Portal de Periódicos da CAPES

China and the World Bank: how a partnership was built

2007; Routledge; Volume: 16; Issue: 51 Linguagem: Inglês

10.1080/10670560701194475

1469-9400

Pieter Bottelier,

International Development and Aid

Abstract The World Bank has played an important role in China's economic transformation since the late 1970s. China used the World Bank well and the Bank was responsive to China's needs. The Bank did not recommend early or comprehensive market liberalization or privatization, as it did in some other transition economies, but supported China's pragmatic—learning-by-doing—approach to economic reform. It pushed at the margin for critical institutional and policy reforms, presenting perspective based on international experience, while providing technical assistance in numerous areas, often through Bank-supported projects. As the Chinese gained expertise, confidence and access to international capital markets, the role of the Bank in China inevitably shrank. China now uses the Bank mainly for selective technical, institutional and conceptual innovations for development. China and the World Bank both gained from their interaction. Figure 1 The first meeting between Deng Xiaoping and World Bank President Robert McNamara in early 1980. Display full size Notes * Pieter Bottelier is Sr. Adjunct Professor at Johns Hopkins University's School of Advanced International Studies (SAIS), where he teaches several courses on China's economy. He served as Chief of the World Bank's Resident Mission in China from 1993 to 1997. Helpful comments from Steven Dunaway, Jessica Einhorn, Parvez Hasan, Bert Hofman, Nicholas Hope, Ercheng Hwa, Shahid Husain, Edwin Lim, Stephen McGurk, Anthony Saich, Douglas Scott, Jinlin Yang and Jiayi Zou are gratefully acknowledged. The author is responsible for possible remaining errors. 1. After noting that the normalization of relations between China and the US was an important achievement, the Communiqué issued after the Third Plenum of December 1978 includes the following ‘new economic measures’: to actively expand economic cooperation on terms of equality and mutual benefit with other countries; to boldly shift authority, under guidance from the leadership, to lower levels so that the local authorities and industrial and agricultural enterprises will have greater power of decision in management; to tackle conscientiously the failure to make a distinction between the Party, the government and enterprise administration; to reduce the number of meetings and the amount of paperwork and to conscientiously adopt the practices of examination, reward and punishment, promotion and demotion. For additional comments see: Thomas G. Rawski, ‘Reforming China's economy: what have we learned?’, The Chinese Journal no. 41, (January 1999). 2. The term ‘Beijing Consensus’ was coined in 2004 by J. C. Ramo in an essay for The Foreign Policy Centre (a European think-tank launched under the patronage of British PM Tony Blair): ‘The Beijing Consensus: notes on the new physics of Chinese power’. 3. The term ‘Washington Consensus’ was coined by John Williams of the Institute of International Economics in 1990 to refer to the lowest common denominator of policy advice by Washington-based institutions to Latin American countries as of 1989. Such advice emphasized the importance of fiscal discipline, trade and price liberalization, deregulation in general, a competitive exchange rate, the privatization of state-owned enterprises and securing property rights. It focused mostly on policies, not on institutions. 4. Events and considerations surrounding China's re-entry into the Bretton Woods organizations are described in Harold K. Jacobson and Michel Oksenberg, China's Participation in the IMF, the World Bank, and GATT. Toward a Global Economic Order (Ann Arbor: The University of Michigan Press, 1990). 5. This is a routine transaction available to all member countries. 6. An analysis of this conflict is provided in: Pieter Bottelier, ‘Was World Bank support for the Qinghai anti-poverty project ill-considered?’, Harvard Asia Quarterly V(1), (Winter 2001). 7. The official name of the World Bank is International Bank for Reconstruction and Development (IBRD). The International Development Association (IDA) was established in 1960 to provide loans on highly concessionary terms to the poorest developing countries. IDA funds are replenished every three years by donor countries. IBRD finances its capital needs on capital markets around the world on a commercial basis. 8. An insightful personal account of the development of China–Bank relations in the early years is provided in Edwin Lim, ‘Learning and working with the giants’, in S. Gill and T. Pugatch, eds, At the Front Lines of Development. Reflections from the World Bank (The World Bank, 2005), ch. 5. 