Treasury Secretary Mnuchin says China should be ‘graduated’ from supportive World Bank loan program

Treasury Secretary Steven Mnuchin on Thursday agreed that the World Bank should expel China from a supportive loan program that helps middle- and low-income nations finance government projects.

Asked by Rep. Anthony Gonzalez, R-Ohio, whether he’d support graduating Beijing from the lending program, Mnuchin replied, “I do.”

The question from Gonzalez comes as he works to pass legislation that would curb World Bank funding to China by graduating the country from its International Bank for Reconstruction and Development. A unit of the World Bank, the IBRD offers myriad financial products and loans to countries hoping to reduce poverty and promote sustainable investing.

Mnuchin added that the selection of former Treasury Undersecretary David Malpass as the World Bank’s president earlier this year gives him confidence the institution will revise its practices to make its lending more equitable.

This is something “Malpass worked on with the World Bank when he worked for me. This was his No. 1 issue in reforms,” Mnuchin assured Gonzalez from Capitol Hill. “Our executive board member has objected to the program, and I think that gets read in and ultimately that will be on the World Bank’s website.”

“We don’t have veto power over every single loan or veto power over a specific statement,” he added. But “we have veto power over capital allocations and in other issues.”

Tension has developed as China is lending billions of dollars of its own to developing countries under opaque terms as part of its “Belt and Road” initiative to build infrastructure. That practice has angered many U.S. politicians, who view China not only as an economic rival but as a geopolitical threat as it broadens its presence overseas.

“What’s happening is basically the U.S. and other countries are indirectly funding China’s ‘Belt and Road’ ambitions, which used to further their geopolitical goals,” said Clete Willems, a partner at Akin Gump and a former White House trade advisor.

“China claims that it wants to be seen as an equal to the U.S. in the global economy. If that’s the case, it needs to step up and be treated in the same way as the U.S.,” Willems added. “It can no longer be considered a developing country.”

The bank has historically defended its lending practices as a way to give assistance to needy countries so that nations can share knowledge globally and collaborate on international projects. CNBC reached out to the World Bank for comment.

But according to Gonzalez, the threshold for graduation from the IBRD program currently stands at a gross national income per capita level of $6,975, which China exceeded in 2016. The congressman introduced the “Accountability for World Bank Loans to China Act” on Nov. 13 and has since found support from some of Wall Street’s top investors, including Hayman Capital’s Kyle Bass.

Gonzalez, who also serves on the House Financial Services Committee, reiterated to CNBC on Thursday that China should no longer receive low-rate help that is, in theory, reserved for “middle-income and creditworthy low-income countries.”

“What they have done internationally — not just in the U.S. — is basically forced people to make a trade and say: ‘If you want access to our markets, which are enormous, you have to play by our rules,'” the congressman said in an interview with CNBC.

And one of those wayward China-supported rules is that other countries at the World Bank must allow Beijing to remain in the institution as a nation that is allowed to draw loans, he said.

“To me, it makes no sense whatsoever why the U.S. taxpayer should be backing subsidized, discounted rates to the Chinese government so that they can continue their development model, which is unbelievably oppressive but also damaging to our economy and our country,” he added.