BRICS to create development bank, 'mini-IMF'

Leaders of the BRICS group of emerging powers meet Tuesday to launch a new development bank and a reserve fund seen as counterweights to Western-led financial institutions. PHOTOS Brazil will host the VI Summit of Heads of State and Government of the BRICS in Fortaleza and Brasilia from July 14 to 16. (Photo: MRE Brasil's Facebook page) Enlarge Caption FORTALEZA: Leaders of the BRICS group of emerging powers meet Tuesday to launch a new development bank and a reserve fund seen as counterweights to Western-led financial institutions. Brazilian President Dilma Rousseff hosts the leaders of Russia, India, China and South Africa in Fortaleza on Tuesday before talks with South American leaders the next day in Brasilia. The summit will mark the first face-to-face meeting between India's new Hindu nationalist Prime Minister Narendra Modi and Chinese President Xi Jinping. For Russian President Vladimir Putin, who visited Argentina and Cuba before coming to Brazil, the trip gives him a chance to hammer home his calls for a "multipolar" world amid tensions with the West over the Ukraine crisis. "Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies," Putin told Russia's ITAR-TASS news agency. Russia has been excluded from the G8 group of industrialized powers as punishment for its annexation of Crimea and perceived meddling in Ukraine. The United States is threatening to impose new economic sanctions on Russia over accusations that it is backing pro-Moscow separatist rebels in eastern Ukraine. The summit comes as the economies of some BRICS countries, which together represent 40 per cent of the world population and a fifth of the global economy, are cooling down. Russia and Brazil are expected to see growth of just one per cent this year. The five emerging nations unveiled in 2013 their plans to create the bank, which aims to rival the Washington-based World Bank while the reserve is seen as a "mini-IMF." The creation of the bank will give a backbone to the BRICS, which is not a formal international organization, said Marcos Troyjo, Brazilian director of BRICLab research center at New York's Columbia University. "They are only taking their first steps towards a platform for building consensus on international agenda items such as rules for international trade, joint action at the UN or the WTO," he told AFP, referring to the World Trade Organization. The bank will have initial capital of $50 billion with each country contributing an equal share, while the reserve will have $100 billion at its disposal. The bank is "key to foster growth for the BRICS countries," Brazilian Industry and Commerce Minister Mauro Borges said. For the fund, China will make the biggest contribution, $41 billion, followed by $18 billion from Brazil, India and Russia and $5 billion from South Africa. Despite their agreement on the need for a bank, the five countries are split on where it should be headquartered. Shanghai is seen as the frontrunner to host the bank but South Africa insists on having it in Johannesburg. New Delhi and Moscow are the other candidates. The five nations are also negotiating who should hold the bank's rotating presidency first and the make-up of the board. The talks in Fortaleza will open a series of marathon summits and bilateral meetings in Brazil. After the BRICS meet with South American presidents in Brasilia on Wednesday, Xi will launch the China-Latin America forum, highlighting Beijing's growing interests in a region historically tied economically to the United States. Xi will then travel to Argentina, Venezuela and Cuba. - AFP/rw ============== "Beijing has been nudging state enterprises to wean themselves off U.S. software and service firms, chiefly IBM, Oracle and EMC. The drive, which accelerated after Washington indicted Chinese army officials, has dimmed the brightest star in Big Tech’s otherwise dull constellation."

China’s “De-IOE” campaign is taking a bite out of some Silicon Valley stalwarts. For those unfamiliar with the term, it’s being used by tech executives to describe Beijing’s nudging of state enterprises to wean themselves off U.S. software and service firms, chiefly IBM, Oracle and EMC. The drive, which has been going on for at least a year, but accelerated after Washington indicted Chinese army officials, has dimmed the brightest star in Big Tech’s otherwise dull constellation.

China is the third-largest IT market worldwide - and growing fast. Total spending on information technology should grow by about 11 percent this year to $125 billion, estimates Forrester. That’s about twice as fast as the world as a whole. The Chinese government, however, wants to switch the massive companies under its wing to domestic suppliers like Huawei and Lenovo in the name of economic development and security. American firms are increasingly left out.

China only accounts for about 4 percent of sales at IBM and Cisco. At Oracle and EMC it’s probably even smaller. Apple gets 20 percent of its revenue from the Middle Kingdom. But big banks, telecoms operators and state enterprises are natural targets for U.S. snooping, and purchasing decisions are more vulnerable to pressure from authorities. Such matters don’t really affect Chinese consumers, which may explain why Apple’s sales in China expanded last quarter and Cisco’s fell by double digits.

The big hardware companies face the most pain. Since China is still developing rapidly, companies and enterprises first need to buy physical gear – software and services can then be run on this foundation. Software piracy is also widespread. In the first instance, that means hardware sellers will be the first to face falling sales. It’s more about missed opportunity for software companies.

IBM is particularly exposed. About half of its sales in China come from hardware. IBM’s top line in China fell 20 percent in the past quarter. Further declines lie ahead. Microsoft, on the other hand, will see what had been a fast-growing market slow, or even shrink, after China painted a target on its back by banning the installation of Windows 8 on government computers.

Investors don’t seem to be expecting much growth from these tech giants. IBM, Oracle and EMC – as the acronym implies, the chief targets in China - trade at an average 20 percent price-to-earnings discount relative to the S&P 500. A substantial discount also applies to their compatriots in the crosshairs, Cisco and Microsoft. Quarterly results, which start rolling in this week, may expose a bit more Chinese pain to justify these low multiples.