China, Drowning in Debt, Still Gets Below-Market-Rate Loans From World Bank

via CNBC:

  • The second-largest economy in the world is still borrowing billions from the World Bank.
  • China gets below-market rates for projects financed with loans from the World Bank’s International Bank for Reconstruction and Development.
  • The Trump administration backed a $7.5 billion capital increase for IBRD lending as the bank agreed to change its rules to charge higher rates for developing countries with higher incomes.

 

China is borrowing billions of dollars each year from the World Bank, despite its position as the world’s second-largest economy, according to a study released Thursday.

The Center for Global Development found that the World Bank’s International Bank for Reconstruction and Development loaned China an average of $2 billion a year, totaling more than $7.8 billion, since the country surpassed the bank’s income threshold for lending in 2016.

The IBRD lends to middle-income and creditworthy low-income countries. It uses resources from those loans to help boost poorer countries. But tension has developed as China is lending billions of dollars of its own to developing countries under opaque terms as part of its “Belt and Road” initiative to build infrastructure.

The administration of U.S President Donald Trump has been critical of lending to China that squeezes out loans to other countries. But cutting off China from World Bank funding could remove a useful tool to influence policy.

“If we want China to be a more responsible lender in the world, then let’s use the World Bank to help them along with that,” said Scott Morris, a senior fellow at the Center for Global Development and lead author of the study.

The study looked at the type of loans granted to China and found that $3 billion, or about 38 percent of the total, went to things that provide benefits beyond China’s border, such as pollution controls and green infrastructure projects.

World Bank Group President Jim Yong Kim, who announced his resignation on Monday, listed approval of increased funding for the IBRD as one of his accomplishments. As part of the agreement for increased funding, the bank agreed to limit loans to wealthier countries and require them to pay higher interest on their loans.

 

 

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