The View

Donald Trump’s pick to head the World Bank means US-China rivalry has a new front: development aid

Daniel Wagner says China continues to take World Bank aid despite its growth and the founding of alternative institutions like the AIIB. Trump’s nominee to lead the bank, David Malpass, may have been chosen to stop that

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David Malpass, the Trump administration’s World Bank nominee, has a reputation as a critic of the institution. Photo: Reuters

Daniel Wagner is the CEO of Country Risk Solutions and has more than three decades of experience assessing cross-border risk.

Published: 1:00pm, 7 Feb 2019Updated: 10:21pm, 7 Feb 2019

US President Donald Trump and his nominee to lead the World Bank, David Malpass, have an issue with the manner in which the bank and other multilateral development banks do business. Specifically, Malpass objects to the size, intrusiveness and entrenched interests within these institutions, and the very idea that such banks, which are supposed to be all about promoting development and alleviating poverty, continue to lend to the world’s second-largest economy, with the world’s largest aggregation of foreign exchange: China.

While China has been busy becoming the leading de facto economic and political power, it has also been quietly establishing strong bilateral relations with regional governments, and even lending to them, while continuing to accept much-needed development help from multilateral development banks.

For many years, Beijing has also been busy within these development banks (and other international institutions) establishing its prominence and exerting its influence on how development loans are disbursed. Although China held just 4.5 per cent of the World Bank’s voting power (compared with 16 per cent by the US) in 2018, and contributed just 5 per cent towards the United Nations’ regular budget in 2015 (compared with 22 per cent by the US), Beijing is punching well above its weight in these and other multilateral organisations. Very little of consequence gets done at the World Bank, the UN or any number of other multilateral organisations without a nod from Beijing.

Apart from having become so influential in these post-war bastions of economic power, Beijing has been instrumental in creating two new development banks – the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank – both of which are based in China and are beginning to wield considerable clout in the global development arena. Both banks are starting to supplant the other multilateral development banks, yet they are doing it at times by bypassing conventional Western-created financial institutions and implementing a Chinese approach to development lending that can prompt recipient nations to fall into a debt trap.