The Twentieth Century Global Economic Order

In his classic book, The World in Depression, economist and former statesman Charles Kindleberger argued that the Great Depression of 1929 spread from the United States to the rest of the world because the global community lacked a global leader and a set of rules that could provide five global public goods: a stable monetary and exchange rate system; a lender of last resort to provide liquidity to distressed nations; counter-cyclical and long-run public lending; open markets in recessions; and international policy coordination across these issues. Britain attempted a global economic conference in 1933 but failed to lead, as the rising United States also failed to step into the void. This interregnum triggered industrialized countries to erect trade barriers and implement beggar-thy-neighbor currency devaluations that drastically reduced international trade and foreign investment, hastening the global spread of the Great Depression and accentuating geopolitical tensions ahead of World War II.

It seemed, though, that the same mistake would not be made twice when, amid the great destruction of World War II, the United States hosted the 1944 UN Monetary and Financial Conference in Bretton Woods, New Hampshire (Helleiner, 2014a). US Treasury Secretary Henry Morgenthau, Jr., premised the negotiations on the notion that, “prosperity, like peace, is indivisible. We cannot afford to have it scattered here or there among the fortunate or to enjoy it at the expense of others. Poverty, wherever it exists, is menacing to us all and undermines the well-being of each of us. It can no more be localized than war, but spreads and saps the economic strength of all the more favored areas of the earth” (James, Reference James2012, 413). Under this rubric, those gathered rejected a return to the classical liberal order of the gold standard and the League of Nations, which forced countries to “adjust” to international payment fluctuations through austerity. Instead, a new set of institutions was built under what was termed “embedded liberalism,” whereby markets were rooted in domestic institutions geared toward promoting stable growth, social welfare, and full employment (Ruggie Reference Ruggie1982; Helleiner, Reference Helleiner1994; Eichengreen, Reference Eichengreen2019).

To this end, the cornerstone of the system that negotiators at Bretton Woods agreed upon was a fixed dollar-gold standard that allowed countries to deploy capital controls to provide insulation from external shocks and space for full employment policies, while also permitting countries to adjust their national currency-dollar-pegs in exceptional circumstances. Relatedly, the IMF was created to facilitate an orderly system of international payments at stable and adjustable exchange rates and regulated capital flows. Most importantly, the Fund was charged with providing short-term international liquidity to avoid deflationary adjustments and to maintain stable exchange rates during balance of payments shortages (Eichengreen, Reference Eichengreen2019). Under the Articles of Agreement that established the IMF, member states were assigned “quotas,” which were roughly based on the country’s share of international trade and gross domestic product (GDP). IMF quotas determined the amount of gold and dollars that each member had to contribute to the Fund, but also the relative amount of drawing and voting rights that a member could exercise.

The IMF was created to monitor the stability of the financial system and provide short-term liquidity support, whereas the International Bank for Reconstruction and Development (IBRD) was established to provide medium- to long-run post-war reconstruction and counter-cyclical development financing. It was commonly understood that the terms and conditions of private markets did not function in a counter-cyclical manner and that public investment was needed to repair war-torn Europe and later to raise living standards in developing countries. IBRD member countries contribute (paid-in and callable) capital roughly commensurate to their trade and GDP, determining their relative levels of voting power. This base capital is used as collateral to tap capital markets and on-lend to borrowing member states at cheaper rates (Humphrey, Reference Humphrey2022). The IBRD has since evolved into a “World Bank Group” that includes the IBRD (non-concessional financing), the International Development Association (IDA, highly concessional loans and grants), the International Finance Corporation (equity), the Multilateral Investment Guarantee Agency, and the International Center for the Settlement of Investment Disputes.

In addition to the economic and security rationale for establishing the BWIs, scholars have argued that negotiators also sought to correct governance failures at the global level. Kindleberger attributes the failure of the 1933 World Economic Conference in London to the decline of British hegemony (Kindleberger, Reference Kindleberger1973). By linking the fixed but adjustable gold standard to the United States dollar, and through the effective veto power derived from the quota and capital/voting system of the IMF and the IBRD, the Bretton Woods order essentially made the United States, and later the West, the hegemons of systemic stability in charge of the provision of international public goods. Later known as “hegemonic stability theory,” the idea was challenged by scholars within the Liberal Institutionalist canon, who argued that as long as members (including new members such as China) collectively adhered to the norms and rules of the system, a hegemon may not be necessary for the maintenance of the order, what political scientists refer to as “regime theory” (Keohane, Reference Keohane and Keohane1984). More critical scholars saw the same period as the making of the post-World War II US-centered hegemonic world order, combining the exercise of consensus (public goods provision) and coercion (military power), or structural power. Some have seen US hegemony as in crisis from the early 1970s onward, whereas others see the continuation of US dominance based on its assertion of inter-related structures of power (Cox, Reference Cox1987; Gilpin, Reference Gilpin1987; Strange, Reference Strange1987).

In the late-1940s and 1950s, the BWIs were primarily focused on the industrialized world but became more “global” in their institutional reach as former colonies gained independence and as the Cold War thawed in the 1990s. The period between the 1980s and the late 2000s is generally considered the era of “neo-liberalism” and the “Washington Consensus.” Since then, a debate has emerged between those who argue that US and Western hegemony has continued and those who see the world order as shifting toward a more pluralistic, diverse, fragmented, or multipolar order (Helleiner, Reference Helleiner2014; Drezner, Reference Drezner2014; Jones, Reference Jones2014; Alden and Vieira, Reference Alden and Vieira2005; Barma, Ratner, and Weber, Reference Barma, Ratner and Weber2007; Drezner, Reference Drezner2007a; Cox, Reference Cox and Schechter2002; Ikenberry and Inoguchi, Reference Ikenberry, Inoguchi, Ikenberry and Inoguchi2007; Cohen, Reference Cohen2008). Scholars who argue the latter perceive a diminution of US power and leadership and less widely accepted norms, rules, and institutions amid a greater mix of national and regional powers, more diverse sources of norms and influences, and corporate or societal actors, forming a less-centralized, more negotiated, messier, multi-centered world economic order (Kissinger, Reference Kissinger2010; Bremmer, Reference Bremmer2012; Kupchan, Reference Kupchan2012; Kirshner, Reference Kirshner2014; Acharya, Reference Acharya2017; Layne, Reference Layne2018).

Since its onset in 1944, the Bretton Woods order has been evolving. The fiat US dollar still stands at the top of the global monetary pyramid, flexible exchange rates of varying degrees remain the norm, and international capital markets are the source of liquidity for most, except the poorest countries. From a multilateral perspective, the IMF – as the only institution with a global membership charged with maintaining global financial stability and still the holder of the largest emergency financing capacity – remains at the center of what is now referred to as the “Global Financial Safety Net” (GFSN). However, we also observe the emergence of a more multi-tiered and diverse GFSN that includes central bank swaps, regional financial arrangements (RFAs), newer contingent reserve arrangements, such as the BRICS Contingent Reserve Arrangement (CRA), and national reserves. In terms of global development finance, the WB remains at the center of a system of MDBs that includes regional and inter-regional multilateral banks, which largely follow the WB financing and governance model. But we also see the emergence of newer self-styled “Southern development finance institutions” in the AIIB and NDB. National development banks and state policy banks also lend more internationally than the established MDBs. The Group of Twenty (G20), the resurrected G7, and the BRICS Plus grouping have emerged as the main informal consultative forums for the management of the global economy. The new and reshaped rules, norms, standards, and principles of this emerging global economic order are still heavily contested, as is the balance between efficiency and equity, and the degree of commitment to environmental sustainability. But their emergence can be tracked.

China and the Bretton Woods Institutions

China played a role in the formation of the post-World War II global economic order, represented by the Republic of China (1912–1949) at the Bretton Woods (BW) conference in 1944, and the People’s Republic of China (PRC, 1949 onward) has been a significant contributor since it officially assumed the seat of ‘China’ at the two main BWIs in 1980. The core strategic motive that has remained throughout China’s involvement with the BWIs is to learn and obtain what it needs to pursue its own national economic development objectives, without wholesale assimilation to the norms of the institutional order. Beijing has repeatedly stated that it is not seeking to undo or supplant the global order, but to re-balance it (Lin, Reference Lin, Lozoya and Bhattacharya1981; Gao, Reference Gao2023). For example, Liu Jianchao, head of the Chinese Communist Party’s (CCP) International Department, recently told a US-based audience at the Council on Foreign Relations that, “China does not seek to change the current international order, still less reinvent the wheel by creating a new international order. We are one of the builders of the current world order and have benefited from it.” China’s goal, he said, was to “deliver a better life for the Chinese people” (Liu, Reference Liu2024).

Whether the PRC is behaving solely or largely as a status quo actor, or, on balance, is behaving more as a system transformer, deserves further scrutiny. We address this question first by categorizing China’s related actions and the institutional outcomes as those inside the BWIs versus outside the BWIs. Next, we assess China’s behavior inside and outside the BWIs, and the resulting outcomes, using the rubric of “rule-taker,” “rule-maker,” and “rule-shaker.” We find that China is engaging in rule-making outside of the BWIs and rule-shaking inside the BWIs to such a degree that the rules and norms are being reshaped, and the global economic order is being incrementally transformed.

Table 1 provides a snapshot of the key moments of China’s engagement with the Bretton Woods order; subsequent sections will delve into more detail in tracing China’s evolving relations with each BWI institution. In the left-hand column, the table highlights the main elements of China’s involvement “inside” the BWIs. The right-hand column illustrates China’s major initiatives “outside” of the BWIs.

