By John Ross    Source: China.org    Published: 2018-6-8

The Shanghai Cooperation Organization (SCO) holds its summit in Qingdao from June 9-10. Merely to list the SCO members makes the significance of the summit obvious. The SCO includes as full members China, India, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan, and Uzbekistan. Its official observer states are Afghanistan, Belarus, Iran and Mongolia, while its dialogue partners are Armenia, Azerbaijan, Cambodia, Nepal and Sri Lanka.

The full members of the SCO therefore include 41 percent of the world`s population, and with observer states and dialogue partners it includes 45 percent. The SCO region covers the great majority of the Eurasian land mass, making the SCO by both population and area the world`s largest regional organization. To make a comparison, the G7 includes only 10 percent of the world`s population.

The geopolitical, even military, importance of the SCO, is made more obvious by looking beyond its borders.

• To the west of the SCO region there is an arc of military conflicts which extends from west and north Africa (Boko Haram in Nigeria, al-Shabab in Somalia, the failed state of Libya etc.), extending into full scale war in Syria and Iraq, while to the west and north of the Black Sea, in Ukraine, armed conflict broke out after the 2014 coup d`etat and problems of jihadist terrorism continue in parts of the Caucasus.

• In one southern region of the SCO region war continues in Afghanistan.

• To the east of the SCO region the U.S. continues to attempt to carry out provocative actions in the South China Sea and in regard to Taiwan Province of China, whilst making military threats against the DPRK.

• With an impact on the entire global situation, the present U.S. administration has embarked on economic actions which could, or are aimed at, negatively affecting significant parts of the world – sanctions against Russia, tariffs against key U.S. allies such as Japan, Canada, Mexico and the EU, sanctions against Iran, with anti-China neo-con "hardliners" advocating tariffs against China.

It is necessary to examine both the external economic situation facing the SCO and the potential within it.

The instability in the regions surrounding the IMF is produced by the slow growth of the main Western economies, the G7, since the international financial crisis. To make an historical comparison; eleven years after the economic crisis of 1929, the GDP of the G7 economies as a whole was 20 percent higher than in 1929, but in contrast by 11 years after 2007 crash, the GDP of the G7 economies as a whole was only 14 percent above the pre-crisis level – i.e. growth in the G7 as a whole after 2007 is now significantly slower than after 1929.

Considering the geopolitical effects of this, while the economic downturn after 1929 was much sharper than after 2007, nevertheless the prolonged period of very slow growth since the international financial crisis, by historical standards, necessarily has a destabilizing effect. It produces terrorism, and even armed conflict, in some developing countries, and political instability in advanced ones – the election of Trump against the opposition of both Democratic and Republican establishments in the U.S., Britain`s vote for Brexit, clashes over tariffs between the U.S. and EU, the recent formation of a "populist" government in Italy etc. Stability within the SCO region, therefore, can best be guaranteed by economic and social progress as well as security cooperation.

Given the importance of the SCO as a bastion of geopolitical stability, amid problems created by slow growth in the G7 economies, China has paid great attention to strengthening the SCO. In April President Xi Jinping personally met with heads of foreign delegations at the meeting of the Council of Foreign Ministers of the SCO member states. He stressed at the meeting: "We must take safeguarding regional security and stability as the SCO`s work priority as always." But he also stressed the work of the SCO was important in other key fields.

SCO cooperation has steadily advanced in six major areas since its establishment almost 17 years ago, including politics, economy, security, people-to-people and cultural engagement, external exchanges, and mechanism construction. The overall level of cooperation within the SCO has constantly increased.

Xi Jinping stressed that China has consistently taken the promotion of the SCO`s development as one of its diplomatic priorities. He emphasized the great potential of the membership expansion of the SCO, with India and Pakistan joining as full members. He noted China was willing, together with other member states, to safeguard regional security and stability. In the economy he emphasized China`s aim to gradually establish institutional arrangements for regional economic cooperation – alongside expanding personnel exchanges, people-to-people and cultural exchanges to promote bonds between SCO states.

These are clearly desirable goals, but it is also necessary to understand that they are entirely realistic – particularly in the economic field. This is confirmed not only by Chinese sources but by data from the IMF – which is clearly not under China`s control.

IMF data shows that in the next five years, in the period up to 2023, the economic potential in the SCO region is greater than in the entire G7 – the grouping of "Western" economies.

This is shown in Table 1. As may be seen, IMF data projects that in the period 2017-2023, at current exchange rates, the full members of the SCO will account for 34 percent of world economic growth, and all members of the SCO, including observer states and dialogue partners, will account for 37 percent of world economic growth – compared to only 32 percent in the G7.

But, in terms of real expansion of markets for companies, this measurement at current exchange rates even understates the lead of the SCO. The reason for this is that lower wages in developing countries compared to advanced ones, not only in production but also in distribution and retailing, mean that it is possible to profitably sell goods and services at lower prices in developing countries than in advanced ones. The result is that price levels are significantly lower in developing economies than advanced ones and current exchange rates considerably underestimate the amount of goods and services sold in developing countries.

The branch of economics that analyzes this well-known effect is known as that of purchasing power parities (PPP). Measured in PPP, which measures the actual volume of sales in goods and purchases, the lead of the SCO economies over the G7 in extent of growth is overwhelming.

As shown in Table 1 in the period 2017-2023, in PPP terms, the IMF projects that the SCO full members will account for 45 percent of world growth, and all SCO members will account for 49 percent of world growth, compared to only 18 percent in the G7. The real increase in the volume of production and sales of goods and services in the SCO economies will be approximately two and a half times as fast as in the G7.

Economic developments therefore show clearly that China`s emphasis on the development of the SCO is entirely realistic. The SCO is crucial not only for geopolitical and security reasons but also for the economic development of its member states. The SCO is therefore, in every sense, a crucial bastion of world stability and development.

John Ross is a senior fellow of Chongyang Institute for Financial Studies, Renmin University of China.