China to Continue Borrowing from the Asian Development Bank for Another Five Years

Photo by Hanny Naibaho on Unsplash

The Asian Development Bank (ADB) and the government of the People’s Republic of China (PRC) have apparently agreed on a new five-year country partnership strategy to guide the bank’s support to the country through the middle of the decade. (ADB reports that it has “generally endorsed” the strategy).

The strategy aligns with priorities under the PRC’s 14th Five-Year Plan, including natural resource management to combat climate change, biodiversity loss, and ecosystem damage; low-carbon development; social inclusion in the context of population aging; and regional health security. It is also designed to support the government’s objectives to achieve peak carbon emissions by 2030, and carbon neutrality by 2060.

Under the strategy, the ADB will share knowledge to assist in the PRC’s further development, while sharing the country’s development lessons with other low- and middle-income countries in Asia and the Pacific. ADB says that it will target areas where it can add value through innovative demonstration projects that generate regional public goods, knowledge, and best practices for replication.

In response to pressure from the United States and other wealthy ADB shareholders that question continued lending to the PRC, the new strategy will reduce lending to the Asian giant. In addition, the strategy gently nudges the PRC further down the path toward graduation out of the borrower category of bank membership and into a class including Singapore, Taiwan, and the Republic of Korea. Specifically, the new strategy calls for an ADB midterm review of its graduation assessment to evaluate the PRC’s progress against key indices and other performance metrics.

The PRC has for several years met at least two of ADB’s three criteria for graduating from regular assistance from the bank, i.e., achieving a certain gross national income (GNI) per capita (a little over $7,000 compared to the PRC’s GNI per capita of more than $10,000), and being able to access commercial capital flows on reasonable terms (the country has more $2 trillion in foreign debt in currencies other than the yuan). The PRC, which asserts that it has eliminated extreme poverty, may also have met the more ambiguous third criterion, “attainment of a certain level of development by key economic and social institutions”. In any case, ADB says that it will help close any gaps in those institutions.

ADB sovereign lending to the PRC is expected to total $7.0 billion-$7.5 billion between 2021 and 2025, which would be a reduction of around 20% from the $9 billion in ADB sovereign financing provided during the previous five-year strategy. Notable, however, is the expectation that ADB’s private sector (non-sovereign) financing to the PRC will remain at its current level of around $450 million per year, thus softening the overall impact of curtailed lending.

Author of Learning from Tomorrow: Using Strategic Foresight to Prepare for the Next Big Disruption

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