In a major development, United States President Donald Trump has exhorted the World Bank to stop lending to Beijing given the country’s inappropriate credentials. The President of the United States has tweeted, “Why is the World Bank loaning money to China? Can this be possible? China has plenty of money, and if they don’t, they create it. STOP!”
Why is the World Bank loaning money to China? Can this be possible? China has plenty of money, and if they don’t, they create it. STOP!
— Donald J. Trump (@realDonaldTrump) December 7, 2019
This development comes a day after the World Bank adopted a lending plan to China despite Trump administration’s objections. The World Bank has adopted the plan to aid China with $1 billion to $1.5 billion in the form of low-interest loans until 2025. The plan contemplates only an insignificant decline from the previous five-year average of $1.8 billion.
US President Trump has, therefore, reiterated his administration’s long-held position that Beijing is too wealthy for international aid. His point of view has been further echoed by his treasury secretary, Steven Mnuchin, who also told a House of Representatives committee that the US has objected to the World Bank’s multi-year loan programs and projects in China.
President Trump’s strong opposition to the World Bank’s lending programs in China is not without substance. The World Bank lends to China, the second-largest economy on the planet as if it is a developing country.
The Dragon got the second-highest loans from the World Bank’s IBRD loan program between 2016 and 2018. Ever since China embraced the international institution in the year 1980 and quickly became the largest borrower of all time having taken out loans to the tune of $ 60 billion over the past four decades.
However, all indicators point out that such massive lending to Beijing is rather unjustified. China is sitting on foreign exchange reserves of $ 3 trillion, which is in sharp contrast to the forex reserves of a rising power like India with reserves of $ 451 billion powered by a massive increase in the forex reserves over the past few years.
Beijing’s sheer economic strength disentitles it as far as borrowing from the World Bank is concerned. In fact, China lends to other countries more than what it borrows from the World Bank, showing that it is in no real need of any international aid. In fact, China’s notorious “debt-trap” diplomacy shows the capricious position it enjoys as a big lender. China’s $ 1 trillion Belt and Road Initiative (BRI) making it the most ambitious infrastructure investment project in history also shows how Beijing has sufficient wealth not only to look after itself but also to fund a humongous international infrastructure project. It is therefore absolutely bizarre how the World Bank is wasting its lending capabilities on such economic power.
Eswar Prasad, a professor of economics at Cornell University has also opined, “From a pure economic vantage point, there is no good reason for the World Bank to continue making loans to China.” It is clear that Beijing is taking advantage of the international financial institution’s approach of giving massive loans to the country. World Bank does not have unlimited resources, and its resources can be put to better use in other parts of the world that actually need World Bank loans rather than lending to China which has itself emerged as a huge lender.
The World Bank must consider treating China as a developed nation given the sheer economic strength of the country, its emergence as a major lender and the massive forex reserves on which the Dragon is sitting. The reduction in the quantum of World Bank loans to China does not fit in the recent developments as far as China’s economic strength is concerned. World Bank is supposed to put its funds to deploy its funds in those parts of the world which actually need international aid. President Donald Trump, therefore, has a valid point. China has a lot of wealth and there is no cogent justification for the World Bank’s decision to continue lending to the Dragon.