proposed an action plan aimed at pragmatic cooperation. In the process of drafting and discussing the action plan, China’s status as a founding country of the BRICS mechanism was enriched and the distribution recognition and the value recognition of the identity were strengthened. In 2014, the Sixth BRICS Summit established the New Development Bank within the BRICS mechanism. The initial subscribed capital is equally distributed among member countries. The consensus not only further confirmed China’s identity as a founding country, but also enriched and strengthened the distribution recognition and the value recognition of China’s identity.28 China’s collective identity as a founding member of the BRICS mechanism with equal rights and reciprocal obligations was firmly established. 4.2  Influence of China’s new identity on the international development As soon as the new identity was established, China started to actively interact in the international regimes with the new identity and with the help of the BRICS mechanism, exerting huge influence on the development of international regimes and promoting changes in international regimes. First, China’s participation in the BRICS mechanism has the most influence on the G20. At the First BRIC Summit, China coordinated with other member states and called on the countries related to commit the consensus

China’s participation in BRICS cooperation  111 reached at the G20 London Summit April 2009, aiming to ensure more progress to be realized at the G20 Pittsburgh Summit in September 2009.29 Jointly promoted by China and other BRIC countries, the heads of the G20 countries reached consensus in Pittsburgh, agreeing to raise the share of emerging markets and developing countries in the International Monetary Fund.30 In order to implement the consensus, the BRIC countries represented by China negotiated with other participating countries day after day and finally reached consensus on the reform of the share in the IMF at the meeting of the G20 Finance Ministers and Central Bank Governors in October 2010. The share of China increased to 6.19 per cent from 3.8 per cent,31 surpassing Germany, France and the United Kingdom and ranking the third, only to the United States and Japan, while the United States still had veto power. The total share of the BRIC countries increased to 14.18 per cent and the share of all emerging economies increased to 42.29 per cent.32 The international economic order would undergo a historic change if the distribution plan would be implemented.33 Second, the BRICS countries had their voice heard at the United Nations Climate Change Conference and exerted great influence on global climate politics. From December 7, 2009 to December 18, 2009, the fifteenth session of the Conference of the Parties to the UNFCCC and the fifth session of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (Copenhagen Climate Change Conference) took place, arranging for the action plans for emission reduction after the Kyoto Protocol expired at the end of 2012. However, developed countries responded negatively to the goal of emissions reduction. Those economies with huge amount of emissions, such as the United States, Japan and the European Union, either paid lip service or rejected the requirements proposed by developing countries. Therefore, China, India, Brazil and South Africa (also known as the “BASIC”), on behalf of the BRICS countries, and Sudan, the then rotating presidency of the G77, spoke in one voice and demanded developed countries to continue the Kyoto Protocol and achieve the target of emissions reduction in a second commitment period. Meanwhile, they proposed that the fruit of the Copenhagen Climate Change Conference should include the content that developing countries cared about, such as a shared vision for long-​term cooperative action, mitigation, adaptation, capital and technology transfer. At the Doha Climate Change Conference held in November and December 2012, four BRICS countries, namely, China, India, Brazil and South Africa, again spoke in one voice and advocated that all the parties work towards the task of emission reduction under the principle of “common but differentiated responsibilities”. Thanks to the joint efforts of the BRICS countries, the results of the Doha Climate Change Conference basically met China’s expectations.34 Third, the New Development Bank and the Contingency Reserve Arrangement are two major constructive progress promoted by China as a founding country of the BRICS mechanism on the platform of the BRICS mechanism, which determined the institutionalized development direction

112  Gao Shangtao of the BRICS mechanism and changed the international economic order, exerting huge influence on the international financial landscape.35 To start with, the establishment of the New Development Bank and the Contingency Reserve Arrangement has served as a pillar for the BRICS mechanism and facilitated the BRICS countries to make great strides for a substantive “community of interests”, showing a development trend of resource unity, mutual interests and practical cooperation.36 In addition, the New Development Bank not only can fund infrastructure construction, but also meet the in-​ depth needs of its member states and even other developing countries in the process of economic transformation and play a bigger role in the business such as cross-​border settlements and currency swaps among member countries. Meanwhile, complementary to the current international financial order, the New Development Bank and the Contingency Reserve Arrangement can reciprocate the right to formulate some international financial rules to developing countries and thus facilitate the international financial order to undergo changes beneficial to emerging economies.37 Fourth, China has proactively promoted diversification of the world’s development model and the democratization of international relations with the BRICS platform. As emerging economies, the BRICS countries share some common features in realizing rapid economic growth –​all of them are actively opening up and using external resources and market conditions to develop their economy. However, each member country differs in specific paths. Therefore, admitting the diversification of world politics, economy and social progress and holding an inclusive and cooperative attitude are an important basis for the BRICS cooperation and a key norm of the international community. Besides, democratic and equal consultation are basic principles of the institutionalized BRICS cooperation. There is no superior country or inferior country within the BRICS mechanism. All the member states have equal rights to freely choose their own social systems and development paths independently. Therefore, the BRICS mechanism has provided a platform for emerging economies to truly have equal dialogues, shielding them from the international organizations dominated by the Western major powers. It is conducive to accelerating the democratization of international relations38 and diluting the hierarchy and oppression in the current international system, exerting far-​reaching influence on the international politics and economy.

5.  Conclusion According to the analysis, clear logic of practice has been shown in China’s participation in the establishment and development of the BRICS mechanism. Driven by the international regimes and resources at home and abroad, China has taken part in a series of participation practice for the establishment of the BRICS mechanism, united the consensus of the establishment of the BRICS mechanism and of China’s participation in the mechanism and collective action as a founding country, which bestows a brand-​new collective identity

China’s participation in BRICS cooperation  113 on China –​a founding country of the BRICS mechanism with equal rights and reciprocal obligations –​after confirmation of the BRICS mechanism for future international interaction.39 The new identity will lead China to play a new role in the international regime and exert influence on its development. It is worth noting that the practice theory is a maximal analytical framework40 and is generalized into five modes of practice. A  country generally will undergo the following five processes of practice when joining a mature international organization: (1) by discourse practice, the country defines the organization from the perspective of its relations with others and provides evidence and guidance for participation; (2) the country persuades the international organization to believe and accept it through alliance practice so that it can be successfully accepted; (3)  after joining the organization, the latecomer should familiarize itself with the rules, adapt to and integrate into the organization by learning and imitating as soon as possible, which is known as the learning practice; (4)  after learning the norms of the organization, the country should adhere to the norms or even internalize them, which is known as compliance practice; (5)  after the country becomes familiar with the rules and is able to fully leverage them over time, it will find loopholes and problems with the rules and try to transform them by the permeability of the organization, leading to the innovation practice. The five modes of practice completely describe the process experienced by an outsider country to join a mature international organization. However, not all countries will undergo the entire five modes of practice in their participation practice. The practice process will not be as typical as described in the theory when a country establishes a new international organization from scratch. When a country starts to establish a new international organization, it will generally undergo the discourse practice to define a possible outline for the future organization. Then it will persuade other countries to believe in and accept the possible form of organization, and invite them into the organization through alliance practice. Next, the country has to formulate rules of the organization through innovation practice and reach consensus with other countries related through alliance practice, followed by the compliance practice to internalize the rules and the possible innovation practice in the future. For the founding countries of the international organizations, the learning practice is not very typical here while the innovation practice is evident. Above is the inspiration for the practice theory that we can draw from China’s participation in the establishment of the BRICS mechanism. Practice theory is also meaningful to perfect and promote the major-​power diplomacy with Chinese characteristics. It is indicated by the practice theory that a country can constantly unite new consensus and innovate methods of practice in the international community through active discourse practice, alliance practice and innovation practice on the basis of learning and compliance. The major-​power diplomacy with Chinese characteristics demands that China should interact with other countries with a more active and responsible manner and clarify China’s responsibilities and propose China’s plans. This

114  Gao Shangtao means that the major-​power diplomacy with Chinese characteristics will be constantly improved and developed under the inspiration and promotion of the practical theory. The analysis has proved that the practice theory is basically a feasible framework for theoretical analysis and explanation. It is important for China as a world power to rationally construct and fully leverage the platform of international regimes to play a greater role in promoting the development and implementation of the major-​power diplomacy with Chinese characteristics.

Notes 1 Zhu Liqun & Nie Wenjuan, “Practice Orientation in Theory of International Relations”, World Economics and Politics, No. 8, 2010, pp. 98–​115. 2 The representative one is Qin Yaqing’s attempt in the Study on China’s Active Participation in International System Reform, one of the national major social sciences projects. Refer to the “sub-​project:  theory” (to be published). Having combined the practice theory and Chinese characteristics, Qin has also absorbed Marxist philosophy on practice and the thoughts on practice in traditional Chinese culture, trying to establish a practice theory with Chinese characteristics. Before that, there were some articles on the framework of Western practice theory in China, promoting the shift to the study on practice of international relations theory in China. Refer to Zhu Liqun & Nie Wenjuan, “Practice Orientation in Theory of International Relations”, World Economics and Politics, No. 8, 2010; Zhu Liqun, “Explanatory Mode of Practice of China’s Participation in International Regimes”, Foreign Affairs Review, No. 1, 2011; Wu Wencheng, “Alliance Practice and Identity Recognition:  Take China’s Participation in UNESCO as Example”, Foreign Affairs Review, No. 1, 2012; Feng Jicheng, “China’s Participation in UN Peacekeeping Missions:  Learning Practice & Identity Recognition”, Foreign Affairs Review, No.1, 2012; Zhu Liqun & Nie Wenjuan, “Practice Agency from the Perspective of Structure-​Agent:  On Proactivity of China’s Participation in International Regimes”, World Economics and Politics, No.2, 2013; Zhao Yang, “Agent, Structure and Practice in Identity Construction of a Country:  A Study Based on China’s Participation in International Regimes”, Teaching and Research, No. 8, 2013; Sun Kai, “Participation Practice, Discourse Interaction and Identity Recognition:  Understanding China’s Participation in North Pole Affairs”, International Economics and Politics, No.7, 2014; etc. 3 Refer to Sun Kai, “Participation Practice, Discourse Interaction and Identity Recognition:  Understanding China’s Participation in North Pole Affairs”, International Economics and Politics, No.7, 2014, pp. 48; Zhu Liqun, “Explanatory Mode of Practice of China’s Participation in International Regimes”, Foreign Affairs Review, No. 1, 2011, pp. 19–​33. 4 Christian Büger and Frank Gadinger, “Reassembling and Dissecting: International Relations Practice from a Science Studies Perspective”, International Studies Perspectives, No. 8, 2007, pp. 100–​105. 5 Audie Klotz, Norms in International Relations: The Struggle against Apartheid, Ithaca, NY: Cornell University Press, 1995, pp. 29–​33.

China’s participation in BRICS cooperation  115 6 Zhao Dingxin, Social and Political Movements, Social Sciences Academic Press, Beijing, 2006, p. 2. 7 Alastair Iain Johnston, Social States: China in International Institutions 1980–​ 2000, Princeton: Princeton University Press, 2008, pp. 23–​46. 8 Zhu Liqun, Lin Minwang et al., Olympic Games and Beijing’s Internationalization: A Study of Norm Socialization, World Affairs Press, 2001, p. 29. 9 The elaboration on theories above mainly refers to Qin Yaqing’s “sub-​ project: theory” of “Study on China’s Active Participation in International System Reform” (to be published). Other related literature has also been referred to. 10 Wang Yuhua & Zhao Ping, “Features and Problems of BRICS Cooperation and China’s Response”, Contemporary Economy & Management, No. 11, 2011, p. 24. 11 ibid. 12 Pang Xun, “BRIC Organization:  Strategy of ‘Smart network of relations’ or China’s Major Country Diplomacy”, May 30, 2014, website of Carnegie-​Tsinghua Center for Global Policy, http://​www.carnegietsinghua.org/​2014/​05/​30/​金砖国家-​ 组织-​中国大国外交的-​结网巧战略/​hcdk. 13 Hu Jintao, Report to the 18th National Congress of the Communist Party of China, November 8, 2012, People’s Daily Online. The other three major platforms for China to actively participate in multilateral affairs are the United Nations, the Shanghai Cooperation Organization and the G20. 14 Xu Lifan, “BRICS Cooperation Encounters A Third Period”, Beijing News, July 15, 2014, A02. 15 Xin Renjie & Sun Xianpu, “BRICS Cooperative Mechanism and Sino-​Indian Relations”, South Asian Studies, No. 3, 2011, p. 88. 16 Xin Renjie & Sun Xianpu, “BRICS Cooperative Mechanism and Sino-​Indian Relations”, South Asian Studies, No. 3, 2011, p. 90. 17 Website of the Ministry of Foreign Affairs of the People’s Republic of China, “Joint Statement of the BRIC Countries’ Leaders at Yekaterinburg, Russia”, June 16, 2009. 18 The briefing held by Wu Hailong, the then director-​general of The Department of International Organizations and Conferences of the Ministry of Foreign Affairs before the Summit. Refer to “China Advocates the BRIC Cooperation Should Be Gradually Promoted” on www.xinhuanet.com, June 16, 2009. 19 Wang Yizhou, “BRIC Countries Strive for A Common Future”, Business Weekly, June 22, 2009, pp. 12–​13; Qin Zhilai, “First BRIC Summit: Ushers in A New Era of Cooperation”, International Outlook, No. 5, 2009, pp. 47–​48. 20 Qin Huaishi, “BRIC Countries in the Post-​crisis Era”, Foreign Trade & Economy, No. 7, 2009, pp. 20–​21. 21 Li Gangqiang, “China’s Development Path:  from the BRIC Summit”, China Inspection and Quarantine, No. 8, 2009, pp. 45–​46. 22 Website of the Ministry of Foreign Affairs of the People’s Republic of China, “Joint Statement of the BRIC Countries’ Leaders”, Yekaterinburg, Russia, June 16, 2009. 23 www.chinanews.com, “President Hu to Deliver Important Speech at BRIC Summit”, April 2, 2010. 24 www.people.cn, “South Africa Becomes an Official Member of BRICS Mechanism”, December 28, 2010. 25 www.chinanew.cn, “Sanya BRICS Summit Reaches Broad Consensus and Achieves Three Key Results”, April 14, 2011.

116  Gao Shangtao 26 www.people.cn, “President Xi Attended 6th BRICS Summit and Delivered Important Speech”, July 17, 2014. 27 www.people.cn, “6th BRICS Summit  –​Fortaleza Declaration (full text)”, July 17, 2014. 28 Jenny Clegg: “Out of the Crisis: Can BRICS Play an Active Role in the Formation of a New International Economic Order”, Journal of Economics of Shanghai School, No. 4, 2012, p. 41. 29 Cai Chunlin, Liu Chang & Huang Xuejun, “Status and Role of the BRICS in International Economy”, Comparative Economic & Social Systems, No. 1, 2013, pp. 40–​49. 30 www.xinhuanet.com, “Previous G20 Summits”, September 27, 2009. 31 Sang Baichuan, Liu Yang & Zheng Wei:  “Current Situation, Problems and Prospects of the BRICS Financial Cooperation”, Intertrade, No. 12, 2012, p. 33. 32 www.china.com.cn, “Meeting of G20 Finance Ministers and Central Bank Governors Concludes: Promises No Currency Wars”, October 24, 2010. 33 Sang Baichuan, Liu Yang & Zheng Wei:  “Current Situation, Problems and Prospects of the BRICS Financial Cooperation”, Intertrade, No. 12, 2012, pp. 32–​34. 34 www.chinanews.com, “Xie Zhenhua:  China Satisfied with the Results of Doha Conference”, December 9, 2012. 35 Cai Chunlin, Liu Chang & Huang Xuejun, “Status and Role of the BRICS in International Economy”, Comparative Economic & Social Systems, No. 1, 2013, pp. 40–​49. 36 Tang Lingxiao, “Realistic Driving Force for the Establishment of the New Development Bank”, Social Sciences in China, August 20, 2014. 37 Jenny Clegg: “Out of the Crisis: Can BRICS Play an Active Role in the Formation of a New International Economic Order”, Journal of Economics of Shanghai School, No. 4, 2012, p. 43. 38 Lv Youzhi, “International Influence and Constraints of BRICS Countries”, International Vision, No. 3, 2011, p. 32. 39 China is the founding country of the BRICS mechanism. This identity was later confirmed within the BRICS framework after the establishment of the BRICS mechanism. 40 Wang Yang, “Theoretical Orientation of Bruno Latour”, Philosophical Trends, No. 7, 2003, pp. 19–​24.

7  The BRICS countries and global economic governance Xu Xiujun

Since the end of Cold War, especially since the start of the twenty-​first century, the emerging countries have achieved outstanding economic performance and become a focus of world attention. With the rapid rise of a large number of emerging countries, the pattern of interests distribution under the prevailing global economic governance system has become increasingly unsuitable to the changes of the era, which has become the main source of legitimacy crisis of the global economic governance system. As emerging countries, the BRICS have both the strategic need to boost domestic economic and social development and the strategic need to enhance their narrative and voice on the international stage, so they all have the motivation to jointly expand their strategic interests. Since the establishment of the BRICS summit mechanism, their leaders have from time to time had an in-​depth exchange of views on issues and challenges faced by the five countries and even the whole world, and continuously deepened the BRICS participation in global governance. In this process, the BRICS countries have gradually changed from passive recipients of the existing global governance system to active participants and creators, and created some new ideas, new ways, and new practices for the emerging countries to cooperate and participate in global governance.

1.  The rise of emerging countries and establishment of the BRICS cooperative mechanism 1.1  Collective rise of the emerging economies Since the end of the Cold War, especially since the onset of the twenty-​first century, the emerging countries have achieved outstanding economic performance and become a focus of world attention. In terms of economic growth, the emerging economies and developing countries registered an average growth rate of 6.1 per cent from 2000 to 2013, among which the BRICS countries registered 6.9 per cent on average, 2.4 percentage points and 3.2 percentage points higher than the world economic growth rate during the same period, respectively.

118  Xu Xiujun In terms of total economic size, the total GDP of the emerging markets and developing countries reached $28.64 trillion in 2013 if calculated on market exchange rates, accounting for 38.7 per cent of global GDP, an increase of 18.6 percentage points over 2000. The total GDP of the BRICS countries reached $15.76 trillion, accounting for 21.3 per cent of global GDP, an increase of 13.0  percentage points over 2000. In terms of purchasing power parity, the share of the emerging markets and developing economies in global GDP for the first time exceeded that of the developed economies in 2013, reaching 50.4 per cent, an increase of 13.4 percentage points over 2000. Among them, the percentage of the BRICS countries in global GDP was 27.6 per cent, 10.7 percentage points higher than that of 2000. In terms of the increment of economic size, the emerging countries represented by the BRICS countries have achieved a brighter performance in recent years. In the five years from 2008 to 2013, the total GDP of the emerging markets and developing countries saw a net increase of $9.45 trillion based on market exchange rates, accounting for 77.9 per cent of increased global GDP aggregate. Among them, the BRICS countries increased by $6.43 trillion, accounting for 53.0 per cent of the global GDP increment. In the same period, the total GDP of the developed economies increased by $2.69 trillion, accounting for 22.1 per cent of the global GDP increment, among which the G7 increased by $1.88 trillion, accounting for 15.5 per cent of the global GDP increment.1 1.2  Legitimacy crisis of the current global economic governance system With the rapid rise of a large number of emerging countries, the pattern of interests distribution reflected in the current global economic governance system has increasingly become inappropriate, which has become the main source of the legitimacy crisis of the global economic governance system. In today’s international community, the most important and influential global economic governance mechanism has been established under the leadership of developed countries, who have subsequently become vested interests under the established system, enjoying the largest share of the benefits of global economic governance. In the IMF and World Bank, Western countries led by the United States have overwhelming shares and voting rights and monopolize the control power of senior management in the governance structure of the two institutions. It is worth noting that the United States also exclusively enjoys the veto power on major issues in the two bodies. Although the two institutions launched the quota and voting rights reforms in favour of the developing countries, these already-​decided programs have yet to be implemented due to the obstruction of the US Congress. In the global economic governance mechanisms based on consensus or informal decision-​making, such as the World Trade Organization (WTO) and G20, developed countries control and dominate the decision-​making power of these mechanisms through consultations outside the mechanisms that exclude most developing countries. In the WTO, voting is often left out of

BRICS and global economic governance   119 multilateral disputes settlement and is replaced by “informal consultations” or the so-​called “Green Room” that only involves major developed and a few developing members, a practice that is not explicitly stipulated in various WTO agreements. In the G20 mechanism, the G7 coordination mechanism among developed economies still exists, and for the decision-​making of many issues, developed economies often first conduct internal consultations to coordinate each other’s stances and policies, while emerging countries are in a disadvantaged position in G20 discussions and consultations. In short, the global economic governance system is the carrier of national-​ interests distribution, and emerging countries are generally in a weak position that does not match their own strength in the interests distribution of various institutional systems, which directly leads to the widespread existence of the legitimacy crisis of the current global economic governance system. Therefore, in order to reverse the current unfair and unreasonable pattern of interests distribution, the reform of global economic governance system remains inevitable. 1.3  Establishment of the BRICS cooperation mechanism and its significance Due to the rapid economic rise of emerging countries, the international community pays more attention to those emerging countries with outstanding economic performance, laying a foundation for the establishment and expansion of the BRICS cooperation mechanism. In 2001, Jim O’Neill, an economist at Goldman Sachs, identified four emerging economies –​Brazil, Russia, India, and China –​as the countries with the largest investment value, and the term of “BRICs” was correspondingly coined.2 In June 2009, the leaders of Brazil, China, India, and Russia held their first summit in Yekaterinburg, Russia, and confirmed the establishment of a regular meeting mechanism once a year, thus leading the essential transformation of BRICs from an economic concept to a dialogue and cooperation platform. Less than two years after the establishment of the BRICs summit mechanism, the BRICs expanded its membership for the first time to bring in South Africa, the largest economy in Africa, and then turned into BRICS. With the inclusion of South Africa, BRICS has become a more representative mechanism for cooperation among the emerging countries. It is unprecedented in international relations and the history of international economics that five emerging countries from the four continents of the world, namely, Asia, Europe, Africa and South America, have come together to establish a trans-​regional multilateral cooperation mechanism. Therefore, the BRICS cooperation mechanism is of self-​evident symbolic and practical significance. The establishment and development of the BRICS cooperation mechanism is of vital significance to strengthening economic and trade cooperation and policy coordination among the five countries, and more importantly, it marks the rise of the emerging economies represented by the BRICS countries and the substantial progress that emerging countries have achieved in changing the existing international economic and political order.

