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White House objects to $1bn World Bank loan programme for China

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Via Financial Times

The Trump administration has refused to support a World Bank loan programme for China worth more than $1bn per year, the latest sign of how the economic rivalry between Washington and Beijing has spilled over into multilateral institutions. 

Steven Mnuchin, the US Treasury secretary, said that Washington had “objected” to the financial support for China through its representative on the World Bank’s board, where the five-year funding plan was discussed on Thursday.

The programme, known as the Country Partnership Framework, is designed to help Beijing fund green investments, encourage market-oriented reforms and promote early childhood development and healthcare initiatives. 

But it has become increasingly controversial in the US in the middle of the trade war with Beijing. There is also a growing sense within the Trump administration, and on Capitol Hill, that China should no longer be treated as a developing economy. 

The US decision to oppose the new Chinese loan programme at the World Bank, which lasts from 2020 to 2025, highlights the potential for a rift between Mr Mnuchin and David Malpass, the World Bank president, over the institution’s dealings with Beijing.

Mr Malpass, a former US Treasury official under Donald Trump, became World Bank president in April. He had warned that multilateral institutions were in danger of being overtaken by China’s rising geopolitical influence, but since taking the job has softened his stance and rhetoric. Meanwhile, Mr Mnuchin is facing pressure from China hawks in Congress to take a harder line. 

“China is now the world’s second-largest economy after the United States. Also, the United States is the World Bank’s largest contributor. I think many Americans would question why so many American tax dollars are going to support low-interest loans to China,” Chuck Grassley, an Iowa Republican and chairman of the Senate finance committee, said on Thursday. 

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Mr Mnuchin mentioned US opposition to the Chinese loan programme during a hearing before the House financial services committee under questioning from Anthony Gonzalez, a Republican from Ohio, who attacked the World Bank for “advancing the Chinese growth model internationally”.

Mr Mnuchin responded that China was now a net cash donor to the World Bank for the first time, and that Mr Malpass had been working to reduce World Bank loans to the country. 

“I have great confidence in David Malpass, he understands this issue, he is working with China on this issue. We all share the same objectives,” he said. The World Bank said lending to China through the International Bank for Reconstruction and Development was already shrinking, from an average of $1.8bn between 2013 and 2019 to a projected $1bn-$1.5bn between 2020 to 2025. 

“The [plan] reflects the evolution of our relationship with China,” said Martin Raiser, World Bank country director for China. “Our engagement will be increasingly selective. Future World Bank lending will primarily focus on China’s remaining gaps in policies and institutions for sustainable graduation.”

The US had agreed to a reduction in World Bank lending to China — rather than an outright elimination — as part of a $13bn capital increase it approved last year. 

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