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China’s Tab at World Bank May Get Squeezed Under Trump’s Nominee (Bloomberg)

March 12, 2019

From the article:

In the summer of 1981, a poor, technologically backward country looking to move up in the world got its first loan from the World Bank. China borrowed $200 million to modernize its universities so they could churn out more scientists and engineers—a big step for a nation whose average worker earned less in a year than most Americans did in a week.

More than three decades later, China is the world’s No. 2 economy, with more than $3 trillion in foreign-currency reserves and development banks of its own that lend around the world. It’s also one of the World Bank’s biggest borrowers. But maybe not for long.

China’s huge trade surplus with the U.S., along with its plans to muscle into such areas as artificial intelligence, has raised hackles in Washington. President Donald Trump tends to talk about China in zero-sum terms: Its rise is a threat to America. Curtailing World Bank lending to China would fit with the administration’s efforts to contain Beijing’s economic power.

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As part of a deal that paved the way for a $13 billion capital increase from members last year, the World Bank agreed to curb lending to “upper-middle-income” countries. Nations with per capita incomes above roughly $7,000 are supposed to start the process of “graduating.” If they still get loans, it should be to finance “global public goods” that markets can’t provide, according to the plan. The idea is that World Bank capital could be harnessed to fight problems that transcend borders, such as global warming.

Yet only 38 percent of World Bank loans to China went to public goods such as pollution control in the last three years, according to a new report by Scott Morris and Gailyn Portelance of the Center for Global Development. The rest went to such areas as transportation and agriculture that critics argue China could easily finance on its own.

World Bank loans to China are already falling—to $1.8 billion in the year through June 30, from $2.4 billion the previous year. Under Malpass, there could be a further squeeze. Plans for the bank to invest alongside China in some Belt and Road projects may also be shelved. Still, with other nations pushing back on the bank’s board and environmental questions rapidly rising on the list of global concerns, China’s graduation could be gradual.

But Morris says there are downsides to forcing China to quit cold turkey, including the risk that the bank will be worse-equipped to tackle the big global problems its members want it to target. “China is the world's largest polluter,” he says.

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Photo of Scott Morris
Senior Fellow, Director of the US Development Policy Initiative