120  Xu Xiujun 1.4  A new role of the BRICS cooperation mechanism in the global economic governance system Due to its unique characteristics, the BRICS cooperation mechanism has played an irreplaceable role in the global economic governance system since its establishment. Specifically, the BRICS countries have played three important roles in global economic governance: First, the BRICS cooperation mechanism provides a platform for cooperation among emerging countries. Due to the long-​term absence of the coordination and cooperation mechanism that represents the interests of emerging countries, the dialogues between those countries and developed countries usually cannot better safeguard the interests of emerging countries in the field of global economic governance. Therefore, the establishment of the BRICS cooperation mechanism and its open cooperation model provide a platform for the emerging markets and developing countries to conduct economic and trade cooperation, express appeals and raise their voice in the global economic governance system. Second, the BRICS cooperation mechanism provides a platform for consultation on trans-​regional economic governance. From a geographical perspective, the BRICS countries come from Asia, Europe, Africa, and America of the five continents, which means they can link to a maximum the economies of all regions. At present, the BRICS countries are building a cooperation framework with African and Latin American countries in a bid to release the potentials of these regions and facilitate trans-​regional economic cooperation. Last but not least, the BRICS cooperation mechanism provides a platform for exchanges between developing and developed countries. The BRICS cooperation mechanism not only aims to promote cooperation among emerging countries, but also attaches great importance to communication and coordination with developed countries. As early as April 2011, the leaders of the BRICS countries pointed out at the Sanya Summit that cooperation among the BRICS countries is inclusive and non-​confrontational, and that BRICS countries take an open position on strengthening ties and cooperation with other countries and relevant international and regional organizations. Other countries mentioned here include not only emerging countries and developing economies but also developed economies.

2.  The BRICS countries and the change of the global economic governance system 2.1  Challenges for the participation of emerging countries in global economic governance Since the international financial crisis, the global political economy has gradually entered a period of transformation and adjustment. Various forces

BRICS and global economic governance   121 are fading away, and the world economy has taken on new development trends and features of the times. In the field of global economic governance, new problems have kept emerging, and emerging countries face numerous challenges in their participation in global economic governance. In summary, these challenges come from the following two aspects: Challenges from within emerging countries. On the mechanism construction, the absence of a united and exclusive international economic cooperation organization that comprises most emerging countries, easily leads to the “spaghetti bowl” effect of the emerging countries’ cooperation mechanism. At the same time, the openness of such a cooperation mechanism is susceptible to the influence of external countries, and the looseness of their cooperation mechanism is non-​conducive to the establishment of close cooperative relations. In terms of trade and investment links, emerging countries are confronted with such problems as small scale, unbalanced trade and investment links, weak cross-​regional links and different trade and investment structures. When it comes to financial and monetary cooperation, most emerging countries’ financial markets have not reached the due level of openness and innovation, so their experiences and ability to resist financial risk are very limited, and they are constrained by developed countries and the West-​dominated international monetary and financial system. Challenges on the global level. This is particularly reflected in the building of the global economic governance mechanism. It is a historical development for the G20 to transform from a cooperation platform between the emerging markets and developed economies into a primary forum to promote international economic policy dialogue and advance the reform initiatives for global economic governance. However, the slow institutionalization of the G20 makes it difficult to play an effective role in global economic governance. Developed economies still play a dominant role in the G20 mechanism, in which the interests and concerns of emerging economies cannot be fully reflected. Whether emerging countries can achieve equality and effective governance of the global economy alongside developed economies through this platform still faces many tests and challenges. 2.2  The reform of global economic governance system pushed by the BRICS countries Despite the numerous challenges emerging countries face in participating in global economic governance, the BRICS countries, as an emerging force in the reform of the global economic governance system, have made a series of achievements in promoting the reform of the system, achievements that are mainly reflected in the following four aspects: (1) Promoting the reform of quotas and voting rights of international monetary and financial institutions. In September 2009, the four BRIC countries actively pushed the IMF and World Bank to transfer 7 per cent

122  Xu Xiujun and 6 per cent shares respectively to the emerging markets and developing countries and finally reach a new quota reform program. In July 2014, the leaders of BRICS countries once again pushed the IMF to study a plan to advance the reform process to ensure a greater voice and representation of the emerging markets and developing countries, and urged the World Bank and member countries to complete the next round of World Bank group equity review by October 2015. (2) Establishing the BRICS New Development Bank to complement the existing multilateral development institutions. In July 2014, the BRICS countries announced the signing of the agreement on the establishment of the BRICS New Development Bank. The establishment of the BRICS NDB will not only raise funds for infrastructure and sustainable development projects in the BRICS and other developing countries, but also complement the existing multilateral and regional financial institutions in boosting global growth and development and promote more effective use of global financial resources. (3) Setting up an emergency foreign exchange reserve fund to guard against international financial crises. In July 2014, the BRICS countries announced the signing of an agreement to establish an emergency reserve arrangement with an initial capital of $100 billion. This is not only an important institutional achievement of the BRICS financial cooperation that plays a positive a preventive role in helping member states cope with short-​term liquidity pressure, but also is of far-​reaching significance for preventing financial crises, promoting monetary cooperation among emerging countries and strengthening the global financial safety net. (4) Pushing for new progress in WTO multilateral talks. The BRICS countries have always supported an open, inclusive, non-​discriminatory, transparent and rules-​based multilateral trading system; BRICS pushed for positive outcomes of the 9th WTO ministerial conference in Bali, Indonesia, in December 2013, and remained committed to the successful conclusion of the Doha Round of WTO talks. The progress made by the BRICS countries in pushing for the reform of the global economic governance system has not only provided a model for cooperation among emerging countries, but also made developed countries increasingly aware of the shortcomings of the existing global economic governance system and the importance of reforming it.

3.  The BRICS countries and innovation of the global governance model Since the establishment of the BRICS summit mechanism, the BRICS leaders have already met seven times. Over the past seven years, the BRICS leaders have had in-​depth exchanges of views on issues and challenges facing the five countries and even the rest of the world, and continuously worked to advance

BRICS and global economic governance   123 BRICS participation in global governance. In this process, the BRICS countries have gradually turned from passive recipients of the existing global governance system into active participants and creators, created some new ideas, new ways and new practices for emerging countries to cooperate with each other and participate in global governance, and injected new impetus and vitality into the improvement and innovation of global governance. Specifically, the BRICS countries’ efforts to improve and innovate global governance are mainly reflected in equal sharing of governance power, joint building of partnership, gradual deepening of inclusive cooperation and active handling of emerging issues. 3.1  Equal collaboration and sharing of decision-​making power At present, the decision-​making mechanism in the global governance system mainly follows the principles of consensus and voting. In the voting mechanism, decision-​making power is mainly divided into two forms  –​equal decision-​making based on the principle of “one country, one vote”, and weighted distribution of voting rights based on political and economic power and geographical distribution. In the United Nations, decisions are usually made on a “one vote for one country” basis, but on major issues, each of the five permanent members of the UN Security Council has a veto right. In the WTO, except for “reverse consensus” and “voting” in a few cases in the dispute settlement mechanism, all decisions on various matters follow the “consensus-​based” principle. However, in practice, the “informal consultation” attended by major developed members and a few developing members often plays a decisive role in the WTO’s decision-​making. This informal decision-​making mechanism usually forms a proposal, which is then submitted to the ministerial conference for discussion to reach a consensus, thus forming de facto weighted decision-​making. In international monetary and financial institutions such as the World Bank and the IMF, the charters clearly stipulate that the shares and then the voting powers are allocated among member states mainly according to their economic strength. Therefore, the existing major global governance institutions have adopted different forms of weighted voting. This principle of decision-​ making power allocation facilitates the control of these institutions by economically powerful Western countries, some of which exercise de facto veto power over major issues in these institutions. As a result, on the one hand, great powers (especially Western powers) tend to dominate the global governance system, and on the other hand, the voice of developing countries is not only rare but often not properly reflected, greatly limiting their role and influence. Even in the institutions that allocate governance rights according to member states’ economic power, the voting rights of many developing countries are badly unbalanced by their own strength, and the reform programs agreed on cannot be implemented due to obstruction from a few countries. In the long run, the power imbalance in the global economic governance system has become

124  Xu Xiujun increasingly obvious, the principle of sovereign equality among countries increasingly eroded, and the democratization of international relations difficult to make substantive progress. Within the BRICS, all members, big or small, rich or poor, strong or weak, hold consultations on all matters on an equal footing and create a new model of sharing decision-​making power on an equal basis. This pattern not only runs through all BRICS cooperation, but also is fully reflected in the governance structure of the BRICS’s New Development Bank (NDB). In March 2013, the BRICS leaders decided to establish a new development bank at their fifth summit, and in July 2014, the BRICS countries signed an agreement to establish a new development bank, which, according to the agreement, will have an authorized capital of $100 billion and an initial subscribed capital of $50 billion. According to IMF data, China’s GDP based on market exchange rates totalled $10.38 trillion in 2014, accounting for 61.1  percent of the BRICS countries. However, the NDB’s authorized capital was not allocated among BRICS countries according to their GDP weight, but equally shared by the five countries. This means the five BRICS countries could equally share the equity and voting rights of the bank. At the same time, the NDB’s other arrangements have also taken into full consideration the interests of all parties. The NDB’s first chairman of the board of governors was from Russia, the first chairman of the board of directors was from Brazil, and first president from India, while headquartered in Shanghai and with an Africa regional centre located in South Africa. In July 2015, the BRICS NDB was officially opened in Shanghai. Although the effect of this governance model of equal power sharing among members remains to be seen, it undoubtedly provides a new choice for the reform and innovation of global governance in the context of frequent occurrence of malpractices in the governance structure of existing global governance institutions. 3.2  A partnership featured as mutual benefit and win-​win cooperation Mutual benefit and win-​win cooperation mainly refer to taking account of the interests and concerns of all parties, seeking common interests, giving full play to the advantages and potentials of all parties, and ultimately achieving common prosperity. Fundamentally speaking, mutual benefit and win-​win cooperation are to abandon the traditional zero-​sum game between countries and build an interdependent community of shared interests. It is under such a vision that the BRICS countries are building a new type of all-​round partnership in line with the trend of the times. At the seventh BRICS summit, Chinese President Xi Jinping elaborated on the connotation of the BRICS partnership and summarized it in the following four aspects: (1) A partnership for world peace. The BRICS countries advocate common, comprehensive, cooperative, and sustainable security, jointly uphold regional and world peace and stability, resolve differences through peaceful and political means, and promote democracy in international

BRICS and global economic governance   125 relations; (2)  A  partnership for common development. The BRICS countries are committed to building a value chain of shared interests and a major market of integrated interests, and realizing complementarity in resource endowment and industrial structure, so as to build a BRICS community of shared interests, safeguarding the common interests of the emerging markets and developing countries, and promoting common development and prosperity of developing countries. (3)  A  partnership for diverse civilizations. Through exchanges and mutual learning, the BRICS countries always seek common ground while shelving differences, and have made common progress. By taking advantage of their unique geographical advantages, the BRICS countries have actively engaged in dialogue and exchanges with other countries and international organizations, strengthened solidarity and cooperation with other emerging markets and developing countries, and expanded their representation and influences. (4) A partnership for strengthening global economic governance. The BRICS countries are committed to improving their status and role in the global governance system, pushing the international economic order to adapt to the historical trend that the power of the emerging markets and developing countries is on the rise, maintaining the legitimate rights and interests of the emerging markets and developing countries, and ensuring all countries enjoy equal opportunity, equal rules and equal rights in international economic and trade activities.3 In the economics field, the BRICS leaders also adopted a guiding document –​the Strategy for BRICS Economic Partnership. The document lays out overall planning of the interconnectivity development pattern of the BRICS countries, defined as “integrated market, multi-​level circulation, land, sea and air interconnectivity, and cultural exchanges”, and confirms eight key cooperation areas, including trade and investment, manufacturing, energy, and finance, as well as some cooperation measures. The document further expands the trade and economic cooperation area and space for the BRICS countries and strengthens their competitiveness in the international market, but it also puts into practice the building of a BRICS community of shared interests and lays a solid foundation for BRICS countries to build a comprehensive partnership. There is no doubt that the BRICS partnership is an innovative model for global multilateral cooperation and governance, applying bilateral partnership to multilateral cooperation mechanisms, and creating conditions for the search for broader common interests. At the same time, the BRICS partnership, which goes beyond the Cold War mentality and the mindset of political alliance, is not targeted at any other country or organization or aimed at sacrificing the interests of other countries, and thereby it sets an example for equal cooperation and common development between countries. 3.3  Expansion of open, inclusive and mutually beneficial cooperation The global economy has suffered major shocks, and various forms of protectionism have increasingly run rampant since the global financial crisis,

126  Xu Xiujun but the general trend of economic globalization has not changed. Global trade and investment continue to grow, the flow of factors of production such as personnel, capital and technology, continues to strengthen, and the interdependence and influences among countries continue to deepen. In this context, the development and prosperity of any country cannot be achieved without a sound external environment, the internal problems of any country will spread to other countries and even trigger a global crisis, and countries are increasingly forming a community with a shared fate. As a cooperation mechanism with only five members, the BRICS also should not focus on their own development and neglect connections with the outside world. Adhering to the principle of openness and inclusiveness, the BRICS has explored an open cooperation strategy with its own characteristics in recent years, built a “BRICS plus” openness and cooperation model, and endlessly expanded mutually beneficial cooperation with more countries and regions. In March 2013, the fifth BRICS summit extended mutually beneficial cooperation among the BRICS countries to Africa. The meeting, themed “BRICS and Africa: committed to developing integrated and industrialized partnership”, discussed infrastructure investment in Africa on the basis of mutual benefit to support Africa’s industrial development, employment, skills development, food and nutrition security, poverty alleviation and sustainable development, and reached a multilateral agreement on African infrastructure co-​financing to meet the huge infrastructure financing demand as a result of the rapid growth of the African continent. After the meeting, the leaders of the BRICS and 15 African countries held a dialogue entitled “releasing Africa’s potential: BRICS and Africa cooperation in the field of infrastructure”, and discussed ways to realize bilateral openness and cooperation. In July 2014, the sixth BRICS summit extended mutually beneficial cooperation among BRICS countries to Latin America. As one of the main agendas of the meeting, the leaders of BRICS and Latin American countries held a dialogue on the theme of “sustainable solutions for inclusive growth”, which set up a platform for the two sides to demonstrate their political will for friendly cooperation and achieve synergy between BRICS and Latin American markets. Both BRICS and Latin American countries are emerging markets and developing countries with huge development potentials and broad prospects for cooperation. Extending BRICS cooperation to Latin American countries will not only help tap the impetus and potential of bilateral cooperation, but this will also promote the long-​term development of bilateral cooperation. In July 2015, at the seventh BRICS summit, the leaders of BRICS countries, Shanghai Cooperation Organization member and observer states, the Eurasian Economic Union and its invited member states, as well as some international organizations held a dialogue on how to improve people’s well-​being, and reached an extensive consensus on strengthening political, economic and cultural exchanges. This meeting once again expanded the mutually beneficial cooperation model of “BRICS plus” and has extended

BRICS and global economic governance   127 the mutually beneficial cooperation between the BRICS countries and the outside world to Eurasian members. The Eurasian continent has abundant resources and a number of the emerging markets and developing economies and the BRICS countries share similar development tasks and strategic goals with the countries in the region. Cooperation between the two sides is conducive to synergizing their respective connectivity strategies and promoting common development. This shows that BRICS cooperation is not closed and exclusive, but open and inclusive. Such kind of open, inclusive and mutually beneficial cooperation not only opens wider space for the BRICS countries to comprehensively enhance their influence in international and regional affairs, but also provides references for regional and global governance institutions to innovate their cooperation models. 3.4  Active exploration for governances in emerging areas With the participation of countries around the world in the process of global governance, some new global problems have continuously emerged as technological progress leads to the development of new fields. The BRICS countries have not only actively participated in the governance of traditional global issues, but also actively responded to new problems and challenges facing the world. This demonstrates the active and leading role of the BRICS countries in global governance. At present, the BRICS countries are actively participating in and leading governance in some new areas, mainly in the areas of the Internet and outer space governance. On cyber governance, the BRICS countries seek to engage in pragmatic cooperation with each other to address common cyber-​security challenges facing the world. The Internet is a global resource and all countries should participate in the evolution and operation of global network on an equal footing. However, due to technological gaps, countries across the world have not equally shared the benefits this resource has brought to human development. In addition, some countries, organizations and individuals have even used information and communication technology and Internet to conduct large-​scale electronic surveillance and personal data collection, and even engage in transnational organized crimes, develop offensive means and carry out terrorist activities, making global network governance an urgent task. Considering concerted actions on a global scale still face numerous obstacles, the BRICS countries have taken the lead in launching cooperation in this area. At their seventh summit in 2015, the BRICS leaders decided to establish a BRICS working group on information and communication technology cooperation and, through strengthening cooperation among the five countries on information and communication technology, including on the Internet, promoting the development of codes, norms, and principles of conduct for the responsible country in this field. Meanwhile, the working group will conduct cooperation in information and best practices sharing on security

128  Xu Xiujun problems in the use of information and communication technology, effectively combating cyber crimes, the establishment of liaisons between member states, joint research and development projects, capacity building, and the making of international norms, principles, and standards.4 In the field of space governance, the BRICS countries have done a lot to ensure the security of space activities, have put forward governance principles that are in the interests of all parties, and have played a constructive role. At present, the international community has not yet established a complete system of international rules on the development and utilization of outer space, leaving the governance of outer space in a relatively disordered state. The BRICS countries maintain that the development and use of outer space should be exclusively for peaceful purposes and that all countries can benefit from it regardless of their level of economic or scientific and technological development. In order to prevent arms race in outer space, the BRICS countries actively push forward talks for an international agreement aimed at preventing arms race in outer space, and support substantive disarmament negotiations on the basis of the updated Draft Treaty on the Prevention of the Placement of Weapons in Space, the Threat or Use of Force Against Space Objects (PPWT) presented by China and Russia. In order to improve the security level of space activities and operations and prevent conflicts, the BRICS countries have proposed to cooperate to work out a common strategy in this field.

4.  Conclusion In today’s world, the trend of economic globalization continues to advance, re-​globalization with international rules as the core becomes increasingly outstanding, and the reform and development of the global economic governance mechanism become increasingly difficult. At the same time, emerging countries are facing growing challenges in domestic economic adjustment and social development, and their momentum of rapid economic buildup is weakening. All these mean that global economic governance is entering a period of changes in which numerous challenges will emerge, but there is no doubt this will provide the BRICS countries with an important opportunity for equitable participation in global economic governance. On the whole, there are more positive factors than negative ones that drive BRICS cooperation, and the BRICS cooperation is on the rise with the sound momentum of development. So far, the BRICS countries have formed a multilayered cooperation framework, with regular leaders meetings as the main channel, the meetings of high representatives for security affairs, foreign ministers, and permanent envoys to multilateral organizations as a supplement, and the cooperation among think tanks, businesses and banks as the prop, which has laid a solid foundation for the development and improvement of the BRICS cooperation mechanism in the future. At the same time, with the buildup of their economic strength, the

BRICS and global economic governance   129 BRICS countries have become more capable of, and efficient in, participating in global economic governance. In this context, the reform of the global economic governance system is most likely to advance to the BRICS countries’ advantage. In short, as representatives of the emerging forces in global governance, the BRICS countries have initially shown their influence in the global economic governance system. Although global economic governance still faces various challenges, the BRICS countries will play a more important role in the reform of the global economic governance system with the continuous improvement of their economic strength, the further planning and implementation of cooperation issues and the continuous advancement of the institutionalization process. The BRICS countries not only actively participate in global governance on the premise of universally recognized norms of international law and maintain the stability of the existing global governance system, but also actively promote international cooperation and innovation of global governance models through to some extent playing a leading role, and making positive contributions to improving and innovating global governance.

Notes 1 The data come from the IMF and WEO database. 2 Jim O’Neill, “Building Better Global Economic BRICs”, Global Economics Paper, No. 66, New York: Goldman Sachs, 2001. 3 Xi Jinping:  “Building partnership for a better future  –​A  speech at the Seventh BRICS Summit”, People’s Daily, July 10, 2015, p. 3. 4 Ufa Declaration of the Seventh BRICS Summit, People’s Daily, p. 3, July 11, 2015.

