The View | Donald Trump’s pick to head the World Bank means US-China rivalry has a new front: development aid
Daniel Wagner says China continues to take World Bank aid despite its growth and the founding of alternative institutions like the AIIB. Trump’s nominee to lead the bank, David Malpass, may have been chosen to stop that
US President Donald Trump and his nominee to lead the World Bank, David Malpass, have an issue with the manner in which the bank and other multilateral development banks do business. Specifically, Malpass objects to the size, intrusiveness and entrenched interests within these institutions, and the very idea that such banks, which are supposed to be all about promoting development and alleviating poverty, continue to lend to the world’s second-largest economy, with the world’s largest aggregation of foreign exchange: China.
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While China has been busy becoming the leading de facto economic and political power, it has also been quietly establishing strong bilateral relations with regional governments, and even lending to them, while continuing to accept much-needed development help from multilateral development banks.
For many years, Beijing has also been busy within these development banks (and other international institutions) establishing its prominence and exerting its influence on how development loans are disbursed. Although China held just 4.5 per cent of the World Bank’s voting power (compared with 16 per cent by the US) in 2018, and contributed just 5 per cent towards the United Nations’ regular budget in 2015 (compared with 22 per cent by the US), Beijing is punching well above its weight in these and other multilateral organisations. Very little of consequence gets done at the World Bank, the UN or any number of other multilateral organisations without a nod from Beijing.
Apart from having become so influential in these post-war bastions of economic power, Beijing has been instrumental in creating two new development banks – the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank – both of which are based in China and are beginning to wield considerable clout in the global development arena. Both banks are starting to supplant the other multilateral development banks, yet they are doing it at times by bypassing conventional Western-created financial institutions and implementing a Chinese approach to development lending that can prompt recipient nations to fall into a debt trap.
Even as China increases its economic presence through investment and greater influence in multilateral institutions, it continues to reap benefits intended to accrue to the world’s truly needy nations. By all rights, China should be a donor nation to multilateral development banks, not a recipient of aid. That China continues to be the largest recipient of funds from some of the development banks is scandalous. At what point does China’s absolute strength count for more than its per capita development? And why do donor countries allow this double standard to continue?
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The prosperity on display in Shanghai and elsewhere in China raises questions about why China should still receive development aid from multilateral development banks. Photo: Valerie Teh
According to the World Bank, more than 500 million people were lifted out of extreme poverty as China’s poverty rate fell from 88 per cent in 1981 to 6.5 per cent in 2012. Any legitimate argument in favour of lending based on need from multilateral development banks disappeared years ago, yet the World Bank’s former country director for China, Yukon Huang, has defended the bank’s continued lending to Beijing, arguing that provincial and local governments need the loans because structural impediments prevent domestic banks from providing sufficient credit to finance public projects.
