China and the World Bank

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HDI of China since 1990 HDI of China Since 1990.png
HDI of China since 1990

China originally joined the World Bank Group (WBG) on December 27, 1945. [1] However, after the Chinese Civil War, the World Bank recognized the Republic of China as its member, until the relationship ended in 1980, when the membership was replaced by the People's Republic of China. [2] The People's Republic of China (PRC) did not become involved with the World Bank group until 1980, when it first joined the World Bank in April due to the market reforms known as reform and opening-up. [3] Prior to the economic reform and its relation with the World Bank, according to CRS, "China maintained policies that kept the economy very poor, stagnant, centrally controlled, vastly inefficient, and relatively isolated from the global economy". [4] Since its entry into the World Bank, China has transformed into a market-based economy and has experienced rapid economic and social development. [3] Currently, although China has become the world's second largest economy with 1.4 billion population, it still has a close relationship with the World Bank in areas such as poverty, environmental protection and new challenges from the reform. [3]

Contents

History

China joining the World Bank

The partnership between China and the World Bank began on December 27, 1945, when it joined the organization. After the Communist victory in 1949 in the Chinese Civil War, the Chinese Communist Party proclaimed the People's Republic of China (PRC) on the mainland while the Republic of China (ROC) government retreated to the island of Taiwan, formerly a Japanese colony it acquired in 1945 after the end of hostiles in World War II. Both governments claimed to be the sole legitimate authority of the whole China leaving Taiwan's political status unclear. [5]

Despite losing much of its territory, in 1967, the ROC loaned US$61 million from the World Bank to finance four projects: construction of US$14 million worth of tuna boats, US$15 million worth of railroad construction, US$15 million in loan funds for the China Development Corporation, and US$17 million for communications expansion. Subsequently, the Legislative Yuan passed all loans made by the World Bank and other international lending agencies for Taiwan development projects. [6]

On October 25, 1971, the United Nations recognized the People's Republic of China as the sole legitimate government of China, removing the ROC from its membership. Subsequently, the World Bank changed China's representation from the ROC to the PRC on April 16, 1980. [5] That same year, Chinese paramount leader Deng Xiaoping met the then president of the World Bank Robert McNamara, since then the World Bank began its dedication in assisting the PRC's economic development. [7] The World Bank served as a catalytic role in kick-starting China's economic development, [8] when the country initially received approval of its first project loan in 1981. [9] These projects have primarily focused on financing technical assistance such as pension reform, urban housing reform, energy market reform, environmental protection, labor market development, social safety net development, interest rate liberalization and external trade liberalization. [10] Also as important, the technical assistant from the World Bank in areas such as how to appraise and implement priority projects, how to encourage innovation and introduce new technologies, and how to develop institutions and policy instruments needed for good economic management. [7] Since then, China has become one of the largest borrower of loans and recipient of technical assistant from the World Bank.

Relationship with the World Bank

Initially, China was a recipient of International Development Association (IDA), the Bank's low-income country arm, and received up to $9.95 billion in concessional loans until 1999. Later when China was categorized as middle-income country, it switched to International Bank for Reconstruction and Development (IBRD) as its main borrower, and had borrowed $39.8 billion until 2011. [2] Currently China is categorized as an upper-middle-income country, and work with the World Bank mainly for funding small-scale projects. According to World Bank Group's Country Partnership Strategy, the bank's activity is classified under five pillars: "integrating China in the world economy; reducing poverty, inequality, and social exclusion; managing resource scarcity and environmental challenges; financing sustained and efficient growth; and improving public and market institutions". [2] Since the opening up of this relationship, there has been many successes, which include China's economic performance since the market reforms of 1979, urbanization, social developments, and education and health services. [10]

China has also been increasing its involvement in the World Bank's administration and contribution to the bank. As China grows in its economic power, it overtook large European nations in voting power at IBRD in 2010, with a jumping increase from 2.77% to 4.42%. [11] In the end of 2019, China holds 5.05% of total votes in IBRD, behind United States (16.37%) and Japan (8.21%), while having more voting power than Germany (4.3%), UK (4%), France (4%), and India (3.11%). [12] As of 2019, China has 2 out of 32 management members on the World Bank leadership. [13] Financially, in 2016, China approved its first SDR bond issuer to IBRD by People's Bank of China, to serve its increasing involvement in international finances. [14]