8  The BRICS countries and the global financial governance Wang Hao

The BRICS, consisting of China, India, Russia, Brazil and South Africa, is a representative of emerging markets and economies, and an important new force in the perfection and reform of global financial governance. Nowadays, the BRICS countries are all at the stage of economic take-​off, with great potential and broad prospects. These countries, with abundant energy resources and relatively independent economic systems, have achieved rapid development and still enjoy great potential. In addition, the BRICS countries are all major regional powers with a strong sense of acting as a great power. Having remained active in regional and international affairs, they can carry a number of countries forward and serve as strategic fulcrum countries that should not be underestimated by global powers. In terms of political system, except China, the other four BRICS countries adopt federalism as the national structure. In the context of globalization, the BRICS countries are faced with the arduous task of transforming their economic structure, as well as the pressure from developed countries on international standards and rules, including economic development, climate change, intellectual property rights and protectionism. In addition, the increasing economic strength of the BRICS countries and the gradual expansion of their trade have given rise to a larger demand for mutual investment and financing. Therefore, more financial systems, regulations, channels, facilities and services are needed to support them. To this end, the BRICS countries have maintained close interaction and consultation within multilateral frameworks such as the G20 summit and the World Trade Organization Doha Round negotiations. In addition, the BRICS countries have been seeking to strengthen mutual financial cooperation and have tried to institutionalize and materialize such cooperation. For example at the 2011 Sanya summit, the BRICS countries signed the “Framework Agreement on Financial Cooperation within the BRICS Inter-​ bank Cooperation Mechanism”, which explicitly proposed to steadily expand the scale of the local currency settlement and loan business, strengthen investment and financing cooperation in major projects, and carry out capital-​ market cooperation and information exchange. At the fourth BRICS summit in 2012, the possibility of setting up a BRICS Development Bank was

BRICS and global financial governance  131 discussed, which was expected to keep pace with the World Bank. The BRICS countries clearly proposed global governance reform and the establishment of a more representative international financial architecture so as to enhance the voice and representation of developing countries. The 2010 Governance and Quota Reform Plan was also required to be implemented, as scheduled, before the annual meetings of the IMF and the World Bank in 2012. Two agreements were signed to increase the size of the BRICS local currency settlement and loan business, facilitating trade and investment among the BRICS countries. At the Durban summit in 2013, the BRICS Development Bank and foreign exchange reserve pool were set up, and the BRICS Business Council and Think Tank Council were announced to be established, forming new action plans for cooperation in nearly twenty fields, including finance, economy and trade, science and technology, sanitation, agriculture and humanities. At the Fortaleza summit in 2014, the leaders of the five BRICS countries formally announced the establishment of the BRICS New Development Bank (NDB). The initial subscribed capital is contributed equally by the founding members, and the bank is headquartered in Shanghai. At the same time, an agreement on an emergency reserve arrangement with an initial capital of US$100 billion was established to help member states cope with short-​term liquidity pressure and strengthen the global financial safety net. In July 2015, the BRICS leaders met in Ufa, Russia, for the seventh summit, focusing on issues of common interest on the international agenda and on key priorities for further enhancing and expanding BRICS cooperation. The Ufa meeting symbolizes that BRICS financial institutions have come into force, including the new development bank and the contingency reserve arrangement. With the gradual progress of the financial cooperation mechanism among the BRICS countries, many projects have been implemented and made certain achievements, and the relevant areas and contents of cooperation have also been greatly extended. Although there are still details to be further negotiated and implemented by the BRICS countries, the general direction and trend of BRICS countries’ active participation in improving global economic and financial governance is clear, and the BRICS cooperation mechanism is showing increasing vitality and competitiveness. The continued effective promotion of BRICS financial cooperation at present and in the future will not only contribute to the balance of the international trading system, the monetary system and the improvement of commodity price-​formation mechanism, but also have a positive long-​term impact on global geopolitics, civilized networks and ecosystem.

1.  Relationship between the BRICS countries and global financial governance In order to better analyse the relationship between the BRICS countries and global financial governance, it is necessary to accurately understand

132  Wang Hao the notions of “governance”, “global governance” and “global financial governance”. 1.1  What is global financial governance? “Governance” is a malleable and inclusive concept with a rich connotation. According to the Global Governance Council in 1995, the basic meaning of the term “governance” refers to the official or non-​governmental (NGO) public management organization that maintains order and meets the needs of the public by public authority within an established scope. Although definitions vary,1 the purpose of governance is to use power to guide, control and regulate various activities of members in various institutional relationships, so as to maximize the public interest. At the same time, governance can be reflected as a public management activity and process, including necessary public authority, management rules, governance mechanism and governance mode. Although the concept of “governance” is fuzzy, it can be extended to local and micro regions, national and macro regions or supranational levels. The international community is pluralistic and has been undergoing fundamental changes.2 On the global level, it constitutes global governance in a general sense. To be specific, it means that countries, institutions and organizations in the world build a series of binding international rules or various informal arrangements through participation, negotiation and coordination, so as to solve global problems and maintain the normal international political and economic order.3 Among them, through the deconstruction and reconstruction of the international financial governance framework, effective global financial governance is formed to achieve the goal of “good governance” of the international financial ecology, which has become one of the important contents of the reform and development of the current global governance system. Global financial governance refers to the process that departments of governments, international organizations and non-​ governmental organizations, multinational companies and other market subjects participate in the management of global financial affairs, avoiding and preventing systemic financial risk, and maintaining economic and financial stability through coordination, cooperation and reaching consensus, so as to establish or maintain good international financial order. In a word, global financial governance is to “achieve coordination, seek benefits and avoid weaknesses” in the international financial field. The proposal and implementation of global financial governance remain inevitable. First, after entering the twenty-​first century, the globalization and liberalization of the financial market have been accelerated, the new financial products have emerged endlessly, ways to trade have been brought forth, and the international financial markets have been interconnected, closer and interdependent. Cross-​border assets, liabilities and scale became larger than in the past, with growing uncertainties. Under such circumstances, it is impossible for any country to fully understand and grasp the details of transnational

BRICS and global financial governance  133 banks or investment companies and effectively regulate them. Second, the existing institutional arrangements of the international financial system have great restraints, and the original mechanism construction centring on Western growth can no longer meet the needs of shifting the centre of global economic growth. For example the unconstrained dollar standard system combined with the lack of consistency of US macroeconomic policy, may easily lead to frequent outbreak of international financial crises. There are many uncertainties in the international exchange-​rate system that increase foreign-​exchange risks and harm the interests of developing countries in international trade and investment. The international financial institutions, like the International Monetary Fund and the World Bank have not adequately performed or are not fully capable of performing their due coordination responsibilities for the international financial market. Third, the financial regulatory authorities of various countries lack the necessary communication and coordination on international financial regulation. There are not only differences in financial regulation between different countries, but also inter-​departmental differences within a country, which leads to regulatory arbitrage. Information sharing, therefore, is required, especially the sharing of risk management and governance experience. Fourth, multipolar international trading regime, regional investment cooperation mechanism, as well as emerging global financial regulation and agreement, lead to the endless emergence of new situations and new problems, which objectively require the market players to participate in the global financial governance in time, to reduce external financial risks and promote the sound development of global economic and the financial system. 1.2  How to interpret the relationship between the BRICS countries and global financial governance? Currently, many experts and scholars are optimistic about global financial governance, believing that the new governance reform driven by the United Nations, the World Trade Organization, the World Bank, the International Monetary Fund and other international organizations will be promising, and also remain optimistic about the development of G20 and the emerging economies, and especially about the propulsive role of the BRICS cooperation in the development of global financial governance. They argue that the BRICS, without regional identity, is a real global network that extends beyond Asia to several continents. In addition, the advantage of the BRICS as being free of geographical constraints determines its great potential in the future and that it can be expanded to any region, providing much space for the growth of the network. The BRICS countries are increasingly participating and becoming a counterweight in global governance, which is of great significance for coordinating the interests and positions of developing economies, as well as promoting the reform of the global economic governance mechanism. The BRICS countries share many common interests, which lays a solid foundation for wide-​ ranging and multitiered financial cooperation. For

134  Wang Hao example Ivanov, the deputy head of Russian Foreign Economic Bank, favours broader financial cooperation among BRICS countries. He pointed out that policy innovations such as the BRICS New Development Bank could greatly contribute to the formation of a new international financial system and the enhancement of the status and roles of developing countries in international financial institutions.4 Nikonov, the chairman of Russian National Committee on BRICS studies, also stated that further promotion of global financial governance by the BRICS countries will stimulate the economic potential of the developing BRICS countries and other emerging economies.5 Dlamini, the chief executive officer of the Southern African Development Bank in South Africa, believes that it has become increasingly difficult for the current international financial system to meet the needs of the emerging markets after the outbreak of the financial crisis. The participation of the BRICS countries in global financial governance will be conducive to meeting the challenges of insufficient liquidity and financing, indirectly increasing the rights of the BRICS countries in the international financial system, building a parallel system beyond the existing system and breaking the monopoly of European and American countries.6 Roudet, the chief economist of the South Africa Efficient Group, believes that Africa and the BRICS economies are highly complementary, and their cooperation has huge potential, saying that if the Western countries are reluctant to share their power in the IMF and the World Bank with emerging market countries, these countries can create such a financial institution and promote the cooperation mechanism’s standardized development to absorb more newcomers.7 Saran, the president of RIS, an Indian national think-​tank, points out that in the system of the World Bank, where the Western countries dictate lending resources with their voting power often for political ends, the BRICS participation in global financial governance helps to achieve more democratic governance.8 Pimentel, the minister of Brazil’s development, industry and trade ministry, pointed out that the establishment of the BRICS’ development bank would help increase the negotiating weight of the BRICS countries in the international financial system and address the urgent financial need of developing countries in infrastructure and other areas. The establishment of the BRICS foreign exchange reserve pool can promote the reform of the international financial system, which may put pressure on the existing international financial system, encourage developed countries to better face the reality and provide opportunities for the local currency settlement of trade between member states.9 In China, Chen Yuan, the former chairman of the China Development Bank, believes that the BRICS countries can effectively promote economic stability and sustainable development only through strengthening financial cooperation, exploring cooperation mechanisms, enriching cooperation contents and improving cooperation modes.10 Some Chinese scholars have conducted exploratory studies on specific issues of the BRICS cooperation and global financial governance. For example Huang Renwei believes that the core feature of the reform of the global governance mechanism is the

BRICS and global financial governance  135 transformation from “Western governance” to “common governance” by both Western and non-​Western countries.11 Xu Xiujun pointed out the non-​ neutrality of the BRICS cooperation mechanism, saying such kind of cooperation should be open and inclusive enough to promote the gradual change of international system and rules.12 Huang Wei discussed the basis, impetus and progress of the BRICS cooperation, pointing out that the South-​South Cooperation represented by the BRICS countries plays an important role in promoting the democratization of global economic governance.13 Li Daokui and Xu Xiang believe that the BRICS countries should work together to transform the existing global-​governance structure through gradual reform, raise the economic cooperation among the BRICS countries to a new level, and strengthen the intellectual cooperation among the BRICS countries.14 Li Bing verified that the BRICS countries are important subjects in promoting the transformation of global economic governance from international system to world system from the perspective of strength, consensus and motivation, holding the view that financial cooperation among the BRICS countries showed the embryonic form of global economic governance under the world system.15 Wang Houshuang et al. believe that the establishment of the BRICS cooperation mechanism is playing an increasingly important and positive role in the reform and innovation of the traditional global economic governance system and mechanism.16 Starting from the financial cooperation among the BRICS countries, Xu Chao analysed the prospect, specific ways, and impact of financial cooperation among the BRICS countries on global financial governance mechanism.17 In contrast, some experts and scholars are pessimistic about the financial cooperation among the BRICS countries. They believe that the instability of current political and economic situations in the world, the heavy debt burden of Europe and the United States, and the differences in national conditions among the BRICS countries, still pose many challenges for the BRICS financial cooperation. Especially from the experience of emerging countries’ cooperation in international affairs, some technical disagreements often mean political contradictions. Once they are not calmly treated and properly solved, they would lead to deeper conflicts among member states and the failure of the whole project.18 Many Western scholars even believe that the lack of consensus among traditional international allies on political, cultural and security issues makes the legitimacy of the group doubtable. Concerns among other BRICS members about China’s dominance have long been an invisible barrier to closer integration within the BRICS group, with China and India particularly at odds over border conflicts and regional security. Although the views above may be slightly biased and worthy of discussion, they nevertheless provide us with a differentiated perspective on the BRICS participation in global financial governance and should be acknowledged for their specific values. In general, the current theoretical and practical research on the BRICS cooperation and global financial governance is still in its developmental stage.

136  Wang Hao Although views vary, they cover a wide range of levels and fields, which need to be further refined, differentiated and analysed, so as to be properly applied.

2.  Current situations, difficulties and feasible paths for the BRICS countries to participate in global financial governance After nearly a decade of evolution, the BRICS has become a new force to promote the establishment of international financial cooperation mechanism and reshape the international financial order. As important participants in the international political and economic landscape, the BRICS countries have been participating extensively in the effective allocation of global capital to optimize the methods and means of financial regulation. The geographical distribution, asset types and radiation effects of their outbound investment are gradually expanding, and they are playing an increasingly powerful role in the recovery of the world economy. With the growth of their overall capacity, the BRICS countries have begun to assume more and more obligations and responsibilities in the international community, especially in combating trade protectionism, maintaining financial security, maintaining and developing an open world economy, as well as balancing regional development and multilateral diplomacy. First, the BRICS countries have been taking an active role in the existing global financial governance system, participating in and paying attention to a series of global activities, such as the Basel Ⅲ negotiation, the WTO agenda talks, the G20 summit and TPP negotiations, and the reform of quota and voting rights of the World Bank and the IMF, pursuing the reconstruction of the framework of the existing international financial system and exploring how to get a significant say for themselves. In addition, the BRICS countries have been actively getting involved into the global value chain, and introducing and making use of foreign direct investment, so as to stabilize and expand export, strengthen the coordination of the trade and industrial policies, and build a good interaction feedback loop with developed countries, build the global integrated market and promote the balanced development of world trade. Second, the BRICS countries continue to strengthen mutual cooperation on the state, society and market levels. They not only actively make use of various forms like the summits, forums, and the agreements, but also pay attention to the construction of financial entities and the cooperation between non-​government organizations, steadily promoting regional trade, investment, financial cooperation and regulation between member states. For example the scales of local currency settlement and loan business among the BRICS countries have been gradually expanding. China has signed currency-​ swap agreements with Brazil, Russia and other countries. The BRICS countries have also increased investment and financing in important areas, such as resources, advanced technologies, low carbon and environmental protection, and so forth.

BRICS and global financial governance  137 Third, by adopting project platforms the BRICS countries have been actively promoting the Asian Infrastructure Investment Bank, the BRICS Development Bank and the foreign exchange reserve pool, which have accelerated management innovation in all areas and strengthened cooperation in economy and trade, finance, infrastructure construction and personnel exchanges. Now they are moving towards the goal of integrated markets, multitiered networks, connectivity by land, sea, and air, and greater cultural exchanges. Fourth, the BRICS countries have effectively consolidated the influence of soft power in the Asian, African and Latin American regions, making African, South Asian and Latin American new highlights of the world economy. At the same time, they have paid attention to promoting balanced development of developing countries as a whole, which fully demonstrates the positive image of the BRICS countries in “seeking development at home and promoting cooperation abroad”. At present, the BRICS countries have accelerated their participation in global financial governance and made some progress, but the work in this area is still in its infancy, and there is a long way to go to achieve good global financial governance. First of all, there are still uncertainties in the international development environment for the BRICS countries. Transnational financial and capital regulation problems, drastic changes in resource and energy prices, escalation of global trade wars and adjustment of investment strategies of transnational companies may all affect the economic development and political stability of the BRICS countries. The BRICS countries, however, are at the middle and low end of the global value chain, with relatively weak autonomy and innovation. They are prone to induce passive imbalance in capital and trade circuits and then to fall into a deeper economic structural imbalance. Second, the BRICS countries are still at their development stage, with relatively weak financial regulation ability, unreasonable economic structure, great disparities in terms of regional development, relatively backward infrastructure, and insufficient consumer financial products and services. The settlement of these problems usually comes after the capacity of national governance is gradually enhanced and the modernization of national governance system is effectively promoted, which, however, cannot be achieved overnight. At the same time, due to the imperfection of the BRICS countries’ financial market, and the lack of an international financial centre with global radiation ability (see Table 8.1), commodity pricing power, and their own global international rating authority, they still rely on the institutions, organizations, markets and the US dollar controlled by the developed economies. Finally, there will always be multiple balances and conflicts in the old and new global financial systems, so the BRICS countries still need to face great shocks and challenges from countries with vested interests in the old global governance structure. For example although the share and voting rights of the BRICS countries in the international financial organizations have improved, this still is unbalanced with their economic strength. Moreover, the BRICS countries

138  Wang Hao Table 8.1 Categories and rankings of the cities of the BRICS and developed countries in the Global Financial Centres Index

Global

Extensive and Relatively Deepened Extensive Financial Services Financial Services

Relatively Deepened Financial Services

Emerging Financial Centres

London (1) New York (2) Hong Kong* (3) Paris (37) Amsterdam (36) Frankfurt (14) Singapore (4) Munich (40) Dublin (46)

Peking * (29) Bombay* (59)

Moscow* (78)

Multinational Tokyo (5) Boston (12) Shanghai* (21) Washington D.C. (10) Local

San Francisco (9) Sao Paulo* (31)

Chicago (11)

Los Angeles (49) Copenhagen (61)

Edinburgh (71) Shenzhen* (23)

Rio de Janeiro* (35) Johannesburg* (33) Taipei* (26)

St Petersburg* (81) Dalian* (41)

Source: Z/​Yen Group, Global Financial Centres Index 18, 2015.9. www.zyen.com/​research/​gfci. html. Notes: The numbers in brackets are the rankings. The cities with asterisks are those of the BRICS countries.

are unable to play important roles in the selection of senior management positions in international organizations and the setting of important agendas. Without adequate ability and intelligence in the bargaining of a variety of international financial regulations, they have failed to become a major force to influence the global financial landscape. On specific issues, traditional powers also often accuse emerging powers such as the BRICS countries of “free-​riding” in the provision of global public goods. In addition, the basis of common interests of the BRICS countries is not solid enough, so that conflicts of interest often occur in the pursuit and control of natural resources, market share and international power among member states. In terms of institution, culture and historical traditions, the BRICS countries are quite different, especially in terms of political homogeneity, boundary and territorial disputes and strategic competition for regional and sub-​regional dominance, sharing different demands and propositions.

BRICS and global financial governance  139 At last, the BRICS countries lack policies in important areas like the financial regulatory cooperation, and bilateral trade and investment. They share common interests in terms of the construction of a regulation and management platform, but still encounter disagreement when it comes to some key issues, such as the location of the headquarters, the investment proportion and the allocation of voting rights, and the proportion of senior management personnel of the BRICS cooperation organizations and institutions, as well as how to deal with the existing bilateral currency swap mechanism. It will be a medium-​to long-​term process to resolve these issues properly.19 On the whole, the BRICS countries have not only made great achievements in improving global financial governance, but also have faced a series of problems. The Ukraine crisis may become an inflection point in the multipolar development of the world, and the differences between the values of the West and the BRICS countries may be intensified. In the future, the BRICS countries have to seize the opportunity to promote their own development, to carry on adequate consultation and actively participate in the reform of international financial institutions and organizations, effectively strengthen the supervision of international financial markets and promote exchanges and cooperation in the field of finance, trade, investment, and so forth, and making the world’s financial system truly rely on, facilitate, and promote the development of the real economy. To this end, several basic principles are required to be established. First, the concept of cooperation is needed. The countries in the world are closely tied in terms of economy with shared common interests. The BRICS countries, as important members of the globe, should expand their shared interests. South–​South cooperation and North–​South dialogue in the global financial field should be strengthened to promote the balanced financial development of both developing and developed countries. Second, the concept of inclusiveness should be established. As the Chinese poem says, “All plants grow with affection, and tolerance can be found everywhere in the earth”. In a well-​governed global financial governance and regulatory framework, the BRICS countries need to embrace the spirit of harmony and absorb the widest range of sovereign states and non-​state actors, as well as relevant cooperation networks and partners, to solve global financial problems in a joint manner. Third, the pursuit of effectiveness should be emphasized. The BRICS countries need to establish more scientific, transparent and reliable mechanism and rules to guarantee the legitimacy of global financial governance. Moreover, they should provide a free, secure, open and fair trading system that is in line with global financial requirements and provide international public goods needed for international investment and financial stability, so as to effectively promote the reform of regulatory governance. Fourth, the concept of equality should be advocated. The BRICS countries should take the construction of the global development partnership as an opportunity to actively call for international financial organizations to respect the equal rights of the “underdeveloped”

140  Wang Hao countries, promptly absorb ideas and talents from developing and emerging countries, and strengthen coordination and cooperation within the framework of international economic and financial institutions, such as the United Nations, the G20, and so forth, to jointly build a global family of financial development and security. Fifth, the concept of responsibility should be clarified. The BRICS countries should follow the principle of sustainable development, make infrastructure development a priority of international development and cooperation, firmly uphold international fairness and justice, and take the initiative to assume their due obligations and responsibilities.

