China joined the World Bank in April 1980, and since then has been one of its largest borrowers and recipients of technical assistance. In recent years, China has gone beyond the only role of recipient country and has increased its influence inside the Bank.
China was first a recipient country of the International Development Association (IDA), the Bank’s low-income country arm, which up to 1999 had provided it with $9.95 billion in concessional loans. It was then classified as a middle-income country, and therefore borrowed from the International Bank for Reconstruction and Development (IBRD), the World Bank’s middle-income country lending arm. Until 2011, it had borrowed $39.8 billion from the IBRD. The ties with the International Finance Corporation (IFC), the Bank’s private sector arm, were forged more slowly. In the 1980s and 90s, IFC invested in 7 projects in the financial sector, with 26 projects in manufacturing, agriculture and services, and 4 in infrastructure. Commitments began to grow in the 1990s, especially in financial sector equity, and currently there are approximately 20 projects per year. Up to now, the IFC had lent Chinese companies $5.3 billion for 220 projects.
Although the scale of the Bank’s financial assistance to China is significant, the disbursements never exceeded 1 per cent of the country’s GDP. Policy advice and knowledge transfer have been conveyed through joint studies, training programmes for officials, project financing and technical assistance (TA). The Bank’s TA projects have focused on: pension reform, urban housing reform, energy market reform, environmental protection, labour market development, social safety net development, interest rate liberalisation and external trade liberalisation.
In 1999, serious problems with the Gansu & Inner Mongolia Poverty Reduction Project damaged the Bank’s reputation in China. The project included a 40-metre dam that would have displaced 60,000 people in the province of Qinghai. The Bank’s Inspection Panel found in 2000 that Bank staff broke seven Bank directives during the project appraisal. After a tough political battle, the Bank board de-funded the project’s Qinghai component.
China, now classified as an upper-middle-income country, uses the Bank mainly for funding small-scale projects. The current World Bank Group’s Country Partnership Strategy, drafted in 2006, classifies Bank activities under five strategic 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. In 2010, the Bank lent China $1.44 billion.
Within the institution, China’s influence is growing. This change has been signalled by Chinese high-level staff appointments and shifts in voting power. In April 2008, Justin Lin Yiju, a former member of the Chinese Communist Party, was appointed chief economist of the Bank. In April 2010, as developed countries agreed to give up a small part of their voting shares to emerging countries (see Update 70), China slightly increased its voting power. It now holds 2.72 per cent of the votes in the IBRD, 1.02 per cent in the IFC, 2.05 per cent in IDA and 2.64 per cent in the Multilateral Investment Guarantee Agency, a private-sector insurance arm of the Bank. China also has a seat on the Bank’s 25 member board. To assert its growing role within the Bank, China became a donor on a small scale to the IDA in 2008, with a contribution of $30 million to the 15th IDA replenishment, following this with a $50 million contribution to the 16th IDA replenishment in 2010. In 2011 it also made a voluntary early repayment of its own IDA credits of $1 billion.
China also influences the Bank indirectly by being an alternative lender for other developing countries. In January 2011, research by the UK newspaper the Financial Times found that the China Development Bank and the Export-Import Bank of China (Eximbank) had lent at least $110 billion to developing countries between mid-2008 and mid-2010, which is higher than the loans granted by the Bank during the same period. In response, the Bank has tried to increase cooperation with the Chinese banks. A memorandum of understanding between China Eximbank and the World Bank was signed in May 2007 to collaborate on road and investments projects in Africa.