China is increasing not only its involvement in the World Bank's administration and its contribution but also its aid in Africa and has developed a different approach from the World Bank. On the one side, World bank represents a traditional multilateral organization which provides aid on conditions of political freedom and human rights. On the other side, China represents an immerging new organization that generally provides aid with no conditions and emphasize stability as a crucial threshold for continuing investment. While World Bank's aid has promoted reduced crime and more democracy in African recipient countries, China's aid has promoted more security force and more autocracy in African recipient countries. [1]

With China's power increasing over the years, it seeks to transform its role from an acceptor internalizing itself into the status quo of world financial system to a challenger breaking the current hegemony of the World Bank. China created the China Eximbank in 1994 and since then it has been making growing contributions to international finance system as a state-funded and state-owned policy bank, [4] turning itself into an alternative to aid other countries except the World Bank. It is not willing to merely listen to the World Bank when it comes to setting up the conditions of the multi-donor aid packages and instead set up its own rules. It also advocates for the changing of norms within the World Bank such as the lending rules. [6]

Project in China

From 1999 to 2011, China borrowed near $40 billion from the IBRD. Up until December 2019, there is a total of 97 ongoing projects in China by World Bank, with $12 billion committed amount of funding. [15] Among them are primarily projects regarding to transportation, public administration, water sanitation&waste, agriculture, industry&trade, and energy&extractives. [15] Within the World Bank Group, China is one of the largest loan-taking countries. From 2016 to 2018, China was the second largest borrower with $6.19 billion in loans, a number less than India ($8.05 billion) and more than Egypt ($5.23 billion). [16] As China's development solidifies, the World Bank has since shifted its objectives, and focusing on involvements that would support greener growth and sustainable energy, promote more inclusive development in all regions, and advance mutually beneficial relations with the world. [17]

IDA (International Development Association)

In 1981, IDA provided $200 million as its first loan to China for higher education, since then IDA has involved with a catalytic role in China's modernization. [18] By 2007, China was becoming a contributing partner by providing finance and policy input through the replenishment process. [18] China has graduated from IDA in the fiscal year of 1999, [19] and as September 2019, China shares a 2.25% of IDA votes for its increasing role in the IDA finance contribution and technical assistant. [20]

IFC (International Finance Corporation)

Since its first investment in 1985, the International Finance Corporation (IFC) has invested and activated over $13.4 billion to support over 390 projects across 30 provinces, [17] in which as of July 2017, IFC has committed $3.6 billion in China's portfolio. [21] IFC invest and mobilize capital for private sector projects which supports sustainable economic development in China, particularly those that help mitigate climate change, promotes balanced rural-urban development, and promote sustainable investments in emerging markets. [17]

MIGA (Multilateral Investment Guarantee Agency)

Created in 1988, MIGA encourages foreign direct investment in developing nations by providing political risk insurance to foreign investors and lenders, while also providing strategies for countries to attract and retain foreign direct investments. [17] Since 2000s, MIGA has been providing guarantees for investments into China, particularly for projects that involve sub-sovereign risk, such as water and waste. [17] Meanwhile, MIGA also supports its Chinese partners with their outward investments abroad, including both private lenders and governmental administration. [17]

Health VIII Project

Created in 1998 and lasted until 2007, the Health VIII Project aimed to increase the overall health quality in seven provinces in China by increasing people's access to healthcare, lowering health spending, and improving the quality of health care provided in village clinics and township health centers. [8] In a research study published by the World Bank accessing the impacts of the project in the Gansu province in China, the researchers found that the project had increased the number of doctor's visit 1.4 by average one year and lower the catastrophic expenses. However, the medicine expenses were the same and the immunization rate of the children was in fact lower, maybe because the project has advantaged the township health centers but disadvantaged the village clinics, which is the main force vaccinating children. [11]

Involvement and Controversies

China's involvement in international finance

In 2012 at the fourth BRICS summit, the leaders of Brazil, Russia, India, China and South Africa considered the possibility of setting up a new Development Bank to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies, as well as in developing countries. In 2016, the New Development Bank (NDB) became fully operational and has approved loans involving financial assistance of over $3.4 billion for projects in the areas of green and renewable energy, transportation, water sanitation, irrigation and other areas. [22]

In 2016, China projected Asian Infrastructure Investment Bank (AIIB) as a "multilateral development bank with a mission to improve social and economic outcomes in Asia". [23] As of 2019, it has over 100 members, a co-financing framework with the World Bank and partnership with ADB, ADF, ADB, EDB, EBRD, EIB, IADB, IAIC, IsDBG, and NDB. [24]

In 2013, China proposed the Belt and Road Initiative, a transcontinental development project that includes 1/3 of world trade and GDP and over 60% of the world's population. According to World Bank, the string of infrastructure investment could "lift 32 million people out of moderate poverty conditions if implemented fully". However, as the World Bank report suggest, the cost of project might out-weigh the economic benefits, while there has been a lack of transparency. [25]

