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International relations

Japan pushes Asian Development Bank to end China loans

Tokyo sides with US, saying world's No. 2 economy is now rich enough

China was among the top recipients of financing from the Asian Development Bank last year, but Japan says the institution's money would be better spent elsewhere. (Nikkei montage/EPA/Jiji)

TOKYO -- The Japanese government has urged the Asian Development Bank to stop granting new loans to China, on the grounds that the world's second-biggest economy is rich enough to "graduate" from aid, Nikkei has learned.

Tokyo has already ended its own official development assistance to China in fiscal 2018, and the ADB push aligns Japan with the U.S. -- the ADB's two top contributors -- on seeking cutbacks in multilateral lenders' aid toward China. Washington has argued for a similar change in lending policy at the World Bank.

China's gross national income per capita reached $8,690 in 2017, above the $6,795 upper end of the range that the Manila-based ADB sets for prospective borrowers. 

Japanese Finance Minister Taro Aso will stress the importance of abiding by this standard, without singling out China, at the ADB's annual board of governors meeting in Fiji next month.

The ADB, which has been led by a Japanese president since its founding in the 1960s, has in recent years seen the rise of China as a lender through the Chinese-led Asian Infrastructure Investment Bank. Neither Japan nor the U.S. belong to the AIIB.

Removing China as an ADB loan candidate seeks to change what a senior Japanese finance ministry official called the "double standard" of Beijing exercising influence over emerging economies through the AIIB while receiving aid itself.

China was the fourth-largest recipient of new ADB financing last year, accounting for 12% of the total, and topped the list in 2017 at 15.2%. 

Michael Hirson, practice head for China and Northeast Asia at the Eurasia Group, sees the move as part of a rivalry between the Japan-backed ADB and the China-backed AIIB. "For Japan, the ADB is a tool of soft-power diplomacy," Hirson said. "It would like to see the ADB resources for China moved to other needing countries."

But Hirson, who previously served as the U.S. Treasury's chief representative in Beijing, said he does not see the move as being controversial, if done in consultation with China. "China is increasingly becoming comfortable being seen as a lending country and not a borrowing country. As long as Japan frames this as evolution of the ADB, rather than a quick ultimatum, it should not become a serious point of contention between the two countries."

ADB policy states that decisions on whether a country graduates from assistance are based not only on income, but also on factors such as access to capital in international markets. "Graduation from regular ADB assistance will involve close consultation with the country," the institution said in a strategy document released in July 2018.

The ADB will be discussing support for China in 2021 and beyond in the second half of this year, aiming to make a decision in the summer of 2020. ADB President Takehiko Nakao told reporters on Tuesday that the institution does not plan to significantly cut funding to China, adding that the bank would work with the AIIB on lending for projects with environmental and other focuses.

David Malpass, the new president of the World Bank, suggested in a news conference last week that the institution would lend less to Beijing, noting that "China has changed greatly over these decades."

"I think that we can think of it as its role evolving from one where it was a major borrower from the World Bank" to "one where now it will be [a] much smaller borrower," he said.

The U.S. and Japan are the ADB's top shareholders, holding 25.5% of voting rights between them, followed by China at 5.4%.

Beijing is keen to tap the ADB's know-how along with its capital. It reportedly plans to use ADB financing on projects that will also benefit neighboring countries, particularly environmental measures such as tackling air pollution.

The ADB was established in 1966 with the goal of reducing poverty in the Asia-Pacific region. The body has 67 member economies.

Ken Moriyasu in New York contributed to this report.

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