Shanghai to Host the New BRICS Bank Headquarters
Fresh on the heels of their meeting in Brazil, the BRICS countries have announced the formation of a New Development Bank (NDB) and contingency fund to be headquartered in Shanghai. It is expected to start operating sometime in 2016.
The creation of the bank is in response to the growing needs of developing countries for aid and contributions to developing infrastructure and security. These countries often miss out on funding from the International Monetary Fund (IMF) and World Bank because funds from these organisations come with strict requirements that many are unable or unwilling to fulfil.
The aims of the BRICS’ bank is to provide protection for member countries in the event of another economic crises as well as to offer financial aid to low and middle income countries (thediplomat.com).
Development of a BRICS bank has been made inevitable by the refusal of a developed-nation centric IMF to recognise the increasing contribution developing countries make to the world economy and denying them an increase in voting rights in line with their economic contributions. The BRICS countries are determined to create a bank that is not under the ultimate control of Washington DC and gives developed nations the aid they need without the harsh terms that the IMF frequently requires; meaning that more countries will be eligible for aid and be able to improve quality of life for their citizens.
The fact that the NDB will have its main base in Shanghai is not insignificant. Although funds for the development bank are split equally between all BRICS countries to ensure no one country dominates; China contributes around 40% of the funds for the $100 billion contingency fund, more than twice the amount put forward by the other members.
While the BRICS have promised the bank will not be run according to the ideals and political machinations of any one BRICS country, it is inevitable that the country with the most control and influence over funding decisions will be China. China has the largest economy of all the BRICS, they also have the largest network of trade and aid partnerships to bring to the banks account books. It is likely that China will have an unofficial veto right on any project funding decisions.
The Chinese have been quick to deny claims that they will hold ultimate control over the bank and named an Indian as first president of the bank, as well as basing a subsidiary bank in South Africa. These were decisions made most likely to try to persuade onlookers of the legitimacy of this claim. However, it is unlikely that any of the other member countries would dispute China’s decisions as it is not in their best interests to do so.
This influence China will undoubtedly wield over the NDB will aid China’s allies in the first instance as their development projects will be looked on most favourably by China.
Secondly, for China, the NDB is a means to develop economic interests, create more trade partnerships and to further their goal of becoming a respected global power. The bank is a way to legitimise these trade deals as Chinese aid is often unwelcome and seen as a way for China to strip countries of resources rather than to help these countries develop. This view is held particularly in African nations which have received a lot of financial aid packages from China in the last 10 years but, in some regions, have not felt the benefits of this extra investment.
The NDB will give a cover to Chinese investments and deflect the criticism China often receives regarding its investment strategies in developing countries.
Developing nations have, so far, been welcoming of the planned NDB, as it means they will be able to access aid with more limited conditionality than IMF funds. Human rights and government policies are less likely to be taken into account by the NDB when decisions are made on which countries should be helped and which shouldn’t. This is in line with China’s principle of non-intervention in the domestic affairs of other countries and is likely to be agreed on by the other BRICS members.
BRICS have stated that their bank will not be competition with the IMF and World Bank; rather it will complement the work that these institutions are doing. The NDB will focus more on helping developing nations in desperate need for infrastructure and development investments. Currently, the World Bank is unable to serve the demand for aid from every country in the world. In 2013, for example, the World Bank loaned $30 billion to various projects around the globe. However, the demand from Asian countries alone for development loans stands at at least 4 trillion US dollars (Xinhua.net).
The success of the BRICS bank hinges on how well the 5 member countries can work together, coming from such different political, economic and cultural backgrounds; working effectively together to benefit developing nations will be a major challenge.
The other challenge they face is to keep control equal, or at least equal in the eyes of the rest of the world. If one country, especially China, is seen to dominate the bank and lending policies, they are likely to receive hostility from other countries as well as experiencing dissent from within. Building a strong partnership is key to the NDBs success.
If the BRICS bank is successful, it could help to improve the lives of millions of people throughout the world, people who have traditionally been unable to benefit from IMF or World Bank loans. If the BRICS are able to do this, the global economy will benefit as a whole, ensuring the longevity of the NDB.