China’s relationship with the ADB

An interesting article from the Financial Times has been reposted on the International Rivers mailing list. The author, Paul J. Davies, points out that where ADB and Chinese policy banks compete for projects, multilateral donors usually worry that Chinese loans undercut their more stringent labour, environmental, and other guidelines. For example, in the case of the Diamer-Bhasha dam in Pakistan, both China and Russia have made offers to support the project without a competitive tender. (The World Bank’s concerns here seem at least partly political; the project is near the border of Indian Kashmir, and the multilateral donors demand Indian consent; the U.S. opposes the project.)

As China is now a leading stakeholder in ADB, and as the ADB needs to compete against Chinese policy banks, questions arise whether its norms will eventually be eroded. Yet the article points out that China itself remains the third largest borrower from ADB, despite the fact that it can get the money elsewhere. Davies believes that “one of the main reasons why the ADB still lends money to China is to bring higher governance and safety standards to the country – and thereby legitimise some of its own infrastructure projects.” Rajat Nag, ADB’s managing director-general, says the bank’s presence helps China gain access to “best practice” and equipment and makes it easier for the government to impose higher environmental standards.

This suggests that the emergence of Chinese lenders on the international market may not result in a race to the bottom across the board, but that multilateral banks will retain a niche role in projects where social concerns are strong — in keeping with the new direction the World Bank’s new president wants to steer his institution.

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