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“China must graduate from Asian Development Bank loans”

Annual Meeting of the Asian Development Bank. Board of Governors. Governors’ Plenary, Fiji
3 May 2019. Scenes from the Governors’ plenary on mobilizing the private sector when marketing conditions are challenging. The roundtable was held during the 52nd Annual Meeting of the ADB Board of Governors.

Japan is calling for an end to Asian Development Bank (ADB) loans to China. The country has become rich enough, Japanese Finance Minister Taro Aso said during the latest annual ADB conference in Fiji. As the second-largest economy in the world, China’s GDP reached $14.22 trillion in 2018. The country’s per capita GDP stood at $9,610 last year. This number is above the $6,795 upper cap set by the Asian Development Bank for its prospective borrowers. However, last year China was the fourth-largest recipient of new loans from the Manila-based ADB. It received 12% of total loans disbursed by the ADB in 2018.

According to the ADB’s official statement, the bank has approved $36.62 billion in sovereign loans and $4.13 billion in private sector operations (excluding B Loans) in China since 1986. Last year, the bank issued nine sovereign loans for a total of $1.8 billion and $22 million for 36 technical assistance projects to China.

The ADB was established in 1966 with the goal of reducing poverty in the Asia-Pacific region. Today it counts 67 member economies.

Asian Development Bank: No cuts to loans for China

Japan’s move to push the ADB to stop loans to China is following a similar stance from the U.S. With a combined voting voice of 25.5%, they are the top contributors to the Asian Development Bank.

China loans are also a hot topic at the World Bank. In 2018, the institution lent about $1.8 billion to China. In 2017 it was $2.4 billion. Last year, its shareholders agreed to reduce this amount in coming years. The new president, David Malpass, is expected to uphold this. He is an advocate of cutting loans to China, a move also backed by U.S. president Donald Trump.

Meanwhile, Asian Development Bank president Takehiko Nakao announced that the bank will take a different stance from the World Bank. “We don’t intend to significantly cut the amount of lending to China,” he told reporters during an interview in Tokyo. Instead, ADB will maintain the current level of lending to finance projects such as those related to climate change.

China: On the receiving and the issuing end of loans

In addition to having the second-largest economy of the world, China has received criticism from Japan for what it calls a “double standard”. Despite receiving aid from ADB, China is also issuing loans to emerging countries. “It’s the same as excessive lending by consumer credit companies,” Aso said.

China’s rise as a lender in recent years has primarily taken place through the Chinese-led Asian Infrastructure Investment Bank (AIIB). The AIIB was formally established in late 2015. Côte d’Ivoire, Guinea, Tunisia and Uruguay are the latest countries to join, bringing the total membership to 97 nations.

The AIIB was originally conceived as a regional financing mechanism for China’s “Belt and Road Initiative” (BRI). Recently AIIB and China have tried to distance the bank’s activities from the BRI. However, many approved projects are closely aligned with it.

Recent loans issued by the AIIB include one to Sri Lanka ($280 million) and to Laos ($40 million). The latter was for the improvement of National Road 13. According to AIIB, it will also “benefit individuals and commercial road users who need to travel to and from the eight northern provinces of Laos, as well as to Vietnam, Thailand and China.”

Recently, BRI projects financed by China loans received headwind and criticism. Some countries are facing repayment difficulties. Sri Lanka, for example, had to sign Hambantota Port over to Beijing on a 99-year lease, because it could not repay the debt.