Controversies of World Bank projects

One highly controversial World Bank Project was the Gansu and Inner Mongolia Poverty Reduction Project in 1999, which included a 40-meter dam that was projected to displace around 60,000 inhabitants within Qinghai Province. This led to the World Bank ruling to withdraw funding for this section of the project to stop this controversial debate. [2] In the year 2000, the World Bank also stopped the China Western Poverty Reduction project that was originally going to resettle over 58,000 Chinese farmers into Tibet. After reports were released by inspection panel, the project was forced to be withdrawn because reports indicated that the World Bank violated social and environmental policies. [26]

Controversy over World Bank changing data to boost China's ranking

In 2021 an investigation conducted by the law firm WilmerHale for the World Bank found that the staff members altered the data on China in the annual "Doing Business" report to improve the ranking of China. The bank's leaders, then-World Bank President Jim Yong Kim and then-Chief Executive Kristalina Georgieva, and one of her advisers were accused by the investigation of pressurising the staff members to alter the data; Kristalina Georgieva had denied such accusations. Also, China was accused in the report of trying to influence the decisions of the World Bank by lobbying. [12]

Related Research Articles

The International Bank for Reconstruction and Development (IBRD) is an international financial institution, established in 1944 and headquartered in Washington, D.C., United States; it is the lending arm of World Bank Group. The IBRD offers loans to middle-income developing countries. It is the first of five member institutions that compose the World Bank Group. The initial mission of the IBRD in 1944, was to finance the reconstruction of European nations devastated by World War II. The IBRD and its concessional lending arm, the International Development Association (IDA), are collectively known as the World Bank as they share the same leadership and staff.

<span class="mw-page-title-main">World Bank Group</span> Group making loans to developing countries

The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and best-known development bank in the world and an observer at the United Nations Development Group. The bank is headquartered in Washington, D.C., in the United States. It provided around $98.83 billion in loans and assistance to "developing" and transition countries in the 2021 fiscal year. The bank's stated mission is to achieve the twin goals of ending extreme poverty and building shared prosperity. Total lending as of 2015 for the last 10 years through Development Policy Financing was approximately $117 billion. Its five organizations are:

The International Development Association (IDA) is a development finance institution which offers concessional loans and grants to the world's poorest developing countries. The IDA is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States. It was established in 1960 to complement the existing International Bank for Reconstruction and Development by lending to developing countries which suffer from the lowest gross national income, from troubled creditworthiness, or from the lowest per capita income. Together, the International Development Association and International Bank for Reconstruction and Development are collectively generally known as the World Bank, as they follow the same executive leadership and operate with the same staff.

<span class="mw-page-title-main">World Bank</span> International financial institution

The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purposes of economic development. The World Bank is the collective name for the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), two of five international organizations owned by the World Bank Group. It was established along with the International Monetary Fund at the 1944 Bretton Woods Conference. After a slow start, its first loan was to France in 1947. In its early years, it primarily focused on rebuilding Europe. Over time, it focused on providing loans to developing world countries. In the 1970s, the World Bank re-conceptualized its mission of facilitating development as being oriented around poverty reduction. For the last 30 years, it has included NGOs and environmental groups in its loan portfolio. Its loan strategy is influenced by environmental and social safeguards.

Sri Lanka has been involved with the World Bank since its initial entrance into the International Bank for Reconstruction and Development (IBRD) on August 29, 1950. Currently, Sri Lanka's quota in the IBERT is approximately 515.4 million dollars, thus allotting 5,846 votes or 0.25% of the total votes in the institution. Sri Lanka later became a member of the other institutions in the world bank such as the International Finance Corporation (IFC) on July 20, 1956, with a current quota of 7.491 million dollars, allotting 8,311 votes or 0.32% of the total votes; the International Development Association (IDA) on June 27, 1961, with a current share of 98,100 votes or 0.36% within the institution; the International Center for Settlement of Investment Disputes (ICSID) on November 11, 1967; and the Multilateral Investment Guarantee Agency (MIGA) on May 27, 1988, with a current quota of 4.78 million SDR. Sri Lanka is currently in the India-led constituency for these organizations, representing the country as part of the South Asian block.

The World Bank Group country partnership framework aims to support Haiti's efforts to reduce poverty and provide economic opportunities for all Haitians. The framework aims to strengthen institutions, government capacity, and public financial management as aid and concessional financing rapidly decline.

