Changing China

from Global Investing:

What worries the BRICs

Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.

MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.

This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.

Not surprisingly, the lion's share comes from the BRICS -- Brazil, Russia, India and China -- which together made up 73 percent of outflows last year. BRIC outward investment jumped to $144.3 billion in 2008 from $29.6 billion three years earlier.

Perhaps the most interesting data, however, concerned political risk insurance. MIGA studied the kind of insurance BRICs outward investors were taking to see what kind of things worried them.

Brazil had a mixed of concerns, but Indians were most worried about transfer and convertibility restrictions, the Chinese concerned themseves with war and civil disturbance and Russians were extremely worried about breaches of contract.

Sceptics might be tempted to see this as a reflection of national concerns. But MIGA said it was more micro than that. Russian investment, for example, is dominated by commodity exploration, an area said to be more subject to contract problems than others.

from Global Investing:

Time to kick Russia out of the BRICs?

It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach's famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.

Åslund, who is also co-author with Andrew Kuchins of "The Russian Balance Sheet", reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China  in the list of blue-chip economic powerhouses. He writes:

The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.

I have just returned from Moscow, which is always dreary around this season. But this year, the mood among the capital's eloquent liberal economists has hit a new low. For the last seven years, Russia has undertaken no significant economic reforms. Instead, the state has been living off oil and gas, like a lucky but undeserving rentier."

Economically, Åslund has the numbers on his side. The International Monetary Fund estimates that the Russian economic will contract by 6.7 percent this year, while China will grow 8.5 percent and India 5.4 percent. There is less of a case for Brazil, with a contraction of 0.7 percent projected, but it is still doing far better than Russia.

But the BRICs concept is not just about economics. As mentioned, it is a marketing device to urge investors to focus on the big emerging players. From an investment standpoint, it could be argued that Russia is leading the BRICs. Its stock market is up 128 percent this year versus around 80 percent for the other three.

At very least, however, Russia's economic underperformance and stock market outperformance does suggest it is the outlier of the group.

from Summit Notebook:

China’s evolving role from producer to consumer

Hardly a day goes by now without some Chinese firm striking a deal to buy assets overseas, but the country's best prospects for growth may be right in its own backyard. Vivi Lin in Beijing reports on how the world's workshop is fast becoming one of the world's top consumers.