The announcement on July 16 in Brazil that the BRICS group of Brazil, Russia, India, China and South Africa are establishing a new Shanghai-domiciled development fund, boasting an initial capital of $100 billion, is highly significant, particularly for a major financial center like Hong Kong. The establishment of this fund is noteworthy for both political and economic reasons. Furthermore it offers Hong Kong an opportunity to leverage itself not only as an Asian regional center of finance, but also as a global one.

The political reason for the importance of the new fund is that it gives true substance to something that has been, until now, largely abstract. BRICS has been a concept which has knocked around in the media and in people's thinking since it was coined by former Goldman Sachs economist Jim O'Neill a number of years ago. BRICS leaders started to meet together in recent years, but if someone asked what specific initiative or concrete idea they might give to a group of nations, then they would have been hard pressed to offer anything. With the development fund, this changes. There will be an actual organization, headed by an individual, with an office, capital, and a function.

A development bank led primarily by developing nations and focused on their needs is also a significant step. One of the great points of contention, particularly amongst the BRICS grouping, is that they have a limited voice in existing major financial organizations, from the World Bank to, in particular, the International Monetary Fund (IMF). The IMF has been accused, since the time of the Asian Financial Crisis in the late 1990s, of imposing a largely US-led consensus on countries it has bailed out, and enforcing an orthodoxy which is in the interests of developed economies, but sometimes not of those in receipt of its funds. The voting rights in the IMF have been reformed a little over the last decade, but are still regarded as unrepresentative. China, with barely 4 percent of these votes, feels as a net contributor it needs more of a voice. The BRICS fund is an alternative to the IMF, and the argument will be that it is better placed to understand the needs of the developing world because many of its key stakeholders fall into this category.

The economic reason why the fund matters is also pretty clear. The BRICS nations combined constitute one of the world's great blocs with strong potential for growth. But they need a better common framework within which to work together to realize this potential. All are fighting to maintain, or increase GDP growth, and also at the same time to diversify their economies. They have shared challenges of sustainability, the need to improve infrastructure and the quality of their service sector.

India, on a per capita basis, is the poorest of the group, with Russia the most affluent. China has the strongest continuing growth and the largest economy. Potentially, each member of the group stands to benefit from working more closely with the others. China's recent energy deal with Russia is an example of this. India needs to raise its exports to China, and address its own lack of infrastructure in order to become more than just a resource supplier. A fund that is able to assist in defining a common understanding of development priorities, and how best to make these happen will also help in creating potential sources of growth, along with external export and investment markets away from the developed world.

Despite the recent political strife in Hong Kong one issue that might have been forgotten is that the SAR is an established financial center of global significance - the strongest in Asia. Its international role in this sector, the core of its economy, is the asset that everyone needs to preserve. There is still much discussion surrounding the best specific political framework within which this can be achieved. But Hong Kong's unique function as an interface between the global financial markets and the Chinese mainland will take on an extra dimension when the fund is fully established in Shanghai. In what ways can Hong Kong work with the new fund? How can it develop a narrative in the increasing role of South-South economic and financial links? We need to hear more proactive Hong Kong voices addressing these questions.

Hong Kong's history of delivering value and stable management in the financial sector is a great asset, and it surely does have an interest in establishing how it can work with the new BRICS fund. There must be partnerships it can develop across BRICS nations as they seek new areas of growth and new sources of funding to develop their potential. It was as a place where east meets west that Hong Kong became celebrated in the last century. But as a unique place where the developed and developing worlds combine, Hong Kong might now find a new identity and a new story. And this one will continue to put Hong Kong at the centre of global economic development in the coming decades.

The author is executive director of China Studies Center and professor of Chinese Politics at University of Sydney; team leader of the Europe China Research and Advice Network (ECRAN) funded by the European Union; and associate fellow at Chatham House, London.

(HK Edition 07/24/2014 page9)