Uzbekistan became a World Bank member in 1992, shortly after declaring independence in 1991 following the collapse of the Soviet Union. The World Bank has supported projects in Uzbekistan in the areas of education, infrastructure, agriculture, and water resource management. Uzbekistan's collaboration with the bank has been increasing, with IBRD and IDA lending reaching a recent peak of $500 million in 2015. The World Bank has provided financing for 27 projects through the IBRD and IDA in throughout its relationship with Uzbekistan, with 15 active projects as of June 2017. Current IBRD and IDA projects total $1.9 billion.

<span class="mw-page-title-main">Uruguay and the World Bank</span>

Uruguay and the World Bank have been working together for a long time. This is because they both mutually benefit.

<span class="mw-page-title-main">Vietnam and the World Bank</span> Vietnams relationship with the World Bank

Vietnam joined the World Bank Group (WBG) on 21 September 1956. Before the mid-1980s, Vietnam was one of the world's least developed countries. A series of economic and political reforms launched in 1986, known as Đổi Mới, caused Vietnam to experience rapid economic growth and development, becoming a lower middle-income country. The World Bank (WB) has maintained a development partnership with Vietnam since 1993. As of 25 March 2019, it has committed a total of US$24 billion in loans, credits, and grants to Vietnam through 165 operations and projects, 44 of which are active as of 2019 and comprise US$9 billion. With an estimated extreme poverty rate below 3% and a GDP growth rate of 7.1% in 2018, Vietnam's economy continues to show fundamental strength and is supported by robust domestic demand and export-oriented manufacturing.

<span class="mw-page-title-main">Tanzania and the World Bank</span> World Bank interactions with Tanzania

The World Bank Group (WBG) provides grants, credits and policy analysis to support economic development in Tanzania with a focus on infrastructure and private sector growth. As of 2018, WBG supports 25 active projects with funding of more than $3.95 billion. The WBG provides analytical and technical assistance in coordination with these projects. From 2007-2018 Tanzania maintained real GDP growth averaging 6.8% a year. Growth concentrated in the agricultural and transportation sectors. Complementing this growth, the poverty rate in Tanzania fell from 28.2% in 2012 to 26.9% in 2016. Debate exists over the validity of this growth as development may be unevenly dispersed among different geographic and income groups.

<span class="mw-page-title-main">Croatia and the World Bank</span>

Croatia joined the World Bank in 1993, two years after declaring independence from the Socialist Federal Republic of Yugoslavia in 1991. The World Bank's projects from the mid-1990s to the mid-2000s primarily focused on infrastructural and environmental projects.

<span class="mw-page-title-main">The Democratic Republic of the Congo and the World Bank</span> The DRCs relations with the World Bank

The World Bank Group is a family of five international organizations, which has continuously given leverage loans and financial assistance to developing nations like the Democratic Republic of the Congo, commonly known as the DRC. The country has received assistance from the World Bank in the form of social programs in order to induce and sustain economic development. This assistance has been directed toward conflict prevention, investments in education, and addressing environmental degradation.

Myanmar is considered a lower-middle income state, and although there are areas in the country that are lagging there have been measurable improvements in terms of development since 2005. The World Bank's current strategy in Myanmar is to focus on rural development. Due to the conflict in the Rakhine area the World Bank Group (WBG) has increased its focus on social inclusion. Implementation of projects within Myanmar have increased access to electricity, schools, and healthcare. The current framework is laid out in the Myanmar Country Partnership Framework 2015-2019.

<span class="mw-page-title-main">Poland and the World Bank</span>

After separating from the World Bank and other International Financial Institutions for decades due to pressure from the Soviet Union, Poland rejoined the World Bank on June 27, 1986. The World Bank was instrumental in financing and providing technical assistance for Poland as it transitioned from a Command Economy into a Market-Oriented Economy. As a middle income country, Poland has worked primarily with the International Bank for Reconstruction and Development since it is not eligible for loans from the International Development Association. Additionally, Poland has had a few projects with the Multilateral Investment Guarantee Agency and the International Finance Corporation. Currently, most of Poland's engagements with the World Bank Group concern environmental concerns and public finances.

