China takes advantage of multilateral development banks

UNITED STATES, WASHINGTON (OBSERVATORY) — China is gradually turning into a leading global economic and political power, while at the same time establishing strong bilateral relations with regional governments. He credits them, while continuing to accept the necessary assistance from multilateral development banks.

The Trump administration has taken a strict stance on China’s policies, claiming to be a developing country in many multilateral organizations in the world. For decades, Beijing has represented itself as a developing country, easily receiving funding to achieve its goals. In fact, he was sucking out valuable (and, it should be noted, limited) resources to finance the development that really poor countries should receive, and not the second largest economy in the world with the world’s largest foreign exchange reserves. The position of the administration can be understood.

At the beginning of this year, the Trump administration began to take more or less noticeable actions aimed at preventing China from acting as a “poor” and “developing” country. Then David Malpas was appointed head of the World Bank, who objected to how relations between China and the World Bank and other multilateral development banks are built. The latter, instead of contributing to the fight against poverty, continued to provide loans to Beijing. At the same time, China is slowly but surely turning into a global economic and political power, establishing bilateral relations with regional governments. He credits them, continuing to accept the necessary assistance from multilateral development banks, according to The National Interest.

Over many years of business relations with global multilateral development banks, Beijing has begun to influence how development loans are issued. Despite the fact that in 2018, the share of China’s votes in the World Bank was 4.5%, (the share of US votes reached 16%), and in 2015 it replenished the UN regular budget by only 5% (USA by 22%). Beijing has a lot more weight in these and other multilateral organizations.

Having gained influence in these post-war bastions of economic power, Beijing played an important role in creating two new development banks – the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank. Both are located in China and have a significant influence in the global development arena. Both banks substantially displace other ICBMs. However, sometimes they do this bypassing traditional Western financial institutions, introducing China’s approach to lending to development goals, after which recipient countries fall into the debt trap.

China is strengthening its economic presence through investment and increased influence on multilateral institutions. And at the same time, he continues to receive benefits that are ideally intended for really needy countries of the world. Why do donor countries allow this double standard to exist?

According to the World Bank, more than 500 million people were removed from extreme poverty, as the poverty level in China fell from 88% in 1981 to 6.5% in 2012. There has long been no reason for any lending by the MDBs. Nevertheless, the former World Bank director for China, Yukon Huang, continues to insist on providing loans to Beijing. He argues that local governments need loans because structural obstacles prevent local banks from lending to finance government projects. In short, he defended this practice, showing that the Chinese government is unable to manage its banking sector enough to receive loans needed by the Chinese economy.

However, there is another reason this practice continues: ICBMs need China to continue to absorb billions of dollars in loans, grants and technical assistance every year, as many smaller and poorer countries are unable to receive it. Without China’s participation, lending volumes will decline, and the work of these banks will be called into question.

Beijing has practically no sense in continuing to receive development assistance, given the strength and importance of its economy and its specific actions, which it took to take on a more significant role in providing loans to developing countries through the AIIB and its participation as a founding member of the New development bank. Beijing formed the AIIB to counter the lack of leadership in other MDBs and ease lending to infrastructure investments in Asia. Why does he not recognize the inconsistency in the fact that he has a prominent leadership role in credit organizations related to the development of infrastructure and continues to accept grants from MDBs with which he is now competing?

How do China (Mexico, South Korea, Qatar, and Singapore) belong to the category of developing countries in the WTO? China, Mexico and South Korea are members of the G20. Per capita GDP is higher in Qatar and Singapore than in the US! How did these countries fall into the category of developing countries? The fact is that in the WTO, countries independently determine their development status. Thus, they get more time to adopt trade rules and continue to implement export subsidies. China has been the leading exporter in the world since 2009. Is it necessary to introduce trade subsidies, given that it is already in the first place? It is absurd that there is such a loophole in the WTO, whose job it is to manage trade rules and ensure fair trade principles.

Ultimately, it would be preferable if China became a world power, recognizing that it is playing according to internationally recognized rules, standards and norms. Beijing’s strategy at international institutions is central to this concept. The Trump administration challenges Beijing in several ways. However, the most important thing now is to ensure that those countries and people who really need it receive assistance. And if this requires a struggle led by the United States in the ICBMs and other international organizations, so be it.


This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.

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