an overview of the new emerging balance of forces- ‘the brics, g 20 and g 7’ response to the...

8/3/2019 An Overview of the New Emerging Balance of Forces- the BRICS, G 20 and G 7 Response to the Global Financial

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Asian Economic and Financial Review,1(2),pp.67-82 2011

An Overview of the New Emerging Balance of Forces- the BRICS, G 20 and G 7

Response to the Global Financial Crisis

Abstract

Author

Akhilesh Chandra PrabhakarAssistant Professor in InternationalEconomics, Debre Berhan University,Ethiopia. Email:[email protected]

The USA and the EU economies have just been through a severe recession marked byfinancial turmoil, large-scale destruction of wealth, and declines in industrialproduction and global trade. As the result of reduction in the demand of products in theglobal market, continued falling prices due to lack of demand of their products. TheUSA economy is not competitive now. The current international financial crisis was anexplosion that was the ultimate result of the accumulation of a number of unbalanced,

inconsistent and unsustainable factors in the world economy. It is a reflection of the

limitations of the liberal capitalist development concept of Western countries. It also

shows the dangers of blindly copying the Western development model. The BRICScountries (Brazil, Russia, India, China and South Africa) and the G 20 replacing the G-7 in the wake of the economic crisis, as the premier global forum to deal with thecrisis, reflected a relative decline in the power of the US and other advanced capitalist

countries. The BRICS can represent the interests of all the developing countries. TheBRICS countries are not only the emerging largest economies but its growing strongeconomic and political relationship with the African, Latin American and Asiancountries; it may change in the international economic order through using commoncurrency in trade, sharing their own science and technology to improve and transformin agriculture, energy, and industrial sectors, and establishing a new military block sothey can provide security from the imperialist aggression. Of course, China would beas backbone of the BRICS.

Introduction

The global financial crisis, which was ignited bythe subprime mortgage crisis in the UnitedStates, has rapidly spread a world-wide problem,from developed countries to newly emergingmarkets and developing countries, and from thefinancial industry to the real economy, and thescope, depth and impact are unprecedented. Theglobal economy has been in serious trouble forsome time now, with negative growth andrecession in major advanced economies.International financial markets have beenexperiencing great fluctuations and the financialsystems of the US and Europe have beenperforming extremely poorly and experiencingshortages in liquidity. Some newly emergingmarkets and developing countries have beensuffering from large capital outflows, causingserious worsening of their economies.Protectionism is again emerging worldwide,intensifying international competition andfriction in the areas of trade, capital and

technology. An analysis of this crisis shows thaton the surface, the problem began with thewidespread occurrence of defaults in subprimemortgage loans and an explosion of financialderivatives in the United States. The more directcause was the inappropriate macro-economic policies of developed capitalist countries, over-expansion of the virtual economy and ineffectivegovernment regulation in addition to a pattern oflong-term consumption on credit that could notbe sustained. Looking at the inherent cause, thecrisis has revealed the intrinsic shortcomings ofan absolutely free market economy, deep rootedstructural problems in economic globalization

and serious defects of the irrational internationaleconomic order and international financialsystem in particular. The crisis has grown into a profound global economic recession, furtherrevealing the damage caused by the theory andpractice of the neo-liberalism characterized byprivatization, marketisation and liberalization.

AESS Publications, 2011 Page 67
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The IMF estimates that global recessions seem tooccur over a cycle lasting between 8 and 10years. During what the IMF terms the past threeglobal recessions of the last three decades, globalper capita output growth was zero or negative.More than 1.14 billion people estimated in 2011 1

to be living below the international poverty lineof 1.25 dollars a day. Close to two millionchildren could die in the next five years if thecrisis persists. Some of the poorest nations in theworld (especially those in Sub-Saharan Africa)seem to have been left behind and marginalizedby globalization, and they are poorer today (i.e.,their average real per capita income is lowertoday) than they were two or three decades ago.Dominique Strauss-Kahn, the managing directorof the International Monetary Fund (IMF), toldreporters in Hong Kong recently: "2010 is goingto be a crucial year the first year after the crisiswhen countries can lift their eyes to the longer-

term horizon." He added that this will be "a yearof transformation for the world."2

An estimated 925 million people in the worldwere undernourished in 2010, of which 906million lived in developing countries. Womenmake up, on average, 43% of the agriculturallabour force in developing countries, rangingfrom 20% in Latin America to almost 50% inEast and South East Asia and sub-SaharanAfrica. The FAOs 2010-11 edition of The Stateof Food and Agriculture makes Closing theGender Gap in Agriculture, a top issue. Almost

one billion people are hunger in the world today,according to FAO. Some three quarters of theworlds extreme poor live in rural areas, and amajority of them are involved in agriculturalactivities. Africa is the only region where overallfood security and livelihood are deteriorating.

The World Bank president Robert Joylaki warnsin the meeting of G-203 that due tounemployment problems, high petroleum prices,inflation especially increased price hike in food

items, the current global economic crisis, and

the Middle-east and North African political

crisis could push 100 million people more intoextreme poverty worldwide in 2011.4

1 Source: BBC Hindi News on 17 th April, 2011.

2International Monetary Fund (2010), WorldEconomic Outlook

3 Source: BBC Hindi News on 17 th April, 2011.

The International Monetary Fund estimates thatthe global economy contracted by 0.6 per cent in20091and the implications of this have beensevere for many. Economic growth indeveloping countries was only 1.7 per cent in2009 compared with 8.1 per cent in 20072.However, if China and India are excluded, theeconomies of developing countries actuallycontracted by 1.8 per cent3. The World Bankestimates that developing economies will expandby 6.2 per cent and 6.0 per cent in 2010 and2011 respectively.5

Table: 1. GDP Growth Estimates &

Projections: IMF and World Bank

2008 2009 2010 2011

WorldOutput

2.8 -0.6 4.8 4.2

Developed

Countries

0.2 -3.2 2.7 2.2

DevelopingCountries

6.0 2.5 7.1 6.4

Source: IMF World Economic Outlook, October2010

Table: 2. World Bank Global Economic

Prospects, June 2010

2008 2009 2010 2011

WorldOutput

1.7 -2.1 3.3 3.3

DevelopedCountries

0.4 -3.3 2.3 2.4

DevelopingCountries

5.7 1.7 6.2 6.0

Source: Note: Figures for 2008 and 2009 areestimates, while that for 2010 and 2011 areforecasts