Tajikistan did not join in the World Bank until 1993. Before the collapse of USSR in 1991, Tajikistan was experiencing planned economy which was dominated by Moscow. Right after the dissolution, different from other nations which experienced a relatively stable transition from planned economy to market economy, Tajikistan fell into a serious civil war. As a result, the first mission after Tajikistan became the official member of the World Bank, was to recover its economy from bullets and blood. In 1997. $10 million credit was grant for Post-Conflict Rehabilitation Project. The proposed credit was used to conduct necessary imports and to restore production. Under different time periods, the World Bank and Tajikistan worked together in response to various problems. Later on, the economic crisis of 2008 caused the inflation of food prices in Tajikistan. In response to the crisis, the World Bank issued $6.25 million for the Emergency Food Security and Seed Imports Project in order to help at least 28000 households to release the food price pressure. Coming into the 21st century, Tajikistan received financing from IDA and IBRD of the World Bank with respect to programs of healthcare, education, irrigation and agriculture. Over the past years, Tajikistan has received over 130 projects of which 17 are active and a total of over $1.4 billion from the World Bank. With the help of those projects, from 2000 to 2017, the poverty rate in Tajikistan had been decreased from 83% to 29.5%. Besides, current GDP growth rate in Tajikistan is around 7%. Nevertheless, with a stable GDP growth rate, Tajikistan is still one of the poorest countries in Central Asia.

<span class="mw-page-title-main">South Korea and the World Bank</span>

South Korea first joined the World Bank Group as a member in 1955. Over the years, South Korea manages to develop its economy in a successful and positive manner. The country now is a financial contributor to the World Bank to help other, rather than an aid recipient in the old days. Under the help and cooperation with the World Bank, South Korea became a rapid growth country in economy begin in the 1970s, and it now became a large shareholder of the institution to help out other developing countries.

Japan joined the World Bank Group in August 1952. Loans that were taken out by Japan focused on improving infrastructure, having electrical power generation, improving water, establishing basic industry development and improving transportation. Japan now is the second-largest creditor to the World Bank, and in 1970 established an office in Tokyo.

<span class="mw-page-title-main">Paraguay and the World Bank</span> Relationship between a country and the World Bank

Paraguay joined the World Bank Group on 28 December 1945. In 1951, the World Bank approved an Agriculture project in Paraguay marking the beginning of a partnership that persists to this day and has given rise to 76 development projects of which 6 are currently active. Paraguay has received $2,718,521,989 in total commitments from the World Bank. Paraguay saw an annual growth rate of 4.5% per year until 2016 making it one of the fastest growing economies among regional neighbors. The implementation of steady and dependable macroeconomic policies have fostered a friendly environment for investors that largely contribute to Paraguay's consistent economic growth, however much of Paraguay's economic development has resulted from the replacement of forests with agriculture operations. As forests become increasingly scarce and climate change disrupts agricultural output, Paraguay will be forced to adapt its economy and society to meet a number of targets including strengthening the rule of law, achieving sustainability in regards to its natural resources, investing in human capital, and improving government services. To achieve these goals, Paraguay is collaborating with the World Bank including strategic partnerships with IBRD, and IFC. Jordan Schwartz is the World Bank director for Paraguay and Matilde Bordón is the World Bank representative.

<span class="mw-page-title-main">Kazakhstan and the World Bank</span>

Kazakhstan joined the World Bank in 1992 after it had gained independence from the Soviet Union in 1991. Kazakhstan has one of the fastest growing economies in the world, and as a result had its classification changed from a lower-middle income state to an upper-middle income state in 2006. Because of this, Kazakhstan has begun to rely less on international financing than in than previous decades; however, Kazakhstan still takes out loans from the World Bank, primarily relating to the country's environmental issues.

Ireland joined the World Bank on August 8, 1957, and has continued to be a member since then. A majority of the money loaned to Ireland from the World Bank was put towards infrastructure projects, such as power and education. Ireland was able to pay back these loans in the predetermined time frames with little to no issue.

References

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  13. ↑ "World Bank Group Leadership". World Bank. Retrieved 2019-12-11.
  14. ↑ "World Bank Approved as the First SDR Bond Issuer in China". World Bank. Retrieved 2019-12-02.
  15. 1 2 "World Bank Maps". maps.worldbank.org. Retrieved 2019-12-02.
  16. ↑ "Flush With Cash, China Continues to Borrow Billions From The World Bank". NPR.org. Retrieved 2019-12-11.
  17. 1 2 3 4 5 6 "World Bank Group in China 1980-2018: Facts & Figures (pdf)" (PDF).
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  19. ↑ "IDA Graduates". International Development Association - World Bank. 2016-03-28. Retrieved 2019-12-11.
  20. ↑ "WBG Finances - Country Details - China". financesapp.worldbank.org. Retrieved 2019-12-11.
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  23. ↑ "About AIIB Overview - AIIB". www.aiib.org. Retrieved 2019-12-11.
  24. ↑ "Partnerships - AIIB". www.aiib.org. Retrieved 2019-12-11.
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