9. China had been a member of the IMF and the World Bank from the time they started operations in 1946. However, when the PRC was established in 1949, China's representation on the boards of these institutions effectively migrated with the Nationalist government to Taipei. 10. Personal communication from Caio Koch-Weser the World Bank's first Division Chief for China after it rejoined in May 1980 and participant in the initial meeting with Deng Xiaoping as Mr McNamara's personal assistant. 11. MOF established a World Bank Department with a divisional structure that mirrored the organization of the China Department in the World Bank in Washington. 12. Since the withdrawal of Soviet advisors from China in 1960, there had been almost no direct involvement of foreign advisors in China's economy until the start of market reforms in the late 1970s. Thanks to Deng Xiaoping's personal leadership and pragmatic thinking, the suspicion of Western economic advisors, which was still fairly common then, was soon overcome. 13. They were Randolph Barker, Wlodzimierz Brus, P. C. Chen, Mark Elvin, Shigeru Ishikawa, Nicholas Lardy, Dwight Perkins, Thomas Rawski, Ashwani Saith, Peter Schran and Christine Wong. 14. Edwin Lim played an important role in developing the Bank's China program in the 1980s. He became the Bank's first Resident Representative in China (1985) in which capacity he served until 1990. 15. Not long after the mission, Zhu became Deputy Director of the Technical Transformation Department of the State Economic Commission. 16. China: Socialist Economic Development, Vol. I, p. 185 ff and Vol. II, p. 200 ff (World Bank, 1983). 17. A remarkable aspect of China's market reforms after 1978 is that the effort was inspired and supported by Chinese economists who had been trained in Marxist economics at Russian and Chinese universities. 18. This was written a decade before the collapse of the Soviet Union! 19. Lim, ‘Learning and working with the giants’, p. 106. 20. They were Hungarian economist and Harvard professor Janos Kornai, Yale Professor James Tobin (who was awarded a Nobel prize a few years later), Otmar Emminger, former President of the Deutsche Bundesbank, Michel Albert, head of the French state insurance company and former head of the national planning office, Oxford professor Sir Alexander Cairncross, Alexander Bajt, a Yugoslav expert on ‘self-management’ and Leroy Jones, an American expert on the planning experience of South Korea. 21. Lim, ‘Learning and working with the giants’, p. 106. 22. The second economic report consisted of a main volume, China: Long Term Development Issues and Options, which was published by The Johns Hopkins University Press (1985) and six supplementary volumes on education, agriculture, energy, transport, economic projections and economic structure. The Chinese translation was prepared and published in China. 23. Rural house ownership has always been private in China, even during the period of collective agriculture. Urban house ownership, however, had become 100% public—through the Danwei or Work Unit system—in the 1950s when remaining private enterprises were gradually absorbed into or converted into state-owned units. The privatization of China's urban housing stock did not start until about 1996. 24. For further details see Lim, ‘Learning and working with the giants’. 25. Contrary to many reports (e.g. the New York Times in an editorial on 31 March 1999), the World Bank is not involved in the 3-Gorges project. It was never proposed for World Bank financing and hence not rejected either. World Bank's only role was to chair (in 1987) a conference of dam experts from around the world to discuss a feasibility study of the project that had been financed by the Canadian International Development Agency. The government finally decided to go ahead with this project in 1993 using its own financial resources. It chose the higher of two dam height options. The 1987 conference had expressed a preference for the lower dam height option. 26. China is exceptional in this regard. From the early 1980s, quick disbursing ‘adjustment’ loans became common for many other developing member countries. China resisted this trend, because: (a) it did not need balance of payments support; and (b) it considered the technical assistance embodied in World Bank projects as or more important than the loan. 27. Unlike the World Bank, IFC lends without a government guarantee and can also invest equity capital in the projects it supports. 28. During these visits Deng encouraged local officials to accelerate development and to intensify market reforms. He rejected social egalitarianism as something of the past and stated that ‘to get rich is glorious’. 29. Fear of inflation is deeply ingrained in China's leaders; they realize that high inflation undermined the authority of the Nationalist government during the civil war (1945–1949) and was an important factor underlying the demonstrations on Tiananmen Square in Beijing (and in other Chinese cities) in 1989. 