The Impact of Financial Crisis on Developing

Countries

Almost, all regions of the developing world havebeen affected except Eastern and Central Europe,which were the beneficiaries of large amountsof inflows of speculative finance capital (hot

money) that created domestic bubbles not unlikethe larger and more dramatic one in the USA tovarying degrees by this particular crisis. Theextent of impact depends not only on the degreeof export dependence of developing countries but also and often more crucially on the

4World Bank (2010), Global EconomicProspects: Fiscal Headwinds and Recovery



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dependence on capital flows, including portfolioinvestment, bank lending, foreign directinvestment (FDI) and also foreign aid.5 Beforethe crisis many mainstream economists arguedthat developing Asia would be relatively immunefrom the adverse effects. Although it is the mostglobally integrated region of the world economyin terms of trade and capital flows, mostcountries in the region have also been the mostcareful to avoid large fiscal deficits, have runsurpluses on the current account of the balanceof payments and have tried to base their growthon exports rather than speculative bubbles. (Indiais somewhat of an exception to this.) But eventhis region has been quite badly affected, withsome countries in East and Southeast Asia, likeIndonesia and the Philippines, showing declinesin total output. Among developing countries,China and India were supposed to be especiallydifferent, and it was argued that their economies

are now decoupled or delinked from the westand now have their own autonomous growthtrajectories. It was even believed that this couldmake than an alternative growth pole in theworld economy. But thus far even China andIndia have shown similar trends of sharplydeclining growth rates of GDP, even though theyhave not turned negative, although it is likelythat the Chinese economy may recover morerapidly because of the impact of the fiscalstimulus and other recovery measures that havebeen instituted. This sharp and almost immediatetransmission of recessionary tendencies is

strongly related to the various forms of economicintegration that have been generally induced by policy changes across the world, in bothdeveloped and developing countries. As a result,there is now several transmission mechanismsoperating to spread the crisis from developed toless developed economies and from onegeographical region to all others. Thesetransmission mechanisms include exports ofgoods and services; capital flows; patterns ofmigration and remittances; sharp changes inworld trade prices of important essential itemslike oil and food. It is important to remember

that while these do operate significantly upondeveloping economies, their impact can bemitigated by domestic policy measures,especially in countries with potentially largedomestic markets like India.

5Jayati Ghosh, The Global Financial Crisisand the Developing World, The Marxist, XXV12, JanuaryJune 2009, New Delhi.

World Trade Decline

The World Trade Organization predicted thatexports will fall by more than 15 per cent in2009.6 Despite all the recent changes in globaltrade patterns, the United States as well as theEuropean Union to some extent has remained themost significant sources of external demand forall other countries. In the boom period, the USeconomy has been the engine of growth for therest of the world, because its own bubblegenerated high rates of private spending thatinvolved huge and growing (but ultimatelyunsustainable) demand for imports from the restof the world. It was inevitable that this wouldhave to come to an end and the US would haveto wind down its external deficits. But since thisis happening through the crisis, the collapse indemand for US imports has been particularlysharp. Since most developing countries are now

more dependent upon export markets than theywere even a decade ago, this sharp declineobviously has dramatic effects upon theirdomestic economies.

The Role of G- 20

The share of these major developing economiesin world output has risen steadily in recent timescompared to the G-7 countries. Given therelatively higher growth rates being witnessed bythe developing countries, the share of thedeveloping countries in the total GDP of G- 20 isprojected to increase from 35% in 2008 to 50% by 2020.7 A Policy Brief of the CarnegieEndowment titled The World Order in 2050 goeseven further to argue:

The economy of the G-20 is expected to grow at

an average annual rate of 3.5 percent, rising

from $38.3 trillion in 2009 to $160.0 trillion in

2050 in real dollar terms. Over 60 percent ofthis $121 trillion dollar expansion will come

from six countries: Brazil, Russia, India, China,

Indonesia (the traditional Big Five

economies), and Mexico. U.S. dollar GDP in

these six economies will grow at an average rate

of 6 percent per year; their share of G20 GDP

will rise from 19.6 percent in 2009 to 50.6

percent in 2050. By contrast, GDP in the G7 will

6 Source: WTO report, 2009.7 Prasenjit Bose, Global Economy in Crisis,The Marxist, XXVI 3, JulySeptember 2010,New Delhi.



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grow by less than 2.1 percent annually, and their

share of G20 GDP will decline from 72.3

percent to 40.5 percent.Recently, the G-20 announced, will provide $35billion8 a loan to the Middle-east and NorthAfrican countries for creating a new jobopportunity, to control price hike, security, justice and food security etc. where the mostgovernments are facing a deepen political crisisdue to price hike (especially in food items) andunemployment problems. The successful popularuprising triggered in the Arab World, whichstarted from Tunisia (which is wealthier thanmany of the Asian and African countries butwhere the majority of the population lives belowthe poverty line) to Egypt, Libya, Bahrain,Morocco, Jordan, Yemen, Syria, Algeria, andSudan.

BRICS Emerging as the Alternative Balance

of Force

BRICS countries are taking a new shape. Thesecountries are closely aligned with theASEAN, African and Latin Americancountries, emerging as the alternativeengine of growth for the world economy.BRICS summit was held on April 13-14,2011 in China where (members countries-- Brazil, Russia, India, China and SouthAfrica) the heads of BRICS countrieshave attended the summit andunanimously announced the joint

declaration for the future action. BRICScountries are expected to contribute one-third of the world's GDP increment in2015, by which time their total economywill surpass America. Estimated on the basis of current market exchange rates,the BRICS (Brazil, Russia, Indian, Chinaand South Africa) grouping would makeup about 22 per cent of the worldeconomy.9 BRIC formally becameBRICS this year with the admission ofSouth Africa into its fold. The reportpredicted that the BRICS (Brazil, Russia,

Indian, China, and South Africa)countries would have a stable and fairlyrapid growth momentum in the next 15years due to a favourable external

8 Source: BBC Hindi News, 17th April, 2011.9 Source: The Annual Report of Social-EconomicDevelopment (2011) on BRICS, a blue bookreleased on Thursday 14th April, 2011 by theSocial Sciences Academic Press of China.

environment brought on by the steadygrowth in major developed economies.

The BRICS are both the fastest growing andlargest emerging markets economies. Theyaccount for almost three billion people, or just

under half of the total population of the world. Inrecent times, the BRICS have also contributed tothe majority of world GDP growth. According tovarious economists projections, it is only amatter of time before China becomes the biggesteconomy in the world - sometime between 2030and 2050 seems the consensus. In fact, GoldmanSachs believes that by 2050 these will be themost important economies, relegating the US tofifth place. By 2020, all of the BRICS should bein the top 10 largest economies of the world. Theundisputed heavyweight, though, will be China,also the largest the creditor in the world.