3.  China’s stance and countermeasures On 27 March 2013, Chinese President Xi Jinping delivered a keynote speech entitled “Working Together for Common Development” at the fifth BRICS summit, in Durban, South Africa, which charted the course for China’s participation in global financial governance. No matter how the global governance system changes, we need to take an active part in it. The BRICS countries should strengthen solidarity and cooperation, leverage their complementary strengths, provide each other with more opportunities for trade and investment and financing, jointly address risks and challenges, maintain inclusive growth and promote strong, sustainable and balanced growth of the world economy. Xi Jinping continued: At the same time, the BRICS countries should strengthen coordination and cooperation within the UN, G20 and other frameworks to maintain world peace and stability, promote reform of the international monetary and financial systems, and take an active role in improving global economic governance. On 12 October 2015, President Xi presided over the twenty-​seventh collective learning session of the Political Bureau of the CPC Central Committee and stressed: We should assess the situation, make great efforts to seize opportunities, meet challenges, coordinate both domestic and international situations, so as to promote the development of global governance system in a more equal and reasonable direction, to create more favorable conditions for the development of our country and world peace. At the Informal BRICS Leaders’ Meeting held in Antalya, Turkey, on 15 November 2015, President Xi Jinping emphasized again that

BRICS and global financial governance  141 we should strengthen cooperation within the G20 framework, urge all parties to step up macroeconomic policy coordination, focus on preventing short-​term financial risks and avoid currency wars and trade wars. At the same time, we need to plan ahead, accelerate the institutional construction of the BRICS new development bank and contingency reserve arrangement, and jointly maintain international financial stability, and that we should strengthen coordination and collaboration within the IMF, the World Bank, the WTO and other mechanisms to increase the representation and voice of developing countries and emerging market countries in the international governance system. Therefore, as a major member of the BRICS, China needs to further construct a multifaceted global financial governance strategy in the face of the changing international financial environment and the development of the global financial system. In this strategy, we should attach great importance to coordination and cooperation with the BRICS countries and other “emerging economies”, give due consideration to the interests and responsibilities of all parties, and strive for greater voice and decision-​making power in global financial governance, so as to promote and guide the rational and effective operation of global financial governance mechanism. To this end, from a Chinese perspective, the following suggestions are proposed: First, relevant research should continue to be strengthened and new proposals and measures put forward in a timely manner on major issues such as the framework of global economic growth, the reform of financial sector and the reform of international financial institutions. It should be recognized that the participation of the BRICS countries in the improvement and construction of a new global financial governance paradigm will be a tortuous, complex and intense process. Therefore, China should strengthen the research on the other four countries, and consider the research of such great powers as the strategic content to enhance its soft power so that the strategic decision-​ making process will be more scientific and both theoretical and policy preparations will be made. China should grasp the general direction of global financial governance and establish a grand strategy for global development. In the BRICS cooperation, China should take the initiative and sometimes dare to make concessions. To set a good example for the BRICS cooperation, China should effectively coordinate the positions of member states with a clear “BRICS spirit”. The BRICS countries are making joint efforts in gradually endowing the “BRICS spirit” with rich connotation in equal negotiation and pragmatic consultation, including pursuing development through openness, collaboration, inclusiveness and innovation, to constantly enhance the mutual understanding between the BRICS countries, develop mutual trust, and promote the BRICS cooperation towards a higher level. To this end, in order to converge the strength of the BRICS countries and other groups, we should start with the creation of a new international financial order, new rules and new patterns of

142  Wang Hao behaviour. Then, we should lay out the innovative banner that represents the trend of the era and put it into practice. For big countries that are neighbours, including Russia and India, we need to implement our strategy of neighbourhood diplomacy, giving full play to our trade and financial advantages, downplaying geopolitics, and promoting cooperation through capital output of the real economy. For Brazil, a country on the other side of the Pacific Ocean ocean, we need o focus on distant diplomacy and commerce, follow the arrangements of the global value chain, and take advantage of natural resources, technological cooperation and market development. In addition to paying attention to ways and means, we should seize opportunities and increase dialogue and exchanges properly. With regard to South Africa, China needs to enhance cooperation on financial innovation, give full play to its soft and smart power, and effectively guide the flow of superior resources between the two sides. In the implementation of these strategies, China should also attach great importance to the coordination with the United States, Europe, Japan and other countries, strengthen cooperation and exchanges with different parties like international organizations and transnational corporations, and eliminate unnecessary misunderstandings and suspicions. Second, we need to build a national governance system to enhance the capacity of China and other BRICS countries to participate in global financial governance. On the one hand, we should “give the priority to our own country” that the socialist system with Chinese characteristics should be perfected and developed. The superiority of the system should be fully played, and the modernization of national management system and management ability should be enhanced. The legitimacy, transparency, accountability, responsiveness and effectiveness of the governance system will be guaranteed to further promote the socialist legal construction with Chinese characteristics, strengthen the stability, integrity and fairness of the system, and fully stimulate the participation and ability of the governance of various national main bodies (such as global cities or local governments) and social actors (such as domestic or multinational companies and social groups). The cooperation between actors at all levels will be promoted to achieve their goals of governance so as to be integrated into huge macro organism, who jointly participate in the improvement of global financial governance. For example they will fully activate the stock financial capital through the linkage of global and domestic financial capital, and effectively promote the reform of financial and regulation to prevent systemic financial risks. At the same time, China will always pay attention to the development of global cities and actively deepen financial cooperation between the Chinese mainland and Hong Kong, Macao and Taiwan. China will support Hong Kong in consolidating and upgrading its status as an international financial centre, and accelerate the construction of Shanghai international financial centre. We need to open up our financial markets, create new forms of investment among the BRICS countries, gradually promote the convertibility of our own currencies, and reduce investment risks on a bilateral or multilateral basis.

BRICS and global financial governance  143 On the other hand, we should speed up the construction of China as an innovative country, promote opening-​up to both the domestic and foreign markets, as well as promote the combination of “bringing in” and “going out”, giving full play to the function of the market. Moreover, China should promote the orderly free flow of international and domestic factors, the efficient allocation of resources, and the deep integration of the market, and in the process, explore forms that make policies mutually compatible and construct a compatible policy network in accordance with international rules, to achieve the goal of promoting reform through openness. For example China should continue to strengthen the ability of the national management departments to participate in global financial governance, effectively strengthen the dialogue and coordination between the national macroeconomic and financial departments like the central bank, security, insurance department, taxation department and business departments, and make in-​ depth research and raise major propositions and measures on the framework of global economy, the reform of the financial sector and the reform of international financial institutions. It should also explore how to take initiatives in the international financial organizations like the Financial Stability Board and the Basel Committee on Banking Supervision, to seek more opportunities for talents from the BRICS countries to hold senior management positions in these organizations. For another example, in an era of global localization, locality is no longer a passive role or the object to be eliminated. On the contrary, local subjectivity is constantly stimulated. To this end, several initiatives and approaches to further stimulate the role and potential of local governments in global financial governance could be considered. Moreover, multinational company is one of the important main bodies of the global financial governance. Now, the multinational companies are no longer global institutions, and they are mostly monopolized by the international capital of the United States, Japan, or Britain, so they face intense competition and act wilfully, who seem to be unrelated with “global governance”. However, it is necessary to grasp the essential characteristics of the multinational company capital to enhance China’s guiding ability, so that China can effectively make use of these market organizations and play its positive role in promoting the participation of the BRICS countries in the improvement of global financial governance, and take decisions to China’s advantage Third, we need to fully recognize the differences and common ground between China and other BRICS countries. Respecting the differences, we should try to seek common ground while shelving differences and seek the greatest common denominator of international interests. The BRICS countries should be encouraged to participate in global financial governance and work together to reform and develop the global financial governance system. This means the BRICS countries should continuously strengthen and upgrade governance cooperation, make unified standards within the groups, promote exchange of information, mutual recognition of regulations and mutual assistance in law enforcement, and optimize communication networks, to lay

144  Wang Hao a solid foundation for better participation in the formulation of international financial standards and rules. China is the largest economy among the BRICS countries, so, while adhering to the principles of cooperation and keeping the bottom line of compromise, it should open up necessary fields to other BRICS countries in exchange for trust and mutual openness. It should take the initiative to guide the BRICS countries to strengthen policy coordination and network design, continuously carry out big-​project cooperation, promote closer cooperation among their customs, trade, and financial sectors in terms of direct investment and credit, reduce artificial barriers, pursue the establishment of an integrated system covering accounting standards, statistical standards, trade rules, and the system of civil and commercial laws, and build a financial security community to strengthen monitoring of global capital flows and prevent cross-​border transmission of financial risks. China should also guide the BRICS countries to give full play to their market dynamism, enhance their penetration and affinity in global finance, trade and investment markets, encourage the BRICS countries to set up an emerging market development and stability fund that allows mutual investment, make full use of the BRICS cooperation mechanisms at all levels to strengthen the foundation for monetary and financial cooperation, reduce dependence on developed countries, continuously improve the investment of the BRICS’ internal reserve assets, and actively promote the development of regional bond markets. Fourth, China needs to enhance its sense of international responsibility and make active use of regional governance to strengthen bilateral or multilateral financial cooperation, provide international or regional public goods in an “orderly” and incremental manner, and steadily promote the diversification of the international monetary system. At present, it should guide the BRICS countries with an open, inclusive and forward-​looking perspective to effectively cooperate with regional groups like the Asia-​Pacific Economic Cooperation, the League of Arab States, ASEAN Free Trade Area, the West African Economic Community, Andean Group, Mercosur, Central American Free Trade Area, and the Gulf Common Market, and actively participate in the affairs of regional multilateral development agencies, including African Development Bank, the Inter-​American Development Bank, the Caribbean Development Bank, and so forth, so as to enhance the influence of China and other BRICS countries, explore diverse ways of cooperation and promote the use of important resources in the multilateral development institutions by the BRICS countries. China and the BRICS countries should conduct in-​ depth discussions on how to gradually increase the variety of currencies in the international reserve, study on how to strengthen bilateral or multilateral currency swap, local currency trade settlement, mutual listing of local currencies and other currency cooperation, encourage relevant governments and institutions to issue Special Drawing Right denominated bonds to optimize the investment portfolios of the BRICS countries, strive to improve the inclusive cooperation mechanism that “pursues development through cooperation and promotes cooperation through development”, enhance the internal

BRICS and global financial governance  145 impetus for strategic cooperation among the BRICS countries, and push for a networked mechanism for the BRICS cooperation. In addition, the BRICS countries can implement the “going out” strategy, searching for the countries or regions which share similar economic scale, development degree and similar interests across the world to absorb them as new members if conditions are ripe, so as to expand the scale of the BRICS organization, and finally construct a sub-​global network structure aimed to “build consensus, strengthen coordination and deepen cooperation”. Fifth, China should continue to advocate the spirit of innovation, make full use of various forms, including economic, political, technical, social forms and cultural exchanges, and, in a gradual and orderly manner, forge a leadership mechanism, an executive and consultative mechanism and a legal mechanism that are in China’s interest and facilitate China’s efforts to promote its value. It should actively participate in the formulation of global rules, promote the reform of the international monetary system and financial management, and restructure the internal governance structure of the IMF and the World Bank to improve their relevance, legitimacy and representativeness, so as to integrate the BRICS countries into global financial governance in all aspects. In fact, only when reform of the traditional global financial governance system and the establishment of the new system and constitution go hand in hand and take a two-​track incremental path can we finally establish the new global financial governance system and constitution that are more just, orderly, balanced and inclusive. In this process, the BRICS countries should attach greater importance to the unique role of the BRICS cooperation mechanism and the G20 mechanism as the main platforms, actively promote the reform of the international monetary system and effectively improve the governance structure of various international economic organizations. China should also attach importance to the BRICS New Development Bank and the Asian Infrastructure Investment Bank as platforms to provide an excellent international infrastructure financing channel for the developing countries. The establishment of the BRICS New Development Bank and its emergency reserve arrangement for developing countries is a milestone for the reform of global governance system. Financial cooperation and its resulting real economic cooperation will further narrow the gap between the BRICS countries and the developing countries, which is beneficial for the developing countries to strengthen pragmatic cooperation in all fields. This will enable them to adopt a variety of ways to promote the reform of global governance system, and play their role in the formulation of the governance rules and the settlement of international affairs, thus help them seek common governance with the developed countries in the political, economic and financial field of the world. In the future, branches, divisions and regional headquarters of the bank, and the contingency reserve will be set up across all the continents, so research should be conducted to explore how to optimize the governance structure of these platforms, how to balance the needs and interests of parties in aspects such as project selection and financing conditions, and how to

146  Wang Hao gradually perfect and improve the efficiency of operation mode and management, gain an edge in the competition with existing multilateral developmental financial institutions like the IMF and the World Bank and establish effective cooperation mechanisms. Currently, the institutional construction and institutional arrangements remain to be further improved. Sixth, it is necessary for the BRICS countries to focus on civilization interaction and cultural exchanges, and, while establishing the official multitiered strategic dialogue and coordination mechanism, strengthen communication through unofficial channels to fully mobilize the enthusiasms of the market and people. To some extent, the concept of global financial governance is about the balance between big countries and small countries, between economic power and humanistic care, and ultimately between capital and people. However, how to rein in the conflicts and maintain the competition order within capital and ensure its sustainability with greater flexibility still remains its main responsibility. In fact, long-​term and stable cooperation between countries must be recognized and supported by their domestic societies, so as to generate goodwill among their people in the process of mutual exchanges and build consensuses among their government departments. The BRICS countries are all undergoing profound social changes. Russia has just survived from the turmoil of its institutional transition. It is only 30 years since Brazil got rid of military dictatorship and 20 years since South Africa ended racial rule. These major changes have made their societies rather active. India, Brazil and South Africa are probably the largest developing countries with the most active non-​governmental organizations, and the World Social Forum has been held in Brazil and India. Non-​governmental organizations of these countries are also very influential in the international community, with some enjoying close links with Western NGOs, while others are mutually antagonistic. These NGOs have a profound influence on the domestic and foreign policies of their home countries. While pushing for the BRICS cooperation, China should also explore the functions of multinational companies, intellectual resources, international organizations and non-​governmental organizations, in order to strengthen communications between each other in various fields at all levels including unofficial diplomacy, education, science and technology, culture, sports, health, youth, women, and localities, expand the influence of information sharing and exchange platforms of the BRICS countries, and try as hard as possible to strengthen the cooperation with multinational corporations, think-​tanks, scientific research institutions and NGOs that are friendly or neutral towards the BRICS countries so that they, together with BRICS countries’ own “third-​party” organizations, can issue a stronger say on the global financial governance. In addition, in view of the complexity of the public opinion environment in the process of global financial governance, it is also necessary to strengthen non-​governmental and cultural exchanges to reconcile the unfavourable context for the BRICS countries to participate in global governance. Under the influence of the Western public opinion and values, some of them will change their original views in many cases, if

BRICS and global financial governance  147 communication is strengthened, which is beneficial not only to the BRICS countries’ participation in improving global financial governance, but also to their domestic governance.

4.  Conclusion In conclusion, the in-​depth participation of China and other BRICS countries in global financial governance is beneficial for the more equitable and reasonable development of the new international financial order and the lifting of their international influence and global status. The BRICS countries should respect the consensus, seek common ground while shelving differences, accurately grasp the historical opportunities and respect the basic principle of democracy in international relations. They should also explore human wisdoms and appeals in the global governance paradigm, timely and clearly put forward the new world view and the concept of global governance that reflect the trend of the new age and sublimate them into attractive words and ideas. In the process, the BRICS countries should not only focus on incremental participation in the reform of global financial governance, but also integrate with and harness global financial governance in an exquisite and smart way to complement existing multilateral institutions. In addition, the BRICS countries should strengthen the coordination of global economic and monetary policy to advance the construction and development of the Asian Infrastructure Investment Bank, the BRICS New Development Bank, the BRICS Contingent Reserve Arrangement, and the Silk Road Fund, so as to actively and effectively provide global economic public goods. China and other BRICS countries should further strengthen their cooperation in the aspects of economy and trade, as well as investment, to provide more “positive energy” for the creation of a more fair and reasonable international financial order.

Notes 1 For example, the British scholar Rhodes generalized six definitions, while Stoke generalized five definitions –​Gerry Stoke, Governance as a Theory: Five Arguments, International Social Sciences (Chinese version), 1999(2) –​and Dutch scholars Kees Van Kersbergen and Frans Van Waarden generalized nine definitions. 2 Thomas G.  Weiss, “Governance, Good Governance and Global Governance: Conceptual and Actual Challenges”, Third World Quarterly, Vol. 21, No. 5, October, 2000, pp. 795–​814, 806. 3 Yu Keping, “Introduction to Global Governance”, Marxism and Reality, No. 1, 2002, p. 25. 4 Liu Yue, Liu Kai. An exclusive interview with Sergei Ivanov, the vice president of VTB, March 25, 2013. 5 Xinhua, “Rising Global Influence of the BRICS Countries”, March 28, 2012. 6 Caijing, “The BRICS Development Bank Set Sail”, March 25, 2013.

148  Wang Hao 7 CRI Online, “South African Scholars: The BRICS Countries Have Huge Potentials in the Cooperation with Africa, the BRICS Bank is around the Corner”, March 26, 2013. 8 Caijing, “The BRICS Development Bank Set Sail”, March 25, 2013. 9 Securities Times, “The BRICS Summit Opens, Development Bank Attracts Attention”, March 27, 2013. 10 Urumqi Online, “At the Right Time for the BRICS Financial Cooperation”, April 14, 2011. 11 Huang Renwei, “The Reform of Global Economic Governance Mechanism and New Opportunities for the Rise of the BRICS Countries”, International Relations Research, No. 1, 2013, pp. 54–​70. 12 Xu Xiujun, “Institutional Non-​neutrality and the BRICS Cooperation”, World Economy and Politics, No. 6, 2013, pp. 77–​96. 13 Huang Wei. “The BRICS Cooperation: the Foundation, Impetus and Progress”, International Economic and Trade Exploration, No. 12, 2014, pp. 46–​58. 14 Li Daokui, Xu Xiang, “The BRICS Cooperation Mechanism from the Perspective of Global Governance”, Reform, No. 10, 2015, pp. 51–​61. 15 Li Bing, “The BRICS Countries Promote the Transformation of Global Economic Governance from the International System to the World System”, Studies on International Relations, No. 4, 2015, pp. 97–​107. 16 Wang Houshuang, Guan Hao, Huang Jinyu, “The Impact of the BRICS Cooperation Mechanism on Global Economic Governance System and Mechanism Innovation”, Asia-​Pacific Economy, Vol. 3, No. 3, 2015, pp. 3–​8. 17 Xu Chao, “The Financial Cooperation among the BRICS countries: Motivation, Influence and Prospect”, Foreign Theoretical Trends, No. 12, 2015, pp. 14–​20. 18 Zhang Huan, “The BRICS Financial Cooperation Promote the International Power of Discourse”, March 29, 2012. 19 Xu Xiujun, “The BRICS Development Bank:  Lessons and Innovation,” China Foreign Exchange, No. 7, 2013, pp. 19–​21.

9  Construction of free trade zones in the BRICS countries Cai Chunlin

Economic globalization and foreign trade zone (FTZ) construction are two megatrends in the global economy today. The financial crisis has led to a growing trend of international trade protectionism. To avoid that, economies in the world are accelerating regional economic cooperation of different levels in varied forms to tighten links with one another. By allowing the infiltration of economic activities, each economy can benefit from others through regional cooperation. Countries and regions, including the United States and Europe, vigorously promote United States-Mexico-Canada Agreement (USMCA) and Comprehensive Progressive Trans-Pacific Partnership (CPTPP) negotiations as part of an effort to exert influence on the global economic governance rules system. As their institutional power in developing international economic and trade rules are at the risk of being weakened, the BRICS countries, as representatives of emerging economies, have started to view the development of FTZs as an important means to enhance their economic strength and international influence. Based on their respective realities, the five countries have successively developed their FTZ strategies. An analysis of the strategic interest and conflicts of interest related to the establishment of FTZs among the BRICS countries and the provision of constructive suggestions will help China strengthen its economic and trade relations with the other BRICS countries and elevate the level of economic and trade cooperation among the five countries.

