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China Moves on Lending and India's Export Ban; Staking Claim to BRICs Throne

Not all emerging economies are equal. That appears to be the message China was sending over the last week as it successfully pressured India to turn over a just-introduced product export ban and very publicly announced it was ready to start offering renminbi-based loans to its counterparts in the BRICs—Brazil, Russia and India.

Last week, India shocked markets with an announced ban of cotton and like-fiber exports. Despite textile manufacturers' requests for assistance, as the commodities market activity has caused pricing problems for India's domestic business, China's massive consumption demand seems to have won out.

In a bit of a show of power last week, China howled at the new ban to the extent that it was overturned in less than seven days. For its part, Indian officials went into damage control mode, saying their decision to acquiesce on the ban was rooted more in complaints from their own domestic growers over pricing damage than in outside criticism. India's previous ban on cotton exports in April 2010 caused a notable pricing surge, and a new one appeared to be forming again until Chinese interests essentially put the kibosh on the effort.

This chain of events is happening at an interesting time since representatives from both governments will take part in a BRICs summit to be held in India in late March. Brazil and Russia, as well as faux-BRIC member South Africa, will also send officials to the meeting. There, China will look to formalize a memorandum of understanding in which it will make loans available to its fellow BRICs in its currency, the renminbi/yuan. It's yet another step on the part of China to boost the international use of its own currency while taking a thinly veiled slap at the dollar. In December, China and Japan announced a new currency/trade partnership designed to boost both the renminbi and the yen in trade, among other areas. Though largely symbolic and shrouded in a lack of finite details at the time, the move appeared to be an opening salvo in the message that several international economic powerhouses are trying to gradually reduce their reliance on the dollar as the dominant currency.

While a statement not to be ignored, it's not likely to push the Chinese currency ahead of the dollar on the world stage anytime in the near term. As the Federal Reserve's Matthew Higgins told NACM in an interview as well as attendees at FCIB's New York International Roundtable in September, it could still take decades for the dollar to be replaced as the world's go-to currency.

India will be front-and-center at two FCIB educational opportunities this spring: during the "Doing Business in the BRICs" session at the 2012 International Credit Executives [I.C.E.] Conference in Chicago May 2-4, as well as in the two-day webinar, "Doing Business in India," starting April 24. For more information or to register, visit www.fcibglobal.com.

Brian Shappell, NACM staff writer