As the following sections will outline, the PRC’s engagement and relationship with the IMF can be defined as “highly professional,” though less convivial than with the World Bank. Jacobson and Oksenberg (Reference Jacobson and Oksenberg1990) were the first to conduct a detailed analysis of China and the BWIs and concluded: “At least in the first decade of its unfolding, the initial inclusion of China into the keystone International Economic Institutions was successful, judged by the standards of both sides. By and large, China abided by the rules that other large developing countries accepted. Moreover, China made discernible contributions to the operations of the BWIs as well” (17). Inside the BWIs, China’s “rule-taking” was and is manifested, first and foremost, by accepting the US dollar-denominated world economy. China’s trade, investment, and even its development assistance loans as a recipient were largely conducted in dollars. China also accepted the IMF’s surveillance activity and has internalized many of the IMF’s policy lessons, norms, and standards into its macroeconomic management, as well as its fiscal and financial systems.

Nonetheless, from the outset of its membership, China did not support the Fund’s policy conditionality that called for slashing government spending and reducing the role of the state in economic affairs – a position that became even more steadfast following the IMF’s disastrous record during the Asian Financial Crisis (Jacobson and Oksenberg, Reference Jacobson and Oksenberg1990; Helleiner and Momani, Reference Helleiner, Momani, Helleiner and Kirshner2014; Nolan, Reference Nolan2021). To avoid conditionality, China has only taken technical assistance loans from the IMF. Throughout its history, China has called for greater voice and representation of developing countries and reform of IMF conditionality. As a participant in coalitions with East Asian countries, and later the BRICS, the PRC played a key role in reforming rules such as a 2010 increase in quotas – and thus, voting power – for China and others, as well as the IMF’s updated stance on capital account liberalization and capital controls in 2012 (Gallagher, Reference Gallagher2015; Grabel, Reference Grabel2018; Roberts, Armijo, and Katada, Reference Roberts, Armijo and Katada2018; Kastner, Pearson, and Rector, Reference Kastner, Pearson and Rector2019). Since 2011, a PRC national has been appointed to a Deputy Managing Director position at the IMF. In addition to increasing quotas at the IMF, China has succeeded in being a voice for other rule changes, such as increasing the size of the GFSN through issuances of the IMF’s reserve accounting tool, Special Drawing Rights (SDR), and for expanding the use of the SDR as a reserve management tool. On a number of occasions, China has gone so far as to call for an increased role for the SDR and a reduced role for the US dollar as the de facto global settlement and reserve currency (Chin, Reference Chin2014; Helleiner and Momani, Reference Helleiner, Momani, Helleiner and Kirshner2014). China also successfully lobbied the IMF membership for the RMB to be included in the SDR reserve basket in 2016 (Wang, Reference Wang2018; Kastner, Pearson, and Rector, Reference Kastner, Pearson and Rector2019). The United States has resisted increased use of SDR, seeing expanded use as a potential threat to dollar supremacy and US political objectives at the IMF.

In terms of global development finance, China’s engagement inside the World Bank has been comparatively convivial, particularly during the 1980s and 1990s when China was “learning” the norms, rules, and standards of the World Bank and undergoing “socialization” (Jacobson and Oksenberg, Reference Jacobson and Oksenberg1990; Johnston, Reference Johnson2008). During its first-two decades as a member of the World Bank, China absorbed economic reform policy advice and lessons from pragmatic experts willing to work within the economic policy limits of China’s Communist Party-state-led system, including maintaining a role for state companies while also supporting the growth of the private sector (Bottelier, Reference Bottelier2007). During the 1980s and 1990s, China and the Bank co-produced numerous studies on economic reform that helped Chinese officials chart their own reform path, including future Premier Zhu Rongji. Moreover, China benefited from numerous World Bank (and Asian Development Bank) concessional loans before “graduating” from IDA in 1999.

Despite the rather warm relations, as we will show in our section on the World Bank and development finance, China has played a strong hand and succeeded in changing the Bank’s norms and rules. For example, China was able to avoid adopting many of the “shock therapy” and “Washington Consensus” suite of rapid privatization and marketization policies that other developing countries had to accept to receive World Bank financing (Bottelier, Reference Bottelier2007). Indeed, even as China was engaging constructively with the BWIs and has continued to “learn” and absorb from the BWIs, it has also taken part in efforts to reform the BWIs, constructed its own set of institutions, and joined other Southern-led coalitions to push for changes to the BWIs.

Starting in the late 1990s, China began to work outside the BWIs to address international monetary and global development finance needs that were largely unmet or left unaddressed by the BWIs and the Western powers. On the monetary front, working outside of the IMF, China co-founded the Chiang Mai Initiative in 2000, together with the ten ASEAN nations, Japan, and South Korea (“ASEAN+3”), to provide a regional emergency liquidity fund operated by and for East Asian member countries. ASEAN+3 boosted the reserve pool of the Chiang Mai Initiative in 2010 to $240 billion, and China, in turn, supported the creation of a similar “Contingent Reserve Arrangement” with the BRICS nations in 2014. What is more, like many of its East Asian counterparts, China has amassed large national foreign exchange reserves to self-insure and insulate itself from financial instability and reliance on the IMF. China’s national reserves reached US$1 trillion in 2007, topped out at an unprecedented $4 trillion in 2014, and now stand at over US$3 trillion. China also began to support the growing international use (“internationalization”) of its national currency, the renminbi (RMB), in 2008, creating and launching its own cross-border RMB direct payments system, the CIPS, in 2015. The new rules of these alternative institutional arrangements are detailed in Section 2.

Operating outside of the World Bank, China has also played a major role in expanding development financing globally. In 1994, China established the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM), mainly to provide domestic lending for the country’s national development and concessional state policy-related trade financing, respectively. Two decades later, CDB and CHEXIM are among the largest development lenders in the world, and from 2010–2020, they provided more financing to developing countries than the World Bank. These two banks, alongside China’s Silk Road Fund, are the flagship institutions for China’s outbound development finance, including financing Belt and Road Initiative (BRI) projects, the ambitious pan-regional connectivity stratagem that China launched in 2013. These financial institutions, together with China’s state commercial banks, have provided upwards of US$1 trillion in financing to BRI partner and developing countries.

Furthermore, China has helped establish two new MDBs: the BRICS-led NDB and the 109-member AIIB, launched in 2015 and 2016, respectively. In Table 1 and Table 2, we list the creation of AIIB and NDB as examples of China acting as a rule-maker outside the BWIs, as these alternative institutions exhibit a spectrum of new and existing rules and norms. Some of their other rules are almost the same as those of the Western-dominated BWIs, but with China at the center of the table at the AIIB. However, even in the AIIB, and especially with the NDB, we see examples of norms and rules that differ from the BWIs, such as South-South cooperation and alternative rules whereby the founding BRICS member-countries each make equal financial contributions and hold equal votes in the NDB, despite differences in the respective sizes of their national economies. Furthermore, the NDB, as well as China’s state policy banks, allow a higher degree of policy autonomy for borrowers, unlike the Western-dominated BWIs. For example, the NDB and CDB both operate according to “host country standards,” for environmental, social, and governance (ESG) safeguards. Finally, the CDB and China’s central bank both support the norm of counter-cyclical financing, especially in emergency crisis scenarios, whereas the IMF has a sustained history of supporting and demanding fiscal consolidation and austerity, that is, pro-cyclical measures in both crisis and normal scenarios.

China’s Growing Monetary and Financial Power

The size and reach of China’s economy, its absorption of the established norms, rules, and standards of the BWIs, and its role in supporting the creation of parallel institutions have given China a unique position as a rule-taker, rule-maker, and rule-shaker in the international monetary and financial systems.

Earlier research on the role of China in the BWIs concluded that China was “playing our game,” as a “rule-taker” that largely accepted the rules of the BWIs. More recent scholarship has come to see China as a partial rule-taker and burgeoning reshaper of existing rules, or what we call a rule-shaker inside the BWIs. Some of the latest literature has examined how China is starting to work outside the BWIs to create new institutions, new rules, and norms. When it comes to the consequences for the international system or world order, the consensus in these studies is that China is still largely a status quo actor, “taking” and “reshaping” the existing rules within the BWIs.

We also argue that this hybrid stance – one foot in, one foot out – does grant China more voice within the BWIs and inside the existing international monetary and financial systems. However, we differ from the aforementioned studies in three respects. First, we see China’s growing contributions inside the BWIs, and China’s creation of new institutions and new rules outside of the BWIs, as giving China “two-way countervailing power.” In conceptualizing “countervailing monetary and financial power,” we draw on John Kenneth Galbraith’s (Reference Galbraith1952) term “countervailing power,” and the scholarship in International Political Economy that has long established that the industrialized countries hold great economic power and leverage access to their large economies to exert power over other countries (Hirschman, Reference Hirschman1945; Strange, Reference Strange1976, Reference Strange1987, Reference Strange1988; Cohen, Reference Cohen1998, Reference Cohen2007; Andrews, Reference Andrews2006; Drezner, Reference Drezner2007b). Galbraith’s study focused on the post-war US economy, which he showed was not functioning well because of a concentration of economic power in large industrial companies. Galbraith examined how workers and input providers could form coalitions to collectively bargain and pressure the state to create regulations to introduce more market competition and make markets more efficient. Drawing on Hirschman (Reference Hirschman1970), Gallagher (Reference Gallagher2015) adapted Galbraith’s concept to analyze the international monetary realm, showing how the BRICS countries exercised countervailing monetary power at the IMF to shift IMF policy on capital controls by forming new institutions outside the IMF, threatening to “exit” in terms of extra-forum leverage, and forming coalitions with key staff and other countries inside the IMF. In this Element, we expand the concept of “countervailing monetary and financial power” to examine China’s behavior in both the international monetary and global development finance realms. We find that China is leveraging its domestic capabilities and international institutions in two directions simultaneously: as a rule-taker and rule-shaker within the BWIs, and as a rule-maker outside of the BWIs (see Table 2).

Second, China’s hybrid positioning paves the way for China (and other countries) to exit the BW system, if or when it sees the need to. Due to China’s increased capabilities within its own institutions and its own financial resources, China has increased its contributions to the World Bank, and it no longer “needs” the services of the BWIs as it did in the 1980s and 1990s. As we discuss later in this volume, China has never taken a balance of payments loan from the IMF. The combination of these factors, and the largesse and relative success that China has achieved in creating alternative institutions, has triggered the West to think that China could exit or push to rival the BWIs. Depending on how other influential members of the BWIs react to China’s institutional reform efforts, inside or outside the BWIs, whether they welcome or resist them, will affect whether China and other developing countries choose to continue working within the BWIs or outside. The decision and outcomes are not preordained.