1.  FTZ development strategies of the BRICS countries 1.1  Brazil’s FTZ development strategy Brazil’s FTZ development strategy mainly includes the following three aspects. First, leveraging regional integration as a means of enhancing its strength and position in the multilateral trading system. As a robust facilitator of FTZ construction, Brazil believes bilateral and regional trade agreements are a useful complement to the multilateral trading system in that they can effectively strengthen market integration, enhance the role of trade in economic development and enable domestic enterprises to achieve economies of

150  Cai Chunlin scale. By cooperating with developing countries at the regional level, especially through preferential trade arrangements, Brazil sought to enhance its position in the Doha Round negotiations on the multilateral trading system. Such an aim is particularly reflected in the negotiation of preferential trade arrangements for developing countries. Second, taking advantage of Mercosur, or officially the Southern Common Market, as a bargaining chip to conduct regional integration negotiations with the outside world. Based on its economic strength and position in the global political economy, Brazil believes that when promoting the establishment of FTZs, uniting the Southern Common Market as a whole to negotiate with the outside world, is more conducive to realizing its demand for interests and gaining greater bargaining power. Therefore, Brazil puts the Southern Common Market at the core of its FTZ policy in accordance with World Trade Organization (WTO) rules on regional trade agreements. In September 2006, the first IBSA (India, Brazil and South Africa) Summit was held in Brasilia to discuss the basic conditions for establishing a free trade agreement (FTA) among the Southern Common Market, South Africa, and India. Brazil hopes to establish a free trade agreement between Mercosur and the two countries mentioned above. Brazil has signed a free trade agreement with Andean Group and reached a free trade agreement and a regional trade security agreement on automobile trade with Argentina. It has also initiated negotiations on a free trade agreement with Mexico and began to evaluate and study the potential to reach a free trade agreement with China, India, and other countries. In these negotiations, consultations, or researches, Brazil mostly leverages the Southern Common Market as an important bargaining chip and basis for asking price. In July 2015, the Southern Common Market held a summit to discuss issues related to economic difficulties and FTA negotiations with the EU. Third, viewing major trade partners as key targets for regional integration. In line with its strategy to participate in regional integration, Brazil focuses on its main partners as targets for FTZ negotiations. For example, the European Union, the United States, and Argentina are Brazil’s main trading partners, with whom Brazil is actively promoting the integration process. China, India and South Africa are also its main trading partners. Brazil, as a part of the Southern Common Market, has begun to negotiate with India and South Africa on a free trade agreement and expressed the willingness to negotiate and study the possibility of signing an FTA with China. The Southern Common Market has reached a framework agreement on reciprocal trade with India, Mexico and South Africa, and has participated in launching the initiative to establish a community of Americas countries. In June 2012, the Brazil-​led Southern Common Market and China signed the Joint Statement on Further Strengthening Economic and Trade Cooperation, which stipulated that measures would be taken to diversify the trade structure and increase the trade volume between China and the members of the Southern Common

Free trade zones in BRICS countries  151 Market in a balanced manner. At present, Brazil’s strategy is to leverage the Southern Common Market to conduct comprehensive regional trade agreement negotiations with China, the EU, and other countries in order to enhance its global influence, as well as the external demand that drives its economic development. 1.2  Russia’s FTZ development strategy Russia’s FTZ development strategy mainly includes the following three aspects. First, accelerating the construction of FTZs. Historically, Russia mainly engaged in the industrial division of labour and economic and trade cooperation with other Eastern European and Commonwealth of Independent States (CIS) countries. This is essentially regional cooperation in economic and trade terms. In the early 1990s, Russia established close ties, economic ties in particular, with Europe and the United States. However, the 1997–​1998 Russian financial crisis made Russia believe that the other CIS countries were the true force always behind its back. Therefore, it turned to re-​strengthen regional cooperation with those countries. However, at that time Russia did not have a clear strategy for regional integration. Obviously, Russia lagged behind in terms of FTZ establishment. Thanks to the acceleration of economic liberalization and the enthusiasm of the world’s major economies for regional trade agreements, Russia has begun to pay close attention to the trend of FTZ construction. While actively integrating into the multilateral trading system, it has initiated an attempt to promote FTZ construction, which has been elevated by the country to strategic heights in order to emulate the forerunners. Second, developing an FTZ strategy that balances the East and the West. After the painful failure of the “shock therapy”, Russia began to implement a regional development strategy that stressed a balance between the East and the West, and has developed a rough framework for trade development. At present, Russia has signed five FTAs, including the Armenia-​ Russia Free Trade Agreement and the Uzbekistan-​ Russia Free Trade Agreement. In March 2012, the Russian State Duma and the Council of the Federation ratified an agreement to establish FTZs within the framework of Commonwealth of Independent States. While cooperating with countries in the region, Russia has also begun to consider the necessity and possibility of establishing FTZs with major economies, including the United States, the European Union, Japan, China and India. Members of the Eurasian Customs Union, including Russia, Belarus, and Kazakhstan have already negotiated with the European Free Trade Association and New Zealand on the establishment of FTZs. In February 2012, Russia intended to start consultations with ASEAN on the establishment of FTZs. In September 2012, Russia announced that it would sign agreements with certain

152  Cai Chunlin Asia-​Pacific Economic Cooperation (APEC) members to establish FTZs. In April 2015, the German Chancellor indicated the possibility to negotiate with Russia on the establishment of a free trade zone. In February 2016, the Egyptian Ministry of Industry also announced that it would discuss with Russia about the establishment of an FTZ. Third, leveraging energy resources as a bargaining chip to gain an upper hand in FTZ negotiations. Russia is blessed with abundant energy resources, especially oil and natural resources. That is why energy becomes the main negotiation point for regional economic and trade cooperation with the EU. In regional economic and trade cooperation with economies such as the United States, Japan, India, and China, Russia still leverages oil and gas as a bargaining chip to earn profits. Russia believes that the other economies’ demand for energy is an important reason for them to cooperate with Russia in regional economic activities. Therefore, Russia’s use of energy as an important bargaining chip in promoting the establishment of FTZs is one of its primary strategies. 1.3  India’s FTZ development strategy India’s FTZ development strategy mainly includes the following three aspects. First, advancing in tandem multilateral and regional cooperation in FTZ establishment by balancing political, security and economic interests. India’s participation in regional economic cooperation started in December 1985, when it became a member of the South Asian Association for Regional Cooperation (SAARC). Subsequent changes in the international political and economic situations made India believe that cooperation at the regional level was essential to maintaining national politics, security, and economic development. Therefore, it began to adjust its foreign-​trade policy. In the mid-​ to-​late 1990s, India implemented the Gujral Doctrine, which specified that India did not ask for reciprocity from neighbouring countries but gave all that it could in good faith and trust, in order to improve and develop relations with them. At that time, India actively promoted regional economic cooperation among SAARC members, thereby pushing the development of SAARC into a new stage. Since 2000, India has begun to accelerate FTZ construction and signed a number of regional trade agreements. However, the multilateral trading system remains the main means for India to improve the living standards of its people, while regional trade arrangements are only complementary to multilateral trade liberalization. Second, simultaneously promoting intraregional and interregional cooperation in FTZ construction for a global presence and higher international status as a major country. India has always desired to become a global power. Its FTZ strategy is also aimed to serve this purpose. To that end, India has been promoting regional economic and trade cooperation simultaneously with developed and developing economies. India’s earlier trade arrangements include the Asia-​Pacific Trade Agreement, South Asian Free Trade Area, Bay

Free trade zones in BRICS countries 153 of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, India-Singapore Comprehensive Economic Cooperation Agreement, Framework Agreement for Establishing Free Trade Area Between India And Thailand and Framework Agreement on Comprehensive Economic Cooperation Between the Republic of India and the Association of Southeast Asian Nations. Since 2010, India has taken the EU and ASEAN as important targets for negotiations to accelerate the construction of FTZs. In October 2010, leaders of the EU and India issued a joint statement in which they agreed to sign an FTZ agreement as soon as possible. In April 2015, the German chancellor stated that the suspended negotiations on a trade and investment agreement between India and the EU may be reopened, though a deal might require concessions from all parties. Third, promoting in tandem trade in goods and services and international direct investment, as part of an effort to further regional economic integration. India’s effort to continue developing FTZs is accelerating. Previous negotiations on regional economic and trade cooperation mainly focused in the field of trade in goods. The free trade agreements signed also primarily involved concessions in that field. As the status of India’s services industry in the national economy rises and its international competitiveness improves, India attempts to include trade in services and even investment in FTAs. For example, in 2005, the Comprehensive Economic Partnership Agreement signed between India and Singapore involved not only goods but also services and investment. 1.4 China’s FTZ development strategy China’s FTZ development strategy mainly includes the following three aspects. First, promoting the construction of FTZs as an important supplement to steady integration into economic globalization. Before the 1990s, China did not participate in any regional free trade and economic cooperation apart from APEC. Nor did it sign any bilateral free trade or investment agreements. In 2000, China proposed to establish an FTZ with the Association of Southeast Asian Nations (ASEAN), marking the transformation of China’s policy to make regionalism an important complement to China’s participation in economic globalization. China has recognized the importance of participating in FTZ establishment from a strategic perspective and has clearly pledged to “actively carry out regional cooperation and implement an FTZ strategy”. The goal is to build a comprehensive institutional framework of regional economic cooperation, with strategic planning and specific implementation measures. China seeks to foster common interests in relevant regions through regional economic cooperation and establish a new regional order of equality, cooperation, mutual benefit, and mutual assistance in economic interactions. Dedicated to eliminating the barriers and confrontation between neighbouring countries, China takes regional cooperation as an entry point to fully participate in international economic coordination. In addition,

154  Cai Chunlin China explores and gradually establishes new norms of national interests and international economic relations as part of an effort to enhance its position and influence in the global economy and create a benign international economic environment. Several Opinions of the State Council on Accelerating the Implementation of the Strategies for Free Trade Zones once again clearly defined the FTZ strategy as an important part of China’s renewed effort to open up wider to the outside world. In the Opinions, it is proposed that China will further optimize the plan to construct FTZs and gradually create a global network of FTZs by establishing FTZs with most emerging economies, large developing countries, major regional economic blocs and certain developed countries, with the ultimate aim to building integrated markets of BRICS countries, emerging economies, and developing countries.1 Second, fully participating in the construction of FTZs. Compared with other economies, China is a latecomer in implementing an FTZ strategy. Since 2000, China has initiated a comprehensive effort to construct FTZs as part of a combined diplomatic and political strategy. At present, China’s participation in FTZ construction takes three forms. One is regional-​cooperation organizations or agreements with substantive content, such as the China-​ASEAN Free Trade Area. Another is regional cooperation mechanisms that serve only as forums, such as APEC, ASEM, and East Asia Summit. In addition, there are regional or subregional cooperation organizations with a particular set of mechanisms, such as the Shanghai Cooperation Organization and Northeast Asia Regional Cooperation. China is implementing the FTZ strategy across the board, by not only establishing a free trade zone with ASEAN, but also negotiating the establishment of the ASEAN-​China-​Japan-​South Korea Free Trade Zone within the “ASEAN Plus Three (APT)” framework and advocating negotiations on China-​Japan-​South Korea cooperation and East Asian economic integration. In the meantime, China is actively carrying out comprehensive regional economic cooperation with Latin American countries such as Brazil, Argentina, Chile, and Cuba. As of December 2019, China has signed free trade agreements with ASEAN, Australia, Chile, Costa Rica, Georgia, Iceland, Maldives, Mauritius, New Zealand, Pakistan, Peru, Singapore, South Korea, and Switzerland. Third, advancing the construction of FTZs in a systematic and focused manner. Zhang Yansheng, secretary-​general of the Academic Committee of the National Development and Reform Commission, uses the general equilibrium model to theoretically analyse the effects of China’s participation in FTZ establishment.2 He comes to the following conclusions after a comparative analysis of the combined effects of six different types of FTZs: the APT free trade zone development plan is most beneficial to China; the suboptimal plan is to establish a China-​Japan-​South Korea FTZ; the third-​best plan is an FTZ between China and the EU; the fourth plan is an FTZ between China and ASEAN; the fifth plan is an FTZ between China and Australia; the

Free trade zones in BRICS countries  155 sixth plan is an FTZ between China and Brazil. This result is highly relevant in guiding the research and development of China’s FTZ strategy. In practice, China’s regional integration strategy has gradually become clearer. The strategy is to first establish solid relations with neighbouring countries and then break geographical restrictions to build ties with countries from other continents through bilateral, multilateral and regional cooperation agreements featuring RTA and FTA. High-​level FTZs will be constructed by improving the level of open trade in goods, expanding the opening up of the services industry, relaxing policies on investment access, promoting negotiations on international trade rules, advancing cooperation in institutional arrangements and facilitating natural person mobility. The contents of FTZ construction will be enriched by incorporating economic and technological cooperation topics such as industrial cooperation, development cooperation, global value chain, as part of China’s effort to promote pragmatic cooperation with its trading partners.3 1.5  South Africa’s FTZ development strategy South Africa’s FTZ development strategy mainly includes the following three aspects. First, vigorously promoting economic transformation by shifting the trading target from Europe to the East. Although South Africa has the smallest economic size and lowest growth rate among the BRICS countries, it has the entire African continent, the world’s most promising market, as its support. Moreover, the economy of South Africa is in a period of transition from trade and investment in Europe to those in the Asia-​Pacific region as part of a national strategy. South Africa continues to strengthen trade and investment with China, Russia, and other Far East countries. Second, temporarily avoiding the establishment of FTZs with major powers. In 2004, China and the South African Customs Union (SACU) began negotiations on the establishment of an FTZ. However, affected by the global financial crisis, South Africa explicitly stated that it would not consider setting up FTZs with China and other big countries because it did not enjoy a comparative advantage over them. Despite that, South Africa has confidence in strengthening economic and trade cooperation with China. In 2015, the bilateral trade volume between China and South Africa totalled approximately US$46 billion. By the end of 2019, China had been South Africa’s largest trading partner, export market and source of imports for seven consecutive years. The growth speed of trade volume between the two countries far exceeded that between China and other BRICS countries. At present, South Africa hopes China will purchase more high value-​added products from South Africa as a way to strengthen the economic and trade ties between the two countries. Third, vigorously promoting the construction of an African free trade zone with an aim to consolidate its strategic position as the gateway to

156  Cai Chunlin Africa. In October 2010, South Africa and Egypt reached an agreement on establishing an African free trade zone. The free trade zone, which involved 26 African countries, was aimed at expanding trade among themselves, enabling effective use of economic resources, and promoting the rapid development of the African economy. In June 2011 at the Seventeenth Ordinary African Union Summit, African heads of state decided to establish an African free trade zone within three years. The establishment of the FTZ will not only help promote the growth of intra-​African trade and the regional economic integration process, but also prompt African countries to leverage the gateway role of South Africa to strengthen their relations with other economies in the world, especially economic and trade exchanges with other BRICS countries. In February 2015, 26 countries in eastern and southern Africa pledged to establish Africa’s largest free trade zone to achieve the free flow of goods and services. The FTZ led by South Africa will significantly enhance the country’s international status and influence.

2.  Common interests and conflicts of interest among the FTZ development strategies of the BRICS countries 2.1  Common interests The BRICS countries have broad common interests, which are reflected in the following three aspects. First, there is a strong economic complementarity among the member countries. The rise of the BRICS countries as a group has its inherent economic and industrial development logic:4 Russia enjoys a leading edge in energy and basic sciences; India in software technology; Brazil in clean technology and modern agriculture; China in manufacturing and processing; and South Africa in mining technologies. Therefore, there is a huge potential for them to cooperate with one another.5 The five BRICS countries are respectively the “world’s factory” (China), “world’s office” (India), “world’s raw material base” (Brazil), “world’s gas station” (Russia) and Africa’s gateway and bridgehead (South Africa). They are all representatives and guardians of the interests of developing countries.6 The BRICS countries are all emerging economies that have the common desire to optimize their industrial structure, improve the external development environment, and enhance their international status.7 They share the same interests in opposing trade protectionism, promoting reform of the international financial system, and responding to global climate change.8 In the 2015 article “Research on the Trade Complementarity between China and the other BRICS Countries”, Zhao Yuhuan, Zhang Jihui, and Zhao Yujie analyse the trade complementarity between China and the other BRICS countries from the perspectives of trade in both goods and services.9 The results show that China complements the other BRICS countries well in the trade of goods, and enjoys a competitive advantage in the capital-​and human capital-​intensive industries. Moreover, China and the other BRICS countries have strong complementarity

Free trade zones in BRICS countries  157 in the trade of services, though not as strong as that of goods. Therefore, it is suggested that China actively advocate the establishment of FTZ in BRICS countries to promote the development of mutual trade. Second, the BRICS countries consider FTZ construction as an effective complement to the multilateral trading system. Since the early 1990s, the number of free trade agreements or preferential trade arrangements concluded by economies in the world has increased rapidly. Developed economies represented by the United States have been keen to reach free trade agreements, especially regional economic and trade agreements with developing countries. Viewing FTZ construction as an important way to enhance their economic strength and international influence, the BRICS countries have formulated FTZ development strategies based on their actual conditions. In this regard, the BRICS countries have a consensus that FTZ is a great complement to the multilateral trading system. That is why they commit a lot of effort to promoting the construction of FTZs around the world. Third, in the long run, the economic and trade ties among the BRICS countries will likely be strengthened through the construction of FTZs. One common point of the FTZ strategies of the BRICS countries is to treat main trading partners as the prime targets of regional integration. In terms of trade among the BRICS countries, the volumes between countries other than the pairs of China and Pakistan, China and Russia, China and India, and China and South Africa, are not very large. Therefore, those pairs are not yet major trading partners. For example, India ranks 17th among Russia’s trading partners, while Brazil and South Africa rank even lower. China is the largest trading partner of the other four countries. China is Brazil’s largest export market and the second largest source of imports, Russia’s sixth largest export market and the largest source of imports, India’s third largest export market and the largest source of imports, and South Africa’s largest export market and source of imports. In the long run, any advances in the BRICS cooperative mechanism will bring economic and trade relations among the five countries even closer. Each member country, especially China, will become an important target for FTZ negotiations for another. It will become a consensus of the BRICS countries to tighten economic and trade ties through the establishment of FTZs. 2.2  Conflicts of interest Although common interests are why BRICS countries have come together, there are some conflicts of interest among them. Such conflicts are mainly reflected in the following three aspects. First, intensified international economic and trade competition and increasingly obvious conflicts of interest. There is a certain degree of trade homogeneity, substitution, and competition among the BRICS countries.10 Moreover, the mutual trust among them in terms of geopolitics and security is relatively low,11 thereby leading to conflicts of interest on certain economic issues, for example, trade and resources.12 Moreover, conflicts of interest

158  Cai Chunlin among these countries as emerging economies may arise from the pursuit and control of natural resources, the occupation and competition in market shares, the expectations and efforts to develop their economies, and the maintenance and fight for international political and economic power.13 The BRICS countries have some divergences and contradictions on bilateral trade, commodity pricing, RMB exchange rate, international currency, and the reform of the international economic order.14 The existing BRICS cooperative mechanism is also plagued by problems such as an unstable operation model, weak foundation of common interests, uncertainties in the development prospects of member states, and great external competitive pressures.15 Second, different functional positioning and cognition of FTZ and different demand for interest. Boasting a large economy, India is experienced in dealing with trade friction. To avoid being left behind by other countries, India adopts an aggressive strategy for comprehensive FTZ development by pursuing the maximization of political, economic, and security interests. In contrast, Brazil and South Africa adopt a defensive strategy that centres respectively on the Southern Common Market and the African Continental Free Trade Area (AfCFTA) and pursues the maximization of economic interests and regional influence. Russia started relatively late as a participant in FTZ construction and did not become a WTO member until 2012. It adopts a resources-​ oriented strategy. Although such a strategy is claimed to balance the East and the West, it is actually an effort to build FTZs within the CIS countries, with an aim to strengthen Russia’s capability in international negotiations. The FTZ development strategy adopted by China is both aggressive and defensive. The difference in FTZ development strategy indicates that the BRICS countries have varied functional positioning and cognition of FTZ, and different demand for interests. In the long run, such difference may produce a negative impact on the BRICS’ mechanism of economic and trade cooperation and result in conflicts of economic and trade interests. Third, the possibility of being excluded from one another’s endeavour to construct FTZs in the short term. The lack of a clear target for FTZ resource integration among the BRICS countries may render the strategic conflicts of interest even more obvious. As different countries compete for more shares in the global market and more FDI, trade frictions and protectionism would occasionally emerge. India and Brazil are among the countries that have adopted the most trade-​protection measures against China in recent years. Russia often leverages oil and gas resources as a bargaining chip in international negotiations. India, Brazil, and South Africa gain their profits from iron ore resources. However, China, as a resource-​demanding country, has encountered difficulty in effectively securing its legitimate interests in import. In the short term, BRICS countries other than India are more or less shying away from establishing FTZs. In particular, South Africa has clearly stated that it will not, for the time being, establish FTZs with major powers and will be fully committed to promoting the construction of an African free trade zone as part of an effort to consolidate its strategic position as the gateway to

Free trade zones in BRICS countries  159 Africa. Brazil also puts its focus on the Southern Common Market, using it as a bargaining chip to negotiate with the outside world on regional integration, in order to avoid the establishment of FTZs with any big countries that may threaten its own economic competitiveness. Although Russia claims to be balancing the East and the West, it has made little progress. In this sense, the timing is not yet mature for China to establish FTZs with the other BRICS countries, despite its strong desire to do so.

3.  Directions and paths for interest coordination of the FTZ development strategies of the BRICS countries 3.1  Conducting evaluation on the common interests of the BRICS countries in economics and trade and joint research on the metrics It is recommended to adopt the method of econometric modelling for the design of metrics by taking the economic and trade complementarity as an entry point to evaluate and quantify the common economic and trade interests among the BRICS countries. The metrics, which cover economic structure, trade structure, industrial structure, and economic development stage, among other indicators, can be leveraged to analyse common interests of the BRICS countries respectively as the “world’s factory”, “world’s office”, “world’s raw material base”, “world’s gas station” and Africa’s gateway and bridgehead in their efforts to pursue economic development. The metrics for the common interests among the BRICS countries can be designed to incorporate seven perspectives, that is, industry, employment, trade, finance, market, resources, energy and environment, and human capital and technology, so that all aspects of the interest relations among the BRICS countries can be reflected. In the meantime, the metrics can be divided into three sections: specific indicators showing broad common interests among the BRICS countries, those showing moderate common interests and those showing limited common interests. The position of each indicator on the spectrum is de-​dimensionalized to become a percentage point. Then, a stepwise weighted average method is used to derive an intuitive and visible final score, which can reflect how broad or limited common interests are among the BRICS countries. Used to comprehensively assess the common interests of the BRICS countries in different economic and trade fields, the final score can provide a realistic basis for advancing economic and trade cooperation among the BRICS countries. 3.2  Identifying and analysing the conflicts of interest among the BRICS countries in economics and trade In the context of economic globalization, the economic and trade interests have become all the more complicated, and the main actors and the means of realizing benefits more diversified. Different issues may cause countries to form varied groups of common interests. Such groups are unfixed and may be

160  Cai Chunlin subject to the issue in question. It is recommended to identify and analyse issue-​ specific economic and trade conflicts of interest among the BRICS countries, and then comprehensively analyse the economic and trade relations among the five countries. To be specific, it is advised to analyse the conflicts of interest among the BRICS countries on issues such as international trade, international finance, international investment, and international environment, as well as the profound characteristics, complexity, extensiveness of international economic and trade interests in the context of globalization, and the important characteristics, causes, and trends of the issue-​oriented interest combinations. 3.3  Establishing mechanisms for the distribution and coordination of economic and trade interests among the BRICS countries The BRICS countries actively pursue their respective economic and trade interests and attempt to achieve a balance of interests by seeking common interests and resolving conflicts of interest. To that end, the most urgent task is to build mechanisms for balancing and coordinating the economic and trade interests among the five countries. A  properly designed mechanism will be able to balance the economic and trade interests among the BRICS countries, and enable mutual cooperation and benign interactions, thereby ensuring the expected results are achieved for the member countries. The basic principle of the mechanism is to achieve sharing-​based cooperation and inclusive development. The purpose is to promote the proper handling of economic and trade relations among the BRICS countries in the long run. Such a mechanism will contribute new values and mainstream ideas to the construction of FTZs and provide strategic thinking and ideas for addressing major global issues. 3.4  Advocating the establishment of FTZs among the BRICS countries to expand economic and trade cooperation, and consolidate the foundation of common interests As the largest developing economies, the BRICS countries should advocate development-​oriented regional economic and trade cooperation, not only in the form of preferential trade arrangements and free trade agreements, but with a focus on macroeconomic policies that can promote overall economic growth and improve economic structure, including monetary and financial arrangements, large infrastructure construction, and industrial policies. It is suggested that the BRICS countries establish FTZs to expand economic and trade cooperation and consolidate their common interests. Given the complexity of the strategic interests of the BRICS countries, an all-​out effort to construct FTZs is unlikely to start immediately. In the short term, framework agreements can be signed in certain areas as part of a step-​wise approach. For example, on 14 April 2011, the Framework Agreement on Financial Cooperation within the BRICS Inter-​bank Cooperation Mechanism was

Free trade zones in BRICS countries  161 formally signed, marking the official launch of a more open regional financial cooperation system for the BRICS countries. This move is conducive to steadily expanding local currency settlement for facilitated trade and investment among the BRICS countries and strengthening investment and financing cooperation in important areas such as resources and low carbon. It also serves to promote cooperation among capital markets, including bonds-​issuance and IPO, and strengthen the information exchanges in the financial sector among the BRICS countries. Realizing local currency settlement in mutual trade can effectively avoid exchange-​rate fluctuations and mitigate risks.

