China looks to assuage concerns that it will dominate the proposed BRICS Development Bank

China has welcomed Wednesday’s meeting between new President Xi Jinping and Prime Minister Manmohan Singh, saying the much-anticipated first meeting between the country’s new leader and top Indian officials would help boost trust.

Foreign Ministry spokesperson Hong Lei told reporters the meeting “will improve mutual trust and cooperation”. China’s new President, who took office on March 17, is expected to meet Dr. Singh on Wednesday on the sidelines of the on-going BRICS Summit (Brazil, Russia, India, China, South Africa) in Durban, South Africa.

“We hope these kinds of meetings will improve mutual trust and cooperation between China and other countries,” Mr. Hong said.

Separately on Wednesday, Chinese officials hailed the agreement to set up a BRICS Development Bank, expected to be announced at the summit even as the five emerging countries are working out the finer details.

Chinese Finance Minister Lou Jiwei told the State-run Xinhua news agency the establishment of the bank “is necessary”, adding that “the nations have great demand for fund to boost infrastructure construction”.

Mr. Lou said details such as initial investment were not discussed by the finance ministers in Durban. “What we have now [about the development bank] is just a general picture,” he said, adding that the five countries were “working towards” settling final results next year. Mr. Lou said the bank would be “complementary” to existing institutions like the World Bank and Asian Development Bank.

Zhao Jinping, a senior economist with the official Development Research Centre of the State Council, or Cabinet, added that the bank could serve as a coordinating mechanism that would help bring the five countries closer together. “The BRICS nations are like scattered pearls that haven’t been put on a string,” he told Xinhua.

Acknowledging differences within the group, he said completing the process of agreeing to details of the bank could not be completed “within a short period of time”. He said there were several

disagreements over inter-BRICS policies and trade tensions amongst the five countries, citing the example of anti-dumping investigations launched by solar panel markers in India against Chinese companies and Chinese probes against Indian exports of pyridine.

“By setting down clear-cut rules in the process of establishing the bank, the BRICS nations can move to resolve disagreements over their cooperation,” he suggested, adding that the bank could also help developing countries “with financing support and policy consultation in areas of infrastructure investment, trade facilitation and poverty reduction”.

China’s interests

For China, pushing forward a bank could help its long-term ambitions of internationalising its Renminbi or Yuan currency, if the bank offered Yuan-dominated loans, suggested Yuan Gangming, an economist with Tsinghua University, in an interview with Xinhua. He said China could “optimise the allocation and structure of its foreign exchange reserves if it became the bank’s stakeholder”.

The other four BRICS countries have expressed some wariness that China, with its sizeable foreign reserves, would dominate the financial institution.

Those concerns were well-founded, suggested Bala Ramasamy, Professor of Economics at the China Europe International Business School in Shanghai, in an interview with The Hindu.

“I think it is quite obvious, if china is going to be the major contributor to the bank, if you look at the World Bank and how it hijacked by the United States, there is no reason why the BRICS development bank will not be dominated by China,” he said.

“The dispersal of funds will be in line with the certain agenda China will have.”

China has vested the BRICS mechanism with a particular sense of importance not seen in the other member countries, he noted. “Other countries are looking at what they can get from it, but here, it is a matter of China positioning itself as the leader of the developing world”.

The Communist Party-run Global Times newspaper sought to assuage those fears in an editorial on Wednesday.

“China has no ambition to dominate BRICS, and will not purposely seek to raise its role in this mechanism,” the newspaper said. “Ideally, Beijing would like to maintain a low profile while showing respect to other countries. But in this era of diplomatic democracy, it can only seek balance while safeguarding the concrete interests of the nation.

More participation in multilateral international cooperation can provide us with more space and leverage in policy maintenance and adjustment.”