Emerging markets in emerging markets

Such topics are hardly new but as the panels were dominated by experts from emerging markets rather than Western Europeans and Americans, which is often the case, the insights were more interesting than usual. Jim O'Neil, the founder of the BRIC concept visited Moscow the week before and concluded that only weirdoes argued for the removal of the R in BRIC. A similar sentiment, albeit in more diplomatic terms, was evident in the Troika conference. It is true that Russia has suffered harder from the global crisis than many other emerging markets but that has not destroyed the longer term catch-up process and Russia is indeed recovering faster than most analysts predicted.

Even though there was an overall strong belief in Russia as a core member of the BRIC group (and for Eastern Europe in the wider emerging market world), it was also clear that China is the shining star of the group. Just as Greece and other highly indebted Western countries are always mentioned in a negative way (see previous posting from Vienna), so is China and to a lesser extent India mentioned in a positive way at international conferences and in discussions about global development.

There are some renewed talk about decoupling, stemming from the strong Chinese and Indian growth during the global recession, but that is still premature and at best partial. There are, however, an increasing amount of interaction between the world’s leading emerging markets and trade and investment flows between developing countries are growing very fast, thus gradually reducing the reliance on the OECD countries. 

For East Capital, one of the most interesting aspects of this trend is the strong interest to develop the ties between Russia and China. It was debated at the conference whether Moscow’s stronger focus on Sino-Russian relations represent a strategic new direction (i.e. Russia turning to the East at the expense of the West). The verdict may still be out on that but I believe it is not a zero-sum game and that it makes perfect economic sense for Russia and China to develop their commercial relations. It is a perfect fit since Russia has the resources China needs and China is willing to make the investment Russia needs in order to get access to those resources.    

We often claim that it is important to be in Eastern Europe in order to understand Eastern Europe. We can perhaps add that it is equally important to be in emerging markets to understand one of the most fascinating development within these markets, that is how they increasingly open up to another and increase their prosperity as a result.