Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
U.S. Treasury Secretary Scott Bessent has called on the International Monetary Fund (IMF) and the World Bank to adopt a more assertive stance against China’s state-driven economic policies. Speaking to the IMF’s steering committee, Bessent urged the IMF to intensify its scrutiny of China’s economic imbalances and for the World Bank to discontinue its financial support for the country, redirecting resources to nations with greater developmental needs. He also emphasized that the IMF should not serve as a bailout fund for countries making poor investments.
Demands for IMF and World Bank Action
In his statement, Secretary Bessent outlined specific directives for both global financial institutions. He instructed the IMF to enhance its country surveillance activities, ensuring objectivity and evenhandedness, particularly in examining how industrial policies in major economies like China contribute to global imbalances and their potential negative spillovers.
Bessent further called for the World Bank to end its financial support for China, advocating for a reallocation of staff and administrative resources to countries with more pressing development requirements. This builds on earlier calls from April for increased scrutiny on China, with the latest statement providing more detailed instructions.
Context of U.S.-China Economic Tensions
The U.S. Treasury’s push comes amid ongoing economic tensions between Washington and Beijing. Successive U.S. administrations, including President Donald Trump’s, have criticized China’s state-led economic model and export-driven growth for creating excess manufacturing capacity, which they argue floods global markets with inexpensive goods and exacerbates trade imbalances.
China, conversely, maintains that its successes in sectors such as electric vehicles stem from innovation rather than government subsidies. The two nations are currently embroiled in disputes over China’s rare earths export restrictions, President Trump’s tariffs, and new U.S. port fees for Chinese-built, -owned, and -flagged ships, with potential for additional 100% U.S. tariffs on Chinese imports by November 1.
IMF’s Response and Debt Restructuring
IMF Managing Director Kristalina Georgieva acknowledged the “homework” from the steering committee meeting, stating that the global lender is already working to sharpen its surveillance, delve deeper into global imbalances, and review the conditionality for lending programs. She expressed encouragement regarding the staff’s efforts.
Secretary Bessent also criticized the IMF’s approach to debt restructuring negotiations, making veiled references to China as a creditor. He argued that the IMF has been too lenient on “recalcitrant creditors,” citing instances where China, as the largest bilateral lender, delayed debt restructurings for countries like Chad, Zambia, and Sri Lanka. Bessent stated that IMF resources should not be considered a “piggy bank” to repay creditors who made poor investment decisions but refuse to absorb losses.
Despite trade differences, the U.S. and China are reportedly continuing to collaborate on developing country debt issues through the Global Sovereign Debt Roundtable, according to IMF strategy chief Ceyla Pazarbasioglu. Georgieva agreed on the urgency of addressing debt issues and committed the IMF’s “good offices” to enhance coordination among creditors and debtors.
World Bank Policies and Energy Stance
Beyond ending support for China, Bessent urged the World Bank to reinforce its “graduation” policies, which aim to transition countries towards self-sufficiency. He also targeted China’s influence in World Bank project procurement, advocating for measures to curb “anti-competitive procurement practices by state-owned enterprises” and to ban those that do not operate on a commercial basis.
In line with the Trump administration’s opposition to green energy subsidies, Bessent called for the World Bank to eliminate its 2023 pledge to allocate 45% of its annual financing to climate-related projects. He instead proposed an “all-of-the-above” energy financing approach, including support for gas, oil, and coal. While the World Bank’s board agreed in June to lift a ban on funding nuclear energy projects in developing countries, a consensus on funding natural gas production has not yet been reached.
Acknowledging China’s dominance in critical mineral supply chains, Bessent further encouraged the World Bank to increase financing in this sector. He welcomed the bank’s efforts to devise a critical minerals strategy, expecting it to prioritize investments and technical assistance to foster diversified and resilient supply chains.
Key Takeaways
U.S. Treasury Secretary Scott Bessent has issued clear directives for the IMF and World Bank to adopt a more robust stance against China’s economic practices. The demands include increased scrutiny of China’s economic imbalances, an end to World Bank support for China, and a more critical approach to debt restructuring involving major creditors. These calls reflect ongoing U.S. concerns about China’s state-driven economy and its global impact, while highlighting broader debates within international financial institutions about their roles and priorities.
