Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
U.S. Treasury Secretary Scott Bessent on Friday directed the International Monetary Fund (IMF) and World Bank to adopt a more stringent approach towards China’s state-driven economic policies. Bessent’s directive, issued in a statement to the IMF’s steering committee on October 17, outlined a push for these global financial institutions to refocus on their core missions by scrutinizing China’s economic practices and reallocating resources.
Bessent emphasized that the IMF should enhance its country surveillance activities with “objectivity and evenhandedness,” specifically calling for a deeper understanding of how industrial policies in large economies like China contribute to global imbalances. He urged the IMF not to shy away from difficult questions, highlighting potential harmful spillovers and recommending corrective actions.
IMF’s Role in Global Imbalances and Debt
The Treasury Secretary’s statement follows a history of U.S. administrations, including President Trump’s, blaming China’s state-led economic practices and export-led growth model for creating excess manufacturing capacity. This surplus, according to U.S. officials, floods global markets with inexpensive goods and exacerbates trade imbalances. China, however, attributes its success in sectors like electric vehicles to innovation rather than government support.
Bessent also criticized the IMF for potentially allowing “recalcitrant creditors off the hook too easily” in debt restructuring negotiations for developing countries. While not explicitly naming China, he implied that certain creditor nations were worsening liquidity and economic stress on debtor countries, preventing IMF programs from being effective.
He asserted that IMF resources should not be viewed as a “piggy bank” for creditor countries that made poor investment decisions but refuse to accept losses. IMF Managing Director Kristalina Georgieva acknowledged the “long list of homework” stemming from the steering committee meeting, indicating a commitment to sharpen surveillance and address global imbalances.
World Bank’s Engagement with China and Energy Policy
Regarding the World Bank, Bessent called for an end to its support for China, advocating for a reallocation of staff and administrative resources to countries with more acute development needs. He also urged the World Bank to curb “anti-competitive procurement practices by state-owned enterprises” and ban those that do not operate on a commercial basis.
In line with the Trump administration’s stance against certain green energy subsidies, Bessent suggested the World Bank eliminate its 2023 pledge to devote 45% of annual financing to climate-related projects. He advocated for an “all-of-the-above” energy financing approach, encompassing gas, oil, and coal, while also calling for increased financing in the critical minerals sector to diversify supply chains, given China’s dominance in this area.
Ongoing U.S.-China Economic Tensions
The U.S. and China are currently engaged in disputes over China’s rare earths export restrictions, existing tariffs, and new U.S. port fees for Chinese-built, -owned, and -flagged ships. These tensions could potentially escalate with additional 100% U.S. tariffs on Chinese imports scheduled for November 1.
Despite these disagreements, the IMF’s strategy chief, Ceyla Pazarbasioglu, noted that both the U.S. and China continue to collaborate on developing country debt issues through the Global Sovereign Debt Roundtable. Georgieva affirmed the urgency of addressing debt issues and the IMF’s intent to use its “good offices” to enhance coordination among creditors and debtors.