Third, we see China leveraging its influence and power to advance globally transformative changes in the direction of a less-US-centered, more diffuse, globally-diverse, negotiated, multi-centered global economic order. These trends and patterns with regard to China’s taking, making, and shaking of the rules and norms are examined in more detail in the next two sections. Finally, we discuss what could happen if China continues to push ahead with its hybrid positioning. Is the West likely to continue to engage China to increase its stakeholdership in the BWIs, or treat China more as a threat? As this Element goes to press in 2025, Western governments are pushing back against China’s global rise, hybrid positioning, and countervailing power, and have shifted to compete with China on the global terrain, in relations with the Global South, within the BWIs, and at the UN. We will address which outcome is more likely and what it means for China, the Global South, and the West.

China as Rule-Taker

China’s integration into the International Monetary Fund (IMF) and its embrace of the US dollar after the late 1970s were significant changes for China and for the established Bretton Woods order. By entering the dollar order, the PRC was able to engage in international trade and absorb foreign direct investment to a much greater extent than during the Maoist period (1949–1976). From the 1980s onward, China built capital markets that were increasingly integrated into the global financial system. Integration into the established international monetary and reserve system combined rule-taking and norm-taking behavior for China. IMF membership enabled China to learn the rules, standards, and norms of the dollar order.

From the early 1980s to the mid-1990s, China largely behaved as a rule-taker within the IMF, adhering to the many rules and standards of the Fund. In joining the IMF, the PRC gained the benefits of Fund membership, but membership required it to also agree to obligations such as sharing data and information with the members of the Fund, subjecting itself to multilateral rules and scrutiny, and delegating a degree of its national economic sovereignty to the multilateral institution (Jacobson and Oksenberg, Reference Jacobson and Oksenberg1990).

In the 1980s and 1990s, China underwent rapid and dramatic national economic reforms, development, and modernization. International Relations scholars have argued that China’s “socialization” to the international rules, its absorbing and internalizing of the lessons and policy norms of the IMF, and some degree of internal transformation characterized the nature of China’s relations with the global institutions (Pearson Reference Pearson, Johnston and Ross1999; Johnson, Reference Johnson2008). However, it is important to observe that China’s “socialization” to IMF rules and norms did not occur in a static institutional context, as the IMF itself (and World Bank) were themselves undergoing profound changes from the early 1970s onward, toward “neoliberalism” and the “Washington Consensus.”

The foundational academic study of China’s entry and participation in the IMF (and the World Bank and the GATT) from 1945 to the decade of the 1980s, by Jacobson and Oksenberg (Reference Jacobson and Oksenberg1990), details the PRC’s original goals when it acceded to the IMF:

1. 1. Learn the technical requirements for managing a modern, market-oriented financial system that meets international standards.

2. 2. Gain information about other countries and their economies.

3. 3. Reconnect with foreign economic institutions through IMF programs.

4. 4. Expulsion of the Taipei regime from the IMF and its further marginalization in the international community.

5. 5. Demonstrate that the PRC is a “friendly member of the international community.”

The most straight-forward examples of China’s internalization of IMF rules and norms pertained to the obligations of IMF membership spelled out in the “Articles of Agreement.” The Articles required China to take on five dimensions of rules. First, the PRC had to ratify its membership and pay its quota to the Fund. When the PRC entered the IMF in 1980, the PRC assumed the ninth-largest quota, the largest of any developing country. Subsequently, in September 1980, the Fund authorized a special increase in the PRC’s quota from SDR 550 million to SDR 1.2 billion, and then increased it further to SDR 1.8 billion in November 1980, and again to SDR 2.39 billion in 1983 (Jacobson and Oksenberg, Reference Jacobson and Oksenberg1990, 32, 121). As China made these membership payments and became a major shareholder of the Fund’s financial resources, it took a collective interest as a prudent co-manager of the finances.

A second form of China’s IMF rule-taking relates to borrowing from the Fund. China had to learn the evolving policy norms of the Fund and internalize the rules in order to minimize the effects of the IMF’s policy conditionality, which is attached to the Fund’s loans. The PRC absorbed the IMF’s rules on the upper limit of borrowing from its allotted reserve tranche to avoid triggering a challenge from the Fund and the related need to justify the loan request based on the balance of payment needs of the borrower.Footnote ³ The IMF’s conditionality is controversial because it requires the borrower to implement domestic policy changes, such as loosening exchange rates, cutting public sector employment, government subsidies, and public spending. China has avoided the IMF’s conditionality. The PRC has only borrowed twice from the Fund, in the early and mid-1980s, and it has not done so since. In spring 1981, at a time when China was struggling with its post-Mao economic reforms, including balance of payments, Beijing drew from the IMF for its first credit tranche of SDR 450 million and a Trust Fund loan of SDR 309 million, for a total of SDR 759 million from the Fund’s General Reserve Account (Jacobson and Oksenberg, Reference Jacobson and Oksenberg1990, 122).Footnote ⁴ In May 1983, the government swiftly repaid the first credit tranche, and made good in full in 1984.Footnote ⁵ In November 1986, China borrowed SDR 600 million for purchases and a SDR 30 million loan (Ministry of Foreign Affairs of the People’s Republic of China, 2000; IMF, 2021a; IMF, 2021b), repaying both in full and early.

Other IMF rule-taking that China was obligated to fulfill under the Fund’s Articles included the publication of IMF materials in Chinese and their dissemination inside China to the relevant stakeholders. To meet the Article IV requirements, China had to hold bilateral discussions with the IMF, typically every year, when an IMF staff team visits the country, collects economic and financial information, and gives recommendations to the officials on the country’s economic policies. China must provide a range of national economic and financial information related to its fiscal and macroeconomic situation and exchange rate policy to the IMF’s Article IV team. Under Article VIII (Section v), related to the Fund’s oversight of its members’ exchange rate policy, China is required to collect and publish economic statistics according to the IMF’s standards, and the Fund engages in exchange rate policy surveillance and provides its assessment.

Related to its annual consultations, surveillance, and advisory roles, the Fund has also provided considerable technical assistance and technical training to China in the areas of the Fund’s competence. Since 1980, experts have traveled to China to conduct training sessions, and large numbers of younger Chinese officials have attended seminars and courses organized by the IMF in Washington, DC. The IMF Bureau of Statistics taught PBOC officials the concept of “balance of payments” and helped them improve their methodology for compiling balance of payments statistics according to IMF standards, as well as the central bank’s related accounting practices (Jacobson and Oksenberg, Reference Jacobson and Oksenberg1990, 122). After “taking” the IMF procedures, PBOC officials returned to China, and compiled their balance of payments statistics using the IMF standards, though they kept the data secret (neibu, or internal) in 1982, 1983 and 1984. In 1985, the PBOC modified its behaviour and published the balance of payments statistics in the public domain for the first time, according to IMF norms. In due course, IMF staff continued to work closely with Chinese officials to improve their monetary supply data and external debt statistics.

Exchange rate policy is another area in which China adhered to IMF rules and norms, at least during the first-two decades. From the mid-1980s to the mid-1990s, and as advised by the IMF, China undertook rounds of adjustment for the RMB exchange rate regime. In the mid-1980s, China devalued the RMB by 15.8 percent to address its balance of payments problems during that period (Lardy, Reference Lardy1992). In 1996, China made the RMB freely convertible under the current account in order to comply with IMF Article VIII (PBOC 1996; IMF, 1996). China also undertook a series of policy and institutional reforms in its domestic financial sector, specifically central banking reforms and changes to corporate governance and financial legislation, as advised by the IMF, as part of the country’s “economic modernization” (Lardy, Reference Lardy1998, Reference Lardy, Economy and Oksenberg1999; Kent, Reference Kent2007).

For the first-two decades, and to some extent into the next two, through the IMF borrowing schemes, technical and policy assistance dialogs, and training programs, Chinese officials absorbed and internalized the policy and technical advice, procedures and methods, governance standards, and “best practices” of the IMF (Wang, Reference Wang2018). Jacobson and Oksenberg accurately described China’s record of participation at the IMF (and World Bank) in the initial period of membership as an “orderly process,” where both the IMF and China demonstrated a “methodical, cautious approach to building a relationship” (121, 127).

China as Rule-Maker

The 1997–98 Asian Financial Crisis (AFC) was a turning point for China’s relations with the BWIs. At IMF meetings in the 1980s through the mid-1990s, China called on members to increase the use of SDR but did not take concrete action to push for expanded use of SDR. Nor did China push to alter the institutional landscape at the system level, particularly the dominant role of the IMF in the multilateral governance of global liquidity and financial safety nets. However, this changed in the aftermath of the 1997–98 Asian Financial Crisis (AFC). Working outside the IMF, China has helped to build several bilateral and multilateral arrangements that mimic the lender-of-last-resort function of the IMF, albeit with different rules and norms (Figure 1).

Figure 1 China’s contribution to the Global Financial Safety Net (2023)

Source: Gallagher et al., Reference Gallagher, Kring and Ray2023

China’s financial and central banking officials – along with their counterparts in other East Asian nations – watched how the IMF and the US responded to the AFC and drew lessons, deciding to self-insure in order to avoid having to borrow from the IMF (Chin, Reference Chin2010, Reference Chin2012). China and East Asian governments self-insulated by building up large stores of foreign exchange reserves, which they could draw on unilaterally without needing approval – and they could use the reserves to help others. China and Japan have led the way among non-US nations in accumulating the largest US dollar reserves in the world.

