World Bank under fire for lending money to well-off China

World Bank critics are training their fire on the institution's loans to China, a capital-rich country on a buying spree for US bonds and companies, saying the bank's money should go to needy nations.

The World Bank, whose mission is fighting poverty in developing nations, lends about US$1 billion, or 4.5 per cent of its annual budget, to China. Part of the interest payments from the billions of dollars it has loaned China then goes to support borrowing of poorer countries.

China's borrowing from the bank deserves a "thorough investigation," said Phil English, a Republican who sits on the influential House Ways and Means Committee at the US Congress.

"The World Bank is intended to give developing countries a boost. China has reached a point where I don't think it should be given these loans."

China's economic output has quintupled since 1985 to about US$1.6 trillion and its net foreign assets have tripled over five years.

State-controlled Chinese companies have made forays into overseas acquisitions, including a failed US$18.5 billion bid last month by Cnooc for Unocal, and a US$1.28 billion overture by Haier for Maytag.

Last month, Morgan Stanley said China's state-owned tobacco companies might join forces to bid on assets outside the country.

Those attempted acquisitions would have represented just a fraction of the US$35 billion China invested abroad in 2003, the most recent year of data available from the United Nations.

China also saves about 40 per cent of its annual gross domestic product and issues more than US$70 billion of debt on its own.

China's use of World Bank money to build projects such as roads frees up cash to spend on military equipment as well as US companies, said Duncan Hunter, the chairman of the House Armed Services Committee and a critic of the World Bank loans.

"It's evidence of a China which is happy to use all Western instruments including trade and World Bank loans to achieve economic expansion," said Hunter, a California Republican who may hold hearings on the issue.

The World Bank, however, says the money China borrows doesn't come from resources that would otherwise go to poorer nations.

Johannes Zutt, the bank's program coordinator for China, said to support China's borrowing, the bank took out loans from the open market, charging the country a small spread on top.

"The World Bank does not lose any money on China, it does not subsidize China. It actually makes a small amount of money on China."

- BLOOMBERG