Shanghai to benefit from new BRICS bank's HQ

Institution to provide business opportunities to Chinese investors

The newly established BRICS development bank, to be headquartered in Shanghai, will help the city realize the aspiration of becoming a global financial center, experts said.[Special coverage]

"It's the first time a major international institution will be headquartered in Shanghai. It signals that the city's financial services are of a global standard," said Chen Bo, an economist at Shanghai University of Finance and Economics.

Brazil, Russia, India, China and South Africa, or BRICS, announced the founding of the New Development Bank on Tuesday during a summit in Brazil.

The new bank reflects the growing influence of BRICS, which accounts for almost half the world's population and about one-fifth of global economic output.

It will have an initial subscribed capital of $50 billion equally shared among the founding members, and will support infrastructure and sustainable projects in developing countries.

Chen said the bank will greatly benefit Shanghai as intergovernmental loans bring in more commercial transactions. Favorable policies expected to be launched in the experimental Shanghai Free Trade Zone will help create a hospitable business environment.

In June, the biggest bank in Latin America, Banco do Brasil, decided to upgrade its office in Shanghai to a branch, to tap into opportunities emerging from expanding trade and investment between the two nations.

Chen said expanding business relations among BRICS countries lays a solid foundation for Shanghai to build itself into a global financial center by 2020.

Ye Yu, a researcher at the Shanghai Institute of International Studies, said the city's infrastructure, security and business climate are incomparable among other BRICS cities, making it the first choice as a venue for the bank's headquarters.

For decades, the city has been a regional center for global financial institutions.

In addition, overseas infrastructure projects funded by the bank will provide more business opportunities for project developers in China, Ye said.

Chen said the bank may also complement China's massive foreign exchange reserves.

"A large share of China's $4 trillion foreign exchange reserve has been invested in US Treasury bonds, with even lower yield than the inflation rate.

Once the bank is in place, "we might as well use part of the reserve in the overseas infrastructure projects, and we may get higher returns", he said.

Harold Trinkunas, director of the Latin America Initiative at the Brookings Institution, said the new bank will give developing countries a bigger say in the international financial system.

"In a sense, the New Development Bank is another version of the World Bank, but without some of the political conditionality issues that have traditionally been attached to World Bank loans.

"In a lot of ways, the BRICS countries are all concerned with the level of influence that the West exercises in the current set of institutions that govern the international financial economic system, and they're looking to create some alternatives that diversify and give them some options," Trinkunas said.

Nicholas Lardy, a senior fellow at the Washington-based Peterson Institute for International Economics, said the bank "can make a positive contribution to global growth".

"But it also sends a message that China and some other countries are not happy at the pace at which governance is changing at long-standing multilateral international institutions," Lardy said.