On the multilateral front, China’s approach to the global financial safety net (GFSN) shifted from focusing on appealing to the IMF for additional financing for the South to promoting the SDR as an alternative supply of global liquidity and as a reserve option. Outside the IMF, China, Japan, and the ASEAN+3 nations allocated resources and diplomatic attention to building a regional financial safety net in East Asia: the Chiang Mai Initiative (CMI), which was later further expanded with more money and more functions, and renamed as the “Chiang Mai Initiative Multilateralization” (CMIM). In October 1998, amid the ongoing AFC, China’s central bank governor Dai Xianglong stood up at the joint annual discussions (IMF and World Bank) and stated China’s view that the

Dai then offered: “It is our firm belief that by strengthening coordination and mutual support within the Asian region, the economic and financial development in Asia is bound to stabilize gradually” (IMF, 1998).

The agreement to create the CMI was announced in May 2000 at the ASEAN+3 finance ministers’ meeting. China, together with Japan, was the co-initiator of the CMI. In December 1998, at the second informal meeting of ASEAN+3 in Vietnam, China’s then Vice President Hu Jintao proposed that ASEAN+3 finance and central bank deputies meet to discuss further regional cooperation, and they did so in April 1999. In November 1999, at the third informal meeting of ASEAN+3 Leaders in Manila, China’s Premier Zhu Rongji suggested that the bloc should discuss how to institutionalize their regional economic and financial cooperation. In December 1999, the finance ministers agreed to establish “self-help and support mechanisms in East Asia.”

The CMI originally consisted of 15 bilateral swap agreements, totaling the equivalent of US$37.5 billion, including a US$1 billion ASEAN Swap. “Equivalent” because, although the majority of the CMI financing was in US dollars, Beijing struck a unique agreement with the CMI partners that the bilateral swap lines with China and other CMI partners be denominated in RMB. Despite the fact that East Asian countries have independently funded and managed the CMI, the expanded CMIM can still be conceptualized as having links to the IMF, in that the ASEAN+3 grouping decided to tie a portion of any future disbursement of the Chiang Mai funds to IMF approval (initially set at 90 percent of the borrowing quota requiring IMF approval and subject to IMF conditionality).

However, the intention of ASEAN+3 from the outset of the CMI discussions was to increase the operational autonomy of the CMI, away from the IMF, over time. In the two decades since CMI’s creation, ASEAN+3 has gradually increased the portion of CMI(M) swaps that can be allocated without IMF approval (Grimes and Kring, Reference Grimes and Kring2020). In May 2005, ASEAN+3 agreed to integrate economic surveillance procedures into the CMI framework and, importantly for increasing operational autonomy beyond the IMF, agreed to create an ASEAN+3 economic monitoring and advisory office called the “ASEAN+3 Macroeconomic Research Office” (AMRO). Relatedly, ASEAN+3 agreed to increase the size of swaps that could be withdrawn without an IMF-supported program from the original 10 percent to 20 percent (ASEAN+3, 2005). ASEAN+3 finance ministers further agreed to significantly increase the size of the swaps in the CMI, and by 2007, the size of the CMI swap pool had doubled to US$64 billion and 16 swap agreements.

After the 2008–09 GFC, China and the ASEAN+3 further boosted the CMI into CMIM, increasing the size of the regional swap fund from US$90 billion to US$120 billion. Importantly, the grouping moved ahead on “multilateralizing” the bilateral swap agreements into a “single [regionalized pool] contractual agreement.” CMIM took effect in March 2010 (AMRO, 2023). CMIM’s core objectives are (1) to address balance of payment and/or short-term liquidity difficulties in the ASEAN+3 region; and (2) to supplement existing international financial arrangements. China’s contribution (including Hong Kong) to the CMIM increased to US$38.4 billion. For some comparative perspective, the size of the CMIM at US$120 billion was relatively small compared to the national reserves of the Asian countries (US$5 trillion) and paled in comparison to the amounts deployed by G20 national governments and the ECB in response to the GFC – China’s domestic stimulus package alone was the equivalent of US$586 billion. Nonetheless, the increase in the size of the East Asian regional safety net required striking a new diplomatic consensus between China and Japan, as the two largest “co-contributors,” Korea (US$19.2 billion), and the ASEAN nations with a combined US$24 billion (Chin, Reference Chin2012).

The ASEAN+3 opened the ASEAN+3 Macroeconomic Research Office (AMRO) as a regional office for the CMIM in April 2011 in Singapore. The creation of this office was especially significant, as it signaled the ability to delegate surveillance and loan design, that is, new rule-making, to a self-governed body – a prerequisite for ending the CMIM’s subordination to the IMF (Grimes and Kring, Reference Grimes and Kring2020). To kick-start the rule-making, the ASEAN+3 finance ministers decided on the new basic rules for activating the swap agreements and the new rules for joint decision-making on their use (as a “first step toward multilateralization”), and delegated it to AMRO to work on the details and bring the proposals back to the ASEAN+3 finance ministers for decision-making.

One of the most noteworthy new rules of the CMIM relates to the activation and delivery of CMIM swaps, which makes the first draw on the CMIM immediate, rapid, targeted, and easy to access for the borrower, with more extensive justification required for a second draw. The technical reason for this approach is that crisis financing must be provided rapidly to help avert or contain a financial crisis. However, AMRO staff also gave “Asian”-specific cultural reasons for how the ASEAN+3 members of CMIM approach the broader issue of the stigma that becomes attached to the borrower that draws on emergency crisis liquidity in an actual crisis scenario: that rapid and easy access to crisis liquidity, and fast delivery of the first draw, can help to reduce the reputational stigma that is attached to borrowers of IMF-type loans and allow for national “face-saving,” which is said to be especially important in East Asian cultures.Footnote ⁶ As no ASEAN+3 member has drawn on the CMIM to date, there is yet to be a concrete case study of the delivery of this emergency fund. Nonetheless, the intention to devise rules that are informed by IMF rules and norms, but are more responsive to “Asian cultural characteristics,” can be observed.

In 2014, the ASEAN Plus Three decided to further increase the size of the CMIM by doubling it to $240 billion and also to increase the CMIM-IMF De-Linked Portion to 30 percent, as well as to extend the maturity and supporting period (AMRO, 2023) The ASEAN+3 also expanded the purpose of the regional safety net by introducing the “CMIM Precautionary Line,” a new crisis prevention facility, adding to the existing “CMIM Stability Facility,” aimed at crisis resolution. In March 2021, members also amended the CMIM Agreement to increase the IMF De-Linked Portion from 30 percent to 40 percent. Importantly, they also agreed to use their own local currencies for CMIM financing, in addition to the US dollar (see Figure 1). China and the other ASEAN+3 members have further indicated that they intend to completely de-link the disbursement of CMIM funds from IMF approval (Grimes and Kring, Reference Grimes and Kring2020). The ASEAN+3 members are now discussing how to further expand their financial cooperation under the CMIM umbrella, which would mean new purposes, more new rules, and norms.

The CMIM has, in turn, inspired the BRICS nations to create their own US$100 billion Contingent Reserve Arrangement (CRA) as a similar emergency liquidity pool for the BRICS governments (see Figure 1). The former Brazilian Executive Director at the IMF and former Vice President of the NDB, Paulo Nogueira Batista Jr., writes that the CMI was the model that BRICS governments drew on to create their own liquidity safety net (Batista Jr., Reference Batista2021, 13–32). Batista Jr. visited the AMRO in Singapore in 2014 to learn about the CMIM first-hand, where he, Brazilian finance officials, and China’s central bank and finance officials relayed the lessons to the BRICS group.

The CRA was officially launched in 2015, with China, by far the largest committed contributor, allocating US$41 billion, while Brazil, India, and Russia agreed to each commit US$18 billion, and South Africa US$5 billion.Footnote ⁷ The BRICS governments set the amount that each country can draw from the CRA fund and the associated voting share for each member. Of particular note, China made a financial contribution that far outweighs its agreed access amount: after giving US$41 billion, China agreed to only draw up to US$21 billion if needed. This rule is underpinned by a new norm of international leadership that China is advancing of “giving more, taking less”; the PRC’s take on global leadership as sacrificing for the greater good and being generous in providing global public goods (Chin and Stubbs, Reference Chin and Richard2011). With its sizable national foreign reserves, Beijing does not need the CRA for insurance. The BRICS Plus members are now discussing adding more member-states to the CRA and expanding the size of the fund, and some researchers are discussing expanding the financial uses for the CRA beyond emergency crisis liquidity to non-crisis use, which means creating new rules and new norms among the CRA members.

In the informal realm of global governance, China has also played a role in creating alternative rules and norms to the IMF in response to the 2008–09 Great Financial Crisis. China acted as a new rule-maker, outside of the IMF, when it pushed for a portion of the US$1.1 trillion agreed upon by G20 country leaders for emergency economic fire-fighting to be allocated to regional institutions to deliver, rather than to the IMF (Chin, Reference Chin2010, Reference Chin2012). When the GFC erupted, leaders of the BRICS nations, especially Indian PM Singh and Brazilian President Lula emphasized that the GFC was not caused by developing countries, and that developing countries should not have to pay the price. Indonesia, China, India, South Korea, and Brazil pushed G20 leaders to support the creation of new lines of rapid, flexible counter-cyclical lines of emergency financing for developing and low-income countries but to be dispersed by regional development banks, not the IMF (Chin, Reference Chin2012).

China supported an Indonesian proposal to the G20 to allocate a portion of the new money promised to the IMF (at the April 2009 London G20 Summit) to the Asian Development Bank (ADB) instead. This financing would be flexible, fast-disbursing, and utilize front-loaded instruments that provide rapid assistance to developing countries in the Asian region that were considered “well-governed,” but nonetheless faced potential balance of payments crises due to the GFC.Footnote ⁸ With the backing of the G20, the ADB quickly created a new countercyclical instrument – the Countercyclical Support Facility – to provide budget support of up to US$3 billion for crisis-affected countries in Asia (ADB, 2009). However, the new “rule” for Asia had a broader global impact, as regional development banks in other regions of the world, such as the IDB and the AfDB, quickly followed the ADB’s example. They also drew on a portion of the new funds committed at the London G20 and established new regional-level facilities to provide rapid and more flexible counter-cyclical lines of credit to countries in their regions. These regional mechanisms prevented further contagion and helped to contain spillovers across the regions.

