Emerging markets key to new economic order

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By Liu Junhong (China Daily)
Updated: 2008-07-31 07:30

Fortune magazine of the US recently published its list of the 500 biggest companies in the world in terms of market value. The latest Fortune 500 reflected three prominent changes in the political and economic structure of our world, namely the so-called natural resources nationalism, the crackling of the US-led global financial system and the rise of emerging economies.

Natural resource-rich nations in Central and South America such as Venezuela and Colombia have taken to nationalizing oil and natural gas resources since the war in Iraq while Russia, Iran and Northern Africa bought back energy resources stakes. To date at least 70 percent of oil and natural gas producers have been nationalized, signifying "natural resource nationalism" is becoming a global trend.

Thus oil, natural gas and minerals have turned from "market resources" to "strategic resources" and, prompting oil capital around the world and cross-national corporations to plunge into a global merger frenzy. "Natural resource nationalism", while driving oil price sky high, has elevated a number of natural-resource-oriented enterprises and energy-resource monopolies into the ranks of world market flagships.

For example, six of the top 10 Fortune 500 corporations are energy monopolies driven by cross-national oil capital. And Exxon-Mobile has been on top of the world in terms of profit for years. Meanwhile, as emerging economies, China, Russia, India and Brazil found their own companies that had made the Top 500 more or less share the characteristics.

Faced with soaring oil price and shrinking energy resources, it has become one of the most pressing issues in international politics to deal with the problem of global warming. In early 2007, the United Nations Security Council for the first time included in its agenda the issue of addressing climate change, indicating climate issues have become "matters of international security"; at the end of that year, the signatories of the UN Framework Convention on Climate Change met at the Indonesian resort of Bali and hammered out a road map for the implementation of the "post-Kyoto Protocol", making 2007 the beginning of "the climate era"; and starting this year developed countries such as Japan and those in Europe are obliged to honor their commitments to greenhouse gas reduction as the humankind enters the "low-carbon (emission) era".

Thus energy security and environmental protection became the two wheels of one chariot while energy-saving and emission-reducing technology became a hot ticket on the international market. Automobile giants that put the first "hybrid cars" on the market, steel and power-producing monopolies with advanced environmental protection technology and cross-national enterprises in leading position on alternative energy sources are now among the most successful businesses in the world.

The US subprime debacle, which broke out in August 2007, is considered the most serious financial disaster since the 1930s and has gained the distinction of a 21st-century financial crisis. It has exposed the loopholes in the US-led financial globalization and liberalization system. American financial companies that were among the leading entrants of the Fortune 500 list for many years have lost steam and some of them even dropped out this year.

The international financial system has long been called the backyard of world politics. The US has dominated the international monetary and financial system, milked profits throughout the world and seized control of the vitals of the global economy as well as political commanding power since the end of World War II, but the subprime crisis has directly caused the US financial gains to fall and undermined Washington's capacity to control the world.

The forces that are holding the US back financially are not the emerging economies but its traditional allies such as Japan and Western Europe, because the conflict between the US and emerging economies such as China is only seen in trade and investment imbalance; while the clashes between Japan, Europe and the US found in core interests like currency and finance.

In the Cold War era Japan and Western Europe, under protection of the US, built up enough financial strength to challenge America's dominant position in the world. Since the end of the Cold War, Japan and Western Europe have begun stepping out of the shadow of Washington and demanded a say in controlling the world. The expansion of the European Union (EU), birth of the euro and the internationalization of the Japanese currency, yen, are the clearest demonstration of this rivalry.

If the European Union has ended the US' absolute superpower status in terms of economic aggregate, the birth of the euro has become a substantial challenge to the US dollar as the dominant currency in the international monetary system; while Japan's strategy for the yen's internationalization is aimed at marginalizing the US dollar in the region by building up an Asian economic sphere and joining the euro in pushing for "currency regionalism", which could split the existing international monetary and financial system.

As a matter of fact, visible cracks have already appeared in relations between the US, Japan and the EU over policies designed to head off a financial crisis after the US subprime scourge flared up. The Group of Seven finance ministers' meeting, which was considered instrumental in policy coordination among the US, Japan and the EU as well as joint administration of the world financial order, has not performed its function of synchronizing steps.

So far the three parties have yet to formulate a set of financial policies acceptable to all of them as they all insist on protecting their own interests. Consequently, it has come as no surprise that American financial institutions have all fallen spectacularly from their previous places on the 2008 Fortune 500 list while their Japanese and EU counterparts edged upward.

Compared with their parts in developed countries, enterprises of China, Russia, India and Brazil are increasingly finding their way onto the Fortune 500 list in recent years. This year more than 30 Chinese enterprises, including those owned by Hong Kong businesses, are on the list, five more than last year, with Sinopec among the top 20. India has seven companies in the top 500, while Russia and Brazil has five each on the Top 500 list.

Since US investment bank Goldman & Sachs began publishing annual reports on the economic outlook of emerging economies, the BRIC (Brazil, Russia, India and China) has become one of the most recognized synonyms for fast economic growth.

The rise of emerging markets signals that the global economic structure is undergoing a fundamental transformation. The continued growth of emerging economies has become a new engine for the world economy. And the leading enterprises of these emerging economies being on the Fortune 500 list reflects the reality that the power structure of the international economic system is changing and is bound to trigger a structural shift in world politics while helping the international political and economic order become more just and reasonable.

Admittedly, the economic growth of emerging markets still relies very much on developed markets such as the US, Japan and the EU. The US subprime woes and resulting global economic slowdown may put emerging economies at risks hard to foresee. It means whether enterprises of emerging economies will maintain their present positions will be decided by the world economy as it develops. Therefore emerging economies will find their places in the world economy determined by whether they can pull off such critical tasks as system innovation, market expansions and achieving orderly reorientation of their economic growth patterns.

The author is a researcher with China Institute of Contemporary International Relations

(China Daily 07/31/2008 page9)