check in Risks,in,Emerging,Markets

　　Emerging markets’ economies have been rising and falling since the second half of 2011. Their economic growth has slowed; foreign capital has started to flee; and their currencies continue depreciating against the U.S. dollar. Even leading emerging markets like the BRICS (Brazil, Russia, India, China and South Africa) cannot escape from the global trend.
　　Brazil’s economic growth rate dropped from 2010’s 7.5 percent to 2.7 percent in 2011. Its growth rate for the first quarter of 2012 fell further, to just 0.8 percent. The Brazilian real’s depreciation rate to the U.S. dollar reached a double-digit percentage. Brazilian enterprises have trouble securing financing from international markets due to the country’s currency depreciation and slow economic growth, facing mounting risks of a foreign debt crisis. Brazilian enterprises received $47 billion in financing from international markets last year. But in 2012, they may take in only $100 million according to estimates. Statistics of the Central Bank of Brazil show the volume of Brazilian enterprises’ due debt by 2012 will be about $27.3 billion.
　　India’s economic growth rate slid to 7.2 percent in 2011 from 2010’s 10.6 percent. Its growth rate in the first quarter of 2012 fell to a nine-year low of 5.3 percent. By the end of June, the Indian rupee’s exchange rate to the U.S. dollar depreciated over 10 percent from that of March, and about 30 percent from that of June 2011. The Indian economy is so bad that some Western institutes and media outlets took a break from badmouthing the Chinese economy to take a hard look at India. According to Standard& Poor’s, India’s credit level is only one level above junk status. On June 11, the credit rating agency warned that it may degrade India’s credit rating down to junk category, making India the first member of the much-hyped BRICS to lose its investment-grade credit rating.
　　The Russian ruble’s exchange rate to the dollar decreased about 11 percent during the second quarter of 2012. Capital flight has been a problem in Russia since 1991, but the old problem has worsened since the second half of 2011.
　　Under these circumstances, the renminbi exchange rate, which had seen appreciation pressure for years, started to reverse.
　　Economic risks
　　Economic risks of emerging markets stem from the chronic weaknesses of their economies, such as India’s trade deficit and current account deficit. The country has been in a trade deficit since its independence in 1947, except for two-year stretches in 1972-73 and again in 1976-77. Despite its inclusion in the BRICS group, India’s trade deficit increased to 2008’s $95.81 billion from 2003’s $7.19 billion. India’s current account surplus fell into a deficit in 2005. In 2008, its current account deficit reached $36.09 billion. As the country has been under the double pressure of a trade deficit and a current account deficit, it could find itself in the vicious circle of capital flight leading to exchange rate depreciation followed by more intensified capital flight. The Indian rupee has greatly depreciated to the dollar, and the country has been under high pressure of inflation. To contain inflation, India’s central bank often has to sacrifice the country’s economic growth.
　　To avoid a disastrous international payment crisis and subsequent monetary and financial crises, countries like India have to keep interest rates and reserve requirements high. They may even further tighten their monetary policy to attract portfolio investment. For example, the Indian central bank raised interest rates 13 times during the 2010-11 fiscal year. The tight monetary policy led to a further slowdown in the real economy.
　　The achievements of emerging economies in recent years brought risks of an economic backlash because they attracted huge inflows of money that grew into capital bubbles. As governments and enterprises chasing big ambitions expanded haphazard investment, they were also causing the hidden danger of inflation.
　　Social conflict
　　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 “highincome” 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.