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Risks in emerging markets

By Mei Xinyu: 0 Comment(s)Print E-mail Beijing Review, August 29, 2012

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Social conflict

[By Jiao Haiyang/China.org.cn]

With rapid economic growth in emerging markets comes the danger of social conflict. A sudden slowdown of economic growth could spur social unrest in these countries.

Most people's income is from labor wages, while capital gains tend to go only to the rich. In the past 10 years, emerging markets have created tremendous economic growth as a whole. But economic growth does not eliminate the threat of social conflict. If economic growth is marked by unequal distribution and corruption, the resulting inequality will sharpen social conflict. The danger is common to developing countries and regions, where governments are captured by interest groups who control the vast bulk of economic benefits.

Many economists believe India's domestic demand-driven economic growth is preferable to China's, which is based on export and foreign trade. However, India's income distribution is so unbalanced that it greatly hurts the country's domestic demand and is dragging down the country's economic growth. China's GDP has been times more than India's for many years. But it was not until 2009 that the number of billionaires in China surpassed that of India. Meanwhile, Chinese billionaires' assets are less than their Indian counterparts. Assets of the richest man in China are only 20 percent of the richest man in India.

Because of the serious imbalance in income distribution, 20 percent of Indian people were malnourished in 2006, compared to the world average of 14 percent. The country's infant mortality rate was 57.4 per thousand that year, while the world's average level was 49.5 per thousand. Although Viet Nam and Nigeria have a higher poverty rate than India, they have a longer life expectancy and lower rates of malnutrition and infant mortality. These statistics show that India must work harder to address income distribution, social justice and public health.

Brazil has its own share of similar problems. At the beginning of this century, the richest 10 percent of Brazilians owned 46.7 percent of the country's social wealth, while the poorest 10 percent had just 1 percent of the wealth. In 2000, 64 million Brazilians—about 37.7 percent of the population—were living under the poverty line and 15.24 million of them—about 9 percent of the country's population—were in absolute poverty. Luiz Inacio Lula da Silva, the first left-wing President of Brazil, focused on balancing income distribution and decreasing poverty from 2003 to 2010. But the problems remain. The widening gap between the rich and the poor holds back the expansion of the country's domestic market, becoming an obstacle for its sustainable development. The problem not only leads to social instability, but also creates an environment for crime. Underground gangs are now rife in Brazil, and the Brazilian Government is struggling to fight them.

A great divide

Many countries in history have seen tremendous economic booms, but few have gone on to become developed countries. In 1970, there were 108 countries in the world with an annual per-capita income below $7,000. In 2010, only four of those were considered "high-income" in accordance with the World Bank standard, including Antigua and Barbuda, Equatorial Guinea and Malta and South Korea. While the former three are small island economies, only South Korea can claim the real status of a developed country. With the global economy on a roller coaster ride, BRICS countries are bound to have different economic prospects.

As emerging economies undergo an arduous transition, will China be able to maintain rapid growth? Despite widespread concerns over the slump in its manufacturing sector, slowing export growth and the escalating debt burden of some of its local governments, China is likely to do well in the transition. China's economic structure differs from the other BRICS members. China is the world's biggest processing country and one of the biggest importers of primary products. Sliding primary product prices are beneficial to China, unlike other emerging markets relying on exporting primary products. In addition, as China has had a trade surplus for the past 20 years and possesses a huge amount of foreign exchange reserves, the country's currency is much more stable than those of other BRICS members. Its economy remains among the most robust in the world.

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