The Impact of the Third BRICS Summit
Eiichi Sekine
Senior Analyst,
Nomura Institute of Capital Markets Research

I.

First BRICS summit with five participants

1. BRICs vs BRICS
The third BRICS summit was held on 14 April 2011 in Sanya on Hainan Island,
China. The term BRICs (with a small 's') was coined by Jim O'Neill of Goldman
Sachs in 2001 from the initial letters of Brazil, Russia, India and China followed by an's' to form the plural. O'Neill coined the term to indicate the similarities between thefour countries (e.g., in terms of population, GDP and trade). The term BRICS (with alarge 'S'), on the other hand, came into use later (namely, after the emerging
economies began to attract growing interest in the wake of the financial crisis of2008) to denote the above four countries plus South Africa, the only African memberof the G20.
The first BRICs summit was held on 16 June 2009 in Yekaterinburg, Russia. It washosted by Russia's president, Dmitry Medvedev, and attended by Brazil's president,
Luiz Inacio Lula da Silva, India's prime minister, Manmohan Singh, and China'spresident, Hu Jintao. The second BRICs summit was held on 15 April 2010 in Brasilia,Brazil. It was hosted by Brazil's president, Luiz Inacio Lula da Silva, and attended byRussia's president, Dmitry Medvedev, India's prime minister, Manmohan Singh, andChina's president, Hu Jintao.

2. Reason for China's choice of Hainan as summit venue
The third BRICS summit was held on the Chinese island of Hainan (the "Hawaii ofthe Orient"). It was hosted by China's president, Hu Jintao, and attended by Brazil'spresident, Dilma Rousseff, Russia's president, Dmitry Medvedev, India's primeminister, Manmohan Singh, and South Africa's president, Jacob Zuma. South Africa
agreed to attend after being approached by the Chinese government in December
2010.
As it happens, Hainan is the venue each April for the annual conference of theBoao Forum for Asia (BFA), modeled after the World Economic Forum in Davos1.
The conference is attended by heads of state and government, leading government
1

The BFA has held a conference every year since 2002. The April 2010 conference saw
the election of former Japanese prime minister Yasuo Fukuda as the BFA's new chairman.

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officials, and leading businesspersons from around the world as well as China and has
attracted growing interest. We can only assume that China, as the host country of thethird BRICS summit, hoped to raise its profile and, ultimately, boost its soft power, byholding the summit just before the start of the BFA's annual conference and on thesame island.

II. Outcome of third BRICS summit
Following the summit, a joint communiqué ("Sanya Declaration") was issued,consisting of 32 statements of agreement on political, diplomatic, security, economic,
social and cultural matters together with a three-part action plan. Of particular interest
to us are the following statements on capital markets and Japan's recent earthquake.

1. Reform of the IMF
Statement 15 calls for "a quick achievement of the targets for the reform of theInternational Monetary Fund agreed to at previous G20 Summits" and reiterates that"the governing structure of the international financial institutions should reflect thechanges in the world economy, increasing the voice and representation of emerging
economies and developing countries."

2. Reform of the international monetary system
Statement 16 recognizes that "the international financial crisis has exposed theinadequacies and deficiencies of the existing international monetary and financialsystem" and supports the reform and improvement of the international monetarysystem, with a broad-based international reserve currency system providing stabilityand certainty. It also welcomes the current discussion about the role of the SDR in theexisting international monetary system.
Furthermore, it calls for more attention to the risks of massive cross-border capital
flows and for further international financial regulatory oversight and reform,
strengthening policy coordination and financial regulation and supervisioncooperation.

3. Financial cooperation
Statement 13 commits the BRICS to increased cooperation in economic, financeand trade matters. In addition, Statement 11 of Part I of the action plan commits theBRICS to strengthening financial cooperation among their development banks. As amatter of fact, on 13 April (the day before the summit) China's Ministry of Commerce
hosted the first BRICS Economic and Trade Ministers' Meeting while China

The Impact of the Third BRICS Summit

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Development Bank hosted the BRICS Interbank Cooperation Mechanism Annual
Meeting and Financial Forum.
Furthermore, on the same day as the actual summit (14 April), China Development
Bank, the Brazilian Development Bank (BNDES), Russia's Bank for Development
and Foreign Economic Affairs (Vnesheconombank), the Export-Import Bank of India,
and the Development Bank of Southern Africa signed an Agreement on Financial
Cooperation within the BRICS Cooperation Mechanism with the aim of achieving thefollowing. First, the five countries plan to gradually increase mutual credit lines
denominated in national currencies and to settle transactions in national currencies inorder to promote mutual trade and investment2. Second, they plan to cooperate ininvesting and lending for projects in key areas such as natural resources, technology,carbon reduction, and environmental conservation. Third, they plan to increasecooperation in financial markets, including stock market listings and bond issues.
Fourth, they plan to increase the exchange of information by their banks about
economics, the financial situation, and project finance.
It is also perhaps worth mentioning that, in Statement 5 of Part I of theDeclaration's action plan, the BRICS agree that their ministers of finance and central
bank governors will meet under the G20 framework and during the annual meetingsof the World Bank and International Monetary Fund.

