All good things must come to an end, and so must illusions of the promised common future. A fundamental assumption long held by many in the West is that the multilateral institutions instated over the six post-War decades would serve to constrain and direct the “peaceful rise" of the People’s Republic of China (PRC). It was believed that a Beijing that was given the position it thought justified within the multilateral architecture would end up being a responsible steward of these institutions and of the global commons more broadly. The scandal at the World Bank that led to the end of the Doing Business report and index is the third time that this assumption has been proved as naïve, and, indeed, delusional.
The World Bank scandal is directly linked to the Xi Jinping regime’s growing sense of entitlement. An independent report commissioned by the Bank has revealed that its leadership—including a former senior official, Kristalina Georgieva, who is now head of the International Monetary Fund (IMF)—apparently manipulated the supposedly independent report to placate PRC officials worried about their ranking. The immediate context? Ownership shares at the Bank were going to be “re-calculated"; in other words, the PRC was going to see a big boost in its control of the institution. (Eventually, 52 countries had to reduce their voting share in the Bank to increase China’s.) It was the anticipation of Beijing’s increased power over the institution that led to this episode; it appears a careerist international bureaucracy was all too eager to please the new ownership. Many will now want to more closely examine Beijing’s position on the acrimonious selection in 2019 of a new IMF Chief from within the European bloc.
Two other institutional pillars of global governance have already been left powerless and have faced global ridicule as a consequence of Beijing’s actions. The World Trade Organisation (WTO) has lost the trust of the world in the two decades since the PRC’s accession; many of its members, developed and developing alike, feel that the PRC has not conducted the reforms that it had promised in order to join. As a result, it has retained an advantage in global trade that the WTO has been unable to rectify, leading to the institution itself being considered worthless.
And then there is the World Health Organisation (WHO), which has been seen during this pandemic as prioritising Beijing’s sensitivities over warning the world about a deadly contagion—or even properly investigating its origins. The tight control of information by the Communist Party of China (CPC) means that questions remain unanswered about the virus’ origin, yet what is certain is that the pandemic’s initial spread is in no small part due to the CPC’s machinations and missteps, and the WHO leadership’s complicity with Beijing.
It is time to accept that ceding Beijing the control of the levers of global power leads to disastrous consequences. Liberal democracies such as India and those that designed the post-War multilateral structure understand the need for independent institutions. They may chafe at the pressure such independence brings to bear on their own domestic and geopolitical actions, but appreciation of the importance of institutional strength and independence is in their DNA. This is, of course, not true for the Communist Party of China. Why should anyone expect that a system that permits no independence domestically will not consider it necessary to seize control of global institutions as well? For them, those institutions are useful that perpetuate and further the party line.
The Ease of Doing Business report and it’s deserved demise should not worry us. Concern about what will follow next should be more widespread. That Georgieva’s name has appeared in this investigation is worrying given that the IMF, in particular, is under siege. Its previous head, Christine Lagarde, explicitly made the point that Beijing’s “One Belt, One Road" initiative risked leading to a debt explosion in the developing world that would become the IMF’s problem. Under Georgieva, the pandemic did, in fact, cause an emerging-economy debt crisis in 2020. Other state-run lenders wanted to grant some measure of relief to those countries most under pressure. The PRC’s financial institutions refused to play along, demanding that they be treated like private-sector bond-holders instead.
Georgieva seemed to excuse this behaviour, saying in October 2020, “What we are also hearing from China is a recognition that they are a relatively new creditor, but they are very large creditor, and they need to mature domestically in terms of how they handle their own lenders, the coordination among them." The problem with the PRC’s external lending is not a lack of maturity or of co-ordination. If anything, the problem is the opposite: Too much co-ordination and political control. Will future bailouts spend IMF money to save Beijing’s bad Belt-and-Road loans? In a closed-door meeting in New Delhi some summers back, an American diplomat who had just finished meeting his counterparts in Colombo explained to Indian analysts that it is Chinese debt that has ravaged Sri Lanka’s balance sheet and that a IMF bailout was inevitable—as, indeed, it turned out to be.
An IMF that fears Beijing’s wrath is one that will not protect its shareholders or global private capital. Lending related to the Belt and Road initiative will cause more and more crises going forward, perhaps sooner rather than later, given the effect the pandemic has had on emerging economies’ balance sheets. An IMF intimidated by one activist minority shareholder might well direct the world’s savings into bailing out the PRC’s lending.
Unless all of us recognise the danger Beijing poses to global institutions, we will wind up paying for the expansion of Chinese ownership and political control over vast geographies. This is the global equivalent of the privatisation of profits and socialisation of loss—badly designed projects will create profits, power and growth for the benefit of the CPC, and their adverse economic outcomes will be left to the world to underwrite. The US has mishandled the World Bank already; does the European Union have it in them to save the IMF?
This article was first published on ORF.
>Samir Saran is President, ORF. Mihir Swarup Sharma is Director, Centre for Economy and Growth Programme at ORF. The views expressed in this article are those of the author and do not represent the stand of this publication.