China has also initiated other new elements of the global financial safety net at the bilateral level (see Figure 1). When several of China’s trading partners experienced a liquidity crunch and a crisis of trade finance in 2008 and 2009 because of the global liquidity freeze, a number of these governments turned to Beijing for help, and to the PBOC specifically for emergency liquidity support. Like the US Federal Reserve, which offered emergency US dollar swap lines to US trading partners in periods of economic and financial uncertainty, the PBOC agreed to several bilateral currency agreements, denominated in RMB, including bilateral swap agreements (BSAs). However, the PBOC currency agreements are different from the US dollar swaps of the US Federal Reserve in that the RMB can be used for a wider range of purposes, such as “non-emergency” trade financing.

RMB-denominated BSAs were first signed with South Korea in 2008, and then with Argentina, Belarus, Hong Kong, Indonesia, and Malaysia in 2009. These countries were all confronting looming balance of payments crises amid the GFC, and the BSAs helped them avoid a full-on crisis. For these countries, settling their cross-border payments with business partners in China using RMB or their own national currency meant that an equivalent number of US dollars was freed-up to be used elsewhere.Footnote ⁹ In 2011, the PBOC signed more BSAs with other countries that were also facing balance of payments challenges due to the residual effects of the GFC, including Kazakhstan, Mongolia, Pakistan, and Thailand.Footnote ¹⁰ In 2010, the PBOC signed a BSA with Singapore to support the city-state’s desire to join Hong Kong as an offshore RMB transaction hub. Britain signed a bilateral currency swap agreement with the PBOC in June 2013 for similar reasons. In October 2013, the ECB also signed a bilateral RMB-Euro currency swap agreement as a liquidity backstop.

Starting in 2013, some of these governments drew on their PBOC swap lines, beginning with Pakistan, which reportedly used the RMB equivalent of US$600 million from its RMB 10 billion (US$1.5 billion) swap line with the PBOC and exchanged the RMB for US dollars. Facing a sharp decrease in its foreign exchange reserves, the State Bank of Pakistan did so to shore up its reserves, boost market confidence in the Pakistani economy, and gain approval for a US$6.65 billion IMF loan in June 2013 (Rana, Reference Rana2013). In 2015, Argentina was the next government to use its PBOC BSA for external liquidity when it was blocked from capital markets after defaulting on its sovereign debt. The PBOC allowed the Central Bank of Argentina (BCRA) to draw the RMB equivalent of US$2.7 billion from its RMB 70 billion (US$11 billion) swap line. Argentina used some of the RMB to pay for imports from China, which allowed the BCRA to keep its dollar reserves for other purposes and exchange some of the RMB into US dollars (Reuters, 2014; Devereaux, Reference Devereaux2015). Also in 2015, when Mongolia’s raw material exports waned, foreign investment fell, and foreign exchange reserves ran low, Mongolia drew the RMB equivalent of US$1.7 billion from its US$2.5 billion swap line with China. A senior economist at the Central Bank of Mongolia noted that the BSA was “one of the tools to absorb the shock of the balance of payments pressures” (Edwards, Reference Edwards2015).

Russia’s central bank accessed its BSA with the PBOC on various occasions from October 2015 to March 2016, after Western sanctions and falling oil prices put downward pressure on the ruble from 2014 onward (Xinhua, 2016). The amount of Russian drawings was not reported publicly, and China’s Xinhua News Agency only noted that the money was allocated to several Russian and Chinese counterparties to support bilateral trade and direct investment between the two nations (CBR, 2016). Ukraine also drew on its BSA with China in 2016, when Kyiv’s foreign exchange reserves fell below the IMF-mandated reserve target, and it gained approval from the PBOC to activate the swap with China (IMF, 2016, 7; McDowell, Reference McDowell2019, 136).

These examples show when, where, how, and why China’s swap agreements have served as lender-of-last-resort mechanisms outside the IMF for five countries that chose to activate a portion of their RMB swap lines for short-term needs: Argentina, Mongolia, Pakistan, Russia, and Ukraine. The Ukraine case was an example of linking a PBOC BSA to maintaining an IMF loan. There are other cases where a BSA from China was key for the partner country to secure an IMF loan, namely Pakistan and Mongolia. In November 2016, China also signed a BSA with Egypt, which opened the door for Cairo to secure an IMF credit line of US$12 billion. The IMF required Egypt to secure US$6 billion in bilateral liquidity before approving Egypt’s IMF program (IMF 2017; Reuters, 2016).

These swap lines continued through the COVID-19 pandemic period and the subsequent shocks, and an increasing number of countries also drew on those lines. China’s swaps and its other new lines of financing, particularly from China’s state policy banks, such as the China Development Bank, have become important sources of crisis-related liquidity as an alternative to the IMF (Sundquist, Reference Sundquist2021). Kaplan (Reference Kaplan2021) finds that China’s liquidity loans have given Latin American countries more room to maneuver recover, and avoid borrowing from the IMF. In 2008, after Ecuador was shut out of private capital markets, China provided a liquidity loan to help Ecuador return to the private capital markets more quickly than if it had undergone austerity measures from the IMF (Gallagher, 2016). By the end of 2023, the PBOC had over $400 billion in active currency swaps, with several developing countries benefiting from this liquidity finance, including Pakistan, Egypt, and Indonesia. Interestingly, in 2023, a swap agreement with the PBOC allowed Argentina to draw $2.7 billion to bridge its IMF program (Zucker Marques and Kring, Reference Zucker Marques and Kring2023). In 2024, Egypt also benefited from crisis-related financing from China, which helped secure Egypt’s US$8 billion IMF loan.

Working outside the IMF, China and its partners are advancing new rules and policy norms that serve as an alternative to the IMF, whether it is in the small- and medium-sized developing countries using bilateral currency agreements for emergency liquidity or trade financing, or with the CMIM and the BRICS CRA. China is acting as a new rule-maker and, in some cases, offering its own national currency, the RMB, rather than US dollars, along with the new rules. The country has also been adding new tiers and institutions to the GFSN, which creates the potential for China and partner countries to work outside of the IMF and the dollar, and according to a new set of rules and norms for lender-of-last-resort or nonemergency financing.

China as Rule-Shaker

China’s efforts at building alternative institutional arrangements, rules, and norms outside of the IMF have fed-back into the IMF. In some instances, the transmission back inside was intentional on the part of China’s officials. In other cases, it was not consciously undertaken by Chinese officials and their Southern partners but occurred rather through the force of example or was transmitted back by IMF staff, other officials, or national delegates inside the BWIs. The key outcome of this rule-shaking pattern is that the feed-back of the alternative rules, norms, and models actually results in changes to the rules and norms back inside the IMF. These changes represent an incremental altering – a shaking – of the established rules, norms, the preferred models, and lessons inside the Fund, in ways that reflect the rule and normative preferences of China and its Southern partners, or the experiences of the China-supported alternative institutions.

Four cases of “rule-shaking” provide examples of this pattern of behavior and outcome: first, quota and share reform in IMF governance (see Table 4); second, exchange rate policy; third, capital account policy; fourth, reserve management, including expanding the role of the SDR and the international use of China’s renminbi. These changes in the rules were actually preceded by normative shifts in the IMF, such as in the balance of power norms within the IMF decision-making structures and governance processes, that have given greater voice to “the Rest” and reduced US dominance.

China as Rule-Taker

The United States and the PRC established official diplomatic relations on January 1, 1979, and the PRC joined the World Bank in 1980. During the first-two decades of its World Bank membership, and after joining the Asian Development Bank, it is well established that China was largely a “rule-taker.” China’s rule-taking has continued to some degree, but its stance and the outcomes have also evolved into a new “rule-maker” outside of the World Bank and a “rule-shaker” inside the Bank.

For the purposes of this section, we characterize China’s “rule-taking” inside the World Bank in three phases. First, as an “exceptional concessional borrower” during the 1980s and 1990s; second, as a “growing, evolving stakeholder” during the first decade of the 2000s; and third, as a “cautious and selective engager.” The core of China’s discussions inside the World Bank has been over the scale, composition, and target of financing; the preferred development model and policies; the speed of decision-making and delivery of financing; and voice and governance issues.

China’s first phase of rule-taking inside the World Bank was one of an “exceptional concessional borrower”; China needed external financial and technical support, and the World Bank saw helping China as a major development challenge of global importance. When then-World Bank President Robert McNamara led a World Bank delegation to China and met with Deng Xiaoping, Deng told the mission, “We are very poor. We have lost touch with the world. We need the World Bank to catch up. We can do it without you, but we can do it quicker and better with you” (Bottelier, Reference Bottelier2007, 243). Deng had a national development and reform agenda for China, based on market reforms of the national economy and opening to the outside world, though maintaining a balance between state planning and market dynamics, and the “Four Modernizations,” meaning investing to modernize agriculture, industry, military defense, and science and technology, with the latter including improvements in education. China’s post-Mao leadership wanted the World Bank’s help to accelerate the reforms. China’s relations with the World Bank during the first-decades were defined by a fairly consistent agenda, where China absorbed the rules and norms of the World Bank, learned how to operate according to the established rules, and made full use of the World Bank’s assistance – financial and technical knowledge – to support China’s economic reforms, national modernization, and opening and integration into the world economy. The economic fundamentals – rural development, infrastructure development, industrial modernization, and income growth – were the priorities.

The World Bank took a unique strategic approach to China that combined learning the specifics of China’s situation and adapting to what was politically feasible in the PRC case, in providing technical advice and financing. With China, the World Bank was willing to take the approach of a two-way street rather than lead with one-size-fits-all conditionality. When the World Bank first started engaging with China, 97.5 percent of the entire population was living in “poverty” (using the World Bank metric, equivalent to US$2.30 per person per day, 2011); by 2019, it was 0.6 percent – 770 million people had been lifted out of poverty (World Bank, 2022). As an “exceptional concessional borrower,” China became a key patron of the Bank in that it became a major borrower from the World Bank, and, in fact, the biggest borrower for a number of years.