4. Japan's earthquake
In Statement 30 of the Declaration the BRICS extend their "deepest condolences tothe people of Japan with the great loss of life following the disasters that struck thecountry" and commit themselves to continue their "practical support to Japan inovercoming consequences of these catastrophes."
With regard to nuclear energy, Statement 19 says that it "will continue to be an
important element in future energy mix of BRICS countries" and that "thedevelopment of safe nuclear energy for peaceful purposes should proceed underconditions of strict observance of relevant safety standards and requirements
concerning design, construction and operation of nuclear power plants." Furthermore,in Statement 18 the BRICS express their support for the development and use ofrenewable energy resources, while in Statement 17 they express their concern about
rising and volatile prices for commodities, especially food and energy.

2China Development Bank's outstanding loans to BRICS members total just over $38.0
billion, according to the address by Chen Yuan, the Bank's chairman, to the BRICS
Interbank Cooperation Mechanism Annual Meeting and Financial Forum on 13 April thisyear.

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III. BRICS growing presence and outlook
We now consider how the BRICS have become a growing force in the past few
years.
First, their share of global GDP grew from 13.7% in 2007, before the financial
crisis, to 18.0% in 2010 (Figure 1). In particular, China, which made headlines in2010 when its GDP overtook that of Japan, saw its share rise from 6.3% in 2007 to9.3% in 2010.
Second, their share of global trade grew from 12.6% in 2007 to 15.8% in 2010
(Figure 2). In particular, China exported $1,202 billion worth of goods in 2009,
overtaking Germany (with $1,126 billion) to become the world's largest exporter for
the first time. The following year, China exported more goods than ever before($1,577.9 billion) to become the world's largest exporter for the second year insuccession.
Third, the BRICS' share of global foreign exchange reserves grew from 37.2% in2007 to 42.7% in 2010 (Figure 3). In particular, after overtaking Japan as the world's
largest holder of foreign exchange reserves in February 2006, China became the first
country to have foreign exchange reserves of more than $3 trillion when its foreignexchange reserves reached $3,044.7 billion at end-March 2011.

Figure 1: BRICS' share of global GDP2010

2007
SouthAfrica
0.5%

Russia2.3%

Russia2.3%

Brazil
2.5%

Brazil
3.3%

India
2.4%

India
2.1%

China
6.3%

China
9.3%

BRICS
13.7%

BRICS
18.0%

J apan7.9%

Others53.2%

SouthAfrica
0.6%

J apan8.7%

Others
50.0%

US
25.2%
US
23.3%

Source:Nomura Institute of Capital Markets Research, based on IMF data

The Impact of the Third BRICS Summit

4Figure 2: BRICS' share of global trade
2010

2007
South
Africa0.6%

Russia2.1%

Brazil
1.3%

India
1.8%

India
1.3%

China
7.7%

Country
12.6%

China
9.9%

BRICS
15.8%

BRICS
4.7%

J apan4.9%

J apan
11.3%

US
10.9%
Others
68.4%

US
71.3%

Source:South
Africa0.6%

Russia2.2%

Brazil1.0%

Nomura Institute of Capital Markets Research, based on WTO data

Figure 3: BRICS' share of global foreign exchange reserves
2010

2007

Russia7.1%

SouthAfrica0.5%

Russia5.2%

Brazil2.7%

SouthAfrica
0.5%

India
3.2%

India
4.1%
China
22.8%

BRICS
37.2%
Others
47.2%

China
30.8%

J apan11.8%

J apan
14.5%

US
1.4%

US
1.1%

Source:5BRICS
42.7%

Others44.0%

Nomura Institute of Capital Markets Research, based on IMF data

Nomura Journal of Capital Markets Summer 2011 Vol.3 No.1

Brazil3.1%

The BRICS' and, especially, China's growing share of global foreign exchange
reserves has given the emerging economies an increasing say in how the IMF and theinternational monetary system are reformed but also an increasing responsibility tohelp correct global imbalances. We therefore think the Chinese government is likely
to continue to adopt a more flexible stance on exchange rates, the internationalizationof the renminbi, and the diversification of its foreign exchange reserves. At the sametime, these developments create new opportunities for financial market participantsaround the world to raise and invest capital.
In Chinese, the word for "BRICS" is jinzhuan guojia. Zhuan means "brick" or"bricks," so the term literally means "financial brick(s)." However, the BRICS are nolonger just "bricks." Statement 9 of Part I of the Declaration's action plan provides forthe establishment of a network of BRICS' think tanks, a move that will increase thegroup's soft power.
India is due to host the fourth BRICS summit in 2012. We expect the BRICS tohave an increasing say in international affairs and to continue to be a focus ofinternational attention.

The Impact of the Third BRICS Summit6