International Issues

World Bank Funding China

Experts in international finance question why the World Bank is funneling billions of dollars into China. The country is already wealthy enough to attract streams of private, foreign capital -- despite being plagued by the losses of its banks and state-run enterprises.

  • China is the World Bank's biggest customer.

  • It has poured $28 billion into China over the past 17 years -- including a loan of $2.8 billion in the year ended June 30.

  • Meanwhile, foreign investors supplied the country with $42 billion in capital last year, and it now holds $121 billion in foreign reserves -- not including $80 billion in Hong Kong alone.

  • In June, the World Bank reported that few reforms of China's bankrupt state-enterprises have worked -- and 20 percent of its bank loans are bad.

China's accounting systems are so bad that in 1993 the World Bank loaned it $7.3 million so that the People's Bank of China, its central bank, could hire Price Waterhouse to strengthen its supervision and accounting controls.

With per capita incomes rising, China will no longer qualify for nearly free long-term loans set aside to aid the poorest borrowers. But observers expect that the World Bank will continue to dish out the cash.

Source: Leah Nathans Spiro, "Why a Wealthy China Gets World Bank Backing," Business Week, September 29, 1997.

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