January 7, 2019 / 10:32 PM / 8 months ago

Breakingviews - World Bank could be a new stick to beat China

Jim Yong Kim, President, World Bank Group speaks at the Milken Institute 21st Global Conference in Beverly Hills, California, U.S., May 1, 2018. REUTERS/Mike Blake

WASHINGTON (Reuters Breakingviews) - The World Bank could be a new stick for Donald Trump to beat China with. Jim Yong Kim has quit as head of the global lender, and the White House has a big say on his replacement. American officials had already pressured the bank to lend less to China and warned about Beijing’s influence. This gives them a chance to instal a hawkish new boss, and open up a new front in the trade war.

The Trump administration has used various levers to put economic pressure on China. Tariffs have been imposed on about $250 billion in Chinese imports, though additional levies have been put on hold pending trade talks with Beijing. The U.S. government has also cracked down on Chinese investment in U.S. companies and boosted criminal cases against the theft of intellectual property and trade secrets.

After Kim abruptly resigned on Monday - ending more than six years at the helm of the global lender - the World Bank could be a new channel for those tensions. America is the institution’s largest shareholder with a 16 percent stake. It recently backed a $13 billion funding increase, and past leaders have been traditionally chosen by a U.S. administration. While Kim also faced contenders from Nigeria and Colombia in 2012, it’s difficult for developing countries to mount a serious contest.

Even under Kim, the World Bank was drawn into tension between the United States and the People’s Republic. Last month, U.S. Treasury Under Secretary David Malpass told Congress the bank had agreed to wind down loans to China after U.S. pressure. The lender’s financing for China fell nearly 30 percent last year to $1.8 billion.

Frictions could escalate further if the bank becomes a more explicit counterweight to China’s own development plans. The Middle Kingdom’s Belt and Road plan is basically a China-first version of traditional development lending. The U.S. Treasury has already been pushing governments to disclose more data on who they borrow from, with the idea that infrastructure projects funded by benefactors like China come with hidden strings. With Kim gone, the World Bank may soon have a more strident tone.


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