NADI, Fiji -- The Asian Development Bank is starting to discuss raising interest rates on financing to countries such as China that have reached a certain income level, President Takehiko Nakao told Nikkei on Thursday.
Nakao spoke here at an annual meeting of the institution's board of governors. The issue of aid to China had been expected to come up at the event as Japan and the U.S. -- the ADB's top two shareholders -- push to change international lenders' approach to Beijing. The country is wealthy enough that it should not be able to keep borrowing like a developing economy, especially now that it is a major lender in its own right, the argument goes.
The ADB is limiting the amount of funding it provides to China, said Nakao, who noted that it is "becoming a country that can raise money by issuing its own debt." Access to capital markets is among the factors that the lender takes into account when considering whether a country should "graduate" from aid.
But "this does not mean China will be graduating right away," Nakao stressed. While the country received 12% of the ADB's $21.6 billion in total loans and grants in 2018, down 7 percentage points from five years earlier, Nakao said its share will not continue shrinking that fast.
The ADB is also considering whether to change the terms of funding for other countries whose incomes have risen, such as Malaysia and Kazakhstan. With China, it will focus more on projects related to the environment and climate change, Nakao said.
The ADB, which has had a Japanese president since its 1966 founding, is aligning with the American-led World Bank on the China issue. David Malpass -- a former undersecretary of the U.S. Treasury and an outspoken China hawk -- took over as president of the World Bank in April, and the institution has already decided to charge Beijing higher interest rates.
But "the World Bank also has no intention of having China graduate from aid soon," Nakao said.
Japanese Finance Minister Taro Aso, who has long argued that the ADB should not offer Beijing the same favorable financing terms now that its economy has grown, conveyed this view to Chinese counterpart Liu Kun on Thursday. China should lend responsibly, not borrow like an emerging country, he told Liu.
Aso voiced concerns that Beijing's Belt and Road infrastructure initiative is loading developing economies down with unsustainable debt, likening it to a "loan shark." He cited the example of Sri Lanka being forced to sign over the port of Hambantota on a 99-year lease.