The World Bank will give fewer loans to China amid new US deal

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The lending model of the World Bank will change after a new deal pushed by the Trump administration for a $13bn capital increase, as such China will receive fewer loans.

The deal was made between the US Treasury secretary Steven Mnuchin and Jim Yong Kim the bank’s president. The reason is that the bank has committed to lend to poorer economies in exchange with an injection of $7.5bn into the International Bank for Reconstruction and Development by its shareholders, which is the bank’s main units along with another injection of $5.5bn into the International Finance Corporation, which is the private sector arm.

China will enter a new lending band that will charge higher interest rates for loans. The reform comes amid a push for faster world growth and median incomes to become higher in developing countries hence the focus on them.

Last year, China was the highest borrower of the bank with $2.4bn. Which accounted for 11% of the bank’s lending.

The US has been worrying ever since the Obama presidency about lending to a major rival power and the push by the Trump administration to stop the lending is solidifying these worries. But its not likely that the lending can be stopped any time soon, its not that easy of a process even if the US have 16% of the votes and thus veto power. China has 4.45% that will become 5.7% with this agreement, which it backs.

If everything goes as planned the bank will never need again a capital injection. The last capital increase was in 2010.

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