For the World Bank, China was both a mammoth undertaking and a huge opportunity. China was (and is) a population giant, and it had a large segment of its people living in poverty. The World Bank had not engaged with Mainland China for more than thirty years. From the early 1980s to the 1990s, China was classified as a “low-income country” and was granted access to the Bank’s “soft window” for loans, the International Development Association (IDA). The IDA loans, which China accessed during the 1980s and 1990s, were highly concessional and much more affordable than the Bank’s “hard loan window” for middle-income countries, managed by the IBRD. However, China did continue to borrow from the World Bank after its access to the IDA ended in 1999, on less concessional terms.

Uniquely for the World Bank, China’s relations with the institution were arguably more of a partnership than patronage (Bottelier, Reference Bottelier2007). The partnership dynamics were based on the fact that China was granted an exception to the “shock therapy,” “structural adjustment” loans that were the norm for the World Bank during the 1980s and 1990s – a period of deep “neoliberal” or “Washington consensus”-type conditional loans. In contrast, the mode of engagement between China and the World Bank exhibited strong elements of two-way mutual socialization, in that the World Bank learned it had to modify some of its norms and rules in its approach to China if it was to gain a receptive audience for its loans and be effective in transferring its lessons and knowledge to the PRC. More often than not, China and the World Bank would engage in joint technical studies on a priority area or sector for China, which would lead to a series of concessional loans to help address the issues identified in the technical research. For large-scale loans, China was most interested in raising the scale and efficiency of railways, electric power generation and distribution, seaports, inland ports and waterways, highways and bridges, telecommunications, water supply, and water treatment. Operating within these Chinese priorities, the World Bank would introduce its operational norms and standards, such as competitive bidding for projects and third-party validation for engineering and construction efforts, but also its policy norms, such as the role of market forces and market-oriented logic. China, as a rule-taker, internalized these World Bank norms and rules.

From the early 1980s to 1999 (China graduated from IDA in 1999), China received upwards of $10 billion in IDA loans (Bottelier, Reference Bottelier2007). During this period, China showed a preference for taking on large-scale World Bank financing for infrastructure, energy, and industrialization projects, where China could exercise its voice as a partner at the negotiating table. In the late 1990s, China also took large-scale loans for environmental protection projects. However, Beijing was largely unwilling to take large-scale loans from the World Bank (or the ADB) for social sector projects in education, health, gender, or social services. The sector allocation of World Bank financing to China during this period was largely a function of the policy control preferences of China’s Party-state planners. We highlight that Beijing’s sector borrowing choices enabled China to bypass some of the normative and policy preferences of the World Bank – the conditionality that other developing countries had to undertake in order to receive World Bank loans, especially in social policy areas.

This two-way mutual socialization relationship between China and the World Bank (and ADB) from the 1980s to the first-decade of the 2000s contributed to one of the most dramatic national development transformations and modernization stories in world economic history (Hu Reference Angang2004; World Bank, 2022). During this period, China also created new domestic financial institutions, such as the CDB (in 1994), which have played massive roles in supporting structural transformation and poverty alleviation in China (Chen, Reference Chen2013). Not to be overlooked, however, are the darker sides of this far-reaching transformation, especially for rural-to-urban migrants, vulnerable workers, inequality, gender disparities, uneven regional development, environmental pollution, and climate damage (Lee, Reference Lee1998; Solinger, Reference Solinger1999; Hu and Wang, Reference Angang and Wang1999; Khan and Riskin, Reference Khan and Riskin2001; Economy, Reference Economy2004).

China had reached the threshold of what the World Bank defined as a “lower middle-income country” by 1999 and was no longer eligible for IDA loans. China “graduated” to IBRD lower-concessional financing, which, from 2000 to 2020, amounted to upward of $50 billion – more than any other country during that period (Humphrey and Chen, Reference Humphrey and Chen2021). In the mid-2000s, the World Bank started facing criticism about why it was still providing loans to China. Then-World Bank President Paul Wolfowitz (2005–2007) pushed-back, stating that there were still millions of poor people in China, but he added three new points to the Bank’s overall rationale for why it was still active with China:

Under Wolfowitz’s leadership, the World Bank aimed to work with China as a co-donor to help other developing countries by exporting China’s success stories, and the Bank also tried to convince China to channel more of its foreign aid financing to, and through, the World Bank.

During this period, the World Bank also shifted toward addressing some of the externalities of China’s rapid growth in the 1980s and 1990s (Chin, Reference Chin2014). The World Bank cooperated with the Development Research Center of the State Council on a number of studies on air pollution and climate change, which resulted in the financing of new programs for new technologies and policy support in China (Martinot, Reference Martinot2001; World Bank, 2007). China’s rule-taking inside the World Bank in the 2000s involved China adopting the upgraded air quality and clean energy standards of the World Bank, as well as the Bank’s own lessons learned by the mid-2000s. As a result of its rule-taking inside the World Bank, China transformed from experiencing difficulty in adopting engineering standards and competitive bidding contracts in its early years in the Bank to Chinese companies being among the most competitive bidders for World Bank procurement contracts in the world by the 2000s (Morris, Rockafellow, and Rose, Reference Morris, Rockafellow and Rose2021). China’s rule-taking inside the World Bank can also be observed in the funding models of CDB and CHEXIM – where paid-in capital is used as collateral to raise funds on capital markets that are on-lent to clients. This approach was co-designed with the World Bank, and remains in use to this day (Bottelier, Reference Bottelier2021)

China has become a member of all the major legacy MDBs across the world’s regions, from the European Bank for Reconstruction and Development (EBRD) to the Inter-American Development Bank. Figure 2 shows the relative share of Chinese capital contributions and voice (“participation”) in each of these institutions. In the World Bank, China is now the third-largest shareholder with a 6 percent voting-share, but it holds a much smaller share in the regional legacy MDBs. The exception is the ADB, where China has a relatively larger voting share, though smaller than the two co-leads, Japan and the US, who have coordinated to block China’s efforts at various points. Interestingly, China joined the African Development Bank (AfDBFootnote ¹³) first, in 1985, and the Asian Development Bank (ADB) shortly thereafter. China joined the Inter-American Development Bank (IADB) in 2009 and the EBRD in 2009 (Humphrey and Chen, Reference Humphrey and Chen2021; Morris, Rockafellow, and Rose, Reference Morris, Rockafellow and Rose2021). Only in the ADB has China been a borrower, borrowing over $40 billion through 2020 (Humphrey and Chen, 2022).

Figure 2 China’s capital and voting share in major MDBs

Source: Lee et al., 2023

China as Rule-Maker

By the early 2000s, operating outside of the WBG and the legacy MDBs, China’s two state policy banks, both created in 1994 – CDB and CHEXIM – went global. The globalization of CHEXIM and CDB supplied targeted financing for a number of infrastructure projects in Africa and policy lending to China’s strategic partners across the Global South, from Asia and Africa to South America and the Caribbean. These two national policy banks also became the beacons of strategic financing for Belt and Road Initiative (BRI) projects after the China-led BRI was launched in 2013.

However, China has been central to the creation of two new MDBs, AIIB and NDB. As Figure 3 shows, by 2020, China’s DFIs and the China-backed MDBs had nearly as much equity as all the Western-led legacy MDBs combined. With substantial financial capacity, China could pursue its strategic goals in global development by scaling-up finance, promoting connectivity and infrastructure-led development, and increasing the voice and representation of developing countries and major emerging economies (“Southern countries”) in decision-making. Working outside the World Bank and the other established MDBs, China’s agenda is to make new rules and norms for global development finance. China’s policy banks, along with the AIIB and NDB, are constituent parts of the more diverse multi-polar global development finance scenario that is emerging, where there are now more than 500 development finance institutions outside of the legacy MDB system, with total assets of $20 trillion in 2021, and China has the largest share of that total (Peking University and AFD, 2023).

Figure 3 Equity in legacy MDBs and Chinese DFIs

Source: Lee et al., 2023

Figure 3 shows that the China-supported or China’s DFIs are close to the size of all the legacy MDBs combined in terms of equity. Indeed, the CDB and CHEXIM are now among the largest development finance institutions in the world in terms of assets. In 2021, the CDB and CHEXIM had combined assets of $3.6 trillion, double the size of the assets of all the legacy MDBs combined. In addition to being active in the BRICS grouping and its broader collective attempts to set common international monetary and global development goals (Roberts, Armijo, and Katada, Reference Roberts, Armijo and Katada2018), China’s two policy banks are also participants in the newly created “Finance in Common Summit (FIC),” which brings together the 500-plus development finance institutions in annual summits to coordinate on joint initiatives and common goals, create new rules, and advance alternative norms. The FIC aims to be a more inclusive grouping that includes DFIs largely shut out of the annual spring and autumn meetings of the IMF and the World Bank. The FIC publishes joint communiqués and works toward joint efforts. To quote from the 2022 communiqué: “a global go-to platform for all public development banks, promoting increased coherence in their strategies and operations, by accelerating their convergence toward shared standards and best practices. Representing collectively more than 23 trillion US$ of assets and approximately 12% of total global investment each year, it brings together in a concrete and collaborative way key stakeholders from all over the world. Through multilateral fora such as the G20 and the COP, FICS contributes to transform the financial system toward climate, social and sustainability objectives”( Finance in Common, 2022).

