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Analysis
Slow start for Shanghai bank

Slow start for Shanghai bank

Demand slowdown shifts Brics focus 

by a special correspondent in Shanghai

Fri 19 Feb 2016

The New Development Bank or ‘Brics Bank’ was launched with great fanfare, and under more favourable financial circumstances, in July 2014. It seems to be getting off to a slow start.

India proposed its creation at the fourth Brics summit in Delhi in 2012. But founder members Brazil, Russia, India, China and South Africa are suffering from lower world demand and commodity prices, and their attention may now be elsewhere.

The bank is based in the Lujiazui financial area of Shanghai. This financial environment should be an asset, but its place among commercial banks could be more of an inconvenience. The bank’s chief advocates and power-brokers are the finance ministries of its shareholders, where the natural centre of gravity is the political centre in Beijing.

The bank suffers from an image problem. Its website provides no guide to its business, while it confusingly has two names in both Chinese and English (the amorphous and unmemorable ‘New Development Bank’, or ‘NDB’, being its preferred English name). The NDB is about to recruit, but no vacancies are listed on the website.

The problem may be that Chinese official interest has turned away from the bank towards the Asian Infrastructure Investment Bank as a vehicle for investment and soft power in Asia. China can more easily dominate the AIIB than the NDB. Indeed, the NDB’s combination of the world’s great bureaucracies – China, Russia and India – can hardly be a recipe for swift, trenchant policy-making.

There are concerns over how the bank’s governance will work. While the AIIB has gone out of its way to embrace transparency and establish a good corporate governance regime, hiring a top World Bank lawyer, there is still some uncertainty at the NDB. A particular problem is the role of environmental assessments and the recommendations of any proposed NDB projects.

Should these meet the best practices of its leading shareholder, or will there be dilution of standards? This concern has been voiced in Brazil, perhaps justifiably when China and Russia’s intractable pollution problems are taken into account.

The NDB concept is idealistic and well-intentioned, and China has great experience of lifting people out of grinding poverty. Shareholders have made an initial commitment of manpower and resources. In a faltering world economy, the need for investment in infrastructure and job creation has never been greater. Perhaps the NDB will receive a new injection of enthusiasm in 2016 and ascend – like a mischievous but energetic monkey – to take its place at the top of the development tree. But there may be a lot of hard climbing – and risk of setbacks – before it gets there.

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