Apart from their growth characteristics, theBRICS countries frankly have little in common.They are primarily an investment category now,although there may some political and economicalliances that develop from that grouping. In2008, the BRIC countries had a summit andanalysts believed that they were seeking to'convert their growing economic clout intopolitical power'. These analysts believe that byworking together, the BRIC countries can carveout the future economic order betweenthemselves. They believe that China candominate in manufactured goods, India inservices, and Russia and Brazil in raw materialsupplies. By working together, they caneffectively counter the entrenched interests andorganizational structures of the west. In reality,right now, relations with the US, the EU and bilaterally are more important, but it is worthwatching developments between BRIC nationsto see if these notions start to become entrenchedin active co-operation.

The BRICS countries (Brazil, Russia, India,China and South Africa) replacing the G-7 in thewake of the economic crisis, as the premierglobal forum to deal with the crisis, reflected arelative decline in the power of the US and otheradvanced capitalist countries. The US is not theworlds most competitive economy, that thedollar has for long not been backed by gold, andthat there are just too many dollars circulatingglobally and too much wealth invested in dollardenominated assets to ensure confidence in thecurrency. Yet, there is no other currency that



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appears likely to emerge as an alternative in theforeseeable future. India-ASEAN trade havereached USD 47 billion which is Indias 4th

ranked with electronics, chemicals, machineryand textiles almost its covering 80 percent of thetotal (489 items excluding agricultural products).China-ASEAN Free Trade Treaty is effectivefrom 1st January 2010. Its 4th trade partner ofChina will share at least 10 percent of totalChinese trade. It is expected to reach more thanUSD 200 billion trades between China-ASEANamong the 1.9 billion populations. It is 3rd largesttrade area after NAFTA and EU. Even China istrying to sign with South Korea. However,Thailand will get biggest Chinese market fortheir cheapest jewelry and other cosmeticscommodities. In 2009, both regions did sign oninvestment. India-China has already signed anagreement on trade treaty in 2010. Tradebetween India and China has reached $48 billion

in 2009-10; and both countries are committed toreach $100 billion in 2011-12.

An Overview of the BRICS Economies

Brazils economy is the largest in SouthAmerica and the country boasts well developedagriculture, mining, manufacturing, and servicesectors. Since 2003, Brazil has improved itsmacroeconomic stability, built foreign reserves,reduced debt, kept inflation rates under controland committed to fiscal responsibilities. Afterwitnessing unprecedented economic growth in2007 and 2008, the global financial crisis finallyhit Brazil. Brazils currency and stock marketsaw huge fluctuations as foreign investmentsdwindled, demand for commodity exports driedup and external credit increased. However,Brazil was one of the first emerging markets tostage a recovery, with GDP growth returning to positive levels. The Central Bank predictsgrowth of 5% in 2010. The economy of Brazil isthe world's 8th largest by nominal GDP and 9th

largest by purchasing power parity. Brazil hasmoderately free markets and an inward-orientedeconomy. Its economy is the largest in Latin

American nations and the 2nd largest in thewestern hemisphere. Brazil is one of the fastergrowing major economies in the world with anaverage annual GDP growth rate of over 5percent. In Brazil, its GDP was estimated at R$3.143 trillion in 2009. The Brazilian economyhas been predicted to become one of the fivelargest economies in the world in the decades to

come. Brazil is traditionally considered a leaderof the developing world.

Russias GDP using the Purchasing PowerParity (PPP) method was US$ 2,218.76 Billionin 2010. It is the sixth largest economy in the

world. Its GDP grew 3.966% over 2009, makingit the 87th fastest growing economy in the world.This follows a near-catastrophic drop in 2009GDP of -7.90%. 2011 performance is expectedto further improve, with the IMF forecasting4.34% growth to domestic product.

The Indian economy is one of the fastestgrowing economies and is the 12 th largest interms of the market exchange rate at $1,430.02 billion (2010 Indias GDP). In terms of purchasing power parity, the Indian economyranks the fourth largest in the world. However,

poverty still remains a major concern besidesdisparity in income. In 2010, Indias PPP GrossDomestic Product stood at over $4 trillion, andwas the fourth largest economy by volume. InIndia, the dollar billionaires whose number hadincreased from 26 to 52. In 2011, their numbershad further increased to 69. Their asset valuesare now more than 30 per cent of the country'sGDP. But the nearly 80 per cent of the Indianswho are surviving on less than 50 cents a day.This growth of inequalities has now become auniversal phenomenon, with growinginequalities witnessed both between thecountries and within the countries.

South Africa compares well to other emergingmarkets on affordability and availability ofcapital, financial market sophistication, businesstax rates and infrastructure, but fares poorly onthe cost and availability of labour, education, andthe use of technology and innovation. In a 2010survey, South Africa was found to have thesecond most sophisticated financial market andthe second-lowest effective business tax rate(business taxes as a percentage of company profits), out of 14 surveyed countries. Thecountry was also ranked fourth for ease ofaccessing capital, fourth for cost of capital, sixthfor its transport infrastructure (considered betterthan that of China, India, Mexico, Brazil andPoland, but behind that of Korea and Chile), andseventh for FDI as a percentage of GDP: in 2008it was over 3% of the GDP.

Of course, China would be as backbone of theBRICS. China is a US$ 6 trillion economy is



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about 41% of US's economy. But China is stillgrowing fast and Chinese currency is stillappreciating fast. China can catch up US inabout 10 years in US$ in economy size. TheyContribute 40% of World Population. Chinesegrowth, which has pulled along many otherAsian developing countries in a productionchain, has been largely export-led. The USA, EUand Japan together account for more than half ofChinas exports, and their economic crisis was bound to affect both exports and economicactivity in China. It is true that Chinas policymakers have responded by shifting to anemphasis on the domestic economy throughexpansionary fiscal policy, and moved to somediversification of trade to other countries. Butthis is unlikely to generate levels of internationaldemand that will come anywhere near to themeeting the shortfall created by recession in thedeveloped countries. Chinas share of global

imports (at less than 4 per cent) is still too smallfor it to serve as a growth engine on the samescale as the US, which was absorbing around 25per cent of world imports. Over the past twentyand more years great achievements have beenscored in Chinas reform, opening-up andmodernization drive, profound changes havetaken place in the society and economy andoverall national strength has been considerablyenhanced. China began its march towards thethird of the strategic goals: full-fledgedmodernization and a per capita income at thelevel of moderately developed countries by the

middle of the 21st century.10 A market-orientedreform was initiated as early as 1979 and,following many years of investigation in theoryand practice, China decided in 1992 that the goalis to develop a socialist market economy. Aftermore than twenty years of reform, a socialistmarket economy has now been basicallyinstituted in China, as shown by the following:

Firstly, the economic system and operatingmechanism of the countryside have seen radicalchange. The rural peoples communes set up onthe basis of a larger size and a higher degree of

public ownership and the integration of

10 Li Tieying, Opportunities and Challenges for

the Chinese Economy in the 21st Century, TheMarxist July-Sept. 2003, New Delhi.

government administration and communemanagement were disintegrated in the early1980s. In their place were introduced a two-tiermanagement system based on the householdcontract system and a combination of unifiedmanagement with independent operation, whichis more compatible with a market economy andgives the peasants more autonomy in productionand management, and the right to free migration.

Secondly, the ownership structure has beenreadjusted and reformed, and the principle wasformulated of keeping public ownership in adominant position, while developing diversifiedeconomic sectors side by side. The proportion ofstate ownership in the national economy droppedfrom 78% in 1978 to 40% in 1999 while the proportion of non-state ownership rose from22% to 60% during the same period. Of thelatter, the collectively owned sector was 35%

and private economy was 25% (only 0.9% in1978). The first two sectors constituted 75% ofthe national economy, which indicates thedominance of public sectors of the economy. Thereadjustments of ownership structure havefacilitated the development of productive forces.

Thirdly, the reform of the state-owned economyhas made breakthroughs and the state enterpriseshave shifted from administrative appendages toagents in the market that are independent andresponsible for their own profits and losses. Mostof the state-owned enterprises have been

transformed into companies with limitedliabilities and some have become listedcompanies, going in for the modern enterprisesystem as entities with diversified equity. A largenumber of small state-owned enterprises have been turned into enterprises with multipleproperty rights through joint stock partnerships,auction and capital-pooling, and some havechanges their operating forms through leasingand contract operation.

Fourthly, China has successfully reformed theprice system and constructed a mechanism for

setting prices mainly through the market. Thetwisted relationships among the prices of basicindustry products, manufactured products, andindustrial goods and of farm produce derivingfrom the planned economy have been basicallycorrected and streamlined. Except for a few vitalcommodities and services that have a closebearing on the national economy and the well-being of the people, prices of more than 95% ofcommodities and services are determined by the



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market. The market determination of prices nowserves as the main lever to regulate supply anddemand and achieve a rational allocation ofresources. Initial success has been made insetting up factors markets, especially a capitalmarket.

Fifthly, China reformed the governmentfunctions, and a basic change from direct toindirect control has taken place in governmentalregulation and control of the economy. China has pushed the reform in the macroscopic controlsystem in the following five ways:

a. Reform of the planning system. The planning departments of thegovernment have shifted their emphasisfrom issuing production and circulationquotas to formulating long-term plansof national economic development and

coordinating relations between variouseconomic sectors.

b. Reform of the investment system. Theenterprises of all economic sectors arebecoming real investment entities andthey are encouraged to get their fundsdirectly from the capital market.

c. Reform of the financial system. A tax-sharing system was introduced in 1994whereby the central and localgovernments split the taxes and each

collects its own.

d. Reform of the monetary system. Aninitial system of macro-control andsupervision by the central bank has been set up, non-commercial bankinghas been separated from commercialbanking and specialized banks like theIndustrial and Commercial Bank, theAgricultural Bank, China Bank and theConstruction Bank are being graduallyturned into commercial banks.

e. Reform of the governments mode ofeconomic management. We have madegreat effort to separate the functions ofthe government from those of enterprises and cancelled thespecialized departments of economicmanagement. The government nolonger directly administers the internalaffairs and business operations of theenterprises, but guides them and

standardizes their production andoperating activities by economic andlegal means.

Sixthly, the policy of opening to the outsideworld has scored considerable achievements anda radical change from a closed to an openeconomy has taken place in foreign economicrelations. In the early 1980s China set up fourspecial economic zones -- Shenzhen, Zhuhai,Shantou and Xiamen. In the middle of the 1980sChina opened fourteen coastal cities from Dalianin Northeast China to Beihai in GuangxiAutonomous Region. Later China established theHainan Special Economic Region and thePudong New Area in Shanghai. Since the early1990s China has pursued an omni-directionalopen policy and now a pattern of multilevel,multifarious, wide-ranging and unidirectionalopening up is already in its place. Structural

reform in foreign trade has been continuouslydeepened and the mandatory planning reduced.

The policy of opening to the outside world has brought about great changes in Chinaseconomy: foreign capital and advancedtechnology have been introduced into China,accelerating the upgrading and renewing of products and the expansion of imports andexports. Along with these also come theadvanced management techniques and theoperating mechanisms compatible with themarket economy.

The main reason for the great success in Chinaspost-1978 reforms is that after summing up theirhistorical experiences and lessons, correctedtheir pre1978 mistakes, and have upheld theprinciple of emancipating the mind and seekingtruth from facts. During the process of reformand opening up China proceed from the actualconditions in China, respect the initiative of the people, learn and refer to overseas experienceand judge everything by the fundamental criteriaof the three favorables, namely, whether it isfavorable for promoting the growth of the

productive forces in a socialist society, forincreasing the overall strength of the socialiststate and for raising the peoples livingstandards. China has thus blazed a road of building socialism with Chinese characteristicsunder the guidance of Deng Xiaoping theory.

Challenges to the Development of Chinese

Economy in the 21st Century



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China is rich in resources; per capita shares inthem are rather low, below the average level ofthe world in many items. For example, the totalvolume of fresh water in China is 2.8 trillioncubic meters, making it the sixth largest freshwater country in the world. But in terms of percapita shares China takes up the 109th placeamong the counties in the world, with only 2,400cubic meters per capita or a quarter of the worldaverage. The forest area is 134 million hectaresand the forest cover rate is 13.92%, while the percapita volume of wood storage is only 13% ofthe world average. The total area of land undercultivation is 95 million hectares, with only 0.07hectare per head, less than a third of the worldaverage. Soil erosion and desertification threatento further reduce the arable land. Moreover,some important resources like fine qualityenergy deposits are also in serious shortage. Allthese impose severe restraints on sustainable

development.