Globalization of China’s Policy Finance

Similar to the Western-backed MDBs, CDB and CHEXIM had initial paid-in capital (from the People’s Bank of China and Ministry of Finance), and they also raised additional financing on capital markets, both onshore and offshore. In just thirty years, these two PRC state policy banks have grown into some of the largest development lenders in the world. CDB is one of the largest development banks in the world, with over US$23 trillion in assets. CDB is wholly owned by various Chinese government shareholders: Ministry of Finance (MOF), 36.54 percent; Central Huijin Investment Ltd. (a subsidiary of the China Investment Corporation, China’s sovereign wealth fund), 34.68 percent; Buttonwood Investment Holding Company Ltd. (owned by the State Administration of Foreign Exchange, attached to the central bank), 27.19 per cent; and the National Council for Social Security, 1.59 percent (China Development Bank, 2016). CDB has “ministerial rank” in the government of China and is credited with financing key national and local priority projects from 1994 onward, including in the country’s less-developed Central and Western regions. CDB champions “state direction of market development” (Sanderson and Forsythe, 2013; Chen, Reference Chen2013; Chen, Reference Chen2024).

CHEXIM’s mandate is to “facilitate the export and import of Chinese mechanical and electronic products, complete sets of equipment and new- and high-tech products, assist Chinese companies with comparative advantages in their offshore project contracting and outbound investment, and promote international economic cooperation and trade” (CHEXIM, 2018). CHEXIM achieves these objectives through the provision of export credits, loans to overseas construction and investment projects, and concessional loans. Given the implicit guarantee from the Chinese government, the policy banks can pass on competitive financing to borrowers (Walter and Howie, Reference Walter and Howie2012). Earlier research documented that CDB had a rating of AA-, while CHEXIM was rated A+. CDB’s loans were, on average, between 3 and 6 percent, whereas CHEXIM’s were 2 to 3 percent, given that some of its loans are blended with grant financing through the Department of Foreign Assistance of the Ministry of Commerce (MOFCOM) as no-interest, highly concessional loans provided by CHEXIM’s Department of Preferential Loans (Chen, Reference Chen2018; Gallagher and Irwin, Reference Gallagher and Irwin2015). CDB also provides foreign investment support, while CHEXIM offers seller’s credits to Chinese firms to go global and bid for overseas projects.

Figure 4 compares the lending volumes of China’s development institutions with the legacy MDBs. From 2008 until 2019, China’s national development financing was roughly equal to that of the World Bank, though China’s development finance tapered during the COVID-19 crisis, and the World Bank reached into buffer funds to meet member needs during the crisis. China’s outbound development finance has fallen dramatically since then. Figure 4 shows that Chinese development finance from 2008 to 2021 was $498 billion, compared to the World Bank’s $601 billion. Nonetheless, CDB and CHEXIM remain among the largest DFIs in the world.

Figure 4 Chinese and World Bank Development Finance, 2008–2021

Source: Global Development Policy Center, 2023

Table 6 compares the nature of China’s state policy banks, the China-backed MDBs, and the legacy MDBs – their budget, organizational, governance, and lending allocation characteristics. It shows how the financing, rules, norms, and models of CDB and CHEXIM are unique. Whereas the Western-backed legacy MDBs conduct individual project financing, China’s policy banks take a more consortium approach to financing, both at home and abroad, involving bundles of loans or lines of credit for a network of coordinated and corresponding projects, and involving consortia-type groupings of companies and government organizations with shared strategic policy objectives and goals (Chin and Gallagher, Reference Chin and Gallagher2019). CDB and CHEXIM identify strategic regions or countries, calculating their potential land, mineral, industrialization, and population growth possibilities. This approach can be observed in China’s lending to Venezuela, Pakistan, and Turkey, for example, but also in a number of Asian, African, South American, and Caribbean countries. CDB and CHEXIM loans are typically in the billions of dollars, rather than the hundreds of millions typical of MDB financing. The strategy is to trigger a critical mass of economic activity – beyond one single project. Such a broad, coordinated-network credit outlay aims to “crowd in” state commercial banks, Chinese construction and other firms, and local actors into the credit space, with the many beneficiaries (Chin and Gallagher, Reference Chin and Gallagher2019).

Table 6 Comparative context of China’s DFIs

	Chinese Development Finance	AIIB	NDB	Western MDBs
Scale and Business Model	Paid-in capital	Paid-in capital (& callable capital)	Paid-in capital (&callable capital)	Paid-in capital (& callable capital)
	Bond issuance (China and global market)	Bond issuance (China and global market)	Bond issuance (China and global market)	Bond issuance (Global and local markets)
	Large Scale	Medium scale	Medium/small scale	Small/Medium scale
	Deposits	n.a.	n.a.	n.a.
	USD and RMB lending	USD lending	USD and local currency lending	USD and local currency lending
	Coordinated finance	Project finance with competitive bidding	On-lending to NDBs	Project finance with competitive bidding
Composition and approach	Energy and Infrastructure	Energy and Infrastructure	Sustainable Infrastructure	Poverty alleviation, climate change abatement
	Big Push	Big Push	Big Push	Institutionalist/End Growth/Sen
Governance	Single shareholder	Developing country-led shareholders	Equal shareholders	Industrialized country-led shareholders
	No policy conditionality	No policy conditionality	No policy conditionality	Micro and Macro-level conditionalities
	Country systems ESRM	Conditionally harmonized ESRM	Country systems ESRM	Conditionally harmonized ESRM

Source: Author’s adaptation of Chin and Gallagher, Reference Chin and Gallagher2019

China’s Big Four commercial banks provide financing to Chinese (and foreign partner) firms on broadly-classified “development projects” in the borrower countries. Finally, CDB and CHEXIM also support China’s foreign aid objectives, at times working in coordination with the Department of Assistance to Foreign Countries in China’s Ministry of Commerce (MOFCOM). CDB provides borrowing countries with a variety of non-concessional loans, CHEXIM with concessional loans or no-interest loans, and MOFCOM provides grants. Table 6 and Table 7 contrast Chinese policy banks with their legacy counterparts.

Table 7 China’s social and environmental policy in comparison

	Regional DFIs		China DFIs		Peer National DFIs
	ADB	AIIB	CDB	CHEXIM	DBSA	JICA	JBIC
Preparation
Exclusion/inclusion lists	X	X	X	X	X	X	X
Technical support for developing green projects	X	X			X	X
Financial support for developing green projects	X	X			X	X
Design
Use of risk/impact rating system	X	X			X	X	X
Conditions for use of host country standards	X	X	X	X
Implementation
Disclosure of lender documents		X				X	X
Facilitation of disclosure of borrower documents	X	X			X	X
Use of independent/third-party monitors	X	X			X
Operation and Completion
Project completion provisions	X	X	X	X	X
Independent accountability mechanism	X	X			X	X	X

Note: ADB: Asian Development Bank; AIIB: Asian Infrastructure Investment Bank; DBSA: Development Bank of Southern Africa; JICA: Japan International Cooperation Agency; JBIC: Japan Bank for International Cooperation.

Source: Adapted from Guo, Gallagher, and Zhang, Reference Guo and Zhang2022.

China’s two policy banks have created new rules for their development financing. First, related to the aforementioned approach of “coordinated credit,” whereby the economic return on investment is estimated across a portfolio of projects rather than the financial return calculated at the project level. One example is how CDB made the fulfillment of a railway network project in Argentina cross-conditional on the fulfillment of two hydro-electric power dams in a remote mountainous area of the country (Patey, Reference Patey2017). Second, China’s state banks sometimes secure their overseas development loans by backing them with the option to be repaid in commodities, natural resources, or energy supplies from the borrower-country instead of cash (Brautigam and Gallagher, Reference Brautigam and Gallagher2014). In the case of some African countries, China has offered such commodity-backed-loans. These practices and the associated rules diverge from the established rules of the legacy MDBs.

The determinants of Chinese overseas development finance are a combination of supply (“push”) and demand (“pull”) factors (Kong and Gallagher, Reference Kong and Gallagher2020; Li et al., 2021). The major push factor is China’s massive current account surplus that gives China a supply of low yielding US dollars and China’s desire to globalize its firms, first as part of the “Going Out” and then the BRI strategies (Chin and Helleiner, Reference Chin and Helleiner2008; Gallagher et al., Reference Gallagher, Kring and Ray2023). Other factors are overcapacity in industries that are powerful and looking for overseas expansion, and the need to secure strategic imports such as transition materials and petroleum (Li et al, Reference Zhongshu, Kevin, Chen, Jiahai and Mauzerall2022; Dreher et al. Reference Dreher, Andreas, Bradley, Austin and Tierney2022; Gallagher et al., Reference Gallagher, Kring and Ray2023). The main pull factors are enormous infrastructure finance gaps and needs of the borrower countries, their limited options for external finance, and their policy goals and priorities (Li et al., Reference Zhongshu, Kevin, Chen, Jiahai and Mauzerall2022).

China’s overseas development finance (ODF) has brought significant benefits to the borrowers but has also accentuated risks. China’s development finance is strongly associated with economic growth, whereas World Bank projects are not (Dreher et al., Reference Dreher, Andreas, Bradley, Austin and Tierney2022; Ruta et al., 2019; Mandon and Woldemichael, Reference Mandon and Woldemichael2023). China’s ODF has eased medium-term liquidity constraints and given developing countries more options for financing (Sundquist, Reference Sundquist2021; Kaplan, Reference Kaplan2021). However, Chinese development finance is also associated with potential risks, especially social and environmental. Table 7 shows that the standards of China’s state policy banks are different from legacy MDBs such as the ADB, and even the AIIB. A significant proportion of China’s overseas development finance has gone to financing fossil fuel power plants and has been associated with biodiversity risk (Chen et al., Reference Chen, Zhongshu, Gallagher and Mauzerall2021; Yang et al., Reference Yang, Simmons and Rebecca2021).

China as Rule-Shaker

China’s interventions to shake up or re-shape the rules inside the World Bank trace back at least as far as the late-1990s. In the aftermath of the 1997–1998 Asian financial crisis, China’s finance minister, Xiang Huaicheng, as China’s Governor to the World Bank, called on the Bank at the September 1999 Annual Meetings in Washington, DC, to increase its concessional lending for poverty reduction in low-income countries and to keep out of the domestic politics of the borrowing countries, such as pushing particular “good governance” models in East Asia:

The finance minister added one further caution, if not criticism, of the World Bank’s emerging emphasis on social sector lending across the developing world: “We [China] have also noted the increased emphasis put on social sector issues by the two institutions [World Bank and IMF]. We believe that economic development is a precondition to solutions to poverty alleviation and social issues.” China’s representatives registered their preference for the older economic growth-based developmental agenda, anchored on industrial development, employment growth, and infrastructure, in contrast to the “pro-poor poverty reduction-focused” agenda of the World Bank in the late-1990s and early 2000s. To quote Xiang: “The two institutions should help developing countries achieve stable and steady growth, which in turn will help reduce poverty and solve social issues.”

