G20 underlines that fracturing is becoming a reality

G20 underlines that fracturing is becoming a reality
The G20 was a success for India, which established a claim to become spokesman for the Global South, but it also highlighted the fractured nature of the world. / bne IntelliNews
By Ben Aris in Berlin September 14, 2023

“The G20 summit which concluded yesterday in New Delhi supported our view that the global economy is fracturing into US and China-led blocs, and that India still leans to the former,” Jennifer McKeown, the chief global economist at Capital Economics, said in a comment on September 12. “While the statement was light on explicit policies, calls to increase funding for the World Bank and to create an India-Middle East-Europe Economic Corridor further challenge the view that China’s influence will continue to grow.”

As bne IntelliNews reported, we are increasingly living in a fractured world following the growing rivalries between East and West, a split that has only been catalysed by Russia’s war against Ukraine.

This is not a new Cold War, Capital Economics has argued, as many countries in the Global South want to remain on good terms with both sides, but the strength of their ties depends on the specifics of their needs. India is clearly sitting in the middle with good relations with Russia, with which it is a leading member of the emerging BRICS bloc, but at the same time the mega-transport corridor from India via the Middle East to Europe that was agreed between the US, EU, India and the Kingdom of Saudi Arabia (KSA) on the sidelines of the G20 summit in New Delhi on September 8 shows it maintains good ties with the West as well.

As an aside, Capital Economics formerly put KSA in the US camp, but its surprise addition to the BRICS+ at the August BRICS summit shifted it towards the Russo-China camp, said Capital Economics in a recent note. That changed again with it taking a step back towards the West after KSA joined India in the mega-transport corridor, highlighting that the positioning of countries remains fluid as these new blocs work out their goals and partnerships.

From this perspective the G20 summit in New Delhi on September 9 sheds more light on these shifting allegiances and underscores the ongoing fragmentation of the global economy into two major blocs led by the United States and China.

Specifically, the transport corridor from India to the EU was an explicit move to challenge China’s Belt and Road Initiative (BRI) and offer an alternative. Also, India’s successful lobbying to include the African Union in the G20 was part of its campaign to be seen as the champion of the global south and curb China’s claim to leadership amongst the emerging markets that has been pursued through the decade long development of the BRI.

Capital Economics says that there are five key takeaways from the G20 summit.

First, the joint statement displayed slightly softened language concerning the conflict in Ukraine, notably dropping the reference to "The aggression by the Russian Federation” which was replaced by “all states.”

“However, this change was not a change in stance towards Russia, but rather a demonstration of the West’s willingness to compromise in communications over geopolitics in order to ensure the co-operation of a wider group of Emerging Markets on economic policies. Our views about the war developing into a frozen conflict over many years have not changed,” says McKeown.

In India Ukraine declaration and the use of “all states” softening of the language is seen as serving a slightly more subtle purpose. Gurjit Singh, former Indian ambassador to Indonesia and the African Union, told bne IntelliNews: “India has just done some very nuanced diplomacy. As the Ukraine declaration is aimed at all aggressive states, not just Russia, the G20 statement also implicitly rebuked China as well, [which] is engaged in aggressive tactics on the Sino-Indian border.”

Indeed, the long-running border dispute between China and India flared up on the eve of the G20 summit after China issued a new standard map that redrew the border to include the disputed territories within China’s borders, provoking strong protests by New Delhi.

The G20 summit was a diplomatic success for India that demonstrated its growing prowess on the international stage and its ability to rally the rest of the Global South to its flag – a role that was welcomed by the US, which is hoping to drive wedges between the BRICS members.

“[India’s success at the summit] owed much to support from the US and other major advanced economies, but that in itself speaks volumes about India’s position in a fracturing world and we still see it as US-leaning and set to benefit from a degree of friend-shoring,” says McKeown. “This ongoing co-operation is a further challenge to the view that the BRICS will emerge as a strong, united counterweight to the G7.”

Where Africa stands in this East-West divide remains unclear, although as a whole it is clearly keen to increase its co-operation with the BRICS bloc. A recent pan-Africa poll found that 58% of respondents thought Africa’s future lies with good relations [with the bloc], and the lingering resentment of colonial rule also remains a power force. But there is little co-ordination amongst African countries as their situations and foreign relations are very varied.

“Some economies will continue to lean towards China while others lean West, depending on their economic structures and commodities trade. But again, the decision speaks against the “Global South” breaking from the West in a unified manner," says McKeown.

India’s proposal to increase the World Bank's lending capacity and address debt vulnerabilities in low and middle-income countries offers limited reassurance due to the absence of specific commitments or details.

The US-led push to step up funding for the World Bank again highlights its aim to challenge China’s role in global lending and undermine the bid by the New Development Bank (NDB, formerly known as the BRICS Bank) to usurp the IMF’s role as the premier sovereign lender. Indeed, many of the three dozen countries lining up to join the BRICS+ have expressed an interest, as they hope membership will give them better access to NDB’s funds.

Meanwhile, President Xi Jinping’s decision to host leaders of Venezuela and Zambia in China confirms his preference to conduct bilateral negotiations outside the G20 (which he did not attend at all). Russia too is allergic to multilateral organisations and always prefers the bilateral format where the Kremlin can do deals, offering access to its money, energy and arms as an incentive.

Disagreements between China and Western lenders complicate sovereign debt restructurings, thereby prolonging economic challenges for affected nations and delaying their return to global capital markets.

“In all, the summit has concluded with at least some signs of co-ordination and compromise within the G20 and hence has exceeded expectations. But the theme of fracturing between US and China-led spheres is becoming ever more prominent and seems to be developing along the lines that we set out in our Spotlight research series last year," says McKeown.