Next, the steady growth of total population andthe aging of population bring about moredifficulties for employment and social pensionsecurity. The total population will be still on theincrease during the first half of the 21st centurydue to a large population base and a grimsituation will loom for employment. Meanwhile,the age structure of Chinese population isundergoing a rapid change and the pace of itsaging is accelerating. By 2010 the number of people over 65 years old will reach 113.78

million, making up 8.2% of the total population.With a low level of economic development toolarge a proportion of the aged will bring aboutmore difficulties for employment and exertunfavorable influence over the economic growthand the improvement of the peoples livingstandard.

Thirdly, the unreasonable economic structure isan acute problem in China as manifested by thefollowing: The position of agriculture as thefoundation of the economy is not stable,agricultural productivity is low, there is no outlet

for surplus labor in rural areas to be channeled toother sectors, and the income of farmers isgrowing very slowly. In the industrial setuptechnology and knowledge intensive high-techindustries account for a small percentage whilegeneral processing industries with low addedvalue have a relatively surplus capacity and thesupply exceeds demand. With regard to theorganizational structure of enterprises,diseconomy of scale is a general phenomenon

and there are no large enterprises that cancompete with big transnational corporations. Theoutput value of tertiary industry constitutes arather small percentage of the GNP, and thenumber of employees in these industries is notlarge enough.

Fourthly, development is unbalanced betweenurban and rural areas and between differentregions; the gap between them is quiteconsiderable. China remains a developingcountry and has a typical dualistic economy. Onthe one hand, it has established a huge industrialsystem and the output of secondary industrymakes up 50% of the GDP; on the other hand,urbanization remains at a low level, 70% of its population makes a living on traditionalagriculture and a wide gap exists between townand country. The average income ratio of urbanto rural residents is 3:1. At the same time, the

gap finds its expression between eastern Chinaand western China. The eastern coastal regionsare more developed economically than thewestern regions, the per capita GDP ratio beingthree or four to one.

Fifthly, China has initially set up a socialistmarket economy, but the task of economicrestructuring is far from being accomplished and,in particular, the reform in the state-ownedenterprises is confronted with many difficulties.It is still to be solved how the state as owner willeffectively encourage and restrain the

management of the state-owned enterprises afterthese enterprises become the independentlyoperating entities. A modern enterprise systemaccording both with market principles and withthe actual conditions in China has yet to beformulated. The high rate of debts and highproportion of redundant personnel in the state-owned enterprises hinders their competitiveness.Monetary institutional reform must be furtherdeepened and how to solve and prevent financialrisks waits for a better answer. There are alsoproblems to be solved in the markets for factorssuch as capital and labor, not to mention the

investment and social security systems.Sixthly, corruption is a historical phenomenonprevalent in all countries. During the period oftransition towards the socialist economy thetraditional highly concentrated administrativerestraints have gradually been weakened whilenew systems, mechanisms and legal institutionshave yet to be perfected, giving rise to manyloopholes. As a result, corruption cases oftrading power for money and abusing power for



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personal gain are rather numerous, doing greatharm to the relations between the governmentand the broad masses of the people andnegatively impacting on the reform, opening upand economic construction.

Seventhly, following the return of Hong Kongand Macao the complete reunification of themotherland is an important historical taskconfronting the Chinese people. The Chinesegovernment has reiterated once and again theiradherence to the principle of peacefulreunification and one country, two systems.However, with the connivance of and supportfrom international anti-China forces theTaiwanese authorities have deliberately avoidedand refused to acknowledge the principle of oneChina and continue to stick to the stance of anindependent Taiwan. They have been engagingin arms expansion in a vain attempt to obstruct

the reunification of Taiwan and the mainland. Ininternational terms, China also faces rigoroustests with the approach of the new century. First,the process of globalization will hasten its pace,the Chinese economy will be more closelyrelated to the world market; transnationalcorporations will appear on the market in Chinaas fierce competitors, thus making the domesticeconomy an arena of international competition.The entry of China into the WTO will driveforward the reform, opening up and economicdevelopment of China, but it will also place pressure on the economy, especially on

agriculture, technology intensive industries andthe banking and insurance industries, in whichChina lags behind the developed countries.

Second, China will face competition from thedeveloped countries in science and technology.In the 21st century, scientific and technologicaladvance will be the primary force driving humansociety forward. The outcome of economiccompetition between nations hinges on scientificand technological innovation and the capabilityto transform science and technology into productive forces. Whoever has the highest

technical level and the most powerfultransforming capability will occupy thedominant position in the increasingly fierceinternational competition. For historical andinstitutional reasons, although China has greatlyimproved its capacity for innovation since thereform and opening up, it is still week in thisfield. Achievements in scientific research cannotsmoothly be turned into real productive forces;scientific and technological advances make far

less contribution to economic growth in Chinathan in developed countries. China still has along way to go to catch up with the advancedcountries in science and technology. On top ofthat, China must face up to hegemony and powerpolitics. The mainstream will remain unchangedin the 21st century, but, in the wake of the coldwar, a few superpowers continue to pursuehegemony and power politics and continue tokeep to cold war thinking. They invent everyexcuse to interfere in the internal affairs of othercountries, using force or the threat of it againstother states and violating their sovereignty. Theyhate to see a powerful and prosperous China andtherefore try every means to contain China andcheck its advance.

Tasks and Opportunities for the Development

of Chinese Economy

China will face severe challenges in its economicdevelopment, but it also has many favorablefactors. China began to implement the tenthFive-year Plan in 2001. The goal is for theaverage annual growth rate of GDP to be 7% inthe next ten years, and the present GDP to bedoubled by the end of 2010. The presentrelatively comfortable life of the people will befurther improved, the economic structure will beoptimized and the national aggregate economicstrength will be greatly enhanced.

After the cold war, the world is still full of

contradictions and local conflicts have brokenout here and there. However, peace,development, social progress and a prosperouseconomy are what the people all over the worldwant: they are the main themes of the 21stcentury and striving for their realization is anunstoppable trend of history. China will continueto pursue an independent and peaceful foreignpolicy and strive for a relatively long period ofpeace in the international environment so that itcan concentrate its efforts on economicconstruction. China is still in the throes ofindustrialization and fan from completing this

task. The per capita GDP falls short of 1,000 USdollars, belonging to the lower-middle category.Chinas advantages as a newcomer tomodernization have not been given full play.Meanwhile, as a big developing country with thelargest population in the world, China has greatmarket potential and a broad space fordevelopment from infrastructure, manufacture toservices, in either urban or rural areas, in eitherthe east or the west regions. Tapping these



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potentials will contribute to the achievement ofthe third-phase strategic goal of socioeconomicdevelopment, industrialization andmodernization of national economy.

