CASS report says about $110 billion in foreign capital will flow into emerging markets this year

BEIJING - The rapid growth of the five top emerging economies is expected to continue in the next five years, but more foreign capital inflows and high inflation may bring overheating risks, a Chinese academic report said on Thursday.

The combined output of the "BRICS" countries - Brazil, Russia, India, China and South Africa - will exceed that of the United States by 2015, five years earlier than was forecast by Chairman of Goldman Sachs Asset Management Jim O'Neill, a report from the Chinese Academy of Social Sciences (CASS) said.

The total value of the BRICS countries' gross domestic product (GDP) may account for more than 22 percent of the world's total by 2015, the report said.

However, the huge investment potential in BRICS members is likely to attract more speculative capital inflows. Fluctuations in commodity prices could add more inflationary pressure on the emerging economies, analysts said.

In an effort to defuse the risk of overheating and inflation, emerging economies have initiated a series of interest rate increases.

China boosted the benchmark one-year deposit and lending rates by 25 basis points on Tuesday, the fourth increase in less than six months. Brazil's central bank raised the rates to 11.75 percent from 11.25 percent earlier in March, the third increase this year. India also increased the benchmark interest rate by 25 basis points, the eighth hike since March 2010.

The CASS report said that about $110 billion in foreign capital will flow into emerging markets this year.

Li Yang, vice-president of CASS, said on Thursday that the five BRICS countries may face a heightened risk of cross-border capital inflows seeking profits from higher interest rates than those in developed economies.

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"Potential currency depreciations in BRICS countries may decrease the value of their foreign exchange reserves and weaken global competitiveness," Li said, who urged the BRICS countries to strengthen their mutual cooperation on sustainable economic development and improving the international currency system.

Stubborn, high inflation has become the top public concern in emerging economies. Russia's Consumer Price Index (CPI), a major gauge of inflation, surged to 8.8 percent last year, higher than the government's 7 percent target. In Brazil, it stood at 5.91 percent in 2010, according to the CASS report.

Investment research from UBS predicted China's year-on-year CPI in March is likely to be 5.5 percent, much higher than the government's annual target of 4 percent. China's CPI was 4.9 percent in February.

Fluctuations in international commodity prices, especially the soaring price of crude oil, may add imported inflationary pressures to emerging economies, according to CASS. In addition, the cycle of rate increases will lower exports from the developing countries.

Chinese President Hu Jintao will hold the annual summit of BRICS next week in Sanya, Hainan province. Leaders from the five emerging economies will coordinate their stance on major economic issues.

"The rise of new emerging powers is an important force today in shaping the new direction of an improved global order, characterized by greater representation, fairness and equity," said Bheki Langa, South Africa's ambassador extraordinary and plenipotentiary to China.

He also said that the five members need to pursue partnerships and share lessons about mutually beneficial economic development.