China and the World Bank
From Wikipedia, the free encyclopedia
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]
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]