Over the twenty and more years since the reformand opening up we have maintained sustainedand rapid development of the national economy.The overall national capacity of the country hasbeen considerably strengthened. The bottlenecksin infrastructure industries that long held backnational economic development has now beenloosened. In the field of science and technology,a complete research and development systemconsisting of basic, applied and developmentresearch is shaping up, which will lay a goodfoundation for Chinas economic development inthe 21st century.

China has initially established a socialist market

economy, an ownership structure with public andstate ownership in the dominant position anddiverse forms of ownership developing side byside is coming into being, the market is beginning to play a fundamental role inresources allocation under the macro control bythe state. All these changes will constituteinstitutional guarantees for the development ofChinese economy.

A worldwide scientific and technologicalrevolution is in the making, with informationtechnology as the forerunner and with

microelectronics, biological engineering, newenergy resources, new materials, aviation andaeronautics, and ocean engineering technologiesas the main contents. And achievements in therevolution are gradually being commercializedand industrialized. New high-tech sectors areemerging and traditional industries are beingtransformed with high technologies. All theseprovide new opportunities for China to make useof the achievements of technical revolution inother countries and give full play to its stayingadvantages in order to bring about a leap in thedevelopment. Since the 1990s economic

globalization has gathered momentum. Therehave been more and closer contacts betweencountries and regions through commodity trade,capital flow, technical diffusion and informationtransmission, exerting extensive and profoundinfluence over the politics, economy and cultureof all countries. As a big developing country,China will take an active part in the internationaldivision of labor, exchange and competition, takeup the gauntlet of economic globalization, and at

the same time make every effort for theestablishment of a fair and rational newinternational economic order. As the ninthbiggest export country, China will, with its entryinto the WTO, have more opportunities to participate in international cooperation anddivision of labor, promote the marketing ofChinese commodities all over the world andmake export further stimulate the growth ofdomestic economy. The comparative advantageof cheaper labor will still be present for China ininternational competition as the country is veryrich in human resources. In order to seize theopportunities, face up to challenges and attainthe goal of socioeconomic development Chinawill follow the following things:

First, China will continue to make economicconstruction our central task and balance reformdevelopment and stability in order to create a

favorable social and political environment foreconomic development.

Second, China will further deepen economicrestructuring, make strategic readjustments to thestate-owned economy, effectuate strategicreorganization of state-owned enterprises andstrive to seek various forms of for materializingpublic ownership. Further, China will establishand improve the modern enterprise and socialsecurity systems, actively standardize anddevelop production factor markets, and improvethe macroeconomic control system, including

reform and improvement of tax, monetary andinvestment institutions.

Third, China will continue to readjust andoptimize the economic structure with the mainaim being to strengthen the competitiveness ofindustries and enterprises. The main tasks are asfollows: Readjust the rural economic structure, promote agricultural industrialization andurbanization and hasten the steps of agriculturalmodernization, with a focus on increasingfarmers incomes; Accelerate development ofhigh-tech industries with the information

industry as the leading edge, base the nationaleconomy on information and networks and linkinformationization with industrialization;Transform traditional industries with advancedtechnologies and equipment, speed up thetechnical upgrading of traditional industries andthe renewal of products; Encourage and guidethe tertiary industry so that it will develop at anaccelerated pace. Open up new areas of serviceand raise service quality.



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Fourth, China will implement the strategy ofdeveloping the country by relying on science andtechnology, enhance the scientific andtechnological innovation capacity and improvethe quality of the whole population. The mainmeasures are: With economic development,gradually increase input in scientific research,technical development and education; Withreform as a driving force and throughinstitutional innovations, reintegrate science,technology and education with economicdevelopment, and encourage enterprises toundertake technical innovation; Closely followworld developments in science and technologyand the knowledge economy, and concentratingon selected areas to speed up the high-techdevelopment and its industrialization.

Fifth, China will promote rational distribution

and coordinated development of regionaleconomies and gradually narrow the gap between regions. Taking advantage of itsfavorable conditions, the eastern part of thecountry will continue to play its role in leadingthe reform and opening up. It will activelydevelop technology and knowledge intensiveindustries, raise its ability to take part ininternational competition and accelerate theprocess of modernization. The central zone will,on the basis of consolidating the position ofagriculture, promote industrialization, vigorouslytransform traditional industries, and raise

productivity and operating efficiency of industry.China will actively and steadily carry out thestrategy of developing the western region,focusing on rational tapping and utilization ofnatural resources, protection and improvement of biological environment and construction ofinfrastructure.

Sixth, China will further expand in opening tothe outside world and strive to do better in thisregard. Taking advantage of its entry into theWTO, conforming to the trend of economicglobalization and in accordance with the rules of

international economic operation, China willextensively take part in international economiccooperation and competition, strive to raise thelevel and quality in the use of foreign capital,and channel foreign capital into the developmentof the middle and western parts of China, intothe technical transformation of existingenterprises and into new and high-techindustries.

Chinese Response to the Global Financial

Crisis

The international financial crisis has createdunprecedented difficulties and challenges for theChinese economy. It has brought about a markedshrinkage of overseas demand, overproduction insome industries, a sharp decrease in orders,stagnation in sales and a shrinking of profits. Theimpact has spread from the coastal region toinland regions, from small and medium-sized tolarge enterprises, and from export-orientedindustries to other industries. The number ofloss-making enterprises and industries hasincreased and a large number of export-orientedenterprises have been forced to shut downoperations. Unemployment has worsened inurban areas and a large number of rural migrantworkers have left urban areas and returned home.The downward pressure on economic growth has

increased and GDP growth has slowed sharply,down to 6.1% in the first quarter of 2009, thelowest in 17 years. In short, this has created thegravest situation for China so far this century. Inview of this situation, some people in China andoverseas have had misgivings about Chinasability to continue the steady and fast economicgrowth of the last three decades.

Taking into consideration the overall situation athome and in the world at large, China made adialectical analysis of the possible consequencesof the international financial crisis for the

Chinese economy and reached severalconclusions:

First, there are still strategic opportunities fordevelopment. The world in general is hoping forpeace, development and cooperation, so Chinacan continue to look forward to a relatively longperiod of peace in the international environmentthat will provide a favourable strategicenvironment for Chinas development that is nolikely to be reversed.

