Stop appeasing China at the World Bank and IMF

As the World Bank and the International Monetary Fund gather this week, they will rightfully claim to be at the center of the international financial system, as central bank governors, finance ministers, private sector participants, and civil society organizations from around the world descend on Washington. 

As with all international organizations, the World Bank and IMF prefer the involvement of all nations, not just those that hold the original values and aims of economic integration in the aftermath of World War II. Unfortunately, this is a mistake.

This all-inclusive approach may be appropriate for a diplomatic organization such as the United Nations. But the World Bank and the IMF are financial institutions, designed by the West to promote development and economic growth and stability. They were not designed for participation by non-market economies such as China, nor for promotion of their interests. 

Predictably, the inclusion of China in the Bretton Woods institutions has only frustrated these institutions’ purpose.  It is time to recognize this reality and ostracize China rather than keep trying in vain to co-opt it. 

China does not share the West’s commitment to raising global standards of living by promoting sound macroeconomic policies that ultimately strengthen the capitalism-dominated international system. Instead, China seeks to promote its own economic, political, and military interests internationally. 

In recent years, China has become the largest official creditor to the developing world.  These loans are generally made without conditions that would encourage sound macroeconomic policies. These debt traps are designed to allow further expansion of Chinese influence, often by promoting corruption in the debtor nations. Chinese development efforts also generally come with both Chinese firms (typically state owned enterprises with connections to the Chinese Communist Party) and Chinese workers, undermining the potential economic benefits for local populations in the debtor nations.

China works at cross purposes with the World Bank and IMF outside of these organizations by building its own alternative development institutions. But its inclusion in these institutions also undermines their work from within. IMF efforts to resolve sovereign debt crises are often frustrated by China’s unwillingness to agree to reasonable concessions that are common for official creditors. 

At the World Bank, China frequently undermines attempts to uphold standards related to human rights, including fighting attempts to verify the strong evidence that slave labor is being used in World Bank procurement from China. 

China’s subsidized bids also continue to dominate World Bank procurement. Predictably, Chinese firms advance Chinese interests — for example, by helping governments spy on the opposition — subsidized by World Bank and U.S. taxpayer funds.

Unfortunately, the response from World Bank and IMF leaders has generally been one of appeasement rather than confrontation. World Bank President Ajay Banga, who was appointed by the Biden Administration, has stated he does not want to take sides between the United States and China. He has expanded World Bank cooperation with the Asian Infrastructure Investment Bank, which was established by China with the express purpose of promoting Chinese interests, as an alternative to the World Bank. IMF Managing Director Kristalina Georgieva is seeking to increase China’s IMF shareholding and voting rights, all without any associated commitment from China to support the stated mission of the IMF. 

It is time for democratic and capitalist nations, led by the U.S., to stop believing the fiction that China can be a productive, responsible force in international organizations like the World Bank and IMF.  Instead, the U.S. should seek to challenge and marginalize China.

The World Bank should immediately cease all lending to China and revise its procurement process to eliminate subsidized Chinese bids. The IMF should speak honestly about Chinese financial behavior and work with rating agencies to ensure that sovereign default on Chinese loans does not impair creditworthiness, given the predatory, opaque nature of the loans. The G7 and likeminded countries should also be willing to use bilateral economic tools to achieve these goals and support the Bretton Woods institutions. 

This approach would result in tantrums by China and potential diplomatic blowback, but the willingness to take drastic action is necessary to change Chinese behavior. The U.S. must work from within to promote the Bretton Woods institutions’ original goals of helping the world’s poorest and promoting global economic growth and stability, rather than abandon them to China. 

D.J. Nordquist, a senior advisor at the Center for Strategic and International Studies, served as the U.S. executive director of the World Bank Group. Katz is an adjunct fellow at the Manhattan Institute and served as a senior advisor at the Department of the Treasury.