Should China, now home to the world’s second largest GDP and its own development bank, also be the second largest borrowing member country of ADB?
When China joined the Asian Development Bank (ADB) in 1986, its economy had already begun to recover from Mao’s disastrous economic practices and it was ready to take advantage of the resources and expertise ADB provided to lift over one billion of its people out of poverty over the last three decades. Although ADB has been only one source of aid and investment into China, its impact has been significant—it is the “Marshall Plan” Asia never had. In addition to direct investment, ADB’s multilateral platform has enhanced China’s regional economic integration, and ADB experts have addressed problems resulting from China’s rapid growth and its economic model.
ADB has provided China with a total of $31.5 billion in loans, making the Chinese government the organization’s second largest borrower. China is also the ADB’s third largest shareholder, or lender, with 6.5% of ADB’s total shares. However, China’s borrowings triple its capital subscription of $9.91 billion, and its contributions to ADB’s concessional funds only amount to around $110 million. Despite China’s relatively small financial input since its economic ascension, ADB continues to lend to China, with an approved $4.13 billion pipeline for 2014-2016. As China pours funds into other multilateral development forums and officially launches its own development bank, ADB must reconcile its assistance to China with the ADB’s primary mission to eliminate poverty.
ADB now classifies China as an upper middle-income country. Only about 11% of China’s population lives below ADB’s poverty line of $1.25 per day, compared to 85% in 1981, and China is home to the world’s largest number of millionaires and billionaires. These economic leaps have changed how China participates in and interacts with ADB, the projects ADB funds within China, and ADB’s relevance to China’s foreign policy.
China’s role as a large borrower country has become a point of friction between it and other ADB members. Some argue China should graduate from ADB assistance, like South Korea and Taiwan did, since ADB operations in China no longer reflect major efforts to eliminate poverty. Others see China’s borrower status as an opportunity to expose local actors to international standards in sustainability and inclusivity. However, as China becomes a global and regional lender through other institutions such as the BRICS’ New Development Bank and Asian Infrastructure Investment Bank (AIIB), foreign policymakers in ADB’s shareholder countries are criticizing China’s participation as a borrower country.
In order to give China a greater voice in global economic governance, in which the political difficulties of making structural changes to the World Bank (WB) and the International Monetary Fund (IMF) limit the influence of emerging world powers, the country’s government has propagated its own development institutions. Although China could have increased its influence within ADB with a larger capital subscription and graduating from a borrower to lender country, it would have to share influence with majority shareholders Japan and the United States. China would also face the challenge of exerting influence at ADB’s headquarters in Manila, where relations with Beijing have been rocky over the South China Sea disputes.
Instead, China has offered the developing world an alternative to the Western development model espoused in the Washington Consensus. One of the contentions of the Beijing Consensus is that countries should develop free from unwelcome international interference, i.e. IMF and WB conditionalities. Even though China has in many ways emulated a traditional industrialization path growth model fueled by Western aid and foreign direct investment, it has promoted its assistance regime as an apolitical alternative to Western aid structures (and even Russian initiatives in Central Asia). This inconsistency is seen in China’s rhetoric that construes the country as a leading voice of the developing world, responsible for championing agendas that benefit the third world and ‘South-South’ cooperation.
ADB has been forced to rethink its standing in Asia as states in the region have become more economically dependent on China, whose economic and political influence in Asia could certainly benefit from an irrelevant ADB. ADB is now undertaking structural changes to maintain relevancy in light of the AIIB’s launch, including a merger of its quasi-commercial loans and concessional loans to enable ADB to better match AIIB’s starting capital.
Even if many countries prefer the AIIB’s streamlined project process, it is unlikely that China will be able to replace ADB’s influence and uproot the Washington Consensus. Some nations fear that the AIIB’s streamlined alternative has hidden political costs. In addition, China’s development projects in Africa have already been criticized for funding projects that lack transparency and adequate safeguards. While China has been able to shield the business development practices of its private companies in Africa and Latin America from reflecting poorly on the Chinese government, the AIIB and New Development Bank is linked directly to China’s national reputation. A failure to adopt safeguards may lead to China’s failure to translate economic influence into long-term soft power.
While the debate over China’s new role in economic governance continues, ADB has estimated infrastructure development needs of the Asia-Pacific region at $800 billion annually over the next decade, and Asia is still home to two-thirds of the world’s poor. No single bank operating in Asia can possibly meet those financing demands. Thus, ADB has welcomed the idea of the AIIB and all of China’s efforts to improve the economic prospects of its neighbors. Yet, more multilateral lenders could complicate the governance of the global economy, potentially duplicating efforts and wasting scarce resources. The challenges of running the AIIB, however, may finally teach China that great power and great responsibility go hand in hand.
Amanda Conklin is currently working on Asia policy issues in the field of international affairs. She received her Masters in International Affairs from the Elliott School in May 2015. The views presented above are her own and do not represent those of her employer.