The biggest emerging economies opened their New Development Bank in Shanghai, strengthening China’s ability to offer developing nations the support traditionally given by the U.S. and Japan through organizations like the World Bank.
The NDB -- or BRICS Bank as it is known after sponsors Brazil, Russia, India, China and South Africa -- will help with the recovery and development of emerging economies, China’s Finance Minister Lou Jiwei said at the lender’s opening ceremony in Shanghai Tuesday. It can promote cooperation among developing nations without undermining the roles of existing institutions like the World Bank, he said.
“NDB’s support for infrastructure construction will effectively ease the bottleneck that has constrained emerging and developing nations for long and will offer support for their economies’ upgrade and growth,” the minister said. “NDB is a new member and partner to the global development system.”
While the BRICS nations account for about a quarter of global economic output, they and their neighbors have long depended on loans from the U.S.-led World Bank and the Japan-steered Asian Development Bank. China has sought to build its own influence, with its role in the NDB as well as leading the creation of the $100 billion Asian Infrastructure Investment Bank.
The NDB will collaborate with the AIIB, including setting up a hot-line with the other lender, NDB President Kundapur Vaman Kamath said in Shanghai Tuesday. It is looking at local funding solutions, such as tapping financial and capital markets in BRICS nations, he said.
“We will have an open mind in terms of the instruments we will use for funding projects,” Kamath said. “Should we approach the financial markets, the capital markets in five BRICS countries to raise local-currency funds so that in a way we break the challenge and the cost of dealing in hard currencies where the exchange rate continues to impact you for a long, long time? Could we start by making substantially large bond issuance in the domestic market?”
The NDB will have initial capital of $50 billion with plans to raise that to $100 billion over time. In the AIIB, China will hold a veto power and is the biggest shareholder.
— With assistance by Unni Krishnan, and Jun Luo