Second, the basic conditions and favourable

situation for Chinas economic growth remainunchanged. China has laid a solid materialfoundation through the fast growth of the last 30years with the implementation of the reform andopening up policy. In view of the internalstimulus of institutional restructuring, thetremendous demand potential generated by rapidindustrialization and urbanization, the vast potential for growth created by the upgradingand optimization of the industrial structure,



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advances in science and technology,environmental protection measures and progressin social programs will enable China to continuesteady and rapid economic growth for a fairlylong period of time to come.

Third, this international financial crisis has posedunprecedented challenges to development aswell as presented with unprecedentedopportunities for development. The shrinking ofoverseas demand, in particular, has createdtremendous negative pressure to expanddomestic demand, adjust the economic structureand step up efforts to improve the pattern ofdevelopment. As long as China adopted the right policies, take effective measures and uncoverand made good use of favourable factors in thisadverse situation. China could turn pressure intoa driving force, and transform challenges intoopportunities so as to keep the adverse impact of

the international financial crisis to a minimum.

To address the grave impact of the internationalfinancial crisis, the Chinese government hasfollowed a general philosophy of promptlyresponding, adopting strong countermeasures,carrying out appropriate measures and taking apractical approach. China is continuing to takesteady and rapid economic growth as her highest priority task, promptly adjusting macro-economic policy as needed, resolutely followinga proactive financial policy and following anappropriately liberal monetary policy. The

Chinese government worked out a package planto deal with the international financial crisis andare constantly improving it, concentrating onensuring continued growth, improving peoplesstandards of living and preserving stability,striving to resolve the major problems ineconomic operation and promoting sound andrapid economic and social development. At thesame time, the government is emphasizingconfidence as a prerequisite for overcoming thecrisis. Confidence is more important than gold ormoney so China has launched a nation-wide publicity drive centering on strengthening

national confidence, working hard to build acommon consensus, boost public morale andspirit, and mobilize government officials and the people to work together to overcome thesedifficulties.

Expansion of domestic demand the basic

starting point and greatly increasing

government spending to boost consumer

demand.

In the face of the drastic decline in internationalmarket demand, it has become particularlyimportant and urgent to expand domesticdemand. China has launched a governmentspending plan to invest 4 trillion yuan over twoyears, including 1.18trillion yuan to be investeddirectly by the central government. Thesegovernment outlays has finance major projectsclosely related to the well-being of the people,weaker links in economic and socialdevelopment and major infrastructure projectswith general benefits and long-rangesignificance. In addition, China has beenenergetically working to guide and funnel non-government fund and private capitalinto fields inaccordance with the states industrial policy toincrease the effect of non-governmentinvestment in stimulating economic growth. Atthe same time, China has adopted a number of

measures to boost consumer demand, fostergrowth areas in consumer spending, furtherimprove government policy on consumerspending and strengthen the stimulus effect ofconsumer spending on economic growth. Chinais paying particular attention to the effort toexpand the rural market through measures suchas increasing the availability ofhome appliancesand automobiles in rural markets at governmentsubsidizedprices, increasing rural market outletsand encouraging chain stores to extendoperations to rural areas to stimulate consumerspending in the rural population and make the

vast rural market avital component in the policyof expanding consumer demand.

Industrial restructuring and stimulus

program, with structural adjustment as the

main approach.

The outbreak of the international financial crisiscoincides with Chinas efforts to improve thepattern of economic growth and restructure theeconomy. Accelerating structural adjustment andpromoting industrial improvement and upgradingare extremely important for efforts to resolve

deep-rooted problems in Chinas economicoperation and effectively cope with the impact ofthe external situation. Concentrating onimproving the overall quality and long-termsustainability of the national economy, China iscarrying out a restructuring and stimulus program for the automobile, iron and steel,equipment manufacturing and seven other majorindustriesand has worked out a series of policymeasures to boost development of new and



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strategically important industries. Becauseagriculture is astrategic industry in the effort toensure social stability and publicconfidence andtrust, China is greatly increasing governmentspendingprograms related to agriculture, ruralareas and the rural population.In addition, Chinais increasing state subsidies for agriculture andextending the scope of such subsidies to counterthe downward pressure on grain prices andthereby protect agriculture and the foodsecurityof the country. China has adopted 29 policiesand measures especially designed topromote thedevelopment of small and medium-sizedenterprises, improve the financing anddevelopment environment for them and supporttheir efforts to upgrade production or changetheir type of operation. China has strengthenedefforts to reduce energy consumption andpollutant emission and protect the environment,and begun taking vigorous measures to address

the problem of climate change,concentrating onprevention and control of pollution in key areasand geographical regions. China is actively promoting improvement in the pattern ofeconomic development and of industrialupgrading in the eastern region of the country,intensifying support for structural improvementsin the central region and carrying out the strategyoflarge-scale development of the western regionand reinvigoration of the old industrial area ofthe northeast region in order to promotebalancedregional development. It is particularly worthnoting that the international financial crisis has

highlighted the special functionand advantage ofculture, in view of which China has drawn upand implemented the Plan to Boost the CulturalIndustry, which focuses on promotingdevelopment of major cultural industries andnewcultural industries.

Promoting reform in major fields and key

links relying on the powerful driving force

created by deepening reforms.

Reform is a driving force and a fundamental wayof coping with the international financial crisis

and promoting steady and rapid economicdevelopment. China is implementing a series ofreform measures conducive to ensuring growth, promoting domestic consumption andrestructuring, concentrating on key areas andcrucial links, effectively resolving developmentdifficulties and stimulating development vigor.China is deepening price reform, especially forresource products, accelerating efforts to developa pricing mechanism for resource factors that

fully reflects market supply and demand, thescarcity of resources and environmental costs.China is deepening reform of the system of public finance, improving the system ofgovernment budgeting and developing a soundnew mechanism that ensures balance andcoordination among budgetary formulation,execution and oversight. China is also deepeningreform of the financial system to develop asound mechanism to properly coordinatemonetary policy with development of the banking and finance industry and financialoversight, improve the structure of the bankingand finance industry and financial services, andstrengthen financial oversight and encourageinnovation in the industry. China is deepeningreform of state-owned enterprises, adjusting thestructure of the state-owned economy andpromoting concentration of state capital in majorindustries vital to the national security and the

lifeblood of the national economy and basicpublic services in a strong effort to strengthenthe adaptability and internationalcompetitiveness of state-ownedenterprises.