4.  Conclusion At present, the number of FTZs in the world is increasing steadily. Topics covered are constantly expanding, and the level of liberalization has been greatly improved. Accelerating the implementation of FTZ strategies is an objective requirement for the BRICS countries to adapt to the new trends of economic globalization, and also an inevitable choice for them to make structural adjustments of their domestic economy and construct a new open-​ ended regional economic system. As the BRICS countries promote their respective FTZ strategies, it is necessary to conduct an evaluation of their common interests in economics and trade, and joint research on metrics, so as to fully tap the common interests of the BRICS countries by promoting the FTZ strategy and minimize conflicts of interest among them. When necessary, the BRICS countries may establish mechanisms for interest distribution and coordination. FTZs may also be established to expand economic and trade cooperation among the five countries as an integrated market of win-​ win cooperation. This will also serve to consolidate the BRICS comprehensive cooperation mechanism for the achievement of common strategic interests.

Notes 1 Several Opinions of the State Council on Accelerating the Implementation of the Strategies for Free Trade Zones, Gazette of the State Council of the People’s Republic of China, January 10, 2016. 2 Zhang Yansheng, “The Motivation and Strategy of China’s Participation in Regional Economic Integration”, Thematic Meetings of CPPCC, June 2007. 3 Several Opinions of the State Council on Accelerating the Implementation of the Strategies for Free Trade Zones, 2015. 4 Huang Renwei, “The Rise of the BRICS Countries and Global Governance System”, The Contemporary World, No. 5, 2011. 5 Lin Yueqin, “Evaluation of the Economic Growth Model of Emerging Economies: An Analysis Based on the BRICS Countries”, Comparative Economic & Social Systems, No. 5, 2011. 6 Wang Yongzhong and Ma Shaoqing: “Why BRICS Countries Can Work Together”, World Affairs, No. 8, 2011.

162  Cai Chunlin 7 Yang Jiemian, “The Purpose, Spirit and Mechanism of BRICS Cooperation”, The Contemporary World, No. 5, 2011. 8 Zheng Xinli, “Strengthening Economic Cooperation among BRICS Countries”, Review of Economic Research, No. 49, 2011; Li Xiangyang, “How to Extend the BRICS Development Path?”, Contemporary Economics, No. 5, 2011. 9 Zhao Yuhuan, Zhang Jihui, and Zhao Yujie, “Research on the Trade Complementarity between China and the other BRICS Countries”, Journal of Latin American Studies, No. 1, 2015. 10 Lin Yueqin and Zhou Wen, “The Driving Forces Behind the Rise of the BRICS Countries: The Shift from Comparative Advantage to Competitive Advantage”, China Financial and Economic News, April 21, 2011. 11 Yao Zhizhong, “The Role of BRICS Countries in Global Economic Governance”, Economy, No. 5, 2011. 12 Zhong Longbiao, “BRICS Countries in the Process of International System Transformation”, Journal of the Party School of Tianjin Committee of the CPC, No. 9, 2011. 13 Wang Yuhua and Zhao Ping, “The Characteristics and Problems of the BRICS Cooperative Mechanism and China’s Countermeasures”, Contemporary Economic Management, No. 11, 2011. 14 Wang Yongzhong, “The Intersection and Divergence of the Economic Interests of the BRICS Countries”, Asia & Africa Review, No. 3, 2011. 15 Wang Yuhua and Zhao Ping, “The Characteristics and Problems of the BRICS Cooperative Mechanism and China’s Countermeasures”, Contemporary Economic Management, No. 11, 2011.

10  The BRICS countries and new international direct investment rules Huang He

The financial crisis led to profound changes in the global economic landscape, where the foreign direct investment (FDI) by enterprises from the BRICS countries saw a rapid increase. In the meantime, Western countries generally believe that the common feature of multinational corporations from the BRICS countries is that the governments play an important role in their business operations. That is how a number of large state-​owned enterprises (SOEs) are established in certain strategically important industries. These state-​owned enterprises, also known as “state-​controlled entities”, have become an emerging force in international direct investment. In response to the rapid development of overseas M&As by multinationals based in the BRICS countries, the United States has started to adopt the third-​generation trade and investment norms featuring pre-​entry national treatment plus negative list as a strategic means for reshaping the international trade, investment, and world economic landscape under the guidance of the “sequential negotiation” strategy. The introduction of varied measures by the developed countries, in particular, the United States, in the formulation of international investment rules will inevitably affect the efforts of multinationals from the BRICS countries for overseas M&As.

1.  The growth of FDI from the BRICS countries In November 2001, Jim O’Neill, chief economist at Goldman Sachs, used the term “BRICs” to define the world’s developing countries with the most potential, namely Brazil, Russia, India and China, in an article titled “The world needs better economic BRICs”, in the 66th issue of the Global Economic Report published by the organization. In 2010, the addition of South Africa made BRIC into BRICS. Since 2009, the BRICS countries have been holding a summit annually. In less than a decade, “BRICS” has materialized from an economic concept to institutional arrangements.1 Since then, this group of developing countries has been known by and aroused the attention of the international community. The concept of “BRICS countries” has gradually become clear. In economic terms, the gap between the BRICS countries and developed countries has gradually narrowed; and in political terms, their voice

164  Huang He in global issues has been amplified. As a robust emerging force in world politics, the BRICS countries are promoting extensive and profound changes to international relations. The rise of the BRICS countries is most evident in the economic realm –​the economy of these countries has maintained rapid and stable development for more than a decade. From a global perspective, such comprehensive and sustained growth has, to a considerable extent, elevated their position in the global economic arena.2 For example, the BRICS countries contribute more than 50 per cent of global GDP growth. The GDP of the five countries accounts for 20 per cent of the world’s total, and trade for 15 per cent of world’s total. China is known as “the world’s factory”, Russia the “world’s gas station”, India the “world’s office”, Brazil the “world’s granary”, South Africa the “bridge to Africa”.3 From 2001 to 2010, the average annual growth rate of trade among BRICS countries was 28 per cent, a 15-​fold growth in 10  years. The trade volume in 2010 totalled approximately US$230 billion. China’s bilateral trade with Russia, India, Brazil, and South Africa grew at a rate of 43.1 per cent, 42.4 per cent, 47.5 per cent, and 59.5 per cent, respectively, in 2010, all higher than the overall growth rate of China’s foreign trade in the same period (34.7 per cent). In 2011, the trade among BRICS countries continued to grow, registering more than $320 billion. Recent years have seen the rapid development of mutual trade among the BRICS countries. The average annual growth rate of import and export of the BRICS countries since 2002 is nearly 10 percentage points higher than that of world trade, except 2009 when the global financial crisis was on. In 2011, the total import and export trade of the BRICS countries reached US$5.75 trillion, 5.74 times that of 2000. The total trade among the BRICS countries reached 15.86 times that of 2000, while the world trade in the same period was merely 2.87 times that of 2000.4 In terms of investment, the United Nations Conference on Trade and Development (UNCTAD) pointed out in a dedicated report issued in March 2013 that the BRICS countries have played an important role in promoting emerging economies to substitute developed economies as the source of global direct investment.5 The facilitator’s role of the BRICS countries and the characteristics of investment companies are mainly reflected in the following four aspects. 1.1  The stock of bilateral investment expands rapidly The stock of bilateral investment among the BRICS countries rose sharply from US$260 million in 2003 to about US$28.6 billion in 2011, a hundred-​ fold increase. The total stock of bilateral direct investment among the BRICS countries accounted for 0.1 per cent of that of foreign direct investment by the BRICS countries in 2003 and rose to 2.5 per cent in 2011. The mutual investment between India and Russia is substantial, accounting for more than three-​quarters of their stock of investment in other BRICS countries (see Table 10.1).6 In November 2013, the Russian authorities announced

BRICS and direct investment rules  165 Table 10.1 Scale and share of direct investment among the BRICS countries in 2011 (Unit: million dollars, %) Sources of FDI

BRICS Brazil China India Russia South Africa

Destinations of FDI

Proportion

BRICS

Brazil

China

India

Russia

South Africa

World

28,599.5 514.1 9,552.5 1,987.1 1,139.9 15,405.8

1,222.4 -​ 1,071.8 73.9 -​ 76.8

13,570.8 447.5 -​ 228.7 123.1 12,771.5

1,795.6 15.8 657.4 -​ 982.3 140.1

7,671.5 4,339.1 130,238 2.5 0.1 50.7 202,586 0.3 3,763.6 4,059.7 424,781 2.2 1,409.1 194.1 62,600 3.2 -​ 34.5 361,738 0.3 2,417.4 -​ 78,533 19.6

Source: UNCTAD, Global Investment Trends Monitor (Special Edition), March 25, 2013. Cited from Zhang Youwen et al., A More Open International Environment: Changes in the International Landscape and New Trends in Globalization, Shanghai Academy of Social Sciences Press, 2013, pp. 286.

that they would invest in western India to provide comprehensive support for the construction of a butyl rubber plant in Gujarat. The plant would be the first butyl rubber production facility in India. In February 2012, SIBUR and Reliance Industries Ltd. (RIL) established a joint venture  –​Reliance Sibur Elastomers Private Limited, which would be used for the production of butyl rubber. RIL owns 74.9 per cent, and SIBUR 25.1 per cent of the joint venture.7 1.2  Overseas direct investment grows exponentially Recent years have witnessed the recovery and further growth of the world’s overseas direct investment (ODI) to the level prior to the global financial crisis. The ODI flows of the BRICS countries are showing the momentum of rapid growth. The average annual growth rate of ODI flows in the BRIC countries between 2002 and 2009 was:  Brazil the highest (591.98 per cent), followed by China (250.69 per cent), then India (69.96 per cent) and Russia (53.18 per cent). In comparison, the annual growth rate of ODI flows in the world was merely 11.68 per cent in the same period.8 This shows that the ODI of the BRIC countries was developing at a speed much faster than the world’s average. The ODI flows of India and Russia have been growing steadily in recent years. The annual growth rate of ODI flows in India is higher than that of Russia. The stable and robust growth of India’s ODI flows indicates that India has been vigorously investing directly overseas since 2000. China’s ODI flows fluctuated in the early twenty-​first century and soon started to show the momentum of rapid growth. Although the annual growth rate of Brazil’s ODI flows is the highest, the fluctuations are also strong, indicating that ODI flows are unstable and vulnerable to changes in the domestic and foreign economic environments.9

166  Huang He 1.3  Cross-​border M&As of the BRICS countries vary greatly In terms of cross-​border M&A, China stays far ahead of other BRICS countries; Russia and India are on a par with each other; Brazil lags relatively behind. In terms of the weight of cross-​border M&A, India is close to China; India and China are far ahead of Brazil and Russia if the negative impact of the financial crisis is not taken into account. For example, in 2015, Chinese investors made direct investments in 6,532 enterprises in 155 countries and regions, cumulatively achieving non-​financial FDI of US$118.02 billion, a year-​on-​year increase of 14.7 per cent. By the end of 2015, China had cumulatively achieved non-​financial foreign direct investment of US$863.04 billion. The accumulated non-​financial direct investment for the whole year totalled around US$90 billion, making 2015 the fifteenth consecutive year of continuous growth.10 UNCTAD statistics show that the amount of Russian FDI totalled US$12 billion in 2005, US$23.5 billion in 2006, US$47.8 billion in 2007,11 and US$53.759 billion in 2008.12 1.4  SOEs actively participate in cross-​border M&A activities The characteristics of cross-​border M&A activities by companies from the BRICS countries are as follows:  a large proportion of cross-​border M&A projects are extensive M&A in the resource sector completed by SOEs, while cross-​border M&A by private companies has rarely seen any success, indicating that it has its limitations (see Table 10.2). For example, statistics show that by the end of 2012, the total assets of the 47 largest Chinese SOEs reached Table 10.2 Four major cross-​border M&As by Chinese SOEs in 2014 (Unit: US$100 million, %) Chinese companies

Overseas investment targets

1 China Las Bambas Minmetals Copper Corporation Mine 2 Baosteel Aquila Resources 3 COFCO Nidera (Dutch food trader) 4 Sinopec AUSTRALIA PACIFIC LNG PTY LTD

Target country/​ region

Amount Industry

Proportion of shares

Peru

58.5

Mining

100

Australia

14.0

Mining

85

Netherlands 12.1

Manufacturing

51

Australia

Mining

10

10.0

Source: BVD-​ZEPHYR, “Database for Global M&A Analysis”, cited from Zhang Ming, Wang Yongzhong et al., 2015 Report of Country-​Risk Rating of Overseas Investment from China, China Social Sciences Press, 2015, pp. 112–​113.

BRICS and direct investment rules  167 3.8 trillion yuan, accounting for 85 per cent of that of the country’s 100 largest multinational companies. The total overseas income of the 47 companies reached 4 trillion yuan and the total number of employees reached 448,000.13 In the meantime, M&A efforts of Chinese and Russian companies are mainly focused on the primary sector, and much less in manufacturing and services (see Table 10.3). At present, 50 per cent of Russia’s FDI goes to the oil and natural gas industries, and about 25 per cent to the metallurgical and mining industries. In 2007 and 2008, Russia committed a much larger portion of its FDI in the fuel, energy and metallurgy industries. In 2007, about 54 per cent of Russian overseas M&A efforts were made in the metallurgy and mining Table 10.3 Number of overseas acquisitions by Chinese companies by sector/​industry in 2005–​2012 (Unit: pcs) Sector/​industry

M&A volume 2005 2006 2007 2008 2009 2010 2011 2012

Total Primary sector Agriculture, forestry, animal husbandry and fishery Mining and quarrying Manufacturing Food, beverages, and tobacco Textile, clothing, tanning Wood products and plastic products Chemical products Machinery and industrial products Electrical and electronic equipment Cars and accessories Services industry Electricity, gas, and water Construction industry Accommodation and dining Transportation, warehousing, and communication Financial Business services Education, medical care, and health care Film and television entertainment Software and network services

4 1 -​

4 1 -​

20 6 -​

20 6 -​

26 17 -​

43 14 -​

44 17 1

35 7 1

1 2 1 -​ -​

1 1

6 8

17 7

-​ -​

6 9 1 -​ 1

-​ -​

1 -​

14 15 3 2 1

16 20 2 3 1

6 13 3 -​ -​

-​ -​

-​ -​

1 4

-​ 4

-​ 2

1 3

1 4

-​ 7

1

-​

1

3

-​

1

6

2

-​ 1 -​ -​ -​ -​

1 2 1 -​ -​ -​

1 5 -​ -​ -​ -​

1 6 1 -​ -​ 2

1 2 -​ -​ -​ 1

4 14 3 -​ -​ 1

1 7 3 -​ -​ 1

15 -​ 1 1 3

-​ 1 -​

1 -​ -​

1 1 -​

1 -​

1 -​

1 2 1

-​ -​ 1

3 1 2

-​

-​

-​

-​

-​

-​

1

1

-​

-​

3

2

-​

6

1

3

Source: Ma Jincheng, Jiao Guannan, and Ma Mengxiao, “Dynamic Changes in the Industries of Chinese Enterprises’ Overseas M&A Activities in 2005–​2012 and the Driving Factors”, Macroeconomic Research, No. 1, 2014, pp. 37.

168  Huang He industries, 12 per cent in machine manufacturing, 9 per cent in construction and real estate, 6 per cent in the oil and natural gas industries, 6 per cent in energy and television communication, and 13 per cent in other industries. Among the top Russian multinationals with the largest overseas assets, Luke Oil, Gazprom, Severstal and Rusal are all in the oil, gas, metallurgical and mining industries.14

2.  BRICS multinationals and “state-​controlled entities” BRICS multinationals refers to the international companies from BRICS economies that engage in FDI activities and those that engage in value-​added activities in one or more countries and conduct effective control over cross-​ border operations. In 2013–​2014, China and Russia ranked third and fourth, respectively, among the top 20 host countries of foreign investment. Among the top eight cross-​border M&A transactions in the oil and gas industries conducted by multinational companies from developing and transition economies from 1987 to 2005, multinational companies from the BRICS countries occupied six seats (see Table 10.4).15 According to UNCTAD’s World Investment Report 2014, state-​owned transnational corporations (SO-​TNCs) were relatively few, but the number of foreign affiliates. and the size of foreign assets they managed were enormous. UNCTAD estimated that at least 550 SO-​TNCs were from developing countries, and SO-​TNCs-​led FDI investments were expected to reach US$160 billion in 2013. Although the number of SO-​TNCs was less than 1 per cent of that of all multinational companies, the assets they managed exceeded 11 per cent of global FDI flows.16 At present, among the top 100 global multinationals, 19 are SOEs, more than half (56 per cent) of which are located in emerging economies (see Table 10.5).17 Although the BRICS multinationals show high heterogeneity in the countries of origin, selected industries, competitive advantages, target markets, and internationalization paths, Western scholars have discovered that the common feature of successful multinationals is that the governments play an important role in their transnational operations. On the basis of gradual expansion of foreign investment, the BRICS countries have reformed the traditional state-​owned economy and created a number of large state-​controlled SOEs in certain strategic industries. These companies are also known as “state controlled-​entities” and have become a new force that drives foreign direct investment and shows obvious asset-​seeking motives in their M&A efforts in developed markets. For example, Western countries believe that the Russian government continues to strengthen control of strategic resources, despite having experienced a transition from the government’s intervention in economic adjustment to the state monopoly. When Putin took office, he claimed that one of the important tasks directly related to the economic growth rate was to continue reforming the natural monopoly. In Russia, there are quite a few people who

BRICS and direct investment rules  169 Table 10.4 Top 8 cross-​border M&A transactions in the oil and gas industries by multinational companies from developing and transition economies, 1987–​ 2005 (ranked by sales) Acquired company (country)

Acquiring company (country)

Sales Proportion Increased Year (Million of shares reserves US dollars) through (million M&A (%) barrels)

Petro Kazakhstan (Canada) Nelson Resources (Canada) Maxus Energy (US) Egyptian LNG (Egypt)

CNPC (China National Petroleum Corporation) Lukoil (PJSC Lukoil Oil Company)

4,141

100.0

503

2005

2,000

100.0

-​

2005

1,844

100.0

209

1995

1,766

35.0

-​

2003

1,700

20.0

460a

2001

1,028

58.6

730

2003

768

25.0

281b

2003

592

100.0

360

2002

YPF SA (Yacimientos Petrolíferos Fiscales) Petronas (Malaysia National Petroleum Limited) Sakhalin-​1 ONGC (Oil and consortium Natural Gas (Russia) Corporation Limited) Perez PEtrobras (Brazilian Companc SA Petroleum (Argentina) Corporation) Greater Nile ONGC (Oil and Petroleum Natural Gas (Sudan) Corporation Limited) Repsol-​YPF’ CNOOC (China oil field in National Offshore Indonesia Oil Corporation)

Source:  UNCTAD, Transnational M&A Database (www.unctad.org/​fdistatistics), increased reserves are derived from various media outlets and related company web pages. Notes: a The total reserve was 2,300 million barrels (increased reserve is derived from the 20% of shares). b The total reserve was 1,124 million barrels (increased reserve is derived from the 25% of shares).

believe the government should also form large multinationals because they have become the most important economic entities in the global economy. A  rational and comprehensive analysis of Russia’s existing monopolies, such as Gazprom and RAO UES, shows that such large multinationals will not only free the Russian economy from the financial crisis, but also make it a frontrunner in the world economy. Economists, including Leonid Abalkin, stressed that Russia’s natural monopolies should be regarded with national pride because they are unparalleled in many aspects of the world economy. They proposed that economic reforms should not dissect large

Table 10.5 Multinationals headquartered in the BRICS among the 200 largest non-​ financial multinationals (Unit: %) Name of SOE

Country

Industry

Proportion of government’s shares 100.00 100.00

Brazil China

Diversified Transportation, shipping and warehousing Natural resources Natural resources

India

Natural resources

74.14

China Hong Kong, mainland China China

Natural resources Natural resources

100.00 51.38

Natural resources

100.00

China

Construction

100.00

China

Natural resources

100.00

China Brazil

Natural resources mining

CITIC Group China China Ocean Shipping China (Group) Company Petrobras China National Petroleum Corporation Oil and Natural Gas Corporation Limited Sinochem Group China Resources Group China National Offshore Oil Corporation China Railway Construction Corporation Limited China Minmetals Corporation SINOPEC Vale

66.00 100.00

100.00 Brazilian government holds 39.7% of total Tata Steel India Metal and metal Indian government products holds 15.74% of total South African Mobile South Africa Telecommunications South African Phone Network government holds 17.63% of total First Pacific Co., Ltd. Hong Kong, Electrical and Chinese government mainland electronic holds 10.37% of China equipment total Sasol (China) South Africa Chemical South African Chemical Co. Ltd. government holds 30.00% of total Steinhoff International South Africa Diversified South African Holdings NV government holds 14.89% of total Sappi Limited South Africa Wood and paper South African products government holds 11.9% of total Lenovo Group China Electrical and Chinese government electronic holds 36.00% of equipment total

BRICS and direct investment rules  171 Table 10.5  Cont. Name of SOE

Country

Industry

Proportion of government’s shares

ZTE

China

TPV Technology Ltd.