30. As part of the government reforms of 2003, SCRES was discontinued as a separate agency and integrated into the National Development and Reform Commission. 31. The person in charge of those studies was Lou Jiwei, Director of SCRES’ Macroeconomic Department. He later edited a number of those studies for publication in English: World Bank Discussion Paper No. 374: Macroeconomic Reform in China—Laying the Foundation for a Socialist Market Economy (Washington, DC: World Bank, 1997). 32. Zhu Rongji liked to brainstorm with bright young Chinese economists in various agencies, avoiding protocol and bureaucracy. For the analysis of macroeconomic, financial and fiscal issues he relied in particular on Lou Jiwei, Guo Shuqing, Li Jiange, Zhou Xiaochuan, Wu Xiaoling and Xu Shanda. He also relied on more senior advisors such as Wu Jinglian. Zhu had parallel informal networks of internal advisors for other policy areas (also at the provincial level) that allowed him to be well informed and well prepared for difficult decisions. 33. Selected papers and proceedings of the Dalian conference were published by the World Bank in Discussion paper No. 222 (World Bank, 1993) edited by Peter Harrold, E. C. Hwa and Lou Jiwei. 34. For example, in an op-ed article in the Wall Street Journal of 29 July 1993, David Malpass contrasted China's effective economic reform program with Russia's inability to get to grips with its problems: ‘China's latest economic measures will allow the private sector to expand, whereas Russia's approach prevented it. As a result, there is a good chance China will move forward with a stable currency, lower inflation and continued rapid growth’. 35. China's tax reforms of 1994 had been under preparation for several years with technical assistance from the IMF and the World Bank. 36. The Company Law was amended in October 2005 (effective 1 January 2006) to strengthen corporate governance, give better protection to minority shareholders and lower minimum capital requirements for the establishment of new companies, including individually owned ones. 37. This is also reflected in a series of Constitutional amendments. Article 11 of the 1988 Constitution said: ‘The state permits the private sector of the economy to exist and develop within the limits prescribed by the law’. The 1999 Constitution said: ‘The non-public sector of the economy comprising self-employed and private businesses within the domain stipulated by law is an important component of the country's socialist market economy’. The current (2004) Constitution says: ‘The state protects the lawful rights and interests of the non-public sectors of the economy such as the individual and private sectors of the economy. The state encourages, supports and guides the development of the non-public sectors of the economy and, in accordance with law, exercises supervision and control over the non-public sectors of the economy’. 38. The new unified exchange rate initially appreciated from 8.7 to 8.3 RMB to the US dollar. This happened in spite of the fact that inflation in China was much higher than in its main trading partners and was mainly due to the significant strengthening of China's trade balance in 1994. The exchange rate was maintained at the 8.3 (plus or minus a small margin) from May 1995 and at 8.28 from the end of 1997 until 21 July 2005, when China announced a small (2.1%) appreciation and a de-linking from the US dollar. Although China announced at the time that the RMB would be linked to a basket of currencies, a de-facto US dollar link seems to have been pursued thus far. 39. Before 1979 China's central bank was an agency under the Ministry of Finance. It was established as a separate institution under the State Council in 1984. The Central Bank Law of March 1995 stipulates that ‘the aim of monetary policy is to maintain the stability of the value of the currency and thereby promote economic growth’. The IMF and the World Bank contributed to the preparation of the Central Bank Law and the Commercial Bank Law of 1995 through background papers and seminars in which top international experts participated. The reform of China's central bank in 1997 brought local branches under the control of seven regional central bank offices. Additional informationNotes on contributorsPieter Bottelier * * Pieter Bottelier is Sr. Adjunct Professor at Johns Hopkins University's School of Advanced International Studies (SAIS), where he teaches several courses on China's economy. He served as Chief of the World Bank's Resident Mission in China from 1993 to 1997. Helpful comments from Steven Dunaway, Jessica Einhorn, Parvez Hasan, Bert Hofman, Nicholas Hope, Ercheng Hwa, Shahid Husain, Edwin Lim, Stephen McGurk, Anthony Saich, Douglas Scott, Jinlin Yang and Jiayi Zou are gratefully acknowledged. The author is responsible for possible remaining errors.