Promoting innovation in science and

technology.

Innovation in science and technology providesthe breakthroughs and is a powerful weapon foraddressing a financial crisis. Experience hasshown that a major economic crisis is oftenfollowing by a scientific and technological

revolution. History has shown that whoeverpossesses the edge in scientific and technologicalinnovation also holds the initiative indevelopment and takes the lead in recovery andbecoming prosperous. China is following a pathusing innovation as the driving force anddepending on our own strengths for growth to promote economic development. China isaccelerating implementation of the Outline of the National Medium and Long-term Program forScience and Technology Development, carryingout major scientific and technologicalinfrastructure projects, and stepping up efforts in

major basic scientific research and research innew and high technologies. Chinese governmenthas selected 16 major projects that will have thegreatest impact and the most-far-reachingconsequences and will yield results the fastest,including core electronic components,development and utilization of nuclear power,and high-level digitally controlled machine tools,and concentrating on making breakthroughs incore, crucial and general application



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technologies. China is actively developing agroup of high and new technology industries that possess their own intellectual property rights,fostering new growth areas in the economy andcreating new areas of consumer demand. Chinais giving high priority to the major role ofenterprises in independent innovation andsupport their R & D work and efforts to applyadvances in technology in fields such as biomedicine, 3G mobile communications andenergy saving and environmentally friendlymotor vehicles, and make extensive use of newtechnologies, production processes, equipmentand materials to achieve both greater growth andefficiency.

Extend social welfare program to cover an

increasing number of people with the primary

goal of improving the lives of the people.

The government believes that in times ofdifficulty it is particularly important to pay closeattention to the well-being of the people and totruly ensure the well-being and improve the livesof the people. China is concentrating efforts tofulfill the urgent requirements for social andeconomic development andcarry out major tasksto benefit the people, focusing on resolution ofthe issues most directly linked to the interestsand concerns of the people. China isimplementing an even more aggressiveemployment policy creating more new jobopenings, increasing the ability of small and

medium-sized enterprises, labour intensiveenterprises and service industries to providemore jobs, helping college graduates findemployment, stabilizing the employmentsituation for rural migrant workers and makingappropriate arrangements for migrant workersreturning to the countryside. China is increasinggovernment allocations to strengthen socialsafety net by expanding the coverageof basic oldage insurance and basic medical insurance andimprovingthe system of cost of living allowancefor urban and rural residents, unemploymentbenefits, the urban and rural medical assistance

programs and the new rural cooperative medicalcare system. China is accelerating constructionof low-income housing, increasinginvestment in building more low-rent houses and improvinghousing conditions in shantytowns andexpending a great deal of effort to build permanent housing in localities ravaged byearthquakes. While working to improve thematerial living conditions of the people, China isalso working to protect the cultural rights and

interest of the peopleby energetically working toimprove public cultural services anddevelopingcommunity-based cultural activities to enrichpeoples cultural life. These policies andmeasures take into account the situation in Chinaand the ongoing international financial crisis.The most prominent features of these policiesand measures are that they balance market forcesand government regulation, balance long-termdevelopment goals and short term goals forgrowth, balance the need to expand domesticdemand and stabilize overseas demand, andmaintain the inherent balance between the needto improve peoples lives and the need to expanddomestic demand. In other words, they aredesigned to ensure growth, ensure the peopleswell-being and ensure stability, while striving toensure scientific development and harmoniousdevelopment. They are designed to ensure thecontinuity and stability of policies while also

maintaining flexibility and sustainability toprovide effective guarantees for the success ofour efforts to cope with the internationalfinancial crisis and maintain steady and fasteconomic growth.All measures we have taken toimprove the lives of the people have yielded positive results, with improvement in the peoples working and living conditions andsociety as a whole remaining harmonious andstable. Individual incomes have continued torise, with a 10.5% year-on-year rise in urban percapitaldisposable incomes and 9.2% rise in ruralper capita cash incomes inthe first three quarters

of 2009. The employment situation hadexceededexpectations, with the creation of 9.4 millionnew urban jobs in the first ten months of theyear, which is expected to exceed 11million bythe end of the year. The employment situationfor rural migrant workers in urban areas andcollege graduates also showed improvement andthe overall employment rate remained steady.The social safety net has been strengthenedthanks to a 29.2% increase in governmentallocation, which was used to increase the basiccost of living allowance for urban residents by50% and for rural residents by 150%. The

amount of pension payments for retiredenterprise workers is rising steadily andsignificant progress has also been made insetting up community-level medical carefacilities and in efforts to prevent and controlH1N1 influenza.

In short, keeping Chinas economic and socialdevelopment on track in spite of the seriousinternational financial crisis, global recession



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and complex and grave domestic andinternational situations has truly been a difficulttask. These achievements have created theconditions that will enable China to overcome itscurrent economic difficulties and strengthen theeconomic rebound as well as laid a solidfoundation for fundamentally resolving theinstitutional and structural problems that arehampering the healthy development of theeconomy and for longer and higher leveleconomic development. At the same time, Chinais fully aware that there are numerous uncertainfactors that could affect the world economy, oureconomy is still facing a very complex situation,the foundation for economic recovery is notsolid, both positive changes and adverse effectsare evident, there is an interactive combinationof short-term and long-range issues, anddomestic factors affect the international situationand vice-versa, all of which are making the task

of maintaining steady and fast economic growthand improving the pattern of economicdevelopment and making structural adjustmentsin the economy more difficult. China is going tofurther strengthen and improve macroeconomicregulation, correctly balance efforts to maintainsteady and fast economic growth with moves tomake structural readjustments in the economyand correctly manage inflation expectations.China has continued to follow a proactivefinancial policy and appropriately liberalmonetary policy, fully implement and improveour package economic program and put more

effort into raising the quality and efficiency ofeconomic growth, by improving the pattern ofeconomic development and making structuraladjustments in the economy and carrying outreform and opening up and encouragingindependent innovation.In summing up, Chinas economic anddiplomatic relationships are still stronger withthe African, Latin American and ASEANcountries. Indias economic and politicalrelationships are much stronger with Russia,Brazil, and South Africa. The BRICS canrepresent the interests of all the developing

countries. The BRICS countries are not only theemerging largest economies but its growingstrong economic and political relationship withthe African, Latin American and Asiancountries; it may change in the internationaleconomic order through using common currencyin trade, sharing their own science andtechnology to improve and transform inagriculture, energy, and industrial sectors, and

establishing a new military block so they canprovide security from the imperialist aggression.

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