China

Telecommunications Chinese government holds 32.45% of all shares Wholesales Chinese government holds 35.06% of total

Sources:  Karl P.  Sauvant and Jonathan Strauss, “State-​owned multinationals control nearly US$2 trillion worth of foreign assets”, Colombia Foreign Direct Investment Outlook, No. 64, April 24, 2012; United Nations Conference on Trade and Development, “Non-​Equity Modes of International Production and Development”, World Investment Report 2011, China Financial and Economic Publishing House, 2012, pp. 19.

companies into small ones by simply adopting non-​monopoly measures, but rather adjust the relationship between the government and such large companies for promoting the development of large Russian industrial groups because they help improve the competitiveness of Russian products in both domestic and foreign markets.18 In August 2004, Putin signed an order restricting the privatization of 549 large companies of strategical importance. In September 2004, Putin approved the merger of Gazprom and Rosneft, which were 100 per cent owned by the state, to form a Russian “aircraft carrier” in the field of energy. In April 2007, Putin put forward a clear initiative in his State of the Union address that, by May 2008, Russia would use one year to establish six large national group companies, each of which would have charters and tasks developed by dedicated federal legislation, and be assigned the responsibility of revitalizing the Russian economy, implementing major national construction projects, and developing high-​ tech industries. Rosneft and Gazprom hold each other’s shares, and Rosneft has become a subsidiary of Gazprom.19 Brazil, another member of the BRICS economy, had already established 654 SOEs by the late 1970s, of which 198 were owned by the federal government. Federal government-​owned companies exist in almost all economic sectors in Brazil, and many have become leading companies in the country.20 As the owner of SOEs, the Brazilian government assigns board members to make the most important business decisions for controlling SOEs. The results of such decisions are mainly reflected in the planning guidance, investment in the public and basic sectors, and SOE management. Therefore, the impact of decision-​making on relevant parties is in direct proportion to the government’s planning, investment, and management capabilities. The government develops and implements economic development plans through enterprises to form a planned market economic system under capitalism.21 The above-​mentioned SOEs’ business model is considered by the Western countries to represent a new economic model different from the previous state-​owned economy. This new model is what makes emerging economies

172  Huang He such as Russia and Brazil succeed. This model is characterized by that the national government establishes and supports the rapid development of SOEs as they compete with multinationals from developed countries in various fields of the world economy. Needless to say, these companies are relatively less transparent out of security and strategic concerns of sovereign countries. They rarely disclose details such as their asset structure, investment motivation, investment behaviours, and returns of investment.

3.  New changes in international direct investment rules Rules are the norms that constrain or motivate the actions of actors. In this sense, the above-​mentioned international investment rules are the norms that constrain the activities of different international investment actors in the international arena. These different actors include countries, international organizations, businesses, and individuals. International investment rules are the regimes or rules that countries, individuals, and companies need to comply with when engaging in international investment activities. The global industrial competition is more about rules, international rules in particular, than the competition at the technical and service levels. Whoever dominates the development of rules will likely stand in an advantageous position in the competition.22 3.1  Problems in international investment governance The lack of international investment governance rules due to the long gridlock in the Doha Round has produced rampant problems in global investment. Specifically, such problems can be divided into the following three categories. First, global investment protectionism is on the rise. After the end of the Cold War, in the context of increasing globalization, different interest demand arising from changes in the scale, flow pattern, and investment form of international direct investment activities led to debates around whether to protect against and promote foreign investment. Developed and developing countries conducted repeated game and negotiation over the purpose, structure and specific content of international investment rules at the bilateral, regional and multilateral levels. After more than 60 years of development, a system of international investment rules has gradually taken shape, with bilateral investment treaty (BIT) and Preferential Trade and Investment Agreement (PTIA) as the main body, and the coexistence of bilateral, regional and multilateral investment agreements. As of the end of 2012, there were 3,196 international investment agreements, of which 2,857 were bilateral investment agreements and 339 were other agreements. These agreements reflect the different interest demand of the host countries, home countries and multinational corporations in the process of international direct investment flows in different historical contexts.23 In fact, when formulating international direct investment rules, there have always been debates about whether to “strengthen review” or “promote liberalization”. Starting from the end of the 1990s, certain countries have implemented strict

BRICS and direct investment rules  173 review over foreign M&As out of “economic security”, “strategic industries”, among other reasons. Investment from SOEs and state-​owned institutions has aroused strong aversion in developed countries, which started to adopt “investment protectionism”.24 According to the World Investment Report, in 2011, the proportion of policy changes concerning investment protectionism reached 22.4 per cent, which means that nearly one-​third of policy changes showed a tendency of investment protectionism (see Table 10.6). Second, US dominance has severely fragmented global investment rules. In recent years, the United States has gradually realized that, after the BRICS countries joined the WTO, their ability to leverage the implementation mechanism of international economic rules to curb certain targeted investment protectionism is also growing. In the meantime, as the WTO continues to develop, the dispute between the North and the South has intensified again, and the Doha Round negotiations have not been able to make any progress. Scholars at the Peterson Institute for International Economics in the United States, therefore, argue that it is time to end the stagnant state of the Doha Round because the old model of the post-​war global trade and investment agreements is on the brink of collapse. It provides a perfect opportunity for the United States to regain its dominant position in international trade and investment rule-​making. As more and more developing countries such as China and India have increased their international competitiveness, the United States is worried about how to protect the interests of US companies under the “fair trade” rule. Therefore, it hopes to introduce competitive neutrality and labour protection provisions through new international agreements to weaken the competitiveness of companies from BRICS countries.25

Table 10.6 Changes and adjustments of foreign investment policies and regulations in different countries from 2000 to 2011 Year

Number of Regulatory Conducive Not conducive Neutral/​ Ratio of countries adjustments to FDI to FDI uncertain unfavourable concerned policies (%)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

45 51 43 59 80 77 74 49 41 45 57 44

81 97 94 126 166 145 132 80 69 89 112 67

75 85 79 114 144 119 107 59 51 61 75 52

5 2 12 12 20 25 25 19 16 24 36 15

Source: UNCTAD, World Investment Report, 2012.

1 10 3 0 2 1 0 2 2 4 1 0

6.2 2.1 12.8 9.5 12.0 17.2 18.9 23.8 23.2 27.0 32.1 22.4

174  Huang He Third, the serious defects of the global investment governance system put its legitimacy on shaky ground. In the current global economic governance system, there are the World Trade Organization (WTO) in the trade field and the International Monetary Fund (IMF) in the financial sector. However, there are no global multilateral investment frameworks or corresponding supporting institutions in the investment field. The existing multilateral governance frameworks in the investment field have their limitations, though providing certain investment protection and facilitation functions.26 In the meantime, more and more developing countries have become middle-​income countries. In this context, developing countries represented by the BRICS countries strongly demand that the global economic governance order can truthfully reflect the new political and economic landscapes and new realities in today’s world, so as to further enhance their voice in multilateral international economic governance mechanisms. All of these pose serious challenges to the rules of international economic organizations that were established under the leadership of the United States and the European Union and that mainly reflect the political and economic interests and the global governance theory of the developed countries.27 Given the rapid development of overseas M&As by multinational corporations from the BRICS countries, many developed countries plan to adopt new policies and measures to constrain FDI made by BRICS’ state-​ owned multinationals. Developed countries believe that the ownership and governance structure of state-​owned multinationals from the BRICS countries will cause host countries to worry about unfair competition and national security problems that may arise. For example, France has expanded the review over foreign capital inflows into six new areas: energy supply (electricity, natural gas, oil or other energy), water supply, transportation networks and services, electronic communication networks and services, construction and facility operation for defence purposes, and public health protection. The above provisions serve to safeguard national interests in terms of public order, public safety and defence. Germany revised its foreign investment law in 2009 by allowing government authorities to review FDI from outside the European Union. Italy has established procedures for the government to exercise special power related to defence and investment in the national security field as part of the security-​related investment inspection mechanism established in 2012. In 2015, Canada amended the National Security Review of Investments Regulations to allow the government flexibility to extend the period of review on investment that could undermine national security.28 3.2  Impact of the existing international investment rules on the BRICS countries At present, in line with the “sequential negotiation” strategy adopted by the United States, the third generation of trade and investment norms centred on

BRICS and direct investment rules  175 “pre-​entry national treatment plus negative list” is evolving into a strategic means for the United States to reshape international trade, investment, and the global economic landscape. The introduction of measures by the developed countries, in particular, the United States, in the formulation of international investment rules will inevitably affect the efforts of multinationals from the BRICS countries for overseas M&As. The influence is reflected mainly in the following three aspects. First, in the TPP negotiations dominated by the United States, the issue of SOEs naturally becomes an important topic of multilateral discussion and game. The United States shows a clear intention to formulate rules beneficial for its SOEs to participate in international competition by leveraging TPP, TTIP, TISA and BIT 2012.29 On January 20, 2014, US President Barack Obama delivered his sixth State of the Union address to Congress. Obama mentioned China when talking about US trade and investment policies. He said, Twenty-​first-​century businesses, including small businesses, need to sell more American products overseas. China wants to write the rules for the world’s fastest-​growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules.30 If the rules in TPP, TISA and BIT 2012 were upgraded as global standards, BRICS’ companies (including SOEs) would face a new international business environment, which would pose challenges for the existing trade, investment, and development models of the countries concerned. For example, as the highest standard in international investment, BIT 2012 not only covers all traditional issues in international investment agreements, such as minimum standards of investment treatment, MFN treatment, expropriation, transfer, subrogation, loss compensation, and investment-​related dispute settlement, but also includes new provisions such as pre-​entry national treatment, state-​ owned enterprises, labour, environment, and performance requirements. The contents involved are almost the same as TTP and TTIP. The standards and rules are higher than other free trade agreements currently being negotiated or signed, and also higher than the existing ones of the WTO. At present, in the TTP, TTIP and TISA negotiations, major emerging countries such as China, Russia and India are all “excluded”, clearly showcasing the United States’ intention to consolidate its leadership position in the global trade and investment system. Regional trade agreements, including TPP and TTIP, will focus on expanding intra-​regional trade and investment. For that reason, the emerging economies and developing countries that are excluded from such agreements will naturally be restrained.31 Second, the European Union and the United States have begun to adopt new principles in their respective investment policies and called on other countries to consider adopting these principles to consolidate the

176  Huang He international investment market. In April 2012, the United States and the European Union issued the Statement of the European Union and the United States on Shared Principles for International Investment, which listed seven principles:  (1) open and non-​discriminatory investment climates; (2)  a level playing field; (3) strong protection for investors and investments; (4) fair and binding dispute settlement; (5) robust transparency and public participation rules; (6) Responsible Business Conduct; and (7) narrowly-​tailored reviews of national security considerations.32 These seven principles reflect the position of the United States and European Union in the development of international investment rules. US Deputy Secretary of State Robert D. Hormats pointed out that, thanks to the support of their governments, SOEs can gain a competitive advantage in the US market or third-​country markets, even without the need to improve their production efficiency or research innovation capabilities. Therefore, the United States must take countermeasures to eliminate such a competitive advantage. In Hormats’ view, the markets dominated by SOEs in different economies have impacted those dominated by private companies –​world trade needs a re-​balance. Under the multilateral framework, the United States attempts to include more provisions restricting the competitive advantage of SOEs in the competition neutrality framework by popularizing the concept of competition neutrality through the intergovernmental platform of the Organization for Economic Co-​operation and Development (OECD). The Statement of the European Union and the United States on Shared Principles for International Investment in 2012 called for the United States and Europe to eliminate economic protectionism and provide an open and non-​ discriminatory investment environment, while claiming that the two parties will work together to cope with the real challenges posed by the business enterprises that benefit from state power.33 Third, the United States and the European Union began to consider international investment issues within the framework of international politics and economics because they believe that economic reciprocity will not stop the rivalry. Globalization entails enforcers (or overlords), large-​country partnerships, or global governance arrangements, which are capable of ensuring fair application of rules. Without a political framework that positions national interests, the economic framework is destined to be fragmented, and radical nationalism will crowd out global commitments. For example, the launch of the BIT program by the United States was based on a series of economic, legal, and political considerations. In economic terms, the intended to protect US investment from threats such as discrimination, foreign exchange control, and tax collection. In legal terms, the United States intended to make up for the shortcomings of customary international law in protecting foreign investment through the BIT program. In political terms, the US government needed to show the Congress and American companies its determination and attitude to protect the US’ overseas investment.34 As can be seen from the above, the BRICS countries headed by China do not enjoy the advantage of structural power in the future development

BRICS and direct investment rules  177 of a possible general agreement on international direct investment, as in the GATT. Today, when military conflicts give way to economic wrestling, the BRICS multinationals have to accept the existing rules when they enter the international market because the BRICS countries do not have sufficient structural power to compete with developed countries. The mechanisms that drive the BRICS multinationals to “voluntarily” accept such rules come mainly from the following aspects: First, meeting specific rules has become a prerequisite for entering a certain market. Second, due to the rapid development of international direct investment, international production networks and outsourcing, more and more industries in the BRICS economies have been included in the value chain already established by Western multinationals through an international division of labour. Therefore, accepting the product standards, technical regulations, and certification system of these Western multinationals becomes a precondition for normal production, sales, and management. Third, as the development of the intermediary system in the BRICS markets lags behind, multinationals based in these countries have to accept the certification of multinational intermediaries from developed countries, thus becoming the passive receiver of the standards set by developed countries. For example, in international capital markets, the financing costs of countries and companies are directly linked with their credit ratings. The internationally accepted credit rating standards mainly include Moody’s, Standard & Poor’s, and Fitch IBCA.35

4.  Conclusion Striving to establish a reasonable international economic order constitutes the common interest of the BRICS countries. Neither social transformation nor economic development can happen without a favourable international environment. After the Cold War, driven by the wave of globalization, the social transformation and economic development of the BRICS countries have progressed rapidly. The economic growth rate of the BRICS countries has always been higher than the global average. However, the 2008 global financial crisis fundamentally changed the external environment of the BRICS countries. The depression of the world economy has caused shrunken foreign trade and slowed economic growth to the BRICS countries. The instability of the international monetary system has made the BRICS countries deeply feel the consequences of the crisis passed down by developed countries. The stagnation of the Doha Round negotiations has put the BRICS countries under tremendous pressure from trade and investment protectionism. The global financial crisis once again demonstrates that the structural framework of international governance determines the distribution of economic interests among nations. These grim facts have led the BRICS countries to issue a common voice and take joint actions to establish a reasonable international economic order, thereby securing a good external environment and international space for their own transformation and development. That

178  Huang He is the rationale behind the active participation of the BRICS countries in global governance.36 In the meantime, the BRICS countries will face substantial challenges in the development of new international economic and trade rules. According to the IMF, since the implementation of the Fed’s Exit Strategy for Monetary Policy, the economic growth of Brazil, China, and India has slowed down by more than 0.5  percentage points. Many developing countries such as India, South Africa, and Mexico, are facing both fiscal and international payment deficits. The employment situation in some countries is also quite worrisome. In 2013, the unemployment rate in South Africa was around 25 per cent, and that among people under 35 even reached 70 per cent. In the context of a heightened risk of economic slowdown in emerging markets and developing economies, the Obama administration might leverage TPP, TTIP, BIT 2012 and TISA to reshape international trade and international investment in order to maintain a US dollar-​based international financial system. In 2016, TPP and TISA may produce phased results, which would make up for some of the losses arising from the Obama administration’s failed medical reform, and add some weight to the Democratic mid-​term elections, serving as a valuable political legacy of Obama’s eight-​year term.37 Therefore, in order to avoid the decentralization and fragmentation of international investment rules, the BRICS countries must actively participate in the creation of a multilateral investment framework and truly become the makers of international multilateral investment rules, as part of an effort to drive their economic development. For example, the “competition neutrality” rule has been incorporated in the international law-​making process. This rule promoted by the United States and the European Union deliberately ignores the level and characteristics of economic development in developing countries and transition economies. However, the level of industrial development and the legal and political systems vary by country. Obviously, it is unreasonable to require all countries to achieve the same standard of “competitive neutrality”. The BRICS countries should pay close attention to the development trend of the “competitive neutrality” rule, in order to get ready for the negotiations on international trade and investment agreements related to the rule.

Notes 1 Chen Zheng, “BRICS Countries and the Responsibility to Protect”, Foreign Affairs Review, No. 1, 2015, pp. 1–​2. 2 Gao Zugui, Wei Zonglei, and Liu Yu, “The Rise of Emerging Economies and Its Impacts”, International Data Information, No. 8, 2009, p. 1. 3 cept for Development and BRICS Cooperation, Fudan University, 2015, p. 51. 4 Fan Yongming, “Trade Facilitation: Consensus of the BRICS Cooperation”, World Market, No. 6, 2014, pp. 8–​9. 5 UNCTAD, Global Investment Trends Monitor, Special Edition, March 25, 2013.

BRICS and direct investment rules  179 6 Zhang Youwen et  al., A More Open International Environment:  Changes in the International Landscape and New Trends of Globalization, Shanghai Academy of Social Sciences Press, 2013, pp. 285–​287. 7 Cui Xiaoming, “Russia Invests in the Construction of a Butyl Rubber Plant in Western India”, China Rubber/​Plastics Technology & Equipment, No. 12, 2013, p. 54. 8 UNCTAD, World Investment Report, 2002–​2010, cited from Huang Lujin and Liang Cheng, “Comparison of Characteristics of Foreign Direct Investment by the BRICS Countries”, Commercial Times, No. 23, 2012, p. 57. 9 Huang Lujin and Liang Cheng, “Comparison of Characteristics of Foreign Direct Investment by the BRICS Countries”, Commercial Times, No. 23, 2012, pp. 57–​58. 10 Yang Ting, Tian Yunhua, and Zou He, “Characteristics and Trends of China’s Foreign Direct Investment in 2013–​ 2014”, Journal of International Economic Cooperation, 2014, No. 1, p. 25. 11 Wang Dianhua, “Research on Foreign Investment in Transition Countries: Characteristics, Advantages, and Prospects of Russia’s Foreign Direct Investment”, Russian, Central, and Eastern European Studies, No. 4, 2010, p. 51. 12 Economic and Commercial Counsellor’s Office of the Embassy of the People’s Republic of China in Russia, cited from Zhang Baoyan, “Russia’s Foreign Direct Investment:  Theory, Status Quo, and Impact”, Russian, Central Asian & East European Studies, No. 5, 2009, p. 46. 13 Yang Ting, Tian Yunhua, and Zou He:  “Characteristics and Trends of China’s Foreign Direct Investment in 2013–​ 2014”, Journal of International Economic Cooperation, No. 1, 2014, p. 25. 14 Zhang Baoyan, “Russia’s Foreign Direct Investment:  Theory, Status Quo, and Impact”, Russian, Central Asian & East European Studies, No. 5, 2009, p. 46. 15 See UNCTAD, World Investment Report 2011, Economy and Management Publishing House, 2011. 16 UNCTAD, World Investment Report, 2014. See the website of the Institute of International Economics of Nankai University:  www.nkiie.com/​news1.asp? ArticleID =1312, access time: December 31, 2014. 17 United Nations Conference on Trade and Development, “Non-​Equity Modes of International Production and Development”, World Investment Report 2011, China Financial and Economic Publishing House, 2012, p. 19. 18 Tian Chunsheng, “The Formation and Characteristics of Russia’s state Capitalism”, Economics Perspectives, No. 7, 2010, pp. 125–​126. 19 Wang Wei, “Russia’s National Group Companies: Establishment and Operation”, reprinted in Institute of Russian Eastern and Central Asian Studies, Chinese Academy of Social Sciences, 2009 Report on the Development of Russian, Eastern European and Central Asian Countries, Social Sciences Academic Press, 2009. Cited from Tian Chunsheng’s “The Formation and Characteristics of Russia’s ‘state Capitalism”, Economic Perspectives, No. 7, 2010, p. 126. 20 Victor Bulmer-​Thomas, The Economic History of Latin America since Independence, New York: Cambridge University Press, p. 344. 21 Ye Xiangsong, “Management System of Brazilian State-​owned Enterprises and Its Implications”, Finance and Economics, No. 6, 1996, p. 65. 22 Li Li, “The Impact of Low-​carbon Economy on International Trade Rules and China’s Countermeasures”, Finance and Trade Economics, No. 9, 2014, p. 114. 23 Li Yumei and Sang Baichuan, “International Investment Rules:  Comparison, Trends, and China’s Countermeasures”, Comparative Economic & Social Systems, No. 1, 2014, p. 176.

