The Olympic Games in Beijing are coming to an end. This festival has allowed China to demonstrate its strengths to a global audience, while Shanghai share prices have not totally regained its recent dip. China’s exports have been pushed down by the US subprime crisis, while Beijing’s efforts to stimulate domestic demand will be hampered by the ongoing inflation.
Russia’s economy appears to have revived, riding on the unexpected more than five-fold surge in oil prices. But in June, the country’s industrial output began to slow down, while its inflation drive showed no signs of ceasing, altogether suggesting signs of stagflation.
India is in an inflation mode amidst rapid growth in the past few years. Its economy will furthermore undergo further transition as it goes for a general election next year.

From 1997 onwards, the World Bank and other institutions have claimed that China’s GDP, based on its purchasing power parity (PPP), had reached the level of the top five in the world in terms of worth (recently, however, they have admitted that this calculation has been overestimated by 40% over the real level).

Joining this bandwagon, global investment banks have been trumpeting the great potentials of the BRIC countries, which effectively raised BRIC shares and accrued enormous fortunes to the banks as they offered these shares to the public in overseas markets. All these factors, surely, have created a kind of economic bubble. As the tale of the three little pigs suggests, the BRICk-made houses may be resilient against winds. But could they really withstand earthquakes?

Since 2000, Russia’s GDP has grown over five times based on the US dollar. Much of these gains have, however, been created through the surge in oil prices, the services and investments derived from this boom, and rise of the ruble against the dollar. When the hike in oil prices comes to an end, will Russia be able to switch to the path of autonomous growth?
Now the ruble has grown too strong, while the domestic income level has surged to a point where a company car driver earns US$2,000 a month. In this state of the economy, it’s cheaper to import most industrial products than for Russia to make them on its own. Russia imports much of the durable goods consumed domestically. The economic structure of this country, much dependent on natural resources, has hardly improved since the chaotic period of the 1990s.

China’s economy has registered double-digit growth every year, but its economy is made vulnerable by the fact that its exports account for as much as 38% of its GDP (Japan’s exports account for 16%. Britain in the early days of the industrial revolution was as dependent on exports as China is today).
Domestically, China depends too much on the construction sector. While Russia accumulates its capital in oil, China builds its fortune through the rapid increase of exports based on the introduction of foreign capital. China then inflates the proceeds by expanding the real estate and service sectors.
Now that labor costs are surging in China too, its companies have started building plants in Vietnam and Indonesia to seek low wages.

Addressing these moves, China and India are expected to expand domestic demand to sustain their growth. Traditionally, the huge populations of these countries were seen as a burden on their economic development. Now, the same demography is seen as a contributor for the rapid expansion of their domestic demand. This sudden change in interpretation seems to be quite deliberate. Unless it has purchasing power, no population group can contribute to boosting domestic demand.

Some may suggest that the governments of China and India should exploit taxes from buoyant exporters and then redistribute the wealth to the poor. But heavily-taxed firms would then be unable to invest for their own development. If the governments alternatively printed more bank notes and distributed them to their people, they would only see a worsening of inflation.

Moreover, when China and India seek a rapid expansion of their production, they are expected to encounter the bottleneck of natural resources and raw materials. The two countries depend on imports for much of the natural resources that they lack at home. To import resources, they must export goods to gain foreign currencies. But now developed economies have reached saturation, being unable to drastically increase imports from the two countries.

All these observations suggest that the BRICs’ economies may have come to a crossroads. These economies are even expected to undergo a number of occasions when their financial bubbles suddenly shrink or even break.. To prepare for this possibility, the BRICs economies should step up their contributions to the IMF. Developed economies, too, must prepare to respond to possible demands for massive relief funds.

Developed nations have lost their self-confidence in the face of BRICs’ bullish drives. People speak of the end of the “unipolar rule by the United States” (a view which itself is exaggerated) and “the arrival of a nonpolar epoch.”

But the world’s ruling structure has not easily changed in the past 200 years. Because it colonized India, Britain during the industrial revolution was able to build enormous wealth and claim hegemony. Although Germany and the United States later emerged, it was only after the West lost its colonies in WWII that the United States rose as the super power.

The world will not easily become “nonpolar.” Only when developed economies lose self-confidence and drown in the perception of the “nonpolar” state, then this perception could materialize.

Now, let us review BRICs in a fresh light. Let us remind ourselves of the simple rule that it is not the size of the population but that of the capital that determines the scale of newly created wealth.
International financial firms have been spreading an illusion that suggests population is a magic wand for generating wealth. By doing so, these firms apparently raked in enoumos returns. These firms must take responsibility for the real consequences of creating bubble economies.

In the past few years we have seen bubbles swell and burst, first with IT, then housing and now the BRICs. It is time we appreciated once again the value of the sound activities of manufacturing goods and providing services. In this perspective, Japan has secured an advantageous position. Japan is running ahead of the world with the electric car, a key next-generation product, and with the robot, too.

In addition, the country’s wages and prices of goods and land have fallen in comparative terms, making Japan a low-price economy among developed countries. There are few other G8 countries where an upscale hotel room in the heart of the capital costs below JPY30,000 (about US$270).
These situations suggest that Japan could now once again be the “world's factory.” This could eventually invite investment frenzy or a bubble economy in Japan with its lands within the focus. These odds would increase significantly if foreign investors were able to earn lucratively in the Japanese markets.