BRICS Bank Activated in Shanghai

The New Development Bank (NDB) established by the BRICS (Brazil, Russia, India, China and South Africa) countries began operations in Shanghai on July 21. Chinese Finance Minister Lou Jiwei, Shanghai Mayor Yang Xiong, and NDB President K.V. Kamath from India attended the opening ceremony. The Seventh BRICS Summit held in the Russian city of Ufa last month had announced the launch of the development bank. Its mandate is to finance infrastructure projects, mainly in BRICS member countries.

The NDB will supplement the existing international financial system in a healthy way and explore innovations in its governance, Lou said at a seminar following the ceremony.

New Investment Fund

A fund to support infrastructure development by mobilizing insurance companies' money was approved by the State Council, China's cabinet, in July. The China Insurance Investment Fund, worth about 300 billion yuan ($49 billion), will support projects such as renovation of substandard housing, municipal infrastructure improvement, water conservation and construction of traffic facilities in central and west China. It will also invest in projects associated with the China-proposed Silk Road Economic Belt and the 21st-Century Maritime Silk Road. The Belt and Road Initiative aims to revive the ancient trade route between Asia and Europe. The routes pass through more than 60 countries and regions with a total population of 4.4 billion. 

Pension Fund Investment

There must be a guarantee of absolute safety before China diversifies its huge pension fund investments to increase its value, the Ministry of Human Resources and Social Security has cautioned recently. In China, urban employees put aside a part of their earnings for their pension. After they retire, they usually get a pension equal to about half of their salary. Previously, the fund, equaling roughly 90 percent of the country's social security fund pool, could be kept as deposits only in banks or invested only in treasury bonds. However, though the options ensure the money would be safe, there isn't much room for growth in the investment. Now the fund can also be invested in big projects and key enterprise equities. But such investments are restricted to 20 percent of net assets. 

Opening up E-Commerce

Foreign investors will have greater opportunity and freedom in China's booming e-commerce industry as a new policy will allow them to fully own e-commerce companies, the Ministry of Industry and Information Technology (MIIT) has announced. Online data processing and transaction processing businesses will be opened to foreign investors. The new policy will enable more foreign companies to compete with local firms, thereby driving the sector to higher standards, the MIIT said. Currently, China's lucrative e-commerce business is dominated by the big homegrown firms. The e-commerce market hit 13.4 trillion yuan ($2.2 trillion) last year and the authorities are aiming to double it in two years.

More Liquidity

The State Council has passed a draft amendment to the banking law that gives banks more freedom to lend by removing the 75-percent loan-to-deposit ratio stipulation. The ratio will instead be seen as a liquidity-monitoring indicator. This will enable financial institutions to increase lending to agriculture and small and micro businesses. The draft amendment will be tabled before the top legislature, the Standing Committee of the National People's Congress, for review. China had kept the 75-percent ratio unchanged for years. In 2014, the central bank expanded the definition of what constitutes a bank's deposit in a bid to release more lending capital. The latest decision came as the government is at pains to channel credit to the real economy to support growth.