180  Huang He 24 Zhao Xiaoping, “The Construction of International Direct Investment Rules and Coordination Mechanism:  Status Quo and Future”, Marketing Herald, No. 5, 2008, p. 61. 25 Zhu Wenhui and Li Hua, “Thoughts on the Strategy for Negotiating China-​US Bilateral Investment Agreements”, China Opening Journal, No. 5, 2013, p. 20. 26 Wang Biqun, “China’s Opportunities and Challenges in Participating in Global Investment Governance”, International Economic Review, No. 1, 2014, p. 103. 27 Fan Ying and Chen Yang, “International Trade Governance in the Post-​Financial Crisis Era”, reprinted in Zhu Liqun et  al., Global Governance:  Challenges and Trends, Social Science Academic Press, 2014, pp. 110–​111. 28 UNCTAD, World Investment Report 2015:  Reforming International Investment Governance, Nankai University Press, 2015, p. 123. 29 Mao Zhiyuan, “Deduction of Investment National Treatment in TPP’s State-​ owned Enterprises Rules”, International Economics and Trade Research, No. 1, 2014, p. 93. 30 Xinhuanet, “US President Barack Obama Mentioned China Three Times in the Seventh State of the Union Address to the Congress”, January 22, 2015. 31 Zhao Chunming and Zhao Yuanfang, “Challenges and Responses to the New International Trade Rules”, Red Flag Digest, No. 21, 2014, p. 19. 32 Wang Ting, “Competition Neutrality:  A New Focus on International Trade and Investment Rules”, Journal of International Economic Cooperation, No. 9, 2012, p. 75. 33 Mao Zhiyuan, “Deduction of Investment National Treatment in TPP’s State-​ owned Enterprises Rules”, International Economics and Trade Research, No. 1, 2014, p. 93. 34 Shan Wenhua and Zhang Sheng, “A Study on the New Template of the US Investment Treaty and Its Acceptability”, Modern Law Science, No. 5, 2013, p. 150. 35 See Li Xiangyang, “Mechanism for the Implementation of International Economic Rules”, World Economy, No. 12, 2007, p. 5. 36 Fan Yongming, “BRICS Cooperation and Diversified Development of Asia”, Journal of Fudan University, No. 6, 2013, pp. 151–​152. 37 Wang Haifeng, “Trends for the Change to the International Economic and Governance Landscape”, Macroeconomic Management, No. 2, 2014, pp. 84–​87.

11  The BRICS countries and international energy cooperation Liu Wenge and Wang Lei

Over the recent years, the BRICS countries have seen rapid growth in their comprehensive economic strength and therefore have become an important engine for stimulating the world economic recovery and growth. In the meantime, their fast-​growing energy demand will inevitably have an impact on the global energy landscape. Today, due to the constant fluctuation in global energy prices and environmental pressure imposed by many developed countries, it seems quite necessary to delve into the relevance between the energy industry and economic development in the BRICS countries, so as to assess their energy development potential and identify opportunities for energy cooperation, while finding the optimal development path for China’s future energy strategy.

1.  Energy production and consumption of the BRICS countries The five BRICS members are located in Eurasia, South America and the African continent. All of them are the most important emerging economies in these regions. At the same time, as major non-​Western countries among the G20, the five countries are exerting increasing influence on the world economic order. However, the BRICS is now neither a regional cooperative organization, nor has it developed mature regional cooperation mechanisms. It is in essence a meeting mechanism between the five major emerging economies. Since the BRICS serves as a relatively independent international dialogue platform, its five members urgently need new directions in their future cooperation, with energy cooperation at the centre of their long-​term strategies. Cooperation in the energy field can help establish a new global energy cooperation mechanism that, in turn, will promote the restructuring of the global governance system and the sustainable development of the global economy and society. From a global perspective, the BRICS countries play a pivotal role in the supply and demand of energy products. According to the statistics of the BRICS Joint Statistical Manual (2015), the BRICS countries’ primary energy production in 2014 accounted for 39.7 per cent of the world’s total, while its energy consumption accounted for 36.1 per cent of the world’s total. In addition, each of the five countries has a significant impact on the world energy landscape.

182  Liu Wenge and Wang Lei 1.1  Energy production and consumption of China China is a major energy producer with large energy reserves, but is also a major energy consumer. According to the latest data from the BRICS Joint Statistical Manual (2015), China’s total primary energy consumption accounted for 23.2 per cent of the world’s total in 2014, surpassing the US’s 19.1 per cent, and continues to be the world’s largest energy consumer, while its gap with the United States is widening. China is the world’s largest coal supplier, and its coal reserves account for about 14 per cent of the world’s total, but its coal consumption accounts for 47 per cent of the world’s total. If this consumption is not effectively controlled, China’s coal resources will be exhausted in 35 years. In terms of oil, China’s proven remaining reserves are basically at around 2 billion tons, and the ratio of reserves to production has fallen to less than ten years now. Although the world’s fourth-​largest oil producer, China consumes more than it produces and therefore heavily relies on imports. In contrast, its natural gas exploitation and exploration fall relatively behind, and there is still much room for development in the future. China’s natural gas supply and demand prospects are a major factor in changing the natural gas trade landscape and geopolitics in Eurasia and beyond. Whether China can tackle its own energy problems and how it does that concern not only China, but also the region and the whole world.1 The fast-​growing energy consumption in China and the resulting relationship between energy efficiency and economic growth are attracting widespread attention. China’s economic growth data show that, since 1990  –​a golden development period for China’s industrialization  –​its energy consumption and economic growth have been closely related, with a correlation coefficient of 0.9873, which indicates that the expansion of energy consumption has powerfully supported its rapid economic growth. After 2000, the growth rate of per capita energy consumption has obviously picked up its pace. The oil equivalent per capita rose from 0.82 tons in 2000 to 1.89 tons in 2014, an increase of 121 per cent, and the correlation between China’s per capita GDP and per capita energy consumption reached 0.99, indicating that both economic growth and the continuous improvement of people’s living standards were closely related to energy consumption. China’s energy consumption might be better explained by its energy consumption elasticity and intensity coefficients. The energy consumption elasticity coefficient is usually expressed as the ratio of the growth rate of energy consumption to the annual average growth rate of the national economy. According to the China Statistical Yearbook and the BRICS Joint Statistical Manual, China’s average energy consumption elasticity in the past decade has reached 0.91, indicating that its energy consumption scale growth has basically remained consistent with its economic growth. Now take another look at the energy consumption intensity coefficient, also known as the energy consumed per unit of output value, which refers to the energy consumption per unit of GDP of a country in a given period of time. It seems, after

BRICS and international energy cooperation  183 calculation, that since the 1990s, China’s energy consumption intensity has been declining, quite similar to the continuous decline in energy consumption intensity that many developed countries experienced in mid-​twentieth century. But the rationales behind the phenomena are completely different.2 For the developed countries, it is mainly because they were transiting from the industrialization period to the post-​industrialization period. However, for China, which has not yet reached its industrialization peak, the primary reason is its existing transition from a planned economy to a market economy. This is, in itself, a reflection of efficiency factors released by China’s economic reform. Therefore, from this perspective, it can be predicted that China, unlike those developed countries, will see a new round of energy consumption intensity growth in the near future. 1.2  Energy production and consumption of the other BRICS countries 1.2.1  Russia’s economic development and energy balance Russia is a major economy in the world. According to IMF data, Russia’s GDP in 2014 was US$1.86 trillion, ranking ninth in the world, with per capita GDP around US$10,000. Russia features an extremely unreasonable economic structure. Most of its revenue comes from resource industries, including oil, natural gas, ore and timber, and is particularly vulnerable to price fluctuations in such commodities. Due to the “Great Recession” in 2009, the Russian economy has experienced its first negative growth since 2000, registering a decline more than that of the G20 and the BRICS countries. From 2014 to this day, Russian economy has been affected by factors such as Western sanctions and falling international energy price, evidenced by a drop of more than 3.7 per cent in 2015 compared with 2014. The decline in the Russian economy is first and foremost caused by its economic structure imbalance and heavy dependence on energy exports, that is, raw material-​based economic pattern. In 2014, Russian oil and gas export revenue accounted for 66.3 per cent of its total exports and 18.7 per cent of its GDP. In 2015, the average price of international oil fell to around US$50 per barrel, a nearly 50 per cent drop compared with that in 2014, and consequently, Russia suffered more than US$90 billion revenue loss. Russia has always claimed to reform its economic structure, but it is always more talking and less doing and its unreasonable structure issue is worsening. Given plummeted energy prices over the past two years, the Russian economy is very passive, lacking new driving forces and development highlights. Russia’s energy products are mostly about oil and natural gas. The BRICS Joint Statistical Manual (2015) reveals that, in 2014, Russia’s total output of energy products was 1.39 billion tons of oil equivalent, of which natural gas accounted for 44.3 per cent and oil for 42.5 per cent, and coal for 12.1 per cent. Its total primary energy consumption was 740 million tons of oil equivalent, of which natural gas accounts for 52.3 per cent, oil for 21.1 per cent, and coal for 13.0 per cent. In the twenty-​first century,

184  Liu Wenge and Wang Lei as global energy supply-​demand imbalance is deteriorating, the Russian government gradually started to value the long-​term sustainable exploitation of its energy resources, and in 2007 formulated a long-​term energy development strategy. According to this strategy, Russia’s total energy production and primary energy consumption are expected, respectively, to reach 1.75 billion tons and 1.05 billion tons of oil equivalent in 2030. In recent years, thanks to the development of international energy cooperation, Russia’s energy product exports have grown significantly, reaching 630  million tons of oil equivalent in 2010. Nevertheless, the corresponding imports were less than 1/​20th of such exports. According to the Russian government’s energy-​development strategy, its future energy exports will gradually shrink, and the proportion of its energy product exports to its total energy production will remain at around 40 per cent in the next 20 years. 1.2.2  India’s energy consumption and economic development India is the second most-​populous country in the world after China. In 2014, its economic aggregate ranked 8th in the world, and its economic development level calculated by per capita GDP ranked 137th. Similarly, in 2014, India’s GDP was US$2.07 trillion, and GDP per capita was US$1,631. Among the GDP components, the service industry accounted for 53.1 per cent, industry for 28.8 per cent, and agriculture for 18.1 per cent. From 1970 to 2014, India’s GDP rose from US$36.6 billion to US$2.07 trillion, a fortyfold increase in forty years; its per capita GDP grew from US$110 to US$1,631, a tenfold increase and more. According to the BRICS Joint Statistical Manual data, Indian primary energy consumption reached 602  million tons of oil equivalent in 2014, an eightfold increase from the 65 million tons of oil equivalent in 1970, and its per capita primary energy consumption also grew from 120 kg to 480 kg, a threefold increase. Based on relevant data and calculations, it could be found that the correlation between energy consumption and economic growth in India is as high as 0.986, and the correlation between per capita energy consumption and per capita output is also as high as 0.971, which jointly shows that India’s economic-​ development level and energy-​consumption scale growth are closely related. Now looking from energy-​consumption elasticity and intensity coefficients previously introduced, India’s energy consumption elasticity coefficient in recent years is always under 1, which is consistent with India’s national conditions, where the modern information service industry is the leading industry. The information service industry has greatly reduced the consumption demand for energy resources, while bringing India an economic boom. Now, take another look at its energy consumption intensity. The calculation results show that India’s energy consumption intensity in recent years is similar to that of China, both declining. Moreover, India’s intensity is always the lower one, indicating that India, like China, has not reached its industrialization peak and is still in the initial stage.

BRICS and international energy cooperation  185 1.2.3  Energy development and investment opportunities in South Africa and Brazil Though a middle-​ income developing country, South Africa is the most developed country in Africa. In 2014, its GDP was US$349.82 billion, ranking 28th in the world, accounting for about 20 per cent of Africa’s GDP; its per capita GDP was US$6,478, ranking 76th in the world. Its four economic pillars are mining, manufacturing, agriculture and service industries, and technologies such as deep-​well mining are world-​leading. In recent years, in order to improve the imbalance in regional economic development, the South African government has promoted employment, and poverty reduction for a smoothly running economy by a range of measures, including increasing adjustments on macroeconomic policies, enhancing infrastructure construction, granting priority to industry development, and boosting education and human-​resource training. In natural gas exploitation, South Africa is now still facing challenges that require urgent solutions, mostly in two respects, namely technology and policy. Natural gas is only a small part of South Africa’s energy structure, and weak infrastructure is also a major obstacle to its development leap. Lack of Liquefied Natural Gas (LNG) processing plants has seriously hindered the exploitation and transportation of natural gas in South Africa. But now, the South African government has recognized the importance of energy development, and its policies have begun to tilt towards the exploitation of energy resources such as natural gas. Therefore, as long as the South African government can continue its investment increase in research and development (R&D) of exploitation technologies of natural gas and other energy resources, formulate clear energy supporting policies, and improve relevant laws and regulations, its domestic-​energy exploitation market will surely grow rapidly, and investment opportunities coming along would be extraordinary . As Brazil’s oil industry investment has significantly increased, and its oil production continues to grow, Venezuela and Mexico are rapidly losing their decades-​long dominance in Latin American oil production. Brazil plans to double its oil production and more by 2020 and has the potential to become a major oil exporter. With the promulgation and implementation of Brazil’s 2030 National Energy Plan, Brazil will pour more funds into its energy field to develop power generation by nuclear, hydro, thermal, wind and bioenergy, thereby meeting the economic growth needs of the next few decades. The Brazilian government’s vast investment plan in its energy sector will greatly stimulate domestic demand for energy-​related products, enabling the energy industry to maintain its rapid development momentum, which is a good investment and development opportunity for energy companies in Brazil and abroad. In general, the BRICS countries differ from one another in energy development, but all have already established considerable influence in domestic, regional and even global energy. Their differences determine that they will

186  Liu Wenge and Wang Lei have great complementarity and broad space for cooperation in the energy field, and that will also become a future focus in global energy economy and politics. It can be said that the BRICS countries are the key factors for changing and innovating the current global energy landscape and determining the future world energy development trend. If the BRICS countries make outstanding progress in the field of energy cooperation and form a mature cooperation mechanism, they will play a decisive role in the global energy structure reform, climate improvement and sustainable development of the world economy.

2.  The game of the BRICS countries on energy cooperation Although the BRICS countries enjoy great complementarity and development space for future energy cooperation, if not handled properly their cooperation will definitely be a road full of thorns due to obstacles such as geographical restrictions, historical contradictions, and economic gaps. For this reason, the energy cooperation between BRICS countries must first build on the close relationship between a country’s economic development and its energy industry development. It is the latter’s important driving force to the former that determines the necessity of such country’s energy cooperation with other countries. The energy cooperation between BRICS countries will be a long-​term game between the five countries. This section will also justify their positive participation in the field of energy cooperation and propose game paths on the basis of analysing the close relationship between economic development and energy industry in the five countries. 2.1  Status quo of energy cooperation among the BRICS countries As the BRICS countries have been building increasingly closer ties with one another in recent years, energy cooperation is becoming a main cooperation content. Seeing from the BRICS cooperation reality in recent years, China is pivotal to energy cooperation and development. Among this, the Sino-​Russia cooperation and ties in the energy industry seem to be the most extensive and in-​depth. Oil and gas trade are now the most important energy cooperation field for China and Russia. In 2014, China’s oil imports from Russia accounted for 11.3 per cent of China’s total oil imports, and it is still on the rise. In the meantime, China has been seeking cooperation with Russia in the upstream of oil and gas field, and striving to play an active part in the cooperation and development of Russian oil and gas fields. In terms of technical services, as Chinese technology and equipment are gradually recognized in the Russian market, China has, in recent years, actively participated in Russian oil and gas services, including geophysical exploration, construction of Far East crude oil pipelines, and supply of, and technical services on, drilling rigs, workover rigs, drill bits and other equipment. In order to secure rapid economic growth and realize their own rise, both China and India attach great importance to

BRICS and international energy cooperation  187 energy security. Since they are the two largest developing countries in the world, the Sino-​India energy cooperation is in the common interest of both countries. With respect to energy security, China and India started exchanges and cooperation in the energy field as early as in 2004. In July 2014, the Sixth BRICS summit was held in Brazil, with energy security among the hot topics. When meeting with Indian Prime Minister Narendra Modi, Chinese President Xi Jinping pointed out that China and India have broad common interests in international and regional affairs, and that China is willing to join hands with India to address energy security issues to safeguard their mutual interests. Their common energy demand has created a huge space for energy security cooperation. In addition to energy cooperation with Russia and India, China’s energy cooperation with Brazil is gradually maturing. As of 2012, Chinese companies have invested nearly US$30 billion in Brazil, with 90 per cent of that in energy and minerals. Due to strong economic complementarity in the field of energy cooperation, China and Pakistan share strong willingness and sufficient impetus in future energy cooperation. Furthermore, India–​Russia energy cooperation in recent years has also been fruitful, mostly in nuclear energy and oilfield development. Since Russia has the richest fossil energy in the world, any country would like extensive energy cooperation with it. Energy cooperation with Russian, particularly on its Far East oil development, has always been a focus of intense competitions between China and Japan. But in the early twenty-​first century, another strong rival, India, has come in and seemed to catch up from behind. For the past few years, India has been once again proactive in the international community. It has not only been seeking to participate in Russian oilfield development, but also concluded a comprehensive economic partnership with Japan to further bolster the energy cooperation. India seems to be releasing a new round of passion for overseas energy cooperation. In addition to oilfield development, India and Russia have also made significant progress in nuclear energy cooperation. In December 2015, Indian Prime Minister Modi visited Russia, and the two sides signed cooperation agreements in the field of nuclear energy, oil and gas, transportation, industry, military technology and other large projects. There is no doubt that nuclear power will be the focus of their future cooperation. According to these agreements, Russia will build at least 18 nuclear reactors in three locations in India in the future. In order to cooperate with India on nuclear power, Russia will inevitably compete with companies based in Japan, France, the United States and others, and its advantages lie in its strong complementarity with India in the fields of oil and gas and nuclear energy. Therefore, many scholars predict that India will become Russia’s main overseas nuclear power market in the next 15 years. 2.2  Game analysis of the BRICS countries on energy cooperation Energy cooperation among the BRICS countries can be analysed based on a mixed-​strategy game model. A  mixed strategy is a strategy selection

188  Liu Wenge and Wang Lei method in game theory, in which the player chooses the pure strategy, and distributes a probability to each of the possible options, to generate a new procedure method of randomly selecting strategy.3 As the previous analysis mentioned, China is the pivotal of existing energy cooperation among the BRICS countries. Let us take China as one party, and the other BRICS countries as another. The later comprehensive analysis will gradually expand to energy cooperation among other BRICS countries. The model assumes that the two parties have successively selected two strategies, namely positive cooperation and negative cooperation. Therefore, a game payoff matrix is constructed based on the status quo of their energy cooperation (see Table 11.1). In Table  11.1, under different strategy combinations, A1, A2, A3, and A4 represent China’s payoff,4 while B1, B2, B3, and B4 represent other BRICS countries’ payoffs. And A1>A2>A3>A4, B1>B2>B3>B4 are satisfied. Pa and Pb (0≤Pa≤1, 0≤Pb≤1) respectively indicate the probability that China and other BRICS countries adopt a cooperative strategy in the game. Therefore, as shown in Table 11.1, the probability of the two parties adopting a negative cooperation strategy is 1-​Pa and 1-​Pb. When both parties adopt a negative cooperation strategy, both of them get the lowest payoffs, namely A4 and B4, due to a slow cooperation progress; when one country adopts a negative cooperation strategy and the other adopts a positive one at the same time, the former will, at a low cost, benefit from its partner, and ultimately receive the highest payoff utility, while the latter still, in the case of its positive cooperation strategy, obtains a payoff slightly higher than that in cooperation termination. As a result, the payoff outcome is (A1, B3) or (A3, B1); finally, when both parties adopt a positive cooperation strategy, the energy industry development and exchange will be smooth and both parties will obtain payoffs within a reasonable range, namely A2 and B2. According to the Von Neumann-​ Morganstein utility function (VNM utility function), the expected utility that China can obtain in the payoff matrix shown in Table  11.1 is:  E(A) = Pa* [Pb*A2+ (1-​Pb) *A3] + (1-​Pa) * [Pb*A1+ (1-​Pb) *A4] (1) And because the Nash equilibrium in the mixed strategy builds on the condition that “every player must have no preference for each pure strategy”, so for China: Pb*A2+ (1-​Pb) *A3 = Pb*A1+ (1-​Pb)*A4 (2) Table 11.1 Game payoff matrix for energy cooperation among the BRICS countries Other Countries China

Positive cooperation (pb)

Negative cooperation (1-​pb)

Positive cooperation (pa) Negative cooperation (1-​pa)

(A2,B2) (A1,B3)

(A3,B1) (A4,B4)

Source: Courtesy of the author.

BRICS and international energy cooperation  189 From equation (2), Pb = (A4-​A3)/​(A2-​A3-​A1+A4) is obtained, and the value is set equal to e.  Similarly, for other BRICS countries, Pa = (B4-​B3)/​(B2-​B3-​ B1+B4) is obtained, and the value is set equal to e’. Then the probability Pb = e and Pa = e’ is non-​pure strategy Nash equilibrium in the mixed strategy. However, it would be too ideal to attribute strategy choice in an actual game to an exact probability. In fact, the strategy choice is usually greater or lower than the equilibrium point.5 Obviously, when Pb>e, only Pa = 0 can maximize E(A) value, namely Pb*A1+(1-​ Pb)*A4. In such case, China adopts a negative cooperation attitude; when Pbe, it will choose a negative cooperation strategy, namely Pa = 0; yet when China believes that they are more likely to choose negative cooperation strategies, that is: When Pb