World Bank removes critical section from China report

Screengrab of the World Banks’ website showing the revised China Economic Update where a section critical of Beijing has been removed. WORLD BANK WEBSITE

BEIJING, China – The World Bank has removed a critical portion from a recently released report on China’s economy, saying the section had not been adequately reviewed.

On Wednesday, the Washington-based institution released its China Economic Update report in Beijing, which included a section urging the country to accelerate reform of its state-dominated financial sector.

In blunt language, the World Bank warned that failure to address the issue could end “three decades of stellar performance” for the world’s second-largest economy.

“Wasteful investment, over indebtedness, and a weakly regulated shadow-banking system,” had to be addressed for China’s broader reform agenda to succeed, it said.

The organization, however, said in an update to the report posted on its website on Friday that the section had been removed.

“Section 3 on the financial sector that was previously included in this report was removed because it had not gone through the World Bank’s usual internal review and clearance procedures,” it said.

World Bank officials in Beijing could not immediately be reached for comment on Sunday.

The section had also noted that the Chinese state exerts strong control over a majority of commercial bank assets, “making it an outlier by international standards”.

In some cases, it added, authorities were simultaneously owners, regulators and customers of banks.

“Financial reform will only prove effective if it removes the distorted incentives and poor governance structures that have affected how financial resources are mobilized and allocated,” it said.

“As now seen, a fundamentally reconfigured role of the state in the financial system is essential to change these incentives and structures.”

China’s leaders are trying to engineer a transformation of the country’s growth model whereby consumer demand becomes the main driver rather than investment.