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19 Jul, 2014

BRICS development bank headquarters in Shanghai bolsters China’s status

BEIJING, July 18 (Xinhuanet) — A day after the world’s five largest developing countries picked Shanghai as the headquarters for their new 100 billion US dollar development bank, experts say it will help reinforce China’s central role in the group of five nations known as BRICS.

The New Development Bank is designed to fund infrastructure construction in developing countries. Most of the financing for such projects now comes from the World Bank, which is led by developed countries and mainly provides developing countries with low- or zero- interest loans. But one expert says borrowing money from the World Bank isn’t easy.

“We can’t deny that the World Bank has done many good things for the developing countries, but the effect becomes limited, because the World Bank is led by developed countries that have a different principle of development from developing countries. Therefore, it is hard to get loans from the World Bank, which has set up complicated procedures and a high threshold for project approval,” said Bank of Communications chief economist Lian Ping.

The World Bank says it lent about 30 billion US dollars last year, up by 6 percent from 2012, but experts estimate the demand for loans from Asian countries alone is at least 4 trillion. One economist suggests that’s a reason for putting the bank in China, and specifically in Shanghai.

“Only China has such economic power. Besides the capital, the bank also needs to fund international projects, and China is the biggest in terms of economic size. And the selection of Shanghai will also make it easier to find international employers, because the city is more internationalized,” said Shanghai Academy of Social Sciences economist Xu Mingqi.

To try to reduce the disparity among the member countries, the bank’s initial capital is subscribed equally by its five members, which means no single country will dominate the partnership. But Lian says having the headquarters in Shanghai still creates greater benefits for China.

“Currently the infrustructure construction in developing countries is falling behind, but it will be an important part of their development in the future. Such an important bank coming to Shanghai will encourage more overseas companies to have offices in the city, bringing more businesses here, as well as overseas related agencies. That will be a great benefit in establishing the Shanghai financial center,” said Liang.

The New Development Bank will begin operating in 2016, with the first president from India. Because China won the right to host the head office, it is expected to be the last of the five countries to assume the bank’s revolving presidency, which will happen no earlier than in 2036.