By the early 2000s, other developing countries perceived China as the major developmental success story of the 1980s and 1990s; and China was amassing an increasingly large foreign currency reserve, which it could use to provide credit to others. The World Bank, the UN, and the other MDBs were all aware that China and the other “BRIC” countries were growing rapidly, and that China especially was turning into the world’s leading trading power and foreign investor in Africa and Asia. From 2003–2004 onward, the UN Secretary-General Kofi Annan and his special advisor on the MDGs, Jeffrey Sachs, invited China’s leaders to increase their country’s contributions to the MDGs, and to offer China’s own experiences, its development lessons, and its science and technology in the medical sciences and agriculture to other developing countries. China’s President Hu Jintao and Premier Wen Jiabao stepped up, cautiously, to offer China’s medicines and technical know-how, as well as its own development experiences, for other developing countries to examine and draw their own lessons (Chin, Reference Chin, Stiles and Oestreich2023).

As detailed above, from the mid-2000s onward, the World Bank senior management increasingly pressed China to work more with the World Bank as a co-donor and to increase its contributions to the Bank. China’s profile within the World Bank grew when Bank President Robert Zoellick (2007–2012) urged China to further increase its financial contributions to the World Bank, and China agreed. Zoellick recognized China’s growing presence outside the World Bank as a financier of international development, and he called on China to be a “responsible stakeholder” within the BWIs. In return, Zoellick supported the appointment of Justin Yifu Lin as the Chief Economist and Senior Vice President of the World Bank, commencing in June 2008. This marked a first for a PRC-national, and for the developing world, and signified the US President George W. Bush Administration’s acknowledgment of China’s growing weight and profile in the world. The appointment was also a response to Beijing’s desire to be “appropriately recognized” within the major global economic governance institutions.

The effects of China’s two-way countervailing power, rule-shaking, and re-shaping within the World Bank were further exemplified when Zoellick supported Bank staff in putting together a Memorandum of Understanding with CHEXIM Bank in 2007 to further strengthen the “partnership” between the World Bank and China’s state policy banks, including their mutually agreed intention to initiate some new co-financing projects in African countries. Another example of the countervailing effect was the United States relenting to Beijing’s push (along with that of the BRICS) to change the rules on the balance of representation in the Bank membership, when the US and Zoellick supported the increase in China’s shares and voice in April 2010, making China the third largest shareholder in the World Bank, overtaking large European nations (Germany, Britain, and France) and ranking behind only the US and Japan.

Also, at the G20 Leaders’ summits, China and BRICS members India and Brazil, along with Asian and African governments, criticized the “MDB family,” particularly the World Bank, for not providing enough financing for infrastructure development and modernization in the developing world, being too slow with its decision-making on infrastructure projects, and making its environmental and social impact standards too onerous. China’s leaders and officials could leverage their own successes as infrastructure financiers outside of the World Bank and the other MDBs to push the World Bank to provide more infrastructure investment to developing countries, and WB staff and Western governments were also conscious of China’s “outside” achievements. The criticism on infrastructure coalesced at the G20 Leaders’ Summit in Seoul, Korea, in November 2010, and infrastructure investment was listed as the first priority in the action agenda in the G20’s “Seoul Declaration,” which called for more infrastructure investment from the MDBs in the developing world. China’s senior leaders and senior officials continued to call on the MDBs to provide more infrastructure investment at successive G20 summits and other forums.

In the second decade of the 2000s, during Kim’s presidency of the World Bank (2012–2019), China further increased its support for the World Bank’s green agenda. Recognizing Kim’s interest in promoting green initiatives, Beijing focused on pushing the World Bank to innovate and increase its investment in sustainable infrastructure. Citing China’s leadership in infrastructure globally, Kim did increase infrastructure investment again across the World Bank Group, launching the “billions to trillions” mantra to combine various lines of finance and better meet infrastructure demand across the developing world. Kim was also very aware of the reality that China was adding to its support for investment outside of the World Bank and the established MDBs by creating the AIIB and the NDB, and how China and its partners succeeded in launching these new MDBs within a three-year period. As another example of two-way countervailing influence, it is noteworthy that Kim, as World Bank president, did not oppose the creation of the AIIB or the NDB, and he even directed the World Bank to support the new AIIB by agreeing to co-finance some of the AIIB’s first projects, which helped the China-backed new MDB to get off the ground and running (Chin and Gallagher, Reference Chin and Gallagher2019; Chin, Reference Chin2019).

China’s shake-up of the World Bank and its countervailing effects can also be observed in how the World Bank (and the other legacy MDBs) have agreed to expand the scale of their lending, move more rapidly with their project approvals process, shift back to financing more infrastructure projects, consider supporting new industrialization, remove some of their conditionalities, and reconsider the role of industrial policy and state direction of economic development. In addition, more voice has been given to China and other developing countries inside the Bank (see Table 7). These elements have not been the policy or programming norms in the legacy MDBs since the early 1980s (the exception may be the ADB), when their focus moved to structural adjustment and Washington Consensus policies and norms, such as pulling the state out of economic activity and letting static price dynamics determine sectors of focus and specialization (Humphrey, Reference Humphrey2022).

In 2006, among the legacy MDBs, there was growing concern about the impacts of China’s rise as an overseas development financier, particularly through the China Export-Import Bank and the China Development Bank, whose loans were seen as undercutting the World Bank (and IMF) in a number of instances. For example, in that year, the World Bank was considering suspending a loan to Chad on the claim that Chad had broken a pact to use oil revenue to fight poverty. However, China’s banks made a counteroffer, and this weakened the leverage of the World Bank in its attempt to influence Chadian policy (Chin, Reference Chin2014).

China’s rule-shaking within the World Bank in recent years, tracing back to the 2008–09 Global Financial Crisis (GFC), has occurred with China acting as a more “cautious engager” compared to its approach from 1980 to the GFC. By 2015, China had reached another World Bank milestone of “Graduation Discussion Income,” where its income level was considered above the threshold to “graduate” from IBRD financing as well (roughly $7,000 GDP per capita at the time). The relationship between China and the World Bank has become more strained, and one can observe the beginning of pushback from traditional Western powers, particularly the United States, against China’s efforts to exercise countervailing power in its rule-shaking within the BWIs. For example, Beijing has sought the World Bank’s support for Chinese President Xi Jinping’s signature foreign policy initiative, the Belt and Road Initiative (BRI). Chinese authorities hoped the World Bank would support the BRI not only through financing and investment but also by pulling in the other legacy Multilateral Development Banks (MDBs) and by helping China and BRI partner countries figure out how to maximize the benefits and minimize the risks of the BRI. President Kim attended the first Belt and Road Forum for International Cooperation (BRI Summit) in May 2017. Toward the end of his term, Kim (2018–2019) created a group within the Bank to “study” the BRI and explore possible roles for the World Bank. The World Bank’s research in 2019 found that the potential benefits of the BRI could be upward of 3 percent of GDP, which is twice as large as the US-led Trans-Pacific Partnership (TPP) that partly triggered the inception of the BRI (World Bank, 2019; Ye, Reference Min2020). The research group also assessed the potential risks of the BRI, including debt distress, public procurement challenges, and environmental and social risks (World Bank, 2019).

However, by 2018, as Kim was preparing to depart the WB presidency, the Bank started to look for ways to reduce its involvement in the BRI, but not to make it obvious. In 2018, China initiated the Multilateral Cooperation Center for Development Finance (MCDF) meetings to try to corral the MDBs to support the BRI. The World Bank agreed to join the meetings together with other MDBs and China’s financial ministry. At these discussions, Chinese authorities pressed the MDBs to determine how they would contribute to the BRI. The World Bank signed two MOUs that committed the MCDF partners to work further, but the World Bank avoided taking on a leading role within the MCDF. The next World Bank president, David Malpass (2019–2023), nominated by US President Donald Trump, directed the Bank to take a more arm’s-length stance toward China and especially the BRI. As Donald Trump’s Under Secretary for the Treasury for International Affairs, Malpass had criticized the BRI in public statements, and he brought the WB’s involvement in the BRI to a halt after becoming Bank president.

Moreover, the WBG started to increase its investment once again in infrastructure. WB figures show that the new trend in infrastructure investment rose from early 2010s onward, with a surge in 2022. To make the point about the need to return to economic fundamentals directly within the legacy MDBs where it is a member, China has even created dedicated co-financed funds for infrastructure financing and industry support within the legacy MDBs: $2 billion with IADB, $2 billion with AfDB, and $3 billion with the IFC (Humphrey and Chen, Reference Humphrey and Chen2021, 16).

Qualitative interviews with World Bank staff reaffirm the operation of countervailing power. Zeitz (Reference Zeitz2021) details that legacy MDBs were presented with the choice to either “emulate or differentiate” in response to China’s increased lending, and she performs a multi-country regression analysis comparing Chinese and World Bank development projects in more than 100 countries. Zeitz finds that the World Bank is more an emulator than a differentiator: the World Bank has shifted to allocating a greater share of its project finance to infrastructure after developing countries started receiving more Chinese development finance. Zeitz further observes that China is “shaping the type of development that donors support [at both the global and subnational level] by introducing bottom-up competitive pressure” (Zeitz, Reference Zeitz2021, p. 265). In another study, Hernandez (2021), based on econometric analysis of panel data for fifty-four African countries between 1980 and 2013, finds that the World Bank approved loans with significantly fewer conditionalities in countries that also received loans from China: 15 percent fewer conditionalities for every percentage-point increase in Chinese development finance.