Is China Taking Over the Globalization Agenda?

China has surpassed the World Bank in lending to the developing world.
01.02.2011

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On the heels of Forbes’ meeting with the World Bank comes news that China has surpassed the World Bank in lending to the developing world. The Financial Times estimates that over the past two years, China has made an estimated $110 billion worth of loans to Africa, South America and the Middle East. With China taking center stage in the U.S. political arena, could it also be taking over the globalization agenda?

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The development goals of China stand in stark contrast to those of the World Bank according to Jamie Metzl, executive vice president of the Asia Society. “The key difference between World Bank loans and China’s loans is that Chinese investments are not being made from an economic perspective, but from a strategic and national security one. China has national security motives in gaining access to natural resources and in gaining political support.” Sudan, for example, sells two-thirds of its oil to China and in exchange is provided with tanks, combat aircraft, small arms and investment funds, despite the civil conflict and human rights violations in Darfur. In 2007, Chinese President Hu Jintao announced that China would forgive $70 million in Sudanese debt and enter into a series of bilateral economic deals, including an interest-free loan of $12.9 million for a new presidential palace.

Loans from China typically carry different terms than World Bank loans. In the case of China’s involvement in Africa, Robert Rotberg, editor of the book China into Africa, says, “China loans [are] in exchange for resources, which its companies extract themselves using Chinese labor, so in essence it’s fake lending. The Chinese rarely expect those loans to be paid back.” According to a paper published by David Mitchell of the Center for Strategic and International Studies, China canceled $1.2 billion in debt from 31 African countries in 2000 and added another $750 million in debt forgiveness in 2003. World Bank loans, on the other hand, come with expectations of transparency and anti-corruption measures to ensure good governance in recipient countries. Metzl argues that China’s loans are emboldening undemocratic and autocratic leaders in developing nations: “We [the West] can’t be too sanguine about the past 40 years of development strategies in Africa. At the same time, it’s hard to believe that propping up rogue leaders with unconditional loans can be a good thing. Without better governance, Africa is going nowhere. If countries get money that supports the position of the government elites, then there’s no pressure to reform.”

With loans being doled out by China, no strings attached, what does this mean for the World Bankand its agenda? According to Metzl, “China will undermine the efficacy of the World Bank.” He does not consider Chinese loans as development aid. Furthermore, “African countries are being bombarded with cheap Chinese consumer products. This makes the possibility of Africa developing a low-end production base extremely difficult. There just aren’t a lot of growth prospects with these loans.” he says. But perhaps there’s at least something gained from a bottom-line perspective. Mr. Rotberg argues, “They [the World Bank and Chinese Development banks] have different roles. The World Bank is a transparent organization. The Chinese can lend however they want. This means projects that wouldn’t otherwise get done, are undertaken.”