THE WORLD BANK is a multilateral poverty-reduction institution, so it’s no surprise that World Bank loans played a significant role in China’s emergence from what was, before 1979, epic poverty. In 1981, the World Bank extended the first of what would be $61.1 billion in loans and other assistance to the market-minded Communist government under Deng Xiaoping.
What is, perhaps, surprising is that the World Bank still lends to China at below-market interest rates. The world’s second-largest economy, proud owner of more than $3 trillion in foreign currency reserves and founder of its own global infrastructure bank, China is no longer poor: Its per capita income first exceeded the minimum for “graduation” from World Bank support in 2016. Yet the bank has committed $7.8 billion to China since then. All World Bank lending is ultimately underwritten, in part, by the United States.
This is not a healthy, sustainable or even logical situation. David Malpass, the senior Treasury Department official whom President Trump nominated as the World Bank’s next president, is among those questioning China’s continued access to subsidized multilateral funding and has worked to curb it while in government. Last year, Mr. Malpass helped negotiate a $13 billion capital increase for the World Bank, conditioned on raising borrowing costs for China and other relatively well-off customers. “It doesn’t make sense to have money borrowed in the U.S., using the U.S. government guarantee, going into lending in China for a country that’s gotten other resources and access to capital markets,” he told the Council on Foreign Relations in November 2017.
The case for continued World Bank engagement with China is that the country still has large areas of deep poverty and that current World Bank projects often focus on “global public goods,” such as reducing China’s carbon emissions. It is also true that the World Bank’s activities in China and other middle-income countries produce modest net profits that then help fund its lending program for poorer countries. Still, to the extent the World Bank finances the development of China’s poor regions, it means that the Communist Party dictators who run the country can divert domestic resources to less pressing needs. As for turning a profit on lending to middle-income countries, it would seem more in keeping with the institution’s historic purposes, and the expectations of member-nation taxpayers, to do the job directly and transparently.
There are legitimate reasons for concern over Mr. Malpass’s nomination to what would be a five-year term. He has at times expressed overly broad hostility to multilateral institutions. His past career as a top economic analyst for Bear Stearns, just before that Wall Street firm’s 2008 collapse, does not, in hindsight, impress. Many understandably worry that any Trump appointee will be hostile to lending for climate change projects and that his appointment will lead to internal clashes with the bank bureaucracy.
To the extent he promotes a realistic, mature relationship between the institution and China, however, Mr. Malpass’s tenure wouldn’t necessarily be the end of the world, much less the World Bank.
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