In a sign of China's rising strength, the Asian Development Bank announced it may stop lending to the world's second largest economy.
The Asian Development Bank, the Manila-headquartered multilateral lender, may end loans to China in a move being characterized as more about the maturity of China’s economy—now the world’s second-largest—than political posturing. In a recent interview, ADB President Masatsugu Asakawa said a reassessment of whether China still meets the development criteria for further loans could start as early as next year.
Last year, ADB and China agreed to a midterm review of the country partnership strategy that governs ADB’s work in China. “The updated analysis will serve as the basis for discussions with the PRC authorities on the development partnership and graduation readiness,” an ADB spokesperson said in an e-mail.
But some analysts say the move has a political dimension and is symbolic of the estrangement between China and the West as well as a tectonic shift in geopolitical alliances. In 2016 China created its own infrastructure bank—the Asian Infrastructure Investment Bank—but the US and Japan notably declined to join. At just under 7%, Russia is the third-largest contributor to the AIIB’s coffers, after China and India, according to the AIIB’s website.
The ADB says it is a non-political organization and its decisions follow a fact-based approach. Both the US and Japan are among the ADB’s 68 member countries. ADB’s decision, first reported by Nikkei Asia, could see it cease lending by 2025. The ADB is scheduled to provide China $7.5 billion in loans by 2025, and China currently accounts for around 14% of outstanding loans, the second-largest borrower after India.
Although the AIIB’s role in has been described as complementary to ADB’s, the fact that it is offering financial assistance to other countries calls into question China’s need for further aid. When development loans are monopolized by economic superpowers, it promotes economic imbalances that hold countries back, says David Baxter, a sustainable development consultant.
“It is important that aid loans go to countries that really need it,” he says. “China does not.”
Still, with China’s economy reeling from a severe drought and fears of a nationwide energy crunch